As filed with the Securities and Exchange Commission on November 20, 1998
Registration No. 333-24111
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-11
POST-EFFECTIVE AMENDMENT NO. 5
TO
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(Exact names of registrants as specified in governing instruments)
3158 Redhill Avenue, Suite 120
Costa Mesa, California 92626-3416
(714) 662-5565
(Address of principal executive offices)
DAVID N. SHAFER, ESQ.
WNC & ASSOCIATES, INC.
3158 Redhill Avenue, Suite 120
Costa Mesa, California 92626-3416
(714) 662-5565
(Name and address of agent for service)
Copy to:
PAUL G. DANNHAUSER, ESQ.
Derenthal & Dannhauser
One Post Street, Suite 575
San Francisco, California 94104
(415) 981-4844
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. x
wncnat6-e-1/144.rs
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WNC HOUSING TAX CREDIT FUND VI, L.P.,
SERIES 5 and SERIES 6
A Minimum of $1,400,000 in Units of Limited Partnership Interest ("Units")
(Issuable in Series)
$1,000 Per Unit; Minimum Investment - 5 Units ($5,000)
WNC Housing Tax Credit Fund VI, L.P., Series 5 and Series 6 ("Fund") will
use the proceeds from this offering to invest in other limited partnerships or
in limited liability companies ("Local Limited Partnerships") which own
apartment complexes built or rehabilitated for persons with low incomes
("Apartment Complexes"). Federal tax law encourages investments in qualifying
low-income properties by providing tax credits to investors in Apartment
Complexes ("Low Income Housing Credits"). The Fund will pass through to its
investors 99% of the Low Income Housing Credits to which it is entitled, and the
investors can apply them to reduce their own Federal income tax liabilities.
Investors may also receive tax losses that they can use to offset certain types
of taxable income which they may have from other sources. When the Apartment
Complexes are sold, the Fund will distribute any net proceeds which it receives.
Approximately 75.5% of the Fund's capital will be invested in Local Limited
Partnerships, and approximately 14.5% will be used to pay fees to, or expenses
of, WNC & Associates, Inc. ("Fund Manager") and its affiliated companies
("Affiliates").
An investment in the Fund will involve significant risks (see "Risk Factors"
on page 23), including the following:
- - The rules relating to Low Income Housing Credits are complicated and the
usage of Low Income Housing Credits can be limited.
- - The only material benefit from the investment may be Low Income Housing
Credits which may mean that a material portion of each Low Income Housing
Credit may represent a return of the money originally invested in the Fund
if there are insufficient funds from the sale of the Apartment Complexes to
return investor capital.
- - There are limits on the transferability of the Units, and it is unlikely
that a market for Units will develop. (See "Transferability of Units.")
- - All management decisions will be made solely by the Fund Manager.
- - The Apartment Complexes will be subject to mortgage indebtedness. If a
Local Limited Partnership does not make its mortgage payments, the lender
could foreclose on the Apartment Complex, which would result in a loss of
the Apartment Complex, a portion of the Low Income Housing Credits, and a
portion of the investor's investment.
- - To the extent the Fund does not raise much capital, there will be limited
diversity of Apartment Complexes.
- - The Fund Manager will receive significant benefits regardless of how well
the Fund performs.
Price to Selling Commissions and
Public (1) Dealer-Manager Fee (2) Proceeds to Fund (3)
- --------------------------------------------------------------------------------
Per Unit (4).....$ 1,000 $ 90 $ 910
Total Minimum (5).....1,400,000 126,000 1,274,000
Total Maximum (5)....50,000,000 4,500,000 45,500,000
(1) The Units are being offered, in two series ("Series"), by WNC Capital
Corporation ("Dealer- Manager"), which in turn is offering the Units through
other broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("Soliciting Dealers"). The Units are being offered on a "best
efforts" basis, which means that no one is guaranteeing that any specified
amount of capital will be raised. (Footnotes continued on page 2)
The date of this Prospectus is June 23, 1997
WNC Housing Tax Credit Fund VI, L.P., Series 5 and Series 6 are not mutual
funds or any other type of investment companies within the meaning of the
Investment Company Act of 1940 and are not subject to regulation thereunder.
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(Footnotes from cover page)
(2) The Dealer-Manager will receive up to 9% of the purchase price of each Unit
sold and may then reallow to Soliciting Dealers as retail selling commissions up
to 7% of the purchase price of each Unit sold. For information concerning
compensation payable by the Fund for sales of Units and indemnification
arrangements, see "Terms of the Offering and Plan of Distribution." As is also
discussed in that section of this Prospectus, selling commissions may be reduced
for purchases of 100 Units ($100,000) or more by any "Purchaser" and "Designated
Investors" may purchase Units with a reduced or no selling commission. For the
purposes of this table, it has been assumed that the maximum selling commissions
will be paid.
(3) Before deducting expenses of the offering of Units ("Offering") in addition
to the retail selling commissions and Dealer-Manager Fee. As discussed below
under "Estimated Use of Proceeds," "Management Compensation" and "Terms of the
Offering and Plan of Distribution," these additional expenses, in an amount
which is estimated to range between $56,000 if only $1,400,000 is raised and
$2,000,000 if all of the Units are sold, will include accountable and
nonaccountable expense reimbursements.
(4) Regardless of the Series in which Units are purchased the purchase price is
payable in cash at the time of subscription except in the case of subscriptions
for 10 Units ($10,000) or more in any one Series, which may be paid 50% in cash
upon subscription and 50% by a promissory note payable, together with interest,
in a single installment on (i) January 31, 1999, if the investor subscribes
between the date hereof and June 30, 1998, (ii) June 30, 1999, if the investor
subscribes between July 1, 1998 and December 31, 1998, or (iii) the later of the
date of subscription or January 31, 2000, if the investor subscribes after
December 31, 1998.
(5) The Fund has registered with the Securities and Exchange Commission a total
of 50,000 Units for sale to the public. Units will be offered in two Series;
each Series will consist of 25,000 Units. The Offering of Series 5 commenced on
the date of this Prospectus; the Offering of Series 6 will commence on a date to
be identified in a supplement hereto. Unless a minimum of $1,400,000 in cash is
received by the Fund with respect to a Series within one year from the
commencement of such Series, no Units in such Series will be sold. Money
received from investors will be deposited in an escrow account with National
Bank of Southern California, and, if the required minimum amount of cash is not
received, will be returned within 30 days, together with interest. See "Terms of
the Offering and Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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TABLE OF CONTENTS
SUMMARY OF THE OFFERING..................................................... 10
Risk Factors............................................................ 10
Who Should Invest; Limitations on Use of Credits and Losses............. 11
Estimated Use of Proceeds............................................... 12
Management Compensation................................................. 12
Conflicts of Interest................................................... 14
Fiduciary Responsibility................................................ 15
Investment Objectives and Policies...................................... 15
Investment Protection Policies.......................................... 16
The Low Income Housing Tax Credit....................................... 17
Management.............................................................. 18
Prior Performance Summary............................................... 19
Federal Income Tax Considerations....................................... 19
Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions. 19
Summary of Certain Provisions of the Partnership Agreement.............. 20
Transferability of Units................................................ 21
Terms of the Offering and Plan of Distribution.......................... 21
Glossary................................................................ 22
Financial Statements.................................................... 23
RISK FACTORS................................................................ 23
Risks Related to Tax Credits............................................ 23
Uncertainties as to Availability of Low Income Housing Credits......... 23
Possible Recapture of Low Income Housing Credits....................... 24
Limitations on Sales of Apartment Complexes............................ 24
Limitations on Use of Tax Credits...................................... 24
Availability and Recapture of Historic Tax Credits..................... 25
Investment Risks........................................................ 25
Risks of Government-Subsidized Housing Projects........................ 25
Keen Competition for Investments....................................... 27
Risks of Apartment Complexes Without Financing or Operating
Subsidies.......................................................... 27
Risks of Low-Income Housing............................................ 28
Risk of Unspecified Investments........................................ 28
Risks Associated with Use of Leverage.................................. 28
Risks of Limited Diversification....................................... 29
Lack of Fund Control; Reliance on Local General Partners............... 30
Net Worth of Local General Partners.................................... 30
Risks of Real Estate Ownership......................................... 30
Risks of Purchase of Properties Under Construction..................... 30
Risks of "Two-Tier" Investment Structure............................... 31
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Risks of Investments Prior to the Sale of Units........................ 31
Risks of Loss of Loans Made to Local Limited Partnerships.............. 31
Risks of Joint Investments............................................. 32
Possibility of Uninsured Losses........................................ 32
Possible Loss on Dissolution and Termination........................... 32
Other Tax Risks........................................................ 33
No Opinion of Counsel as to Certain Matters............................ 33
No Ruling as to Tax Status of the Local Limited Partnerships........... 34
Limitation on Losses from Passive Activities........................... 34
Applicability of At Risk Rules......................................... 35
Tax Liability on Sale of Apartment Complex............................. 35
Alternative Minimum Tax Liability...................................... 35
Possibility of Audit................................................... 36
Possibility of Challenge to Tax Allocations of the Series and the Local
Limited Partnerships............................................... 36
Possible Tax Liabilities in Later Years................................ 36
Possibility of Challenge to Tax Treatment of Certain Expenditures...... 37
Changes in Tax Law Which Might Affect the Value of Tax Credits......... 37
Possible Administrative or Judicial Interpretations of the Law......... 37
State Income Tax Risks................................................. 38
Fund-Related Risks..................................................... 38
Lack of Liquidity of Investment........................................ 38
Lack of Unitholder Control; Reliance on Fund Manager................... 38
Risks Related to Exercise of Unitholder Voting Rights...................38
Limitations on Fund Manager's Liability.................................39
Issuance of Units in Series.............................................39
Obligations for Capital Contributions...................................39
Risks of Unitholder Liability...........................................40
Absence of Regulation...................................................40
Possible Delays in Obtaining Financial Data.............................40
Lack of Operating History...............................................40
WHO SHOULD INVEST;
LIMITATIONS ON USE OF CREDITS AND LOSSES.....................................41
All Investors............................................................41
Individual Investors.....................................................42
Corporate and Other Entity Investors.....................................43
Minimum State Suitability Requirements...................................45
Alabama, Arizona, Arkansas, Indiana, Kansas, Kentucky, Michigan,
Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, North
Carolina, North Dakota, Oklahoma, Oregon, Tennessee, Texas,
Vermont, Virginia and Wisconsin Requirements........................45
Alaska, Colorado, Connecticut, Delaware, District of Columbia, Florida,
Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Montana,
4
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Nevada, New Jersey, Rhode Island, South Carolina, Utah, West
Virginia and Wyoming................................................46
California and Washington Requirements..................................46
Iowa, Massachusetts, Minnesota and South Dakota Requirements............46
Maine Requirements......................................................46
Ohio Requirements.......................................................46
Pennsylvania Requirements...............................................46
ESTIMATED USE OF PROCEEDS....................................................47
Deferred Installments....................................................49
Business Development Plan...............................................50
Prepayments and Temporary Investments...................................51
Policies as to Pledges of Promissory Notes..............................52
MANAGEMENT COMPENSATION..................................................... 52
CONFLICTS OF INTEREST....................................................... 59
Receipt of Fees and Other Compensation by the Fund Manager and its
Affiliates............................................................. 59
Other Business Activities of the Fund Manager and its Affiliates........ 60
Competition with the Fund Manager and its Affiliates with Respect to the
Purchase or Ownership of Properties.................................... 60
Other Transactions with Developers, Local General Partners, Lenders and
Joint Venturers........................................................ 61
Representation in Tax Audit Proceedings................................. 62
Distribution of Units................................................... 62
Joint Investments....................................................... 62
Resolution of Conflicts of Interest..................................... 62
Lack of Separate Representation......................................... 63
Organizational Diagram.................................................. 63
FIDUCIARY RESPONSIBILITY.................................................... 64
INVESTMENT OBJECTIVES AND POLICIES.......................................... 66
Principal Investment Objectives......................................... 66
Investment Policies..................................................... 69
Investment Criteria.................................................... 69
Eligibility for Low Income Housing Credits............................. 71
Historic Tax Credits................................................... 71
Types of Properties.................................................... 72
Location of Properties................................................. 72
Number of Investments.................................................. 72
Timing of Investments.................................................. 73
Payment for Investments................................................ 74
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The Local General Partners.............................................. 75
Financial Condition and Experience of Local General Partners........... 75
Compensation of Local General Partners................................. 76
Withdrawal of Local General Partners................................... 76
Terms of the Local Limited Partnership Agreements....................... 76
Development Obligation................................................. 76
Operating Guarantees................................................... 77
Protection Against Reduction or Loss of Tax Credits.................... 77
Rights of Limited Partner.............................................. 78
Role of SLP Affiliate.................................................. 78
Interests in Profits, Losses and Distributions......................... 79
Joint Investments....................................................... 79
Use of Leverage......................................................... 80
Sale or Other Disposition of Investments................................ 81
Reserves................................................................ 83
Other Policies.......................................................... 83
THE LOW INCOME HOUSING CREDIT............................................... 84
Summary................................................................. 84
Maximum Amount of Credit................................................ 88
Qualified Properties.................................................... 90
Credits Subject to State Allocation..................................... 93
Utilization of the Low Income Housing Credit............................ 96
Recapture of Low Income Housing Credits................................. 97
State Low Income Housing Credits........................................100
OTHER GOVERNMENT ASSISTANCE PROGRAMS........................................100
RD Financing and Rural Rental Assistance Programs.......................100
HOME Program............................................................102
State and Local Bond Programs...........................................103
HUD Section 8 Rental Assistance Programs................................105
MANAGEMENT..................................................................106
The Fund Manager........................................................106
Statement of Purpose...................................................110
Syndicated Partnerships................................................111
Change in Management....................................................112
WNC Capital Corporation.................................................113
PRIOR PERFORMANCE SUMMARY...................................................114
Public Programs Sponsored...............................................115
Private Programs Sponsored..............................................118
Additional Information..................................................121
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FEDERAL INCOME TAX CONSIDERATIONS...........................................121
Introduction............................................................121
Summary.................................................................122
Opinion of Counsel.....................................................122
Classification as a Partnership........................................122
Tax Treatment of Unitholders...........................................122
Historic Tax Credits and Recapture.....................................123
Fund Allocations.......................................................123
Fund Deductions........................................................123
Sale of Apartment Complexes............................................124
Treatment of Debt......................................................124
Transfers of Units.....................................................124
Liquidation............................................................124
Section 754 Election...................................................124
Other Considerations...................................................124
Opinion of Counsel......................................................125
Classification as a Partnership.........................................127
Investment in Local Limited Partnerships................................129
Tax Treatment of Unitholders............................................130
Limitations on Losses and Credits from Passive Activities...............132
A. General Limitations................................................132
B. Exception for Low Income Housing Credits and Historic Tax Credits..134
1. Individuals...............................................134
2. Other Investors...........................................137
Historic Tax Credit.....................................................138
Historic Tax Credit Recapture...........................................139
General Business Tax Credit Limitations.................................140
Tax Basis for the Units.................................................141
Application of At Risk Limitations......................................142
Fund Allocations........................................................143
Allocations Prior to Admission..........................................146
Basis of Local Limited Partnerships in Their Apartment Complexes........147
Depreciation............................................................148
Deductibility of Fees...................................................149
A. Development Fees and Acquisition Fees..............................149
B. Management Fees....................................................149
Organization and Offering Expenses......................................150
Start-Up Expenditures...................................................150
Sales or Exchanges of Local Limited Partnership Property; Depreciation
Recapture..............................................................151
Tax Liabilities in Later Years..........................................152
Treatment of Mortgage Loans.............................................152
Sales or Exchanges of Units and Local Limited Partnership Interests;
Transfers by Gift or at Death..........................................154
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Dissolution and Liquidation of a Series or Local Limited Partnership....155
Elections...............................................................155
Transferability - Termination of a Series...............................155
Profit Motive...........................................................156
Other Important Tax Considerations......................................156
A. Tax Rates..........................................................157
B. Alternative Minimum Tax............................................159
C. Deduction of Investment Interest...................................160
Tax Returns and Tax Information.........................................161
A. Audit and Assessment Procedure.....................................161
B. Imposition of Penalties............................................162
Document and Information Return Penalties..........................162
Accuracy-Related and Fraud Penalties...............................162
Tax Shelter Registration................................................163
Changes in Tax Law......................................................164
STATE AND LOCAL TAX CONSIDERATIONS..........................................164
PROFITS AND LOSSES FOR TAX PURPOSES,
TAX CREDITS AND CASH DISTRIBUTIONS..........................................165
Cash Available for Distribution.........................................165
Sale or Refinancing Proceeds............................................166
Allocations of Profits and Losses for Tax Purposes and Tax Credits......167
Determination of Distributions and Allocations Among Unitholders........169
SUMMARY OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT.......................................................170
Default by Unitholder in Payment of the Deferred Capital Contribution...170
Liability of Unitholders to Third Parties...............................171
Dissolution and Liquidation.............................................171
Removal of Fund Manager.................................................172
Voting Rights...........................................................172
Meetings................................................................173
Books and Records.......................................................173
TRANSFERABILITY OF UNITS....................................................174
Transfer of Units by or to California Residents.........................176
REPORTS.....................................................................176
TERMS OF THE OFFERING AND PLAN OF DISTRIBUTION..............................177
Issuance of Units in Series.............................................177
Underwriting Arrangements...............................................178
Volume Discounts........................................................179
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Purchases by Affiliates and Designated Investors........................180
How To Subscribe........................................................182
Escrow Arrangements.....................................................183
SALES MATERIAL..............................................................184
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION......................................................184
LEGAL MATTERS...............................................................186
EXPERTS.....................................................................186
FURTHER INFORMATION.........................................................186
GLOSSARY....................................................................187
Financial Statements.......................................................FS-i
Exhibit A - Prior Performance Tables....................................... A-1
Exhibit B - Partnership Agreement.......................................... B-1
Exhibit C - Investor Form.................................................. C-1
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SUMMARY OF THE OFFERING
THIS SUMMARY OUTLINES THE MAIN POINTS OF THE OFFERING BUT DOES NOT REPLACE A
FULL AND CAREFUL READING OF THIS PROSPECTUS AND IS QUALIFIED BY THE REMAINDER OF
THE PROSPECTUS. ALL PROSPECTIVE INVESTORS SHOULD READ THIS PROSPECTUS IN ITS
ENTIRETY. REFERENCE IS MADE TO THE "GLOSSARY" APPEARING AT THE END OF THE
PROSPECTUS FOR A DEFINITION OF TERMS.
Risk Factors
An investment in the Fund will involve certain risks. The "Risk Factors"
section of this Prospectus contains a detailed discussion of the most important
risks, organized into "Risks Related to Tax Credits" (the risks arising from the
laws applicable to Tax Credits as they apply to each Series' investments),
"Investment Risks" (the risks of the types of investments in real estate which
each Series will make), "Other Tax Risks" (the risks relating to tax laws other
than those applicable to Tax Credits as they apply to each Series and its
investments) and "Fund-Related Risks" (the risks related to investment in a
limited partnership and to the provisions of the agreement of limited
partnership ("Partnership Agreement") of the Fund). Please refer to those
sections of the Prospectus for a discussion of:
- Risks Related to Tax Credits:
* The laws and rules authorizing and administering the Low Income Housing
Credits are extremely complicated. The failure to comply with these rules for
the 15-year period after Low Income Housing Credits are first taken would result
in the loss of future Low Income Housing Credits and the fractional recapture of
Low Income Housing Credits already taken.
* Generally, individual investors are limited in their ability to use Tax
Credits. (See "Who Should Invest; Limitations on Use of Credits and Losses"
below.)
* The Local Limited Partnerships may be unable to sell the Apartment
Complexes; accordingly, there may be no cash to distribute and the only benefit
from the investment may be Tax Credits. If so, a material portion of the Tax
Credits may represent a return of the money originally invested in the Fund.
- Investment Risks:
* Except as set forth in a supplement to this Prospectus, Apartment
Complexes suitable for investment have not yet been located and each Series will
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be competing with other prospective purchasers for such properties. Unless more
than the minimum proceeds for a Series are raised, the Series' portfolio may be
subject to limited diversification.
* Each Apartment Complex will be subject to substantial mortgage
indebtedness. If a Local Limited Partnership failed to timely pay its mortgage
it could lose its Apartment Complex in foreclosure; foreclosure would result in
a loss of future Low Income Housing Credits (if the foreclosure occurred during
the first 10 years) and the Series' investment in the Apartment Complex, and in
a fractional recapture of previously taken Tax Credits (if the foreclosure
occurred during the first 15 years).
* As a limited partner or non-managing member of the Local Limited
Partnerships, each Series will have very limited rights with respect to
management of the Local Limited Partnerships, and will rely totally on the
general partners or managing members of the Local Limited Partnerships for
management of the Local Limited Partnerships.
- Other Tax Risks:
* The Internal Revenue Service ("IRS") may audit a Series or a Local Limited
Partnership and challenge the tax treatment of various tax items; if the IRS
challenge is successful, the amount of Tax Credits allocated to the investors
could be reduced.
- Fund-Related Risks:
* There is no trading market for the Units and it is unlikely that any
market will develop. Accordingly, investors may not be able to sell their Units
promptly and should consider their Units to be a long-term investment.
* Risks of reliance on the Fund Manager, which will exercise all management
rights of each Series without the participation or control of the investors.
Who Should Invest; Limitations on Use of Credits and Losses
Individuals should only invest in the Fund if they expect to have Federal
income tax liabilities against which the Tax Credits can be applied. In most
cases, the amount of Tax Credits that can be used by an individual in any one
year is limited to the tax liability due on the investor's last $25,000 of
taxable income. For example, an investor in the 36% Federal tax bracket may be
able to use up to a maximum annual amount of $9,000 in Tax Credits ($25,000 x
36% = $9,000). Individuals should also recognize the following:
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- Tax Credits cannot be used to reduce the Federal alternative minimum tax.
- Generally, the ability to use the passive tax losses that the Fund will
generate is limited to reducing passive taxable income (not wages, salaries,
dividends and interest).
An investment in Units cannot be made by an IRA, Keogh or other retirement
plan.
Closely held and personal service corporations are subject to other limits
on the use of Tax Credits. With regard to other corporations, generally there
are no special limitations on the ability to utilize Tax Credits or passive tax
losses, except that Tax Credits cannot be used to reduce corporate alternative
minimum tax and the general limitations on business tax credits are applicable.
The section of the Prospectus entitled "Who Should Invest; Limitations on
Use of Credits and Losses" contains a detailed explanation of these limitations
for each category of investor, including the rules applicable to investors other
than individuals (including closely-held and widely-held corporations and other
entities). Prospective investors are urged to read the portions of that section
applicable to them very carefully, together with the sections of the Prospectus
entitled "Federal Income Tax Considerations - Limitations on Losses and Credits
from Passive Activities," "- General Business Tax Credit Limitations," and "-
Other Important Tax Considerations - Alternative Minimum Tax."
Estimated Use of Proceeds
Of the capital raised by the Fund, approximately 75.5% will actually be
invested in Local Limited Partnerships, 3% will be held in working capital
Reserves (i.e., amounts set aside for contingencies related to the investments
in Apartment Complexes and to pay administrative expenses, to the extent other
funds are not available to do so), and the rest will go to pay fees and expenses
to the Fund Manager, its Affiliates and others. See "Estimated Use of Proceeds"
for a precise breakdown of the Fund's estimate as to the use of the capital it
raises.
Management Compensation
The Fund Manager will manage the business of each Series, and the Fund will
pay the Fund Manager and its Affiliates compensation for various management
services. The section of this Prospectus entitled "Management Compensation"
details the exact terms of each item of compensation payable to these companies
by the Fund, of which the following are the most significant:
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- The Dealer-Manager will receive a Dealer-Manager Fee of up to 2% of the
capital raised by the Fund and selling commissions of up to 7% of the capital
raised, substantially all of which is expected to be reallowed to non-affiliated
Soliciting Dealers.
- Of the capital raised by the Fund, up to 7% will be paid to the Fund
Manager as Acquisition Fees. The Dealer-Manager will receive a 1% Nonaccountable
Expense Reimbursement and the Fund Manager and its Affiliates will be reimbursed
for the actual amount of other "Organizational and Offering Expenses" (i.e.,
expenses in connection with the formation of each Series and the sale of the
Units) and any "Acquisition Expenses" (i.e., expenses related to the selection
and acquisition of Local Limited Partnership Interests) incurred by them on
behalf of the Fund.
- The Fund Manager will be entitled to receive from each Series an Asset
Management Fee each year in an amount not to exceed 0.2% of the "Invested
Assets" of the Fund in government-subsidized Local Limited Partnerships (i.e.,
the sum of the equity invested by the Series in such Local Limited Partnerships
plus its pro rata share of the mortgage debt encumbering their Apartment
Complexes).
- The Fund Manager will receive from each Series 1% of the Tax Credits and of
any cash distributions from on-going operations made by the Series. After the
investors in the Series have received distributions of "Sale or Refinancing
Proceeds" (i.e., generally, the net proceeds that the Series receives from the
liquidation of its investments, after payment of related expenses) equal to the
purchase price of their Units and an amount equal to the portion of the "Return
on Investment" not previously received, the Fund Manager may receive a
Subordinated Disposition Fee equal to 1% of the sales price of Apartment
Complexes and the Fund Manager will receive 10% of any additional Sale or
Refinancing Proceeds. The Return on Investment (any cash portion of which is
payable only after all current and accrued Series' fees and expenses) is paid
from both cash distributions and Tax Credits and is equal to 12% of "unreturned
capital" (i.e., the capital contribution originally paid for a Unit, less
distributions of Sale or Refinancing Proceeds) each year through 2008 and 6% of
unreturned capital each year thereafter. The amount of the Return on Investment
for Series 6 may be different and, if so, will be identified in a supplement to
this Prospectus prior to commencement of the offering of Units in such Series.
There are a number of other, smaller items of compensation and expense
reimbursement that the Fund Manager and its Affiliates may receive during the
operations of the Fund. See "Management Compensation."
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Conflicts of Interest
The Fund Manager and its Affiliates will have conflicts of interest in the
organization and management of the Fund. The "Conflicts of Interest" section of
the Prospectus contains a discussion of the most important conflicts. Please
refer to that section of the Prospectus for a discussion of:
* The compensation to be paid to the Fund Manager and its Affiliates is not
the result of arm's-length negotiations, and will be determined by the manner in
which Series' investments are purchased, managed and sold. The result of this
conflict could be that a Series may make investments which are less desirable to
the investors but more desirable to the Fund Manager and its Affiliates, or that
a Series may retain an investment, thereby incurring management fees to the Fund
Manager at a time when a sale of the investment could generate distributions to
its investors.
* Conflicts may arise in that the Fund Manager and its Affiliates must
allocate their time and energies between the activities of each Series and the
other activities of the Fund Manager and its Affiliates. Although not
anticipated, this could result in the inability of the Fund Manager and its
Affiliates to fully discharge their duties to each Series.
* The Fund Manager and its Affiliates have interests that are inconsistent
with those of the investors in the Fund ("Unitholders") in some respects and are
permitted to engage in activities that may be in conflict with those of the
Fund, without providing the benefits of such activities to the Fund. This could
result in the purchase by an Affiliate of an investment which is otherwise
suitable for purchase by a Series.
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Fiduciary Responsibility
The Fund Manager will act as a fiduciary to each Series. However, as
discussed in the section of this Prospectus entitled "Fiduciary Responsibility,"
each Series will be obligated to provide certain indemnities to the Fund Manager
and certain Affiliates thereof, provided the actions of the person to be
indemnified did not constitute negligence or misconduct and were the result of a
course of conduct which the Fund Manager, in good faith, determined was in the
best interests of the Series. As a result of these and other provisions in the
Partnership Agreement, a Unitholder may have a more limited right of action than
he would otherwise have had in the absence of such provisions.
Investment Objectives and Policies
The Fund's principal investment objective is to acquire interests in
Apartment Complexes which will entitle investors to Low Income Housing Credits
over a period of 10 to 12 years. All of the Apartment Complexes will be expected
to qualify for Low Income Housing Credits. In certain instances, some Apartment
Complexes may qualify for Historic Tax Credits in addition to, or instead of,
Low Income Housing Credits. See "Federal Income Tax Considerations - Historic
Tax Credit" for a discussion of Historic Tax Credits. The Fund will also try to
invest in Apartment Complexes that will maintain their value, so as to permit
the return of the Fund's invested capital at the end of the Fund.
Each Series will invest in Local Limited Partnerships owning Apartment
Complexes that have been, or are to be, built or rehabilitated by developers
that have no affiliation with the Fund Manager or its Affiliates. Generally, the
developer of the Apartment Complex or an affiliated company will be the general
partner (the "Local General Partner") of the Local Limited Partnership. A Series
will make its investment by contributing capital to the Local Limited
Partnership and becoming the majority (usually 99%) limited partner or
non-managing member in the Local Limited Partnership. An Affiliate of the Fund
Manager (the "SLP Affiliate") may also become a limited partner or non-managing
member in the Local Limited Partnership. Each Series will seek to invest in a
geographically-diversified portfolio of properties located in small cities and
suburban communities or in some cases in larger urban areas with a demonstrated
demand for affordable rental housing. The Fund Manager anticipates that certain
of the properties will be rented to senior citizens only, and the balance of the
properties will be rented to senior citizens, families and others, in all
instances only to those satisfying the income limitations. None of the Apartment
Complexes have been selected yet.
Usually a Local Limited Partnership will borrow between 60% and 90% of the
acquisition and development cost of the Apartment Complex. Most of the Local
Limited Partnership's funds will go to pay construction or rehabilitation costs,
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part will be used to establish working capital reserves and part will go to
pay development fees (that is, profits) to the Local General Partner, unless the
Local General Partner is the Fund Manager or one of its Affiliates, in which
event no such development fees will be paid. Many of the Local Limited
Partnerships will benefit from traditional government subsidy programs such as
mortgage financing or rental assistance, but some may not. Those that do not
will depend entirely on their rental income to cover their expenses of
operation, including their mortgage payments. If a Local Limited Partnership
cannot make its mortgage payments, the lender may foreclose, which would cause a
"recapture" of a portion of the Tax Credits generated by its Apartment Complex.
It is hard to tell now exactly when or whether a Series will be able to
realize any sale proceeds from an Apartment Complex. The "recapture" rules for
Low Income Housing Credits effectively prohibit the sale of an Apartment Complex
before the end of the fifteenth year after Low Income Housing Credits begin to
be taken (even though Low Income Housing Credits only last for 10 years).
Government subsidy programs also limit sale or refinancing opportunities, and
sometimes buildings like the Apartment Complexes are hard to sell. The Fund
Manager will try to liquidate each Series' investments after the fifteenth year
of the Series' term, but when that liquidation will take place (and for how
much) is impossible to predict.
See "Investment Objectives and Policies."
Investment Protection Policies
Each Series will try to protect its and its Unitholders' investments in a
number of ways. See "Investment Objectives and Policies" for a further
discussion of these policies.
Staged Pay-In. Each Series will invest its capital in each Local Limited
Partnership in stages over a period of from one to two years, with each capital
payment due when certain conditions regarding construction or rental of
apartments to qualified tenants are satisfied. In this way the Series will try
to put as little capital at risk as possible in the stages of an Apartment
Complex's life cycle that are most uncertain.
Development Obligations. In the case of a new construction or rehabilitation
property, the Local General Partners will agree to complete the Apartment
Complex in a timely manner, and to provide all funds needed through completion
of construction or rehabilitation, after applying mortgage loan proceeds and the
Series' capital contribution.
Tax Credit "Adjuster". In the event the Tax Credits actually allocated to a
Series are less than the agreed to amount, the Local Limited Partnership
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Agreement will provide for a reduction in the Series' capital contribution
to the Local Limited Partnership (to the extent the entire contribution has not
been paid) or a payment by the Local General Partner to the Series.
Operating Deficit Guarantees. Each Local Limited Partnership typically will
impose obligations on the Local General Partners to provide funds to defray any
operating deficits for a minimum of four years following completion of
construction or rehabilitation.
Voting Rights. The Series, as the sole or principal limited partner or non-
managing member of each Local Limited Partnership, will have the right to
approve or disapprove the sale of the Apartment Complexes.
Repurchase of Local Limited Partnership Interest. Generally, the Local
General Partners will be obligated to repurchase the Series' Local Limited
Partnership Interest if the Local Limited Partnership fails to: (i) receive an
allocation of Tax Credits in the year in which the Apartment Complex is placed
in service; (ii) cause the Apartment Complex to be placed in service in a timely
manner; (iii) obtain permanent mortgage loan financing; or (iv) remain eligible
for Tax Credits during the period when the Series is required to make its
capital contributions.
Notwithstanding the preceding there can be no guarantee that these policies
will protect the investment of a Series or its Unitholders. Most of these
policies are dependent on the financial strength of the Local General Partners
and the liquidity of their net worth. See "Risk Factors - Investment Risks - Net
Worth of Local General Partners." If any Local General Partner fails to meet his
obligations, the remedy of a Series might be limited to removing the Local
General Partner as general partner of the Local Limited Partnership.
The Low Income Housing Tax Credit
When the United States Congress passed the Tax Reform Act of 1986, it
created Section 42 of the Federal tax code. Section 42 awards valuable Low
Income Housing Credits to investors in low-income housing. Congress mandated the
use of such Tax Credits to attract private capital to help build and preserve
the United States' supply of privately-owned, affordable rental housing.
Low Income Housing Credits represent the continuation of the Federal policy
of legislating tax benefits for investors in affordable housing that spans more
than two decades. Under Code Section 42, Congress has given taxpayers an
alternative to paying Federal income taxes: taxpayers can invest in low-income
housing to receive Tax Credits which will reduce their taxes each year for 10 to
12 years. These Tax Credits have become an integral element of the nation's
affordable housing programs.
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The Federal tax code authorizes investors in partnerships such as the Series
to receive the benefit of Low Income Housing Credits when they invest in
low-income housing in order to encourage investments of the type the Series will
make. The laws authorizing Low Income Housing Credits and the rules the IRS has
adopted to administer these Tax Credits are extremely complicated.
The most important of the rules define the types of Apartment Complexes that
qualify for Low Income Housing Credits, the manner in which the Low Income
Housing Credits are to be allocated among Apartment Complexes whose owners apply
for them, the kinds of tenants that must live in the Apartment Complexes, the
rents that can be charged to those tenants and the costs of construction or
rehabilitation of the Apartment Complexes that can generate Low Income Housing
Credits. These rules are described in the section of this Prospectus entitled
"The Low Income Housing Credit." Each Series will have to follow all of these
rules for its investors to get the Low Income Housing Credits. Management of the
Fund is experienced in working with these rules, and will do their best to
follow them. However, no one is guaranteeing that it will be possible to comply
with all of the rules.
Other rules govern the ability of taxpayers to claim Tax Credits. For
example, individuals who have no net passive income can only use Tax Credits to
shelter up to the equivalent of $25,000 of active or portfolio income with
deductions from rental real estate activities in which they actively participate
and with Tax Credits. See "Summary of the Offering - Who Should Invest;
Limitations on Use of Credits and Losses" above and "Federal Income Tax
Considerations" below. The rules for the Low Income Housing Credits include a
concept called "recapture" that applies when the rules are not adhered to during
the entire 15-year period after such tax credits start to be taken. "Recapture"
means that an investor who previously took Low Income Housing Credits has to pay
additional taxes equal to a portion of the Low Income Housing Credits generated
by the non-complying Apartment Complex. Therefore the failure of the owner of an
Apartment Complex to follow the rules (which may be beyond the control of the
Fund Manager) could result both in a loss of future Low Income Housing Credits
and in a "recapture" of some of the Low Income Housing Credits already taken.
See "The Low Income Housing Credit."
Management
The Fund Manager is WNC & Associates, Inc. The Fund Manager's address is
3158 Redhill Avenue, Suite 120, Costa Mesa, California 92626 (telephone: (714)
662-5565). See "Management" for a description of the people associated with the
Fund Manager who will be responsible for the management of the business of each
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Series. The financial statements of the Fund Manager are contained in this
Prospectus or in a supplement hereto under "Financial Statements."
Prior Performance Summary
Since its formation, the Fund Manager and its Affiliates have raised equity
from more than 11,800 investors to acquire interests in more than 500 properties
consisting of more than 19,000 apartment units located in 37 states and one
territory, and representing more than $826,000,000 in aggregate acquisition
costs. The sections of this Prospectus entitled "Prior Performance Summary" and
"Management" contain discussions as of December 31, 1996 of all of the prior
real estate investment programs in which the Fund Manager and its Affiliates
have been involved. The Prior Performance Tables included as Exhibit A to this
Prospectus contain certain statistical data regarding the performance of the
more recent of these prior investment programs.
Federal Income Tax Considerations
The section of this Prospectus entitled "Federal Income Tax Considerations"
contains a discussion of numerous Federal income tax issues pertinent to the
Fund. It also contains a description of the legal opinions as to Federal income
tax matters that the Fund will receive.
Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions
Under the Partnership Agreement, 99% of a Series' Tax Credits will be
allocated to its Unitholders and 1% to the Fund Manager. A Series' Cash
Available for Distribution (which generally means the difference between the
Series' cash receipts from the on-going operations of its investments and the
related expenses), if any, will be distributable 99% to its Unitholders and 1%
to the Fund Manager. A Series' Sale or Refinancing Proceeds (which generally
means the net proceeds that the Series receives from the liquidation of its
investments, after the payment of the related expenses) will be distributable
entirely to its Unitholders until they have received a return of their
investment in the Series and their Return on Investment, to the extent not
already provided by Tax Credits and any distributions of Cash Available for
Distribution; the balance will be used to return to the Fund Manager its
investment in the Series and to pay the Subordinated Disposition Fees to the
Fund Manager or its Affiliate, and then distributed 90% to the Unitholders and
10% to the Fund Manager.
Investors should note that the use of the term "Return on Investment" is not
intended to suggest that there is any guarantee or assurance that this return
will be provided to investors. It means only that if proceeds are available
after payment of all current and accrued fees and expenses, they will be
distributed to Unitholders
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before distributions to the Fund Manager. All distributions from operations or
Sale or Refinancing Proceeds are contingent upon the results of a Series'
investments and cannot be assured.
The section of this Prospectus entitled "Profits and Losses for Tax
Purposes, Tax Credits and Cash Distributions" contains further detail regarding
the provisions of the Partnership Agreement relating to tax allocation and
distribution policies. For a description of the expected allocation and
distribution policies of the Local Limited Partnerships, see "Investment
Objectives and Policies - Terms of the Local Limited Partnership Agreements."
Summary of Certain Provisions of the Partnership Agreement
The Partnership Agreement that will govern the relationship between the
Unitholders and the Fund Manager in a Series is a complex legal document, the
full text of which is included as Exhibit B to this Prospectus. Portions of the
Partnership Agreement are summarized in the section of this Prospectus entitled
"Summary of Certain Provisions of the Partnership Agreement." Certain other
portions of the Partnership Agreement are also summarized under "Transferability
of Units" and "Reports."
Investors should particularly be aware of the following terms of the
Partnership Agreement:
- The Partnership Agreement gives investors owning more than 50% of the
Units in a Series the right to take the following actions with respect to the
Series:
* amend the Partnership Agreement
* remove the Fund Manager with or without cause and elect its
replacement,
* approve or disapprove the sale of all or substantially all of the
assets of the Series other than in connection with a dissolution of
the Series, and
* approve the dissolution of the Series.
In order to bring a matter to a vote of investors in a Series, investors in the
Series owning at least 10% of the Units issued by the Series must request it.
Investors who vote against any such actions will nonetheless be bound by
decisions made by the majority-in-interest of their fellow investors.
- Each Series will be organized and treated as a separate California limited
partnership.
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- The Fund Manager believes that a "Roll-Up" of a Series would be
inappropriate due to adverse tax consequences which could result therefrom.
Accordingly, and as required by the law of certain states, the Partnership
Agreement imposes strict limitations on the ability of a Series to participate
in a "Roll-Up." A "Roll-Up" is a transaction involving the acquisition, merger,
conversion or consolidation of a Series and the issuance of securities of
another entity (the "Roll-Up Entity"). Section 10.3 of the Partnership
Agreement, among other things, provides that a Series may not participate in a
Roll-Up if the Unitholders' voting rights or access to records with respect to
the Roll-Up Entity would be less than their voting rights or access to records
with respect to the Series. Section 10.3 also provides that Unitholders who
dissent with respect to the Roll-Up must have the choice of (i) accepting the
securities of the Roll-Up Entity, or (ii) either remaining as Unitholders, or
receiving cash in an amount equal to their pro rata share of the appraised value
of the net assets of the Series.
- No investor will have any control over the business of his Series or any
right to act therefor. The rights of the investors to affect the policies or
conduct of business of their Series will be limited to the right to vote on the
matters described above in this "Summary of Certain Provisions of the
Partnership Agreement."
- The books and records of each Series must be kept at the principal office
of each Series (3158 Redhill Avenue, Suite 120, Costa Mesa, California) and be
available for examination by any investor or his representative at any and all
reasonable times. Any investor in a Series or his representative is entitled to
receive a copy of the list of names and addresses of all investors in the
Series.
Transferability of Units
The Units in a Series will be transferable, provided that the transfer would
not result in adverse tax consequences to the Series. In no event may a transfer
be made to a foreign person or a tax-exempt entity. There will be no market for
the Units, and no one can say whether an investor who wishes to sell his Units
will be able to find someone to purchase them or whether the price will be
acceptable to the seller.
Terms of the Offering and Plan of Distribution
The Fund is offering its Units in two Series on an all-or-none minimum,
best-efforts maximum basis, which means that no one is guaranteeing that any
specified amount of capital will be raised, but that no Units in a Series will
be sold unless at least $1,400,000 in such Series is raised from the sale of
Units. As much as $25,000,000 in Units may be sold by each Series. Each Series
will consist of a maximum of 25,000 Units. The Fund Manager will decide in its
discretion when Series 5 will be terminated and Series 6 will begin. See "Terms
of the Offering and
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Plan of Distribution." The Capital Contributions from the different Series will
be invested in different Local Limited Partnership Interests and, therefore,
Unitholders in different Series might receive different yields on their
investments and be subject to different investment risks.
When an investor subscribes to buy Units in a Series, his money will be
placed in an escrow account until $1,400,000 in cash from such Series is raised
by the Series (which could take up to one year). During that time, interest will
be earned at savings account rates. The interest will be paid to the investor
when the closing which admits him to the Series as a Unitholder takes place.
After $1,400,000 in cash is raised in a Series, the Series will hold
closings and admit subscribers to such Series as Unitholders every month or so
until the Fund Manager decides to conclude the Series. The last Series will
terminate not later than two years from the date of this Prospectus (subject to
requalification of the Units after one year in certain states).
The minimum purchase in a Series is five Units ($5,000), except that
employees of the Fund Manager and its Affiliates, and/or investors in real
estate syndications previously sponsored by the Fund Manager may purchase a
minimum of two Units ($2,000). After an investor has purchased the required
minimum number of Units in either Series, he may make investments in increments
of $1,000 in the same or subsequent Series. Although the purchase price of
$1,000 per Unit must generally be paid in full in cash at the time an investor
subscribes for his Units, an investor who purchases 10 Units ($10,000) or more
in any one Series may elect to use an installment payment method whereunder his
subscription need be accompanied by a check for only $500 per Unit, with the
$500 balance of the purchase price of each Unit payable in accordance with the
terms of a Promissory Note in a single installment on (i) January 31, 1999, if
the investor subscribes between the date hereof and June 30, 1998, (ii) June 30,
1999, if the investor subscribes between July 1, 1998 and December 31, 1998, or
(iii) the later of the date of subscription or January 31, 2000, if the investor
subscribes after December 31, 1998. Each Promissory Note will be a full recourse
obligation of the investor and will bear interest at a fixed rate equal to the
one-year Treasury Bill rate, such rate to be determined quarterly.
See "Terms of the Offering and Plan of Distribution."
Glossary
See the section of this Prospectus entitled "Glossary" and Article 1 of the
Partnership Agreement for definitions of capitalized terms used in this
Prospectus.
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Financial Statements
The financial statements of the Fund Manager and the balance sheet of Series
5 are included herein under "Financial Statements." Inasmuch as Series 6
currently has no assets or liabilities and has had no operations, the Fund
Manager is of the opinion that the balance sheet of Series 6 is not material to
investors in Series 5. Accordingly, that balance sheet is not included in this
Prospectus. The balance sheet of Series 6 will be included in the supplement to
this Prospectus which discloses the commencement of the offering of Series 6.
RISK FACTORS
The purchase of the Units offered hereby involves a number of significant
risk factors. Some of the factors that prospective purchasers should consider
are:
Risks Related to Tax Credits
THIS SECTION AND THE SECTION ENTITLED "THE LOW INCOME HOUSING CREDIT"
SHOULD BE READ CAREFULLY AND UNDERSTOOD BY EACH INVESTOR TO DETERMINE WHETHER AN
INVESTMENT IN THE FUND IS SUITABLE FOR HIM.
Uncertainties as to Availability of Low Income Housing Credits. Each Series
intends to claim Low Income Housing Credits for the Low Income Units (those
residential units intended for rental to low-income tenants) in each Apartment
Complex in which it acquires an interest. The Apartment Complex, however, may
not be eligible for such credits, or the available credits may be substantially
reduced with respect to the Apartment Complex, if any of a number of
requirements set forth in Code Section 42 is not met. See "The Low Income
Housing Credit."
At the time a Series acquires a Local Limited Partnership Interest, it is
possible that the Apartment Complex will not yet have received an allocation of
Credit Authority (the amount of Low Income Housing Credits which a state may
allocate in a given year) from the state in which the Apartment Complex is
located or have rented its residential units so as to ascertain whether it will
meet the other requirements of Code Section 42, in which case the Series will be
relying only upon guarantees and representations of the Local General Partners
and opinions of counsel in these respects.
Even if an Apartment Complex is eligible for Low Income Housing Credits,
there are certain factual determinations to be made in connection with the
calculation of the amount of credits which are not and will not be the subject
of an opinion of counsel and which could be challenged by the IRS. See "The Low
Income Housing Credit." Any such challenge, if successful, could result in a
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decrease in the amount and/or a delay in the timing of the Low Income
Housing Credits from those which would otherwise be anticipated. Further, a
delay in the completion of an Apartment Complex may deprive the Unitholders of
anticipated Low Income Housing Credits.
Possible Recapture of Low Income Housing Credits. Any Low Income Housing
Credits allocated to a Unitholder with respect to an Apartment Complex are
subject to recapture (with interest) to the extent that the Low Income Units
therein or any portion thereof cease to satisfy the requirements of Code Section
42 and to otherwise qualify for Low Income Housing Credits at any time during
the 15-year Initial Compliance Period. Recapture (with interest) of Low Income
Housing Credits may also occur if a Local Limited Partnership disposes of its
interest in an Apartment Complex (including a disposition as a result of
foreclosure of a mortgage loan encumbering the Apartment Complex), or if the
Series disposes of its interest in a Local Limited Partnership.
See "The Low Income Housing Credit - Recapture of Low Income Housing
Credits." As discussed therein, there can be no assurance that events will not
occur resulting in the recapture of all or a portion of a Series' Low Income
Housing Credits.
Limitations on Sales of Apartment Complexes. Any Apartment Complex receiving
an allocation of Credit Authority must execute an Extended Low Income Housing
Commitment with the state allocating the Credit Authority. The Extended Low
Income Housing Commitment will require that the Low Income Units within the
Apartment Complex be rented as low-income housing for the Low Income Use Period.
Accordingly, on any sale of an Apartment Complex during the Low Income Use
Period, the purchaser would have to agree to continue to the low-income use of
the Apartment Complex, thereby reducing the potential market, and possibly the
sales price, for the property. Furthermore, the sale of an Apartment Complex may
be subject to other restrictions. See "Risks of Government- Subsidized Housing
Projects" below in this section and "Investment Objectives and Policies."
Accordingly, there can be no assurance that a Local Limited Partnership will be
able to sell its Apartment Complex, or, if it does so, that any significant
amount of Sale or Refinancing Proceeds will be distributed to the Unitholders.
As a result, a material portion of the Low Income Housing Credits may represent
a return of the money originally invested in the Series.
Limitations on Use of Tax Credits. The ability of an individual or other
non-corporate Unitholder to reduce his tax liability attributable to income from
nonpassive sources is subject to certain ordering rules and overall limitations
on the amount of Tax Credits which may be utilized in any year. Certain
corporate Unitholders are subject to similar and other limitations. See the
material under the captions "The Low Income Housing Credit" and "Federal Income
Tax Considerations - Limitations on Losses and Credits from Passive Activities."
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Further, any portion of a Tax Credit which is allowed to a Unitholder pursuant
to the passive activity rules is aggregated with all of his other business
credits and is then subject to the general limitation on all business credits.
Such limitation provides that credits can be used to offset a taxpayer's tax
liability in any year only to the extent of $25,000 plus 75% of his tax
liability in excess of $25,000, except that business credits may not be used to
offset any alternative minimum tax. See "Federal Income Tax Considerations -
General Business Tax Credit Limitations" and "- Other Important Tax
Considerations - Alternative Minimum Tax."
Availability and Recapture of Historic Tax Credits. In order for an
Apartment Complex to be eligible for Historic Tax Credits, it must meet certain
statutory requirements and be certified by the Department of the Interior. There
can be no assurance that certification will be forthcoming. Even if an Apartment
Complex receives certification, the IRS may challenge the inclusion of certain
amounts in the calculation of qualified expenditures, thereby reducing the
amount of the available Historic Tax Credits. See "Federal Income Tax
Considerations - Historic Tax Credit."
If Historic Tax Credits have been claimed with respect to an Apartment
Complex, the sale of the Apartment Complex by the Local Limited Partnership
during the first five years of operation (or the sale by the Series of the Local
Limited Partnership Interest or the sale by a Unitholder of his Units) will
result in recapture of the previously claimed Historic Tax Credits. See "Federal
Income Tax Considerations - Historic Tax Credit Recapture."
Investment Risks
Risks of Government-Subsidized Housing Projects. The Fund Manager expects
that each Series will invest a substantial portion of its Net Proceeds in Local
Limited Partnerships which own Apartment Complexes which, in addition to Tax
Credits, receive other government financing or operating subsidies. See
"Investment Objectives and Policies - Investment Policies." The following are
risks associated with various programs that provide some such subsidies:
- Difficulties in Obtaining Tenants for the Apartment Complexes. Governmental
regulations with regard to the eligibility of tenants for such Apartment
Complexes may make it more difficult to rent the apartments in the Apartment
Complexes.
- Difficulties in Obtaining Rent Increases. In many cases rents in such
Apartment Complexes can only be increased with the prior approval of the
governmental agency which is providing the subsidies.
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- Limitations on Cash Distributions. Applicable statutes and regulations
generally would limit the amount of cash that may be distributed to owners of
such Apartment Complexes to amounts that are less than the amounts that could be
earned by the owners of conventional apartment properties that receive no
government subsidies, and thus limit the ability of the Local Limited
Partnerships to make cash distributions.
- Limitations on Sale or Refinancing of the Apartment Complexes. Regulations
of applicable governmental agencies and the terms of the agreements between the
agencies and the Local Limited Partnerships may limit the ability of a Local
Limited Partnership to sell its Apartment Complex or refinance its mortgage loan
without the prior approval of the agencies, which approval may be withheld in
the discretion of the agency. These approvals, even if given, may be subject to
various conditions. In addition, any sale, refinancing or prepayment may result
in the assessment of a prepayment penalty.
- Limitations on Transfers of Interests in Local Limited Partnerships.
Regulations relating to apartment complexes receiving some types of government
subsidies require that the governmental agency approve the sale of more than 50%
of the interests in any limited partnership or limited liability company owning
such a project, which approval may be withheld in the discretion of the agency.
Accordingly, the transfer of a Local Limited Partnership Interest by a Series
should be subject to prior governmental approval.
- Limitations on Removal of Local General Partners. Regulations relating to
apartment complexes receiving some types of government subsidies may prohibit
the removal of a Local General Partner except "for cause," such as the violation
of the rules of the government agency. In addition, government approval may be
required in connection with the admission of a successor local general partner
or manager in such a limited partnership or limited liability company if and
when required upon the death or other disability of a Local General Partner.
- Limitations on Subsidy Payments. Certain government subsidy payments may be
fixed and subject to annual appropriations. Should the rental revenues of the
apartment complex, when combined with the maximum committed subsidy, be
insufficient to meet property obligations, including debt service, or should
Congress or the state legislature, as the case may be, fail to appropriate the
necessary subsidy, unless a "workout" arrangement could be negotiated with the
mortgage lender, the mortgage loan on the property could be foreclosed.
- Possible Changes in Applicable Regulations. There can be no assurance that
legislation may not be enacted in the future, as it has been in the past, which
purports to substantially and adversely revise provisions of outstanding
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mortgage loans made or insured by RD, HUD or other government agencies,
including mortgage loans to the Local Limited Partnerships.
See "Other Government Assistance Programs."
Keen Competition for Investments. Each Series will compete with many other
real estate investment partnerships, limited liability companies and other
entities engaged in real estate investment activities, possibly including the
other Series and other Affiliates of the Fund Manager (see "Conflicts of
Interest"), for Apartment Complexes which are expected to generate for their
owners Tax Credits.
The availability of such investments is limited in that there is a maximum
Credit Authority for each state (see "The Low Income Housing Credit - Credits
Subject to State Allocation") and as a result of other factors, and competition
for desirable investments of such type may be particularly keen, with resulting
increases in the purchase prices paid for such investments. In this connection,
it should be noted that a state must allocate its Credit Authority by giving
preference to applicants with the lowest percentage of costs attributable to
intermediaries, such as syndicators, and must also give preference to applicants
serving the lowest income tenants and applicants obligated to serve qualified
tenants for the longest periods. Further, an allocating agency must use good
faith efforts to allocate no more Credit Authority to an applicant than is
necessary for its project's financial feasibility and viability, and may reduce
the applicable percentage and/or the qualified basis (and thus the amount of the
Low Income Housing Credits) below the amounts for which the applicant would
otherwise be eligible, if the agency believes that the full amounts are not
necessary in light of other sources of assistance that are available to the
applicant.
In the recent past, heightened demand for a smaller supply of Local Limited
Partnership Interests has increased the purchase prices thereof. Further
increases in the purchase prices of Local Limited Partnership Interests would
reduce the return to investors and hamper the Fund's ability to satisfy its
principal investment objective.
Risks of Apartment Complexes Without Financing or Operating Subsidies. A
Series may invest a portion of its Net Proceeds in Local Limited Partnerships
which own Apartment Complexes which do not receive government financing or
operating subsidies. Those Apartment Complexes will not have the benefit of
below-market- interest-rate financing or operating subsidies which often are
important to the feasibility of low-income housing projects, and will have to
rely solely on rents to pay expenses. However, in order for an Apartment Complex
to be eligible for Low Income Housing Credits, the Low Income Units in the
Apartment Complex must meet the requirements of Code Section 42, which include a
restriction on the rent which may be charged to tenants. See "The Low Income
Housing Credit."
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Accordingly, if operating expenses of a Local Limited Partnership increase
(which is likely to occur, especially if the Apartment Complex is financed at a
variable interest rate), there can be no assurance that the Local Limited
Partnership would be able to increase rents in an amount sufficient to offset
such increased operating expenses without jeopardizing its eligibility for Low
Income Housing Credits, or otherwise.
Risks of Low-Income Housing. There are factors particular to low-income
housing affecting the need for repairs and improvements, and the Local Limited
Partnerships in which a Series invests may have to expend more funds to protect
and repair the Apartment Complexes than would be the case if they were operated
as market-rate rather than low-income housing. In addition, most of the
Apartment Complexes will be located in rural areas or small towns or (in certain
instances) in areas of low-income where, even in the absence of governmental
restrictions on cash distributions, the rents that may be charged to prospective
tenants are lower than those that might be obtained in more affluent urban
areas. These factors, and the additional factor that at the time of a sale the
Apartment Complex will have a history of having been operated as a low-income
property, will affect the time and price at which an Apartment Complex can be
sold.
Risk of Unspecified Investments. As of the date of this Prospectus, except
as otherwise set forth in a supplement hereto, none of the Apartment Complexes
in which the Series will invest have been identified. Accordingly, investors
will not have the opportunity to evaluate for themselves the Apartment Complexes
or the terms of the Series' investments therein except as such information may
be included in a supplement to this Prospectus. See "Investment Objectives and
Policies Investment Policies - Timing of Investments." There can be no assurance
that any Apartment Complexes in which a Series may invest will actually meet the
Fund's investment objectives or that an investor who acquires his Units later in
the Offering period at the same price as one who purchased earlier may not have
more information available concerning specific Apartment Complexes than the
earlier purchaser.
Risks Associated with Use of Leverage. Each Local Limited Partnership will
leverage a Series' investment therein by incurring mortgage debt. See
"Investment Objectives and Policies - Use of Leverage." Such borrowing may have
either fixed or variable interest rates and may be repayable in a
self-amortizing series of substantially equal installments or in a series of
installments with a "balloon" final payment before or after the expiration of
the Initial Compliance Period or the Extended Use Period. As a result of the use
of leverage, a relatively slight decrease in the rental revenues of an Apartment
Complex may materially and adversely affect the cash flow from that property and
the Local Limited Partnership's ability to meet its debt service requirements.
In addition, the use of variable rate loans to finance Apartment Complexes would
create the risk that debt service could rise substantially
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during periods of high interest rates. Should any Local Limited Partnership's
revenues be insufficient to service its debt and pay taxes and other operating
costs, and/or should government subsidies which had been relied upon for the
payment thereof cease to be available (see "Risks of Government - Subsidized
Housing Projects" above in this section), such Local Limited Partnership and the
Series would be required to utilize working capital, seek additional funds, or
suffer a foreclosure of the subject property. There can be no assurance that
additional funds will be available to any Local Limited Partnership or the
Series, if needed, or, if available, will be on terms acceptable to the Series.
As indicated below under "Investment Objectives and Policies," a portion of
the Net Proceeds may be invested in Local Limited Partnerships owning Apartment
Complexes which have in place "conventional" financing, i.e., financing not
provided with government subsidy. Recently, lenders that have traditionally
provided conventional financing for real estate construction and acquisition
have reportedly decreased their exposure to such loans. To the extent that such
a situation exists, there may be fewer conventionally-financed investments that
are suitable for the Series. In addition, it is possible that such a situation
would adversely affect a Local Limited Partnership in which a Series had made an
investment, for instance if the Local Limited Partnership found that it was
unable to obtain permanent financing to refinance a short-term construction
loan. High interest rates or other factors related to its Apartment Complex or
the national and local economies may also affect the availability and
desirability of financing or refinancing which may be sought by a Local Limited
Partnership. Shortages of mortgage funds may adversely affect the ability of a
Local Limited Partnership to sell its Apartment Complex or require a Local
Limited Partnership to incur credit risks in connection with purchase money
mortgages accepted by such partnership from purchasers.
Risks of Limited Diversification. The ability of a Series to obtain
geographic and other diversification of its investments will be dependent upon
the number of Units sold in such Series. To the extent that less than all of the
Units in any Series are sold, and especially if only the minimum number of Units
in any Series is sold, the Series will invest in fewer Local Limited
Partnerships than would otherwise be the case. Limited diversification means
that any single Apartment Complex experiencing poor operating performance,
impairment of value or recapture of Tax Credits would have an increased impact
upon the Series as a whole. The risks of limited diversification will also exist
to the extent that any Series (i) invests in a few Local Limited Partnerships
owning large Apartment Complexes rather than a greater number of Local Limited
Partnerships owning smaller Apartment Complexes, or (ii) invests in Local
Limited Partnerships which have the same or affiliated Local General Partner, or
which own Apartment Complexes located in the same area.
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Lack of Fund Control; Reliance on Local General Partners. The success of
each Series will, to a large extent, depend on the quality of the management of
the Local Limited Partnerships by the Local General Partners, who will have the
authority to make all management decisions relating to the operation of the
Apartment Complexes by the management organizations they may employ. As a
limited partner or non-managing member in a Local Limited Partnership, each
Series will have very limited rights with respect to management of the Local
Limited Partnership and, accordingly, will not be able to exercise any control
with respect to its business decisions and operations.
Net Worth of Local General Partners. Each Local General Partner will be
required to demonstrate a net worth which is in an amount deemed appropriate by
the Fund Manager. However, there is no minimum standard which all Local General
Partners will be required to satisfy. Further, the assets of the Local General
Partners are likely to consist primarily of real estate holdings and other
assets the fair market values of which would be difficult to estimate and which
could not be readily liquidated to satisfy the financial guarantees and
commitments which they are expected to make to a Series. See "Investment
Objectives and Policies Investment Policies." Moreover, these assets may also be
subject to the claims of other creditors, including other partnerships with
which the Local General Partners are involved. Thus, there is a risk that the
Local General Partners would be unable to perform their obligations to the
Series. It is not anticipated that any escrow accounts or other security
arrangements will be established to ensure performance of their obligations. If
any of the Local General Partners fail to meet their obligations, the cost of
litigation to enforce these obligations may be high, and the remedy of the
Series may be limited to removing the Local General Partner as general partner
of the Local Limited Partnership.
Risks of Real Estate Ownership. Any investment in real estate is subject to
risks inherent in fluctuating general and local economic conditions which can
adversely affect the investor's ability to realize a profit or even to recover
his invested capital. Among these are the job market, the availability and cost
of mortgage financing, monetary inflation, government tax, environmental, land
use and zoning policies, the supply of and demand for similar properties,
neighborhood conditions, the availability and cost of energy and water and other
such factors over which the investor will have no control and which can lead to
significant declines in real estate values of the type recently experienced with
respect to certain types of properties in many areas of the United States.
Risks of Purchase of Properties Under Construction. Some or all of the
Apartment Complexes may be under construction at the time a Series makes its
investment therein. In general, investment in Apartment Complexes under
construction will involve more risk than the purchase of completed properties
because of dependency upon the Local General Partners to fulfill more extensive
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obligations, including completion of construction. The Local General Partners'
ability to carry out such obligations may be affected by conditions beyond their
control. Furthermore, the investment decision in respect of an Apartment Complex
upon which improvements are to be constructed or completed will be made with
reference to projections of rental income and expenses of the property upon
completion of construction. Whether the property will operate at such projected
income and expense levels cannot be known in most cases until after completion
and at least a year of actual operation after sustaining occupancy is achieved.
Risks of "Two-Tier" Investment Structure. As is the case for most real
estate partnerships designed to provide investors with Tax Credits, each Series
will invest in Apartment Complexes through the Local Limited Partnerships. See
"Investment Objectives and Policies." This "two-tier" structure may result in
higher expenses than is the case for "single-tier" partnerships, such as those
which are not formed to generate Tax Credits. These expenses may include costs
for professional services, such as attorneys and accountants who provide advice
and consultation to the Local Limited Partnerships.
Risks of Investments Prior to the Sale of Units. As noted in "Investment
Objectives and Policies - Investment Policies," a Series may make or commit to
investments in Apartment Complexes at a time prior to the commencement or
completion of its Offering, and may borrow funds from the Fund Manager or its
Affiliates, or others, for such purposes. Such investments or commitments would
be made in anticipation of the receipt of the proceeds of the Series. It is
possible that the Series ultimately will not receive sufficient proceeds to meet
all of its obligations with respect to such investments or commitments. Failure
to satisfy such obligations may result in the dilution or termination of a Local
Limited Partnership Interest without return of the amounts theretofore paid or a
suit by the Local General Partners to require performance of such obligations.
To the extent Tax Credits had been claimed prior to the termination of a Local
Limited Partnership Interest, such termination could result in recapture of all
or a portion of such Tax Credits. See "The Low Income Housing Credit - Recapture
of Low Income Housing Credits."
Risks of Loss of Loans Made to Local Limited Partnerships. In connection
with a Series' determination to invest in a Local Limited Partnership, the
Series may make a loan to the Local Limited Partnership prior to the acquisition
by the Series of an interest therein. See "Investment Objectives and Policies -
Investment Policies." If the Series is unable or chooses not to invest in the
Local Limited Partnership, the Local Limited Partnership might not repay the
loan, in which event the amount of Net Proceeds available for investment in
Local Limited Partnership Interests would be reduced.
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Risks of Joint Investments. A Series may invest in Local Limited
Partnerships jointly with the other Series or other limited partnerships if the
conditions set forth under "Investment Objectives and Policies - Joint
Investments" are met. There is a potential risk that a Series may not acquire a
controlling interest in a joint investment or that, if an equal interest is
acquired by the Series and another partnership, there may be an impasse on
decisions.
Possibility of Uninsured Losses. There are certain types of losses
(generally either of a catastrophic nature, such as earthquakes, floods and wars
or relating to hazardous materials or environmental matters), which are either
uninsurable or not economically insurable. Should such a loss be experienced by
an Apartment Complex in which a Series has invested, the Series could lose both
its invested capital and anticipated profits in such property. Moreover, a
portion of previously generated Tax Credits could be recaptured and future Tax
Credits lost if the Apartment Complex is not restored by reconstruction or
replacement within a reasonable period of time; and, even if the casualty is an
insured loss, it may be impossible or impractical to rebuild a destroyed
property. See "The Low Income Housing Credit - Recapture of Low Income Housing
Credits." Liability claims could also materially and adversely affect a Local
Limited Partnership such that resulting judgments exceed available insurance
proceeds. The cost of liability and casualty insurance has substantially
increased in recent years and certain types of insurance have become more
difficult to obtain or require substantial deductible amounts.
Possible Loss on Dissolution and Termination. Upon the dissolution or
termination of a Series, the proceeds realized from the liquidation of assets,
the amount, if any, of which would be subject to the foregoing investment risks,
will be distributed to the Unitholders only after the satisfaction of claims of
the Series' creditors. Accordingly, the ability of an investor to recover all or
any portion of his investment under such circumstances will depend on the amount
of funds so realized and claims to be satisfied therefrom.
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Other Tax Risks
In addition to those pertaining specifically to Tax Credits, there are
numerous Federal income tax aspects and certain Federal income tax risks
associated with the ownership of Units and the operations of the Fund and the
Local Limited Partnerships. The Fund does not intend to request rulings on any
income tax matters from the IRS. Rather, the Partnership will rely on certain
opinions of Derenthal & Dannhauser, counsel to the Fund, the Fund Manager and
their Affiliates ("Counsel"), and of counsel to the Local Limited Partnerships.
Unlike a ruling from the IRS, an opinion of counsel has no binding effect or
official status of any kind, and no assurance can be given that the conclusions
reached in any such opinion will not be contested by the IRS or, if contested,
will not be sustained by a court. The income tax issues as to which counsel has
rendered or will render opinions, and the issues as to which counsel has not
rendered and will not render opinions, are discussed in "Federal Income Tax
Considerations" and "The Low Income Housing Credit."
These additional Federal income tax aspects and risks associated with the
ownership of Units and the operations of the Fund and the Local Limited
Partnerships include, but are not limited to, the following:
No Opinion of Counsel as to Certain Matters. Prospective investors should
note that no legal opinion has been obtained, and it is not anticipated that an
opinion will be obtained, regarding determinations, the correctness of which
depends in significant part on future factual circumstances, regarding matters
peculiar to certain investors or regarding matters in which opinions are not
customarily obtained. The more significant of such determinations and matters
include:
- - the allocation of basis among various components of a property, particularly
as between buildings, the cost of which is depreciable, and the underlying
land, the cost of which is not depreciable; a successful challenge by the
IRS to the amount of basis allocated to buildings would decrease
depreciation attributable to the property;
- - the characterization of various expenses and payments made to or by a Series
or a Local Limited Partnership (for example, the extent to which such
payments represent deductible fees or interest); a successful challenge by
the IRS to the characterization of an expense as deductible would require
that such expense be capitalized and recovered, if at all, upon liquidation;
- - the portion of the cost of any Apartment Complex that qualifies for Tax
Credits (but see the discussion of so-called "adjuster" provisions in
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"Investment Objectives and Policies - Investment Policies"); a successful
challenge by the IRS would reduce the amount of such credits;
- - the application to any specific Unitholder of the limitation on the
availability of passive activity losses and credits; Unitholders must
determine for themselves the extent to which their passive income and the
"$25,000 deduction equivalent" are available to them to claim Tax Credits
and Losses for Tax Purposes;
- - the classification of a Series or any Local Limited Partnership as a dealer
in interests in Local Limited Partnerships or Apartment Complexes,
respectively; a dealer generally may not claim depreciation deductions; and
- - the application of the alternative minimum tax to, or the calculation
thereof by, any Unitholder; if a Unitholder is subject to the alternative
minimum tax, tax benefits from an investment in the Fund could be reduced.
There can be no assurance, therefore, that some of the deductions to be
claimed by a Series, or the allocation of its items of Profits and Losses for
Tax Purposes and Tax Credits, will not be challenged by the IRS and that such
challenge will not be sustained by the courts. Such challenge, if successful,
could have a detrimental effect on the ability of the Series to realize its
investment objectives.
No Ruling as to Tax Status of the Local Limited Partnerships. Counsel has
rendered its opinion that each Series will be classified as a partnership and
not as an association taxable as a corporation for Federal income tax purposes.
The Fund Manager intends to secure an opinion of Counsel or counsel to each
Local Limited Partnership in which each Series invests that such Local Limited
Partnership will be classified as a partnership for Federal income tax purposes.
For Local Limited Partnerships formed prior to January 1, 1997, such opinions
are likely to be subject to various conditions. See "Federal Income Tax
Considerations - Classification as a Partnership." Material adverse tax
consequences to the Unitholders, particularly an inability of a Series to pass
through to its investors all or part of the anticipated Tax Credits, would
result from the classification of a Local Limited Partnership as an association
taxable as a corporation. See "Federal Income Tax Considerations Classification
as a Partnership."
Limitation on Losses from Passive Activities. The Tax Reform Act of 1986
("1986 Act") imposed substantial restrictions on the ability of investors in
real estate to offset losses or deductions from such investments against income
from other sources. It is anticipated that these "passive activity" rules
generally will restrict the ability of an individual or other non-corporate
Unitholder to shelter his income from other sources with any Losses for Tax
Purposes allocated to him with respect to his Units.
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Prior to investment in Apartment Complexes, a Series will not be entitled to
Tax Credits. In addition, any income from interim investments generally would be
treated as portfolio income that cannot be sheltered with losses from passive
sources. See "Investment Objectives and Policies" and "Federal Income Tax
Considerations."
Applicability of At Risk Rules. The "at risk" rules of the Code generally
limit the deduction by a partner of partnership losses incurred with respect to
real property to the amount of cash the partner has invested in the partnership.
Under special rules which apply to an activity involving the holding of real
estate, a taxpayer also will be considered "at risk" with respect to "qualified
nonrecourse financing," and a significant portion of the financing to be
utilized to purchase the Apartment Complexes is expected to consist of such
"qualified nonrecourse financing." However, there can be no assurance that the
"at risk" rules will not have a material impact on the Unitholders until all of
the Local Limited Partnerships are identified and the financing for the
Apartment Complexes is in place. See "Federal Income Tax Considerations -
Application of At Risk Limitations" and "The Low Income Housing Credit."
Tax Liability on Sale of Apartment Complex. If a Local Limited Partnership
sells an Apartment Complex, or if a Series sells a Local Limited Partnership
Interest, the Unitholders of the Series will be required to recognize their
allocable share of taxable gain therefrom, measured by the difference between
the sale proceeds (including the amount of indebtedness to which the Apartment
Complex was subject, or the Series' allocable share of such indebtedness, as the
case may be) and the adjusted basis in the Apartment Complex. In some cases the
amount of tax payable by a Unitholder may exceed cash distributions from his
Series. See "Federal Income Tax Considerations - Sales or Exchanges of Local
Limited Partnership Property; Depreciation Recapture" and " - Treatment of
Mortgage Loans."
Alternative Minimum Tax Liability. The 1986 Act reduced the regular tax
rates and substantially broadened the application of the alternative minimum
tax, and the Omnibus Budget Reconciliation Act of 1993 ("1993 Act") increased
the alternative minimum tax rate for individuals to 26% and 28%, depending on
the level of alternative minimum taxable income. As a result, it is possible
that a significant number of potential investors will be subject to the
alternative minimum tax. Accordingly, each investor should consult his own tax
adviser as to the effect an investment in the Fund will have on his alternative
minimum tax liability. The Tax Credits expected to be derived from an investment
in the Fund may not be utilized to reduce alternative minimum tax liability. See
"Federal Income Tax Considerations - Other Important Tax Considerations -
Alternative Minimum Tax."
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Possibility of Audit. The IRS has the ability to audit limited partnerships
and limited liability companies at the entity level with regard to issues
affecting such an entity. Prospective investors should note that an audit of the
tax information returns of a Series also could result in an audit of the returns
of the Unitholders of the Series, and that such an examination could result in
adjustments both to items that are related to the Local Limited Partnership and
the Series and to unrelated items. Unitholders could then be required to file
amended tax returns and pay additional tax plus interest and penalties. A
contest by the Series of any material adverse determination by the IRS relating
to the tax aspects of the Series might result in the incurrence of substantial
legal fees by the Series. See "Federal Income Tax Considerations - Tax Returns
and Tax Information."
Each Series must register under the tax shelter registration provisions.
Under those provisions, the IRS will assign a registration number to each
Series, which number must be recorded on the tax return of a Unitholder in such
Series. Failure to include the registration number on a Unitholder's tax return
will subject the Unitholder to a penalty unless that failure is due to
reasonable cause. Similarly, the Local Limited Partnerships may be required to
register as tax shelters. It is uncertain whether registration as a tax shelter
increases materially the risk of IRS audit. Registration does not imply that the
IRS has reviewed, examined or approved the investment or the claimed benefits of
the investment. See "Federal Income Tax Considerations - Tax Shelter
Registration."
Possibility of Challenge to Tax Allocations of the Series and the Local
Limited Partnerships. The IRS might challenge the allocations made by a Series
(i) between its Unitholders and the Fund Manager, (ii) among its Unitholders, or
(iii) between the Series and a Local General Partner, of income, gains,
deductions, losses and Tax Credits as not having substantial economic effect and
not being in accordance with each partner's interest in a Series or in the Local
Limited Partnership, as the case may be. If any allocations were challenged, a
greater share of the income or gain or a lesser share of the losses or Tax
Credits might be allocated to the Unitholders, which would increase the tax
liability or reduce the tax benefits to them associated with an investment in
the Series. See "Profits and Losses for Tax Purposes, Tax Credits and Cash
Distributions" and "Federal Income Tax Considerations - Fund Allocations."
Possible Tax Liabilities in Later Years. After a period of years following
commencement of operations by a Local Limited Partnership, the Local Limited
Partnership may generate Profits for Tax Purposes rather than Losses for Tax
Purposes. A Unitholder's share of such Profits for Tax Purposes generally would
constitute passive income and would be taxable at regular rates unless the
Unitholder had unused "suspended" passive losses from his Series or other
investments or current passive losses from other investments. See "Federal
Income Tax Considerations - Limitations on Losses and Credits from Passive
Activities."
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In such circumstances it would be unlikely that the Unitholder would receive a
cash distribution from his Series with which to pay any tax liability resulting
from the allocation of Profits for Tax Purposes.
Possibility of Challenge to Tax Treatment of Certain Expenditures. The IRS
may contend that certain fees and payments which a Series or a Local Limited
Partnership expects to capitalize or deduct should in fact be deductible over a
longer period of time or in a later year, are excessive and may not be
capitalized or deducted in full, should be capitalized and not deducted, or
should be treated as nondeductible and noncapitalizable distributions or
syndication fees and thus not as part of basis for computing Tax Credits. If the
IRS were successful in any such contention, the anticipated Tax Credits and
Losses for Tax Purposes would be reduced, perhaps substantially. See "Federal
Income Tax Considerations - Basis of Local Limited Partnerships in Their
Apartment Complexes," " - Depreciation," "- Deductibility of Fees," "-
Organization and Offering Expenses" and "- Start-Up Expenditures."
Changes in Tax Law Which Might Affect the Value of Tax Credits. Although all
Low Income Housing Credits are allocated to an Apartment Complex at commencement
of the 10-year credit period, there can be no assurance that future legislation
may not adversely affect an investment in the Fund. For example, legislation
affecting tax liability of an investor could reduce or eliminate the value of
his Tax Credits. In this regard, prior to enactment of the 1986 Act, the
principal tax benefit of an investment in a limited partnership developing,
owning and/or operating low income housing was the losses generated thereby,
which generally could be used to reduce an investor's income from all sources on
a dollar-for-dollar basis, and such investments were made in reliance on the
availability of such tax benefits. Because deduction of such losses was severely
curtailed by the 1986 Act, it is unlikely that the "pre-enactment" limited
partnerships (including certain partnerships sponsored by WNC & Associates,
Inc.) will provide their investors with all of the tax benefits expected at the
commencement of their respective syndications.
Possible Administrative or Judicial Interpretations of the Law. Many of the
provisions of the 1986 Act and subsequent tax legislation related to investments
in real estate have not been interpreted by the IRS in regulations, rulings or
public announcements, or by the courts. These provisions may be interpreted or
clarified by the IRS or the courts so as to have an adverse effect on the Fund
or the Local Limited Partnerships. The rules dealing with Federal income
taxation are constantly under review by the IRS, resulting in revisions of its
regulations and revised interpretations of established concepts. Revisions in
Federal tax regulations and interpretations could reduce or eliminate tax
benefits associated with an investment in the Fund.
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State Income Tax Risks. A Unitholder may be required to file income tax
returns and be subject to tax in each state or local taxing jurisdiction in
which his Series or any Local Limited Partnership invested in by such Series
owns an Apartment Complex or has business activities, or in which the Unitholder
is resident. Corporate Unitholders may be required to pay state franchise taxes.
The tax treatment of particular items under state or local income tax laws may
vary materially from the Federal income tax treatment of such items.
Nonetheless, many of the risks to which an investment in the Fund is subject
under Federal income tax law may also obtain under state or local income tax
law. A Series may be required to withhold state taxes from distributions to
Unitholders in some instances. The additional cost incurred in having to prepare
various state and local tax returns, as well as the additional state and local
taxes which may be payable, should be considered by prospective investors in
deciding whether to make an investment in the Fund. This Prospectus makes no
attempt to summarize the state and local tax consequences to an investor in any
state or locality. Accordingly, prospective investors are urged to consult their
tax advisers in this regard.
Fund-Related Risks
Lack of Liquidity of Investment. It is not intended nor anticipated that a
public market will develop for the purchase and sale of Units because of
substantial restrictions on transferability imposed in the Partnership Agreement
and as a result of tax and securities laws. See "Transferability of Units."
Accordingly, Unitholders may not be able to liquidate their investments promptly
or at a reasonable price prior to the end of their Series' term, and Units
should be considered as a long-term investment.
Lack of Unitholder Control; Reliance on Fund Manager. All decisions
concerning the management of a Series, including selection of the Apartment
Complexes in which the Series will invest and whether or when to terminate its
Offering, will be made by the Fund Manager. Unitholders have no right or power
to take part in the management of the Series. Accordingly, no person should
purchase Units unless he is willing to entrust all aspects of the management of
the Series to the Fund Manager.
Risks Related to Exercise of Unitholder Voting Rights. The Partnership
Agreement grants the Unitholders owning more than 50% of the Units in a Series
the right to remove the Fund Manager of the Series and elect a replacement, to
amend the Series' Partnership Agreement and to terminate the Series. Such voting
rights will make it possible for a majority-in-interest of the Unitholders to
cause any such changes to their Series, even if Unitholders owning 49% of the
Units oppose such action. See "Summary of Certain Provisions of the Partnership
Agreement Voting Rights."
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Limitations on Fund Manager's Liability. Under California law, the Fund
Manager is accountable to the Unitholders of each Series as a fiduciary and,
consequently, is required to exercise good faith and loyalty in handling the
affairs of each Series. However, the Partnership Agreement provides that the
Fund Manager and its Affiliates will not be liable to a Series or its
Unitholders for its acts and omissions performed or omitted in good faith and in
a manner which the Fund Manager reasonably believes to be within the scope of
its authority and in the best interest of the Series, provided such conduct did
not constitute negligence or misconduct. Therefore, Unitholders may have a more
limited right of action against the Fund Manager and its Affiliates than would
otherwise be the case absent such provisions in the Partnership Agreement. See
"Fiduciary Responsibility."
Issuance of Units in Series. The Partnership Agreement provides that each
Series will be a separate partnership under California law investing in its own
Local Limited Partnership Interests. Therefore, Unitholders in one Series may
receive different yields on their investments and may be subject to different
risks with respect to their Series' Local Limited Partnership Interests than
Unitholders in the other Series. The Fund Manager will decide in its discretion
when Series 5 will be terminated and Series 6 will begin.
Obligations for Capital Contributions. Each investor who subscribes for 10
or more Units may elect to pay one-half of the purchase price of his Units upon
subscription and the balance pursuant to a Promissory Note. See "Estimated Use
of Proceeds - Deferred Installments." In the event that a Unitholder who has
elected to utilize such installment payment arrangement defaults on his
obligation to pay the deferred installment and interest thereon when due, or any
other Event of Default, as defined in the Promissory Note, occurs he will face
serious consequences, which may include acceleration of his Promissory Note,
loss of right to Tax Credits and recapture of previously utilized Tax Credits
and foreclosure and sale of his Units. Late payments will also be subject to the
payment of late charges. See "Summary of Certain Provisions of the Partnership
Agreement." In addition to such Unitholder's liability for the balance due under
the Promissory Note, he may also be liable to his Series or other holder of his
Promissory Note, as applicable, for any expenses incurred in enforcing the
Series' or other holder's rights.
If any Unitholder should fail to make any payment required under his
Promissory Note when due and if his Units cannot be promptly resold pursuant to
the provisions of the Partnership Agreement, the Series may be without
sufficient funds to meet its obligations with respect to its Local Limited
Partnership Interests. This could result in the dilution or termination of a
Local Limited Partnership Interest with resulting recapture of
previously-claimed Tax Credits and loss of expected future Tax Credits
pertaining to such Local Limited Partnership Interests or legal actions by the
Local General Partners to require performance of such
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obligations and/or to recover their damages and costs, thereby adversely
affecting the Series and the non-defaulting Unitholders.
Risks of Unitholder Liability. If a Unitholder is deemed to be taking part
in the control of the business of his Series, he would lose his limited
liability, which would mean that the debts and other obligations of the Series
could be satisfied out of his personal assets to the extent that assets of the
Series were inadequate to discharge its obligations. The California Revised
Limited Partnership Act under which each Series is organized differs from the
Uniform Limited Partnership Act as in effect in many states in that it
specifically permits Unitholders to exercise the voting rights provided in the
Partnership Agreement without being deemed to be taking part in the control of
the business of their Series. With respect to operations of the Series in states
other than California, however, there is uncertainty as to whether the exercise
of these rights (and possibly their mere existence) could be deemed to be taking
part in the control of the Series' business and, as a result, cause the
Unitholders' loss of limited liability.
In addition, even if the Unitholders retain their limited liability, it is
possible that a Series itself could be deemed to be taking part in control of
the business of one or more Local Limited Partnerships because of the voting
rights which it will have under the Local Limited Partnership Agreements, and as
a result, obligations of such Local Limited Partnership could be satisfied out
of the assets of the Series to the extent that assets of such Local Limited
Partnership were inadequate to discharge its obligations.
Absence of Regulation. Neither Series is a real estate investment trust nor
an investment company, and the management and investment practices of the Series
will not be supervised or regulated by any Federal or state authority.
Possible Delays in Obtaining Financial Data. There cannot be any assurance
that the Local General Partners will comply with provisions in the respective
Local Limited Partnership Agreements requiring the Local Limited Partnerships to
retain independent public accountants and to report tax data and financial
information in a timely manner. Should the Local General Partners fail to so
comply a Series might be unable to provide in a timely manner to its Unitholders
its Federal income tax information, financial statements and other reports as
described herein (see "Reports").
Lack of Operating History. The Fund has no operating history. No assurance
can be given that the Fund's operations will be successful or that the Fund will
meet its stated investment objectives.
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WHO SHOULD INVEST;
LIMITATIONS ON USE OF CREDITS AND LOSSES
All Investors
Each investor in the Fund must be of sufficient financial means to apprise
himself of, and assume the risks inherent in, the purchase of Units, including
the illiquidity of the investment, and must evaluate whether such investment is
suitable for him based upon his investment objectives, financial situation and
needs. An investor should only invest in the Fund if he (i) reasonably expects
to have Federal tax liabilities which can be offset by Tax Credits, and (ii) has
adequate financial means to bear the lack of liquidity and the economic risks
associated with long-term investments in real estate.
The Code imposes an alternative minimum tax on all taxpayers to the extent
the alternative minimum tax exceeds their regularly-computed tax. Tax Credits
cannot be used to reduce alternative minimum tax liability. Further, even in a
situation where a taxpayer does not have alternative minimum tax liability
(because his regularly-computed tax exceeds his alternative minimum tax), Tax
Credits cannot be used to reduce his tax liability to an amount less than his
alternative minimum tax liability. See "Federal Income Tax Considerations -
Other Important Tax Considerations - Alternative Minimum Tax." Accordingly,
investors are urged to consult their tax advisers to determine whether the
alternative minimum tax may limit their ability to benefit from the use of Tax
Credits.
An investment in Units is not suitable for tax-exempt entities, including
pension or profit-sharing plans, Keogh plans and Individual Retirement Accounts.
Accordingly, SUCH ENTITIES WILL NOT BE PERMITTED TO INVEST IN THE FUND.
A transferee of Units will be required to meet the same suitability
standards as had been imposed upon the transferror Unitholder, or such more
restrictive standards, if any, as may arise under applicable state securities
laws.
In the agreement to be executed by each Soliciting Dealer, the Soliciting
Dealer will agree to make reasonable inquiry of prospective investors concerning
the suitability of such an investment for such persons and to maintain records
of such suitability determinations. Each Soliciting Dealer is required to make
every reasonable effort to assure that an investment in Units is suitable and
appropriate for a potential investor, based on information provided by the
potential investor as to his financial situation and investment objectives.
In order to purchase Units, an investor must, at a minimum, satisfy the
suitability standards applicable to residents of the jurisdiction in which the
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investor is resident. See "Who Should Invest; Limitations on Use of Credits
and Losses Minimum State Suitability Requirements" below. In the case of sales
to fiduciary accounts, the minimum suitability standards must be met by the
beneficiary, the fiduciary account, or by the donor or grantor who directly or
indirectly supplies the funds to purchase the Units if the donor or grantor is
one of the fiduciaries.
Individual Investors
The principal benefits to be derived from an investment in the Fund are Low
Income Housing Credits and, possibly, Historic Tax Credits. The extent to which
a prospective investor can utilize these tax benefits will determine whether or
not he is a suitable investor.
With respect to natural persons, Federal tax law imposes limitations on the
utilization of "passive activity" credits and "general business" credits, each
of which category generally includes Tax Credits. The Fund is expected to
generate Tax Credits over a period of 10 to 12 years. Accordingly, as more fully
discussed elsewhere in this Prospectus, an investment in the Fund will not be
suitable for a prospective investor unless he expects that, for the next 12
years, he will be able to utilize the Tax Credits under the passive activity
rules and the general business credits rules, and the alternative minimum tax
rules referred to above.
The passive activity rules do not impose an adjusted gross income limitation
on taxpayers seeking to utilize Low Income Housing Credits, provided such
credits are derived from properties (such as those in which the Fund will
invest) that are placed in service after December 31, 1989. Nonetheless,
prospective investors who do not otherwise materially participate in rental real
estate activities should note that Low Income Housing Credits generally may only
be used to offset income tax liability on a maximum of $25,000 of a
non-corporate taxpayer's active or portfolio income for each taxable year.
Additionally, there are further limits on the ability of natural persons to
utilize Historic Tax Credits. Specifically, a natural person may utilize
Historic Tax Credits in the manner described above but only to the extent his
adjusted gross income does not exceed $200,000; the ability of a natural person
to utilize Historic Tax Credits is phased out if his adjusted gross is between
$200,000 and $250,000, and is eliminated if his adjusted gross income exceeds
$250,000. Further, a prospective investor who is a natural person and who does
not otherwise materially participate in rental real estate activities should
note that Losses for Tax Purposes will be allowable only to the extent that such
an investor has sufficient passive income to offset such Losses. For further
information regarding the principal limitations that will apply to the
utilization for Federal income tax purposes of the Tax Credits and Losses for
Tax Purposes anticipated to be generated by an investment in the Units, see the
entire discussion under "Federal Income Tax Considerations - Limitations on
Losses and Credits from Passive Activities" and "- General Business Tax Credit
Limitations."
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Corporate and Other Entity Investors
A trust other than a grantor trust should consider an investment only if it
expects to have during the next 12 years sufficient unsheltered passive income
to utilize the Tax Credits and Losses for Tax Purposes anticipated from its
investment in the Units. A grantor trust should consider an investment only if
each of its grantors meets the investment criteria applicable to it.
Prospective corporate investors should note that special rules apply to
determine whether a corporation will be able to utilize the tax benefits
anticipated from an investment in the Units. Accordingly, investment in the Fund
is suitable for a corporation if, at a minimum, it meets the following
requirements: (a) in the case of a corporation other than a corporation subject
to Subchapter S of the Code (a "C Corporation") that is neither closely-held nor
a personal service corporation, such corporation expects to have during the next
12 years sufficient taxable income from all sources to utilize the Tax Credits
and Losses for Tax Purposes anticipated from its investment in the Units; (b) in
the case of a C Corporation that is closely-held, but is not a personal service
corporation, such corporation expects to have during the next 12 years
sufficient unsheltered passive income and/or to have sufficient other taxable
income, determined without regard to portfolio income and any passive income or
loss, to utilize the Tax Credits and Losses for Tax Purposes anticipated from
its investment in the Units; and (c) in the case of a C Corporation that is a
personal service corporation, such corporation expects to have during the next
12 years sufficient unsheltered passive income to utilize the Tax Credits and
Losses for Tax Purposes anticipated from its investment in the Units. For this
purpose, the term "personal service corporation" includes corporations the
principal activity of which is the performance of services in the fields of
health, law, engineering, architecture, accounting, actuarial science,
performing arts or consulting. A closely-held corporation is a corporation that
at any time during the last half of its relevant taxable year is more than 50%
owned, by value, directly or indirectly by five or fewer shareholders. See
"Federal Income Tax Considerations - Limitations on Losses and Credits from
Passive Activities."
A corporation that is subject to Subchapter S of the Code (an "S
Corporation") should consider an investment only if each of its shareholders
holding a material interest therein meets the criteria applicable to
non-corporate investors. A partnership should consider an investment only if
each of its partners holding a material interest therein meets the investment
criteria applicable to it.
In determining the suitability of an investment in the Fund, an entity
investor should also consider the effect of such an investment on its financial
reports.
The actual effect on an entity investor's net income for financial reporting
purposes will depend upon the results of Series' operations and the method of
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accounting adopted by the investor respecting its investment in the Series. The
Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board
has been examining the methods of accounting used by entities investing in
low-income housing through limited partnerships. In general, as of the date
hereof, the EITF has determined that the permissible methods used to account for
such investments include the modified cost method, the equity method, the
effective yield method and the full consolidation method.
Under the modified cost method, an entity investor initially capitalizes the
cost of its investment in the limited partnership, and subsequently amortizes
the difference between the carrying cost and the aggregate estimated residual
value of the limited partnership's property portfolio over the Tax Credit period
of such portfolio. The estimated residual value of a property is its estimated
residual value at the end of the last period in which Tax Credits are allocated
to the investor and will not reflect anticipated inflation.
Under the equity method, an entity investor initially capitalizes the cost
of its investment in the limited partnership, and subsequently reduces (but not
below zero) or increases the carrying value by the investor's allocable share of
losses or income, respectively, from the limited partnership.
Under the effective yield method, an entity investor initially capitalizes
the cost of its investment in the limited partnership, and subsequently
amortizes the cost to provide a constant effective yield over the period that
the Tax Credits are allocated to the investor. The effective yield is the
internal rate of return on the investment, based on the cost of the investment
and the Tax Credits allocated to the investor. Any expected residual value of
the investment is to be excluded from the effective yield calculation.
Under the full consolidation method, the low-income housing properties
themselves, and the results of operations therefrom (rather than the investment
in the limited partnership) are included in the entity investor's financial
statements.
Regardless of the method selected, the EITF has not changed the requirement
that an investment be reviewed periodically to determine impairment of value.
With the exception of the effective yield method, the method of accounting
to be used by an entity investor in a low-income housing program generally is
not elective but rather is determined by the level of the entity's investment in
the limited partnership and/or the ability of the investor to control the
limited partnership. The effective yield method may be elected if (a) the tax
credits allocable to the investor are guaranteed by a creditworthy entity, (b)
the investor's yield based solely on the cash flows from the guaranteed tax
credits is positive, and (c) the investor is a
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limited partner for legal and tax purposes and the investor's liability is
limited to its capital investment.
If the investor is unable to or does not elect to use the effective yield
method, the appropriate method will be (i) the modified cost method, if the
investor's interest in the limited partnership is so minor as to give the
investor virtually no influence over partnership operating and financial
policies; (ii) the equity method, if the investor owns less than 50% of the
limited partnership and has no significant control over partnership policies; or
(iii) the full consolidation method, if the investor owns 50% or more of the
limited partnership unless the investor has no significant control over
partnership policies, in which event the equity method is to be used. To date,
the EITF has provided no "bright-line" ownership test for use in determining
when an investor's interest is so minor as to give the investor "virtually no
influence over partnership operating and financial policies." The staff of the
Securities and Exchange Commission, however, understands that accounting
practice generally has viewed investments of more than 3% to 5% to be more than
minor.
It is anticipated that entity investors in a Series will use either the
modified cost method or the equity method. As indicated above, under the equity
method (but not under the modified cost method) an investor will actually report
its share of Series' losses or income. In this regard, for financial reporting
purposes each Series is expected to use the equity method, which will result in
recognition by the Series of its share of losses or income from the limited
partnerships in which it invests.
Minimum State Suitability Requirements
The Units may be offered and sold only in those jurisdictions in which they
have been registered or qualified for sale or are exempt from the registration
or qualification requirement.
Set forth below are the minimum suitability standards for residents of the
District of Columbia and of each state in which the Fund has applied to have the
Units registered or qualified for sale. For these purposes, net worth is
exclusive of home, furnishings and automobiles.
Alabama, Arizona, Arkansas, Indiana, Kansas, Kentucky, Michigan,
Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, North Carolina,
North Dakota, Oklahoma, Oregon, Tennessee, Texas, Vermont, Virginia and
Wisconsin Requirements. Each investor in Alabama, Arizona, Arkansas, Indiana,
Kansas, Kentucky, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New
Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Tennessee, Texas,
Vermont, Virginia or Wisconsin must have (i) an annual gross
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income of at least $45,000 and a net worth of at least $45,000 or (ii) a net
worth of at least $150,000.
Alaska, Colorado, Connecticut, Delaware, District of Columbia, Florida,
Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Montana, Nevada, New
Jersey, Rhode Island, South Carolina, Utah, West Virginia and Wyoming. Each
investor in Alaska, Colorado, Connecticut, Delaware, District of Columbia,
Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Montana, Nevada,
New Jersey, Rhode Island, South Carolina, Utah, West Virginia or Wyoming must
have (i) an annual gross income of at least $35,000 and a net worth of at least
$35,000 or (ii) a net worth of at least $75,000.
California and Washington Requirements. Each investor in California or
Washington must have (i) an annual gross income of at least $50,000 and a net
worth of at least $65,000 or (ii) a net worth of at least $200,000.
Iowa, Massachusetts, Minnesota and South Dakota Requirements. Each investor
in Iowa, Massachusetts, Minnesota or South Dakota who purchases his Units
entirely with cash must have (i) an annual gross income of at least $45,000 and
a net worth of at least $45,000 or (ii) a net worth of at least $150,000. Each
investor in Iowa, Massachusetts, Minnesota or South Dakota who purchases his
Units with a Promissory Note must have (i) an annual gross income of at least
$60,000 and a net worth of at least $60,000 or (ii) a net worth of at least
$225,000.
Maine Requirements. Each investor in Maine must have (i) an annual gross
income of at least $50,000 and a net worth of at least $50,000 or (ii) a net
worth of at least $200,000. No investor in Maine may purchase Units with a
Promissory Note; each investor in Maine must purchase his Units on an all-cash
basis.
Ohio Requirements. Each investor in Ohio must have (i) an annual gross
income of at least $45,000 and a net worth of at least $45,000 or (ii) a net
worth of at least $150,000. No investor in Ohio may invest more than 10% of his
net worth in a Series.
Pennsylvania Requirements. Each investor in Pennsylvania must have (i) an
annual gross income of at least $45,000 and a net worth of at least $45,000 or
(ii) a net worth of at least $150,000. No investor in Pennsylvania may invest
more than 10% of his net worth in a Series. Because the minimum closing amount
for each Series is less than $2,500,000, the amount suggested by Pennsylvania
regulations, prospective investors who are Pennsylvania residents are cautioned
to carefully evaluate the ability of the Fund to accomplish its stated
objectives and to inquire as to the current dollar volume of Series
subscriptions.
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ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use of
proceeds from the sale of the Units. As indicated therein, approximately 75.5%
of the total proceeds will be invested in Local Limited Partnerships. The
amounts in the table represent the Fund Manager's present estimates and the
actual amounts may be different.
Percentage Percentage
Minimum of Gross Maximum of Gross
Proceeds Proceeds(1) Proceeds Proceeds(1)
Gross Offering Proceeds (2)... $1,400,000 100.00% $50,000,000 100.00%
Less Public Offering Expenses:
Selling Commissions (3)....... 98,000 7.00% 3,500,000 7.00%
Dealer-Manager Fee (4)........ 28,000 2.00% 1,000,000 2.00%
Other Organizational and
Offering Expenses (4)....... 56,000 4.00% 2,000,00 4.00%
------------------- -------------------
Public Offering Expenses (5).. 182,000 13.00% 6,500,000 13.00%
Amount Available for Investment $1,218,000 87.00% $43,500,000 87.00%
========== ====== =========== ======
Acquisition Expenses (6)...... 21,000 1.50% 750,000 1.50%
Acquisition Fees (5)(6)....... 98,000 7.00% 3,500,000 7.00%
Working Capital Reserves (7).. 42,000 3.00% 1,500,000 3.00%
------------------- -------------------
Proceeds Invested (8)(9)...... $1,057,000 75.50% $37,750,000 75.50%
========== ====== =========== ======
(1) It is expected that all Capital Contributions as received, whether at the
time of subscription or as a result of payments of installments due under
the Promissory Notes, will be applied substantially in the percentages
indicated herein.
(2) Excludes one Unit purchased by the Initial Unitholder. Also excludes
interest on the unpaid principal balance of each Promissory Note which shall
be payable along with principal. See "Terms of the Offering and Plan of
Distribution." The amount of interest actually to be received by a Series
pursuant to Promissory Notes cannot be estimated, as it will depend on the
dates of receipt of the respective subscriptions and the amounts and dates
of payment of the Promissory Notes. Any such interest will constitute Cash
Flow, and as such may be used, in the discretion of
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the Fund Manager, to defray administrative costs, or to increase reserves or
the amount available for distribution to the Unitholders as Cash Available
for Distribution.
(3) For information concerning additional underwriting compensation payable by
the Fund, see "Terms of the Offering and Plan of Distribution." As is also
discussed in that section of this Prospectus, selling commissions may be
reduced for purchases of $100,000 or more by any "Purchaser" and Designated
Investors may purchase Units with a reduced sales commission. For the
purposes of this table, it has been assumed that the maximum selling
commissions will be paid.
(4) See "Management Compensation" and "Terms of the Offering and Plan of
Distribution."
(5) The portion of Public Offering Expenses and Acquisition Fees payable from
payments to be received on the Promissory Notes may only be paid as the
payments are actually received on the Promissory Notes.
(6) See "Management Compensation."
(7) See "Investment Objectives and Policies - Reserves."
(8) Proceeds Invested represents amounts payable for the acquisition of Local
Limited Partnership Interests. Portions of Proceeds Invested may be used to
repay the Fund Manager or its Affiliates amounts advanced by them (including
interest and carrying costs) to enable a Series to make initial investments
in Local Limited Partnership Interests prior to the sale of Units. See
"Investment Objectives and Policies - Investment Policies." The Local
General Partner of each Local Limited Partnership and/or his Affiliates may
retain as compensation, after deduction of amounts provided by the Local
General Partner or the Local Limited Partnership for the development of the
Apartment Complex, a portion of the Proceeds Invested, which will be
negotiated in each case and is anticipated to be equal to approximately 10%
to 30% (although in some cases it may be as much as 40%) of the cost of the
Apartment Complex. See "Investment Objectives and Policies - Investment
Policies." For each Apartment Complex being constructed or rehabilitated,
these costs will consist of the cost of the land (and building shell in the
case of a rehabilitation), construction costs, construction interest and
taxes, financing fees and developmental and organizational expenses.
(9) The Partnership Agreement requires that each Series commit, at a minimum, a
percentage of Capital Contributions to Investment in Local
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Limited Partnership Interests (defined in the Partnership Agreement to
include Reserves of up to 5% of Gross Proceeds as well as amounts used to
acquire interests in Apartment Complexes) which is equal to the greater of
(i) 80% of the Capital Contributions reduced by 0.1625% for each 1% of the
Series' allocable share of the mortgage financing encumbering the Apartment
Complexes or (ii) 70% of the Capital Contributions. For example, at a
leverage rate of 60%, the minimum Investment in Local Limited Partnership
Interests would be 70.25% of Capital Contributions ($983,500 of the minimum
Gross Offering Proceeds of $1,400,000), decreasing to a minimum of 70% of
Capital Contributions ($980,000) at a leverage rate of 62.15% and above.
Deferred Installments
Units are being offered at a price of $1,000 per Unit, with a minimum
investment of five Units ($5,000), except that employees of the Fund Manager and
its Affiliates, and/or investors in limited partnerships previously sponsored by
the Fund Manager may purchase a minimum of two Units ($2,000). Investors who
subscribe for fewer than 10 Units ($10,000) must pay the full amount of such
purchase price in cash upon subscription. However, investors who subscribe for
10 Units or more in any one Series may elect to pay only 50% of such purchase
price in cash upon subscription and the remaining 50% by the delivery of a
promissory note (the "Promissory Note") payable, together with interest, in a
single installment on (i) January 31, 1999, if the investor subscribes between
the date hereof and June 30, 1998, (ii) June 30, 1999, if the investor
subscribes between July 1, 1998 and December 31, 1998, or (iii) the later of the
date of subscription or January 31, 2000, if the investor subscribes after
December 31, 1998.
Promissory Notes will be (i) prepayable at any time in full (but not in
partial prepayments), without penalty or premium, (ii) secured by the respective
Unitholder's interest in the Series, and (iii) a full recourse obligation of the
respective Unitholder. If a Unitholder should fail to make the full amount of
the required payments on a Promissory Note, the Series would have the right to
recover by legal proceedings the amount of the Promissory Note remaining unpaid
from such Unitholder. In addition, the Series would have the right to foreclose
on the Units of such Unitholder under its security interest or to cause a resale
of one or more of such Unitholder's Units or to offset Series distributions
allocable to such Units under the provisions of Section 3.4.1 of the Partnership
Agreement. See "Summary of Certain Provisions of the Partnership Agreement." The
obligation of each Unitholder to pay his Promissory Note to the Series is
unconditional and involves certain risks. See "Risk Factors - Fund-Related Risks
- - Obligations for Capital Contributions."
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The Fund Manager and its Affiliates have substantial experience with respect
to the collection and application of deferred investor payments in their prior
limited partnerships. See "Management" and "Prior Performance Summary." Based on
this experience, the Fund Manager believes that deferred payment arrangements
can offer significant benefits to investors in direct participation programs
such as the Fund, notwithstanding the risks referred to above. A deferred
payment arrangement permits a more effective utilization of offering proceeds by
a partnership by minimizing the time during which unneeded investor funds are
held by the partnership. Rather than holding investor funds idle, or investing
them in low- yielding short-term government securities, it is more efficient to
match payments from investors with the partnership's actual needs for capital.
This allows investors to retain the use of their funds until needed by the
Series. Also based on this experience, however, the Fund Manager has concluded
that the administrative costs involved in processing and collecting promissory
notes make it advisable that such installment payment arrangements only be
available to purchasers of a significant amount of limited partnership
interests, and has determined that amount should be 10 Units ($10,000) or more
in the case of the Fund.
Business Development Plan. The Fund has adopted a business development plan
for the utilization of initial and deferred investor payments which takes into
account the historical patterns of deferred installment payments in connection
with investments in Local Limited Partnerships, such as those in which each
Series will invest, formed primarily to develop or substantially rehabilitate
Apartment Complexes which benefit from Government Assistance. No Series will
have a policy of deferring commitments for investments until receipt of
principal payments on the Promissory Notes; rather, each Series will seek to
make its investment commitments at the earliest possible date. However, as
discussed below under "Investment Objectives and Policies - Investment
Policies," each Series will normally make its capital contributions to each
Local Limited Partnership in stages over a period of one to two years, with each
contribution due when certain conditions regarding construction or leasing of
the Apartment Complex have been fulfilled.
For example (and solely for illustrative purposes), a Series' contribution
could be made over a one- to two-year period subject to satisfaction of some or
all of the following requirements: (1) reservation of Low Income Housing Credits
and receipt of Form 8609 (Low-Income Housing Credit Allocation Certification)
with respect thereto; (2) admission of the Series as a limited partner to the
Local Limited Partnership; (3) substantial completion of the Apartment Complex;
(4) receipt of a commitment for or closing of the construction loan; (5) receipt
of a commitment for or closing of the permanent loan; and/or (6) occupancy of
the Low Income Units by qualified tenants.
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There cannot be any assurance that payments required under the Promissory
Notes will be made when due, in which event the Fund Manager may attempt to
renegotiate the obligations of the Series or to obtain additional financing from
institutional or other lenders. The inability of a Series to perform its
obligations to a Local Limited Partnership could result in the dilution or
termination of a Local Limited Partnership Interest with resultant recapture of
previously-claimed Tax Credits and loss of expected future Tax Credits
pertaining to its Apartment Complex or legal actions by the Local General
Partners to require performance of such obligations and/or to recover their
damages and costs. The Fund Manager will seek to mitigate these risks by
attempting to negotiate certain protective provisions in the Local Limited
Partnership purchase agreements or commitments. Such provisions may include
extensions of the due dates for payment, releases from such commitments if
proceeds are not available, or dilution of a Local Limited Partnership Interest
to permit a reduced investment in an Apartment Complex. However, there is no
assurance that any of these mitigation measures could be successfully
implemented.
In the event that a Unitholder defaults on his obligation to pay the
deferred installments and interest when due, or any other Event of Default, as
defined in the Promissory Note, occurs he will face serious consequences,
including acceleration of his Promissory Note, loss of right to Tax Credits and
foreclosure and sale of his Units. Late installments will also be subject to the
payment of late charges. See "Summary of Certain Provisions of the Partnership
Agreement." In addition to a Unitholder's liability under his Promissory Note,
the Unitholder may also be liable to his Series or other holder of the
Promissory Note, as applicable, for any expenses incurred in enforcing their
respective rights.
The Partnership Agreement requires that the portion of Front-End Fees (e.g.,
selling commissions, Organizational and Offering Expenses and Acquisition Fees)
payable from payments to be received on the Promissory Notes may only be paid as
the payments are actually received on the Promissory Notes.
Prepayments and Temporary Investments. The Fund Manager anticipates that
some investors will not subscribe for a sufficient number of Units to qualify
for the use of the installment payment arrangement described above and that some
investors who do qualify will desire to pay for their Units in full upon
subscription or to later prepay their Promissory Notes to avoid or reduce
interest costs or otherwise in connection with their own financial planning. The
Fund Manager cannot predict the percentage of Fund equity which may be so paid.
The business development plan of the Fund contemplates that any such payments,
whether at the inception of the program or thereafter, will be applied in the
following order of priority: (i) to fund related amounts of Front-End Fees which
have been deferred as described in the preceding paragraph, and (ii) to make
Temporary Investments and applied as soon as practicable to Local Limited
Partnership investments and other deferred costs.
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Policies as to Pledges of Promissory Notes. The Partnership Agreement
precludes each Series from selling Promissory Notes prior to maturity, but
permits a Series to pledge and grant security interests in Promissory Notes as
security for any Series obligation. Such security interests in Promissory Notes
may be granted by a Series to secure its obligations to pay the deferred
portions of its capital contribution to the Local Limited Partnerships.
MANAGEMENT COMPENSATION
The following table summarizes the types, estimated amounts and recipients
of compensation to be paid to the Fund Manager and its Affiliates. Such
compensation was not determined by arm's-length negotiations. Further,
investment and management decisions which such persons make for the Series will
affect the amount of the compensation actually to be received. For example, one
of the limits on the Asset Management Fee payable by a Series to the Fund
Manager is based on the number of Apartment Complexes invested in which could
cause a conflict of interest because it could encourage the Fund Manager to
maximize the number of Apartment Complexes acquired. See "Conflicts of
Interest." Other than as set forth herein, no compensation is to be paid to the
Fund Manager or its Affiliates, and such compensation cannot be increased by
reclassifying into different categories fees or reimbursements which are in
excess of the limitations set forth herein.
Type of Compensation Estimated Maximum Amount
and Recipient of Compensation
Organizational and Offering Stage
Selling commissions payable to Up to 7% of the Capital Contribution
Dealer-Manager in the discretion of the Dealer-
Manager ($98,000 if 1,400 Units
are sold; $3,500,000 if all of the
Units are sold). (1)
Dealer-Manager Fee payable to Up to 2% of the Capital Contributions
Dealer-Manager ($28,000 if 1,400 Units are sold;
$1,000,000 if all of the Units are
sold). (1)
Nonaccountable Expense Reimbursement 1% of the Capital Contributions
payable to Dealer-Manager ($14,000 if 1,400 Units are sold;
$500,000 if all of the Units are
sold). (1)
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Accountable reimbursement of certain The Fund Manager and its Affiliates
Organizational and Offering Expenses will be reimbursed by each Series from
paid by the Fund Manager or its the Gross Proceeds for the actual
Affiliates amount of Organizational and Offering
Expenses advanced by them on behalf
of such Series and for salaries and
direct expenses of certain of their
employees in connection with the
organization and registration of such
Series. Such expenses may include
printing, legal, accounting, Escrow
Agent and depository fees, due
diligence expenses and other
accountable Organizational and
Offering Expenses. Notwithstanding,
the Fund Manager has agreed that
it will pay all other Organizational
and Offering Expenses (with the
exception of the 7% retail selling
commissions, the Dealer-Manager Fee
and the Nonaccountable Expense
Reimbursement) to the extent such
other expenses exceed an aggregate
amount equal to 3% of the Capital
Contributions. However, if and to
the extent Acquisition Expenses are
less than the maximum permitted
amount, as set forth below in this
table, the difference between the
actual Acquisition Expenses and
the maximum permitted amount of
Acquisition Expenses will reduce the
Fund Manager's obligation to pay such
Organizational and Offering Expenses,
but in any event the Fund Manager has
agreed to pay the amount of such
expenses in excess of 4.5% of the
Capital Contributions. In addition,
the Fund Manager has agreed to pay all
Organizational and Offering Expenses
(including the 7% retail selling
commissions, the Dealer-Manager Fee
and the Nonaccountable Expense
Reimbursement) in excess of 14.5% of
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the Capital Contributions. Each such
guaranty is without recourse to or
reimbursement by the Fund. ($42,000
if 1,400 Units are sold and the
maximum Acquisition Expenses are
reimbursed; $63,000 if 1,400 Units
are sold and no Acquisition Expenses
are reimbursed; $1,500,000 if
all of the Units are sold and the
maximum Acquisition Expenses are
reimbursed; $2,250,000 if all of the
Units are sold and no Acquisition
Expenses are reimbursed).
Acquisition Stage (2)
Acquisition Fee payable to the Up to 7% of the Capital Contribution
Fund Manager or its Affiliates (up to $98,000 if 1,400 Units are
sold; up to $3,500,000 if all of the
Units are sold). (3)
Reimbursement of Acquisition The Fund Manager and its Affiliates
Expenses paid by the Fund will be reimbursed by each Series
Manager or its Affiliates from the Gross Proceeds for the
actual amount of any of the
Acquisition Expenses (i.e., legal,
accounting and other expenses
pertaining to the negotiation and
acquisition of Local Limited
Partnership Interests) advanced by
them. These reimbursements plus all
other Acquisition Expenses will not
exceed 1.5% of Capital Contributions
($21,000 if 1,400 Units are sold;
$750,000 if all of the Units are
sold).
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Operating Stage
Asset Management Fees payable to An annual fee in an amount not to
the Fund Manager or its Affiliates exceed 0.2% of Invested Assets in
government-subsidized Local Limited
Partnerships which are subsidized
under one or more Federal, state
or local government programs. Actual
amounts will depend on the amount of
Invested Assets and are not
determinable at this time; however,
assuming the Apartment Complexes are
80% leveraged and all the Units
offered hereby are sold,
Invested Assets would be
approximately $195,000,000 and the
annual Asset Management Fee would be
approximately $390,000.
Property Management Fees payable Although not anticipated, the Fund
to the Fund Manager or its Affiliates Manager or its Affiliates may act as
the management and leasing agents
for some of the Local Limited
Partnerships. Actual amounts
are not determinable at this time,
but in any event would be at
Competitive rates for comparable
services, not to exceed 5% of gross
property revenues.
Reimbursement of Fund expenses The Fund Manager and its Affiliates
paid by the Fund Manager or its Affiliates will be reimbursed for the actual
amount of any of the Operating Cash
Expenses advanced by them. In no
event will reimbursements be
permitted for (i) services for which
the Fund Manager is entitled to
compensation by way of a separate
fee, (ii) rent, depreciation or
other such administrative items, or
(iii) salaries, fringe benefits or
travel expenses of a controlling
person of the Fund Manager. Actual
amounts are not determinable at
this time.
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Fund Manager's share of Cash 1% of Cash Available for Distribution
Available for Distribution Actual amounts will depend upon
results of operations of the Series
and are not determinable at this time.
SLP Affiliate's share of allocations Up to 0.1% of all allocations by Local
and operating cash distributions of Limited Partnerships of profits,
Local Limited Partnerships losses and Tax Credits and up to 1% of
distributions from operating cash
flow. Actual amounts will depend
upon the terms of the Local Limited
Partnership Agreement and the results
of the Local Limited Partnership's
operations and are not determinable
at this time. (4)
Local General Partner's share of In the event that the SLP Affiliate or
allocations and operating cash another Affiliate of the Fund Manager
distributions of any Local Limited becomes the Local General Partner of
Partnership in the event that an a Local Limited Partnership, such
Affiliate of the Fund Manager Affiliate may receive allocations by
(which may be the SLP Affiliate) the Local Limited Partnership of
becomes the Local General Partner profits, losses and Tax Credits and
of such Local Limited Partnership distributions from operating cash
flow. Actual amounts will depend
upon the terms of the Local Limited
Partnership Agreement and the
results of the Local Limited
Partnership's operations and are not
determinable at this time. (4)
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<PAGE>
Liquidation Stage (5)
Fund Manager's Subordinated Subject to the prior return of Capital
Disposition Fee Contributions to its Unitholders and
Fund Manager, and payment of the
Return on Investment, which includes
Tax Credits, to the Unitholders, a
Series may pay the Fund Manager from
the proceeds of Apartment Complexes
sold by Local Limited Partnerships,
a Subordinated Disposition Fee equal
to 1% of the sales price of the
Apartment Complexes. Actual amounts
will depend upon results of the sale
and are not determinable at
this time. (6)
Fund Manager's share of Sale or After its Unitholders have received
Refinancing Proceeds Sale or Refinancing Proceeds equal
to the amounts of their Capital
Contributions and their Return on
Investment, which includes Tax
Credits, and the Fund Manager has
received (i) Sale or Refinancing
Proceeds equal to the amount of its
Capital Contributions, and (ii) any
Subordinated Disposition Fee,
a Series will distribute any
additional Sale or Refinancing
Proceeds 90% to its Unitholders and
10% to the Fund Manager. Actual
amounts will depend upon the
amount of Sale or Refinancing
Proceeds received from Local Limited
Partnerships and are not determinable
at this time.
57
<PAGE>
Local General Partner's share of In the event that the SLP Affiliate or
distributions from a Sale or another Affiliate of the Fund Manager
Refinancing transaction by any Local becomes the Local General Partner of
Limited Partnership in the event that a Local Limited Partnership, such
an Affiliate of the Fund Manager Affiliate may receive distributions
(which may be the SLP Affiliate) from the Sale or Refinancing of the
becomes the Local General Partner of Local Limited Partnership's Apartment
such Local Limited Partnership Complex. Actual amounts will depend
upon the terms of the Local Limited
Partnership Agreement and the results
of Local Limited Partnership
operations and are not determinable
at this time. (4)
Interest in Fund (7)
Fund Manager's allocations of Generally, 1% of Profits and Losses
Profits and Losses for Tax for Tax Purposes and of Tax Credits,
Purposes and Tax Credits except that in the case of Profits for
Tax Purposes arising from a Sale or
Refinancing, the percentage may be
increased to as much as 10%,
calculated in accordance with the
Partnership Agreement. Actual amounts
allocable to the Fund Manager will
depend upon results of operations of
the Series and the Local Limited
Partnerships and are not determinable
at this time.
(1) All or a portion of these amounts will be reallowed to participating
Soliciting Dealers.
(2) In addition, the Fund Manager or its Affiliates may receive interest on
short-term loans to a Series to facilitate investments in Apartment
Complexes prior to the sale by the Series of that number of Units sufficient
to fund such purchases, or for other Series' purposes, subject to the
restrictions set forth in Section 5.3.1(ii) of the Partnership Agreement,
which provides that the maximum amount of interest charged on such loans
shall in no event exceed by more than 2% per annum the Prime Rate.
(3) Acquisition Fees to the Fund Manager and its Affiliates are subject to
reduction in the case of Unit purchases by Discount Investors, as discussed
under "Terms of the Offering and Plan of Distribution." Acquisition Fees
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<PAGE>
may also be reduced from time to time as deemed appropriate by the Fund
Manager in its sole discretion.
(4) Notwithstanding, the interest of the Fund Manager and each of its Affiliates
in cash to be distributed by the Partnership or by any Local Limited
Partnership from Cash Available for Distribution, from Sale or Refinancing
Proceeds, or from similar sources in the case of a Local Limited
Partnership, will not exceed, in the case of Cash Available for
Distribution, 10% of total Cash Available for Distribution and, in the case
of Sale or Refinancing Proceeds, after payment to the Limited Partners of an
amount equal to 100% of their Capital Contributions and their Return on
Investment, 15% of remaining Sale or Refinancing Proceeds.
(5) Liquidation Stage includes liquidations of investments in Apartment
Complexes.
(6) In compliance with the "blue sky" laws of certain states in which the Units
will be offered, a Subordinated Disposition Fee will be paid by a Series
with respect to the sale of an Apartment Complex only if the Fund Manager or
an Affiliate provides a substantial amount of services in the sales effort.
The Partnership Agreement does not specify the extent of the services which
will be required to satisfy this requirement, and the Fund Manager will
cause such a fee to be paid when it believes that it is appropriate to do
so.
(7) See "Profits and Losses for Tax Purposes, Tax Credits and Cash
Distributions."
CONFLICTS OF INTEREST
The interests of the Fund Manager and its Affiliates may conflict with the
interests of the Unitholders in various ways. These conflicts include:
Receipt of Fees and Other Compensation by the Fund Manager and its
Affiliates
The Fund Manager has absolute discretion with respect to transactions
involving the purchase, sale and management of the Series' investments in
Apartment Complexes which will result in the realization by the Fund Manager and
its Affiliates of fees, compensation and other income. See "Investment
Objectives and Policies," "Management Compensation" and "Summary of Certain
Provisions of the Partnership Agreement." Such compensation arrangements were
not negotiated at arm's length and may create conflicts between the interests of
the Fund Manager and its Affiliates and those of the Series and the Unitholders.
59
<PAGE>
For example, in connection with the sale of an Apartment Complex by a Local
Limited Partnership the consent of the SLP Affiliate and/or a Series may be
necessary. The Fund Manager and the SLP Affiliate may face a conflict in these
circumstances inasmuch as their share of Sale or Refinancing Proceeds and
Subordinated Disposition Fees from the transaction may be more or less than the
Fund Manager's expected share of Asset Management Fees which would be paid
absent the sale of the Apartment Complex. And by negotiating with Local General
Partners of partnerships in which the Series might invest for the Fund Manager
or its Affiliates to provide property management or leasing services to those
Local Limited Partnerships, the Fund Manager may cause it or its Affiliates to
earn property management or leasing fees from the Local Limited Partnerships, as
is permitted under the Partnership Agreement. The result of these conflicts
could be that a Series may make investments which are less desirable, or on
terms which are less favorable, to the Series than might otherwise be the case.
Other Business Activities of the Fund Manager and its Affiliates
The Fund Manager and its Affiliates have formed and are serving as general
partners of other public and private real estate limited partnerships and are
providing administrative and consulting services for other real estate limited
partnerships of which they were not the original managing general partners. See
"Management" and "Prior Performance Summary." In addition, the Fund Manager and
its Affiliates may in the future become general partners of other public or
private real estate limited partnerships and may become involved in other
business activities unrelated to the business of the Fund.
Under the Partnership Agreement, the Fund Manager is required to devote to
the affairs of each Series only such time as is necessary for the proper
performance of its duties under the Partnership Agreement. The duties of the
Fund Manager will be performed by its officers, directors and employees. None of
such persons are expected to devote their full time to the performance of such
duties. Therefore, conflicts may arise in the allocation of the time of the
officers, directors and employees of the Fund Manager among the activities of
each Series and the other activities of the Fund Manager. However, the Fund
Manager believes that it has sufficient personnel to fully discharge its duties
to the Series and to all other entities to which they are responsible. See
"Management."
Competition with the Fund Manager and its Affiliates with Respect to the
Purchase or Ownership of Properties
As noted above, the Fund Manager and its Affiliates are also general
partners of a substantial number of other real estate limited partnerships and
in the future may form and manage additional real estate entities. The other
existing partnerships
60
<PAGE>
have, and it is expected that any entities to be organized in the future will
have, the same or similar investment objectives as the Fund.
The Fund Manager might be presented with an investment opportunity which
might be availed of by a Series and one or more other entities (including the
other Series) which the Fund Manager or one of its Affiliates manages, in which
event the Series may be unable to consummate the investment. The decision as to
the particular entity which will make 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. If a particular investment is
determined to be suitable for more than one entity, priority generally will be
given to the entity having uninvested funds for the longest period of time;
except that an entity which was formed to invest primarily in apartment
complexes eligible for California or other state low income housing credits as
well as the Federal Low Income Housing Credit will be given priority over each
Series and other entities which are not seeking to provide such state tax
credits with respect to any investment which is eligible for such state tax
credits.
The Local General Partners and their Affiliates and the Fund Manager and its
Affiliates may presently own or may acquire interests in properties near or
adjacent to the Apartment Complexes in which a Series may invest. It is possible
that the value of properties in which such persons have interests may be
enhanced by their proximity to the Series' Apartment Complexes or that such
properties may be in competition with the Series' Apartment Complexes for
prospective tenants or purchasers. As a result, the interests of the Fund
Manager, the Local General Partners and their respective Affiliates may conflict
with those of a Series with respect to the acquisition of a Local Limited
Partnership Interest.
Other Transactions with Developers, Local General Partners, Lenders and
Joint Venturers
The Fund Manager anticipates that certain persons controlling or having
business dealings with the Local Limited Partnerships in which a Series invests,
such as general partners, developers and lenders, will be persons with whom the
Fund Manager and its Affiliates have entered into previous real estate
transactions and may enter into additional real estate transactions in the
future. The Fund Manager and its Affiliates may receive substantial
compensation, profits or other benefits in connection with such other
transactions, and, as a result, conflicts may arise between their interests and
the interests of the Fund. In this regard, the Fund Manager generally is
entitled to remove a Local General Partner without the consent of the
Unitholders. If the Fund Manager has other business dealings with the Local
61
<PAGE>
General Partner, the Fund Manager might be reluctant to do so under
circumstances which otherwise would warrant removal.
Representation in Tax Audit Proceedings
The Fund Manager has been designated the "Tax Matters Partner" of each
Series and is authorized and directed by the Partnership Agreement to represent
each Series and its Unitholders at the expense of the Series in connection with
all examinations of the Series' affairs by tax authorities, including any
resulting administrative or judicial proceedings. Such proceedings may involve
or affect the other Series and other partnerships and limited liability
companies for which the Fund Manager or an Affiliate acts as general partner or
manager. In such situations, the positions taken by the Fund Manager with
respect to the Series may have differing effects on the Series and the other
Series and such other entities.
Distribution of Units
No independent managing underwriter has been engaged for the distribution of
the Units. Furthermore, WNC Capital Corporation (the "Dealer-Manager"), an
Affiliate of the Fund Manager, may sell Units and will perform wholesaling
services for the Fund, and may not be expected to perform due diligence in the
same manner as an independent broker-dealer.
Joint Investments
A Series may invest in Local Limited Partnerships jointly with the other
Series or with other limited partnerships (including other limited partnerships
sponsored by the Fund Manager or its Affiliates) if the conditions set forth
under "Investment Objectives and Policies - Joint Investments" are met. There is
always a risk that joint venture partners will reach an impasse respecting the
activities of the joint venture. For example, because of the differing financial
positions of the co- venturers, it may be in the best interest of a Series to
sell a jointly-held Local Limited Partnership Interest at a time when it is in
the best interest of its co-venturer to retain such investment. In such event,
the Series may be unable to timely sell the Local Limited Partnership Interest.
Resolution of Conflicts of Interest
Other than the process described above relating to the acquisition of an
interest in a Local Limited Partnership when funds are available both from a
Series and another entity (including the other Series) sponsored by the Fund
Manager or its Affiliates, the Fund has not developed any formal process for
resolving conflicts of interest. However, the Fund Manager is subject to a
fiduciary duty to exercise good faith and integrity in handling the affairs of
each Series, which duty will
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<PAGE>
govern its actions in all such matters (see "Fiduciary Responsibility"), and is
subject to restrictions contained in the Partnership Agreement concerning the
manner in which investments may be made in Apartment Complexes and the manner in
which the Series will be operated (see "Investment Objectives and Policies").
While the foregoing conflicts could result in materially adverse effects on
the Unitholders, the Fund Manager, in its discretion, will attempt to mitigate
such potential adversity by the exercise of its business judgment in an attempt
to fulfill its fiduciary obligations. There can be no assurance that such an
attempt will prevent adverse consequences resulting from the numerous conflicts
of interest.
Lack of Separate Representation
The Fund, the Fund Manager and its Affiliates, and the Unitholders are not
represented by separate counsel. See "Legal Matters." All of the attorneys,
accountants and other experts performing services for the Fund also perform
services for the Fund Manager and its Affiliates. Following the termination of
the Offering, if any controversy arises in which the interests of a Series
appear to be in conflict with those of the other Series, or the Fund Manager or
its Affiliates, or in which the interests of a Series appear to be in conflict
with those of a Local Limited Partnership, other counsel would be retained for
one or more of the parties.
Organizational Diagram
The following diagram illustrates the relationships among the Fund, the Fund
Manager, certain other Affiliates and certain other parties:
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<PAGE>
Owner of WNC & Associates, Inc.
WNC Capital Corporation Fund Manager
(General Partner)
of
WNC Housing Tax Credit
Fund VI, L.P.,
Series 5 and Series 6
Limited Partners
of
Local Limited
Partnerships
In addition to the foregoing relationships, the Fund Manager and its
Affiliates have sponsored and are serving as general partners of other real
estate limited partnerships. See "Management" and "Prior Performance Summary."
FIDUCIARY RESPONSIBILITY
The Fund Manager is accountable to the Fund as a fiduciary. The Fund has
been advised by Counsel that the laws of the State of California govern the
fiduciary obligations of the Fund Manager to each Series and its Unitholders.
Under such laws, a general partner owes his partners the utmost good faith and
loyalty. The Partnership Agreement does not modify these fiduciary obligations
provided under California law. Rather, the Partnership Agreement expressly
provides that the Fund Manager (i) has fiduciary responsibility for the
safekeeping and use of all funds and assets of each Series, whether or not in
its immediate possession or control, and may not employ or permit another to
employ such funds or assets in any manner except for the exclusive benefit of
the Series; (ii) may not contract away its fiduciary duty under common law; and
(iii) may engage in other business activities independent of the Series provided
that the right to engage in such activities does not relieve it of its general
fiduciary obligation to the Series.
Under California law and subject to certain conditions, a limited partner
may institute legal action on behalf of a partnership (a partnership derivative
action) to
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<PAGE>
recover damages from third parties or to recover damages for a breach by a
general partner of its fiduciary duty. In addition, a limited partner may
institute a legal action on behalf of himself and all other similarly situated
limited partners (a class action) to recover damages for a breach by a general
partner of its fiduciary duties, subject to California rules of general
applicability with respect to class actions. In any such action, the Fund
Manager may assert defenses based on the exculpation provisions in the
Partnership Agreement described in the following paragraph. If the Fund Manager
demonstrates that it satisfied such exculpation standards, it would be deemed
not to have breached its fiduciary obligation. This area of the law is changing
and developing and investors who have questions concerning the duties of the
Fund Manager to the Series should consult with their counsel.
The Partnership Agreement exculpates each Person who is a Sponsor from
liability for acts or omissions that any of them performs in good faith and in a
manner the Sponsor reasonably believes to be within the scope of authority
granted to it and in the best interest of the Series, provided such conduct did
not constitute negligence or misconduct of such Sponsor. The Partnership
Agreement also indemnifies such Sponsor against liabilities for losses to a
Series resulting from errors in judgment or other acts or omissions, whether or
not disclosed, provided such conduct did not constitute negligence or misconduct
of such Sponsor and were the result of a course of conduct which such Sponsor,
in good faith, determined was in the best interests of the Series. See Section
5.8 of the Partnership Agreement. As a result of the exculpation and
indemnification provisions in the Partnership Agreement, a Unitholder may have a
more limited right of action than he would otherwise have had in the absence of
such provisions. In the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act of 1933 is
against public policy and therefore unenforceable.
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INVESTMENT OBJECTIVES AND POLICIES
Principal Investment Objectives
The Fund's principal investment objective is to provide tax benefits in the
form of:
(a) A predictable stream of Tax Credits which Unitholders may use
to offset their Federal income tax liabilities, subject to
certain specific limitations. The Fund intends to invest in
Local Limited Partnerships with a view to realizing Tax
Credits of from $1,100 to $1,300 per Unit.
(b) Losses for Tax Purposes which (i) individuals, S Corporations
and personal service C Corporations may use to offset passive
income, (ii) closely-held C Corporations may use to offset
income other than portfolio income and (iii) all other C
Corporations may use to offset any type of income.
In addition the Fund will seek, to the extent feasible, to preserve and
protect the Fund's invested capital and to return such capital through cash
distributions resulting from Sale or Refinancing transactions. See "Sale or
Other Disposition of Investments" below.
If the Fund satisfies its investment objective, for example, by providing
tax credits equal to 12% of a Unit's purchase price each year for 10 years, an
investor would have to receive a return of from 16.5% to 20% (depending on the
investor's marginal tax bracket) from an investment in a taxable investment
vehicle to have the same after-tax results.
THERE CAN BE NO ASSURANCE THAT THESE INVESTMENT OBJECTIVES WILL BE
ACHIEVED. IN ADDITION, THE DEGREE OF ACHIEVEMENT OF THE FUND'S OBJECTIVES MAY
VARY BETWEEN THE SERIES.
NOT TO BE USED IN ARIZONA, MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI,
NEBRASKA, PENNSYLVANIA, TENNESSEE OR TEXAS
66a
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Principal Investment Objectives
The Fund's principal investment objective is to provide tax benefits in the
form of:
(a) A predictable stream of Tax Credits which Unitholders may use
to offset their Federal income tax liabilities, subject to
certain specific limitations.
(b) Losses for Tax Purposes which (i) individuals, S Corporations
and personal service C Corporations may use to offset passive
income, (ii) closely-held C Corporations may use to offset
income other than portfolio income and (iii) all other C
Corporations may use to offset any type of income.
In addition the Fund will seek, to the extent feasible, to preserve and
protect the Fund's invested capital and to return such capital through cash
distributions resulting from Sale or Refinancing transactions. See "Sale or
Other Disposition of Investments" below.
It is not an investment objective of the Fund to provide significant amounts
of cash distributions from operations, and any such distributions can be
anticipated only where a particular Apartment Complex is subject to relatively
lower mortgage financing or includes units which are not intended to be eligible
for Tax Credits.
THERE CAN BE NO ASSURANCE THAT THESE INVESTMENT OBJECTIVES WILL BE
ACHIEVED. IN ADDITION, THE DEGREE OF ACHIEVEMENT OF THE FUND'S OBJECTIVES MAY
VARY BETWEEN THE SERIES.
TO BE USED ONLY IN ARIZONA, MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI,
NEBRASKA, PENNSYLVANIA, TENNESSEE OR TEXAS
66b
<PAGE>
At such times during the negotiations for a specific investment as the Fund
Manager believes a reasonable probability exists that the investment will be
acquired by a Series, this Prospectus will be supplemented to disclose the
negotiations and pending investment. Any such supplement will set forth
available data with respect to the investment, including the proposed terms of
purchase, a description of the Apartment Complex and other information
considered appropriate for an understanding of the transaction.
The consummation of any acquisition that is not covered by binding
agreements will be subject to further negotiation with the developer and
execution of a final agreement. Such final agreement may differ in material
respects from prior understandings or agreements between the developer and the
Series. The acquisition or retention of each investment will also be subject to
various terms and conditions of closing, including the receipt of satisfactory
closing documentation, and to the receipt of sufficient Net Proceeds of the
Series which is to make the investment. Accordingly, there can be no assurance
that any potential Apartment Complex investment initially disclosed in a
supplement to this Prospectus will ultimately be acquired, nor that the terms of
any acquisition will not differ substantially from those which were initially
disclosed.
Low Income Housing Credits will be available for an Apartment Complex over a
10-year period commencing with the date that the Property is placed in service
and otherwise meets the requirements for the credit. Although Unitholders are
expected to be allocated Low Income Housing Credits beginning in the year they
are admitted to a Series, it is also expected that the amount of Low Income
Housing Credits available to Unitholders will be higher in subsequent years
because of the time that is necessary for the Fund Manager to identify the Local
Limited Partnerships in which a Series will invest and for such Local Limited
Partnerships to complete construction of their respective Apartment Complexes.
However, any reduction in Low Income Housing Credits in the first and second
years of a Series is expected to result in additional Low Income Housing Credits
in the tenth and eleventh years of a Series.
The Fund Manager believes that each Series will be able to acquire a
sufficient number of Local Limited Partnership Interests at a purchase price
which will enable the Series to provide the amounts of Tax Credits anticipated
at commencement of the Series Offering. This belief is based upon the general
knowledge that the management personnel of the Fund Manager have with respect to
the current and past purchase prices for properties that are eligible for Tax
Credits. In negotiating the purchase price to be paid by a Series for its
interest in a Local Limited Partnership, the Fund Manager will determine the
portion of the Net Proceeds that can be paid for such interest which will enable
the Unitholders to receive the anticipated amount of Tax Credits. The Fund
Manager will take into consideration the possibility that a Local Limited
Partnership will not provide all of the Tax
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Credits that are expected, and the purchase price paid by the Series for that
interest will be reduced to take into account the possibility that the full
amount of the Tax Credits will not be delivered. Prospective investors should
note that, to the extent a Series does not make Distributions of Sale or
Refinancing Proceeds and Cash Available for Distribution in respect of a Unit
equal to the $1,000 purchase price of the Unit, the Tax Credits generated by the
Series would in effect represent a return of (and not a return on) the
investor's investment in the Series.
Among other things, the Fund Manager's estimate of the amount of Tax Credits
that will be provided by each Series is based upon the assumption that
investment demand for Apartment Complexes receiving Tax Credits does not
increase the price for Local Limited Partnership Interests. In the recent past,
heightened demand for, and a reduced supply of, Local Limited Partnership
Interests has increased the purchase price thereof. Further increases could
impair the ability of the Fund to provide investors with the anticipated amount
of Tax Credits. See "Risk Factors Investment Risks - Keen Competition for
Investments."
The Fund Manager's estimate of the amount of the Tax Credits that will be
provided by each Series is based upon additional assumptions, including, that
(a) no tax laws or regulations (and court interpretations thereof) will be
enacted or adopted in the future which would adversely affect the tax positions
of the Series; (b) the Apartment Complexes will qualify for the anticipated Tax
Credits at the appropriate times; (c) 100% of the cost of the Low Income Units
in each Apartment Complex will qualify for the low-income housing credit base;
(d) the Low Income Units in each Apartment Complex will be rented to eligible
tenants; (e) the "qualified basis" of each Apartment Complex for purposes of
calculating the Tax Credits will not decrease during the 15-year Initial
Compliance Period and each Local Limited Partnership will continually meet the
rental and occupancy tests for the Low Income Units during the Initial
Compliance Period; (f) payments to Local General Partners or their Affiliates
for their services to the Local Limited Partnerships in connection with the
development of the Low Income Units will be included in the eligible tax credit
base; and (g) in the case of an existing Apartment Complex, the acquisition
thereof will constitute a "purchase" for purposes of Code Section 42. See "The
Low Income Housing Credit."
Events subsequent to the acquisition of Local Limited Partnership Interests
could materially affect a Series' ability to provide all of the anticipated Tax
Credits. For example, Tax Credits will be less than anticipated if there is a
change in the present value calculation (which is based, pursuant to IRS
regulations, on current interest rates) at the time the Apartment Complex is
placed in service or if the expenditures by the Local General Partners to
develop the Low Income Units, or other factors, cause the "qualified basis" to
be less than anticipated. The amount of Tax Credits achieved could also be
materially and adversely affected by the failure of any other of the assumptions
mentioned in the preceding paragraphs. See "Risk Factors -
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Risks Related to Tax Credits." However, as discussed below in this section under
"Terms of the Local Limited Partnership Agreements," the Local Limited
Partnership Agreements will include various "adjuster" provisions intended to
reduce the adverse consequences to a Series if such subsequent events occur by
reducing the Series' required capital contribution to the affected Local Limited
Partnership.
The foregoing investment objectives are set forth in the Partnership
Agreement and can only be changed by an amendment to the Partnership Agreement.
An amendment to a Series' investment objectives may be made with the approval of
Unitholders owning more than 50% of the Units in the Series unless the amendment
would adversely affect the limited liability of a Unitholder of the Series or
the rights, powers, duties or compensation of the Fund Manager or any of its
Affiliates, in any of which events it will also require the consent of such
persons. See "Risk Factors - Fund-Related Risks - Risks Related to Exercise of
Unitholder Voting Rights." Further, in the event that recent changes in the
Federal income tax laws are not interpreted in the way in which the Fund Manager
has interpreted such provisions or in the event other changes occur which would
materially and adversely affect the ability of a Series to attain its investment
objectives by pursuing the investment policies described below, the Fund Manager
may be required to make certain modifications to such investment policies,
subject to the restrictions set forth in the Partnership Agreement, so as to
afford the Series a better opportunity to achieve its investment objectives.
Investment Policies
Investment Criteria. In selecting Apartment Complexes the Fund Manager will
evaluate, among other factors: the amount of Tax Credits which are anticipated;
the amount of cash flow from operations, if any, which is anticipated; the
location of the Apartment Complex; general rental market conditions in the area
of the Apartment Complex (including vacancy rates and information as to the
numbers of people who meet the income standards required to be met by tenants in
the area so that the Apartment Complex would be able to qualify for the Low
Income Housing Credits); the expenses, rental rates and costs of construction of
the Apartment Complex and comparable apartment complexes; the data supplied to
the agency providing government financing subsidies or other lender; the
financial strength of the Local General Partners; the prior performance of the
Local General Partners; the experience and prior performance of the property
manager for the Apartment Complex; the types of guarantees which can be obtained
from Local General Partners or other sellers or developers; and the prior
experience and reputation of the builder and architect of the Apartment Complex.
In the event that the potential investment is in an older Apartment Complex, the
Fund Manager will investigate the physical condition of such Property, including
obtaining an engineering report
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if it determines that it is in the best interest of the Series to do so, and
will review the current rent roll of the Apartment Complex.
The criteria for selecting a particular investment of a Series will include
the following:
(1) The Apartment Complex must be completed, under development or in the
process of being rehabilitated.
(2) The Apartment Complex must not have been placed in service prior to
January 1, 1990 so that the limitations on utilization of the Low Income Housing
Credits determined with regard to a taxpayer's adjusted gross income (see
"Federal Income Tax Considerations - Limitations on Losses and Credits from
Passive Activities") will not apply to Unitholders.
(3) In the case of a new construction or rehabilitation Apartment Complex,
no substantial part of the Series' investment shall be made prior to receipt of
a commitment for the construction loan and no more than 75% of the Series'
investment shall be made prior to receipt of a commitment for the permanent loan
for the Apartment Complex.
(4) With respect to a Local Limited Partnership owning an Apartment Complex
which is to qualify for Low Income Housing Credits, the Local Limited
Partnership must represent that at least 40% of the residential units comprising
the Apartment Complex will be Low Income Units and, with respect to each Local
Limited Partnership, the Local Limited Partnership must agree to provide the
Series with the amount of Tax Credits anticipated to be received as a result of
the ownership of the Apartment Complex.
(5) In no case shall the Series invest in any Local Limited Partnership of
which, at the date of initial investment, the Fund Manager or any Affiliate of
the Fund Manager is a Local General Partner or an Affiliate of a Local General
Partner, or otherwise has an interest therein, except as provided in Sections
5.2.2(vii), 5.3.2(i) and/or Section 5.3.1(viii) of the Partnership Agreement.
As a condition to the Partnership's becoming a limited partner or member of
a Local Limited Partnership, the Fund Manager will seek to ascertain the status
of certain matters with respect to such Local Limited Partnership. These matters
are expected to include (i) assurance that the Local Limited Partnership has
title to its Apartment Complex, (ii) assurance that the Local Limited
Partnership is duly formed as a limited partnership or limited liability company
under the laws of its state of origin and (iii) receipt of an opinion of counsel
for the Local Limited Partnership as to the limited liability of the Series as a
limited partner or member thereof. Such counsel's opinion will also include, or
permit the Fund's counsel to
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deliver to the Series, an opinion that the Local Limited Partnership is a
partnership for Federal income tax purposes, that the allocation provisions of
the Local Limited Partnership Agreement will not be significantly modified by
the IRS and, based on the assumption that the Local Limited Partnership will
operate as represented by the Local General Partners, that the Apartment Complex
will qualify for the anticipated Tax Credits.
A Series will not acquire any Local Limited Partnership Interest unless the
Series has received, with respect to the Apartment Complex of such Local Limited
Partnership, either (i) an appraisal prepared by a competent, independent
appraiser or (ii) RD Forms 1924-13 (estimate and certificate of actual cost) and
1930-7 (statement of budget, income and expense) or HUD project cost and budget
analysis on Form 2264, or a comparable form of any successor of RD or HUD or of
a state or other governmental agency, including any applicable Tax Credit
allocation agency, setting forth estimates with respect to construction and
mortgage financing costs and initial rental income and operating expenses, which
in either case will be maintained in the Series' records for at least five
years, and shall be available for inspection and duplication by any Unitholder.
Each Series intends to invest only in Local Limited Partnerships which will
arrange for comprehensive insurance coverage for their Apartment Complexes,
including liability, fire and extended coverage, of the type which is
customarily obtained for similar properties. See, however, "Risk Factors -
Investment Risks Possibility of Uninsured Losses."
Eligibility for Low Income Housing Credits. Each Series will invest in Local
Limited Partnerships which own and operate Apartment Complexes which are
expected to be eligible for the Low Income Housing Credits and/or Historic
Credits. With respect to Apartment Complexes which will generate Low Income
Housing Credits, at a minimum, at least (i) 40% of the residential units in each
Apartment Complex, and (ii) 70% of the total number of residential units in all
of the Apartment Complexes, in which a Series invests shall be expected to be
Low Income Units.
Historic Tax Credits. Certain of the Local Limited Partnerships in which a
Series invests may own Apartment Complexes which qualify for Historic Tax
Credits in addition to, or instead of, Low Income Housing Credits. Historic Tax
Credits are available for certain rehabilitation expenditures incurred in
improving certified historic structures. If an expenditure is a qualified
rehabilitation expenditure, the Historic Tax Credit is generally equal to 20% of
such expenditure. Unlike Low Income Housing Credits, the full amount of the
Historic Tax Credit is claimed in the year in which the rehabilitated structure
is placed in service. The Historic Tax Credit is more fully discussed in
"Federal Income Tax Considerations Historic Tax Credit" and "- Historic Tax
Credit Recapture."
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Types of Properties. Each Series might invest in two basic types of
Apartment Complexes. The first type consists of newly-constructed or
substantially rehabilitated Apartment Complexes which generally will be
comprised of a number of buildings containing a total of from 15 to 200
apartment units. These projects will be financed either by the U.S. Department
of Agriculture, Rural Development ("RD") (formerly, the Farmers Home
Administration of the U.S. Department of Agriculture), under the Home Investment
Partnership program ("HOME"), or with the proceeds of tax-exempt bonds or of
state and local bonds which are not tax-exempt, or with other
below-market-interest-rate indebtedness, and may also receive rental assistance.
The second type consists of newly-constructed or substantially rehabilitated
Apartment Complexes without Federal or state government subsidies, but which
otherwise qualify for Tax Credits, including single-room occupancy complexes.
Location of Properties. The Apartment Complexes may be located in any of the
United States, territories, or islands which are possessions of the United
States. Apartment Complexes financed or assisted by RD will be located in towns
of under 50,000 population. HUD-assisted Apartment Complexes will be located in
cities with medium to large populations. Other Apartment Complexes may be
located in urban, suburban or rural areas. It is the Fund Manager's intention to
seek as much diversity as reasonably possible in the locations of the Apartment
Complexes; however, a Series' ability to provide such diversification will be
substantially influenced by the amount of the Net Proceeds of its Offering and
the purchase prices of Local Limited Partnership Interests. See "Number of
Investments" below and "Risk Factors - Investment Risks - Risks of Limited
Diversification" and "Keen Competition for Investments." The Fund does not
intend to invest in any distressed low-income areas with a high risk of property
deterioration and neighborhood instability, but may invest in renewal areas
where the Fund Manager believes there to be a strong probability of economic
success.
Number of Investments. The number of different Apartment Complexes in which
a Series will be able to invest will depend on the amount of the Net Proceeds
from the sale of Units and the purchase prices of Local Limited Partnership
Interests. If only the minimum $1,400,000 of Capital Contributions for a Series
is received, it is expected that the Series would invest in three to five
Apartment Complexes. If the maximum Capital Contributions for a Series is
received, the number of Apartment Complexes in which the Series would invest
would be substantially greater. In each instance the actual number of Apartment
Complexes will vary depending on the purchase price of interests in the Local
Limited Partnerships. The Fund does not have a policy, and there is no
limitation, as to the amount or percentage of a Series' assets which may be
invested in any one Local Limited Partnership or group of Local Limited
Partnerships or Local Limited Partnerships with which any person or group of
persons is affiliated.
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Timing of Investments. Subject to the limitations below, a Series may make
or commit to investments in Apartment Complexes at any time, including a time
prior to the commencement or completion of its Offering. See "Risk Factors -
Investment Risks - Risks of Investments Prior to the Sale of Units." The Fund
Manager will attempt to mitigate the risks accompanying investments or
commitments made in anticipation of the receipt of Offering proceeds by
appropriately limiting such investments and commitments and by attempting to
negotiate certain protective provisions in the related agreements or
commitments. Such provisions may include extensions of the due dates for
payment, releases from such commitments if proceeds are not available, or
dilution of a Local Limited Partnership Interest to permit a reduced investment
in an Apartment Complex.
Any of the Capital Contributions of the Offering of a Series which the
Series has not invested or committed to investment in Apartment Complexes within
the later of (i) 24 months from the date of commencement of the Series' Offering
or (ii) 12 months after termination of the Offering, except for amounts set
aside for Reserves, will be returned by the Series to its Unitholders without
reduction for Front-End Fees; and Capital Contributions so returned to
Unitholders will constitute a return of capital and will not reduce the
aggregate interest in the Series allocated to the Unitholders. Any funds with
respect to the investment of which a Series has executed a written agreement in
principle, commitment letter, letter of intent or understanding, option
agreement or other similar understanding or contract or which the Series has set
aside as a reserve for contingent payments as of the later of (i) the date 24
months after the date of the commencement of the Series' Offering or (ii) the
date twelve months after the termination of the Offering, will be deemed
committed to investment on that date and will not subsequently be returned to
the Unitholders even if the investment of such funds is not consummated or the
contingent payments are not made.
Until required by a Series for use in connection with its business and
operations as described in this Prospectus, all funds received out of the escrow
account described under "Terms of the Offering and Plan of Distribution" or in
payment of the Promissory Notes will be held by the Series in United States
government securities, securities issued or fully guaranteed by United States
government agencies, certificates of deposit and time or demand deposits in, or
repurchase agreements constituting obligations of, commercial banks with
deposits insured by the Federal Deposit Insurance Corporation or other
short-term, highly-liquid investments ("Temporary Investments"). The rate of
return on such types of investments has fluctuated widely in recent years and
may be significantly more or less than that obtainable from investments in
Apartment Complexes. The Net Proceeds will not be segregated or held separate
from other funds of the Series pending investment, and no interest will be
payable to the Unitholders if uninvested funds are returned to them upon the
expiration of the 24-month period described above.
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Payment for Investments. A Series will normally make its capital
contributions to a Local Limited Partnership in stages over a period of from one
to two years, with each contribution due when certain conditions regarding
construction or operation of the Apartment Complex have been fulfilled. For
example (and solely for illustrative purposes), the Series' contribution could
be made over a one- to two-year period subject to satisfaction of some or all of
the following requirements: (1) reservation of Low Income Housing Credits and
receipt of Form 8609 (Low Income Credit Allocation Certification); (2) admission
of the Series as a limited partner or member in the Local Limited Partnership;
(3) receipt of a commitment for or closing of the construction loan for its
Apartment Complex; (4) substantial completion of the Apartment Complex; (5)
receipt of a commitment for or closing of the permanent loan; or (6) occupancy
of the Low Income Units by qualified tenants. In connection with the acquisition
of an interest in a Local Limited Partnership owning a completed project, a
Series may make its capital contribution in stages, as described above, or in
full at the time of its acquisition of such interest. Payments made by a Series
or released from escrow to a Local Limited Partnership will generally be made
subject to receipt of representations and warranties of the Local General
Partners to the effect that there is no material default by the Local Limited
Partnership under any mortgage loan or under any other material agreements in
respect of the Apartment Complex. See "Terms of the Local Limited Partnership
Agreements" below in this section.
Once an investment has been selected, the Fund Manager's asset management
personnel will monitor the Apartment Complex monthly to determine compliance
with construction and rent-up schedules. After stabilized occupancy has been
achieved, quarterly reviews and annual on-site visits will be conducted to
monitor building maintenance, occupancy and other operations and maintenance of
reserves.
In determining whether or not to acquire an interest in a Local Limited
Partnership, a Series may make a loan to the Local Limited Partnership prior to
acquiring the interest. Any such loan must be on a short-term basis (not to
exceed one year) and must, unless earlier repaid, be repaid from the Series'
initial capital contribution to the Local Limited Partnership. The amount of any
such loan may not exceed 50% of the total capital contribution to be made to the
Local Limited Partnership.
In the event a Local Limited Partnership as to which no investment is made
fails to repay a loan to a Series, the amount of the Net Proceeds of a Series
available for investment in other Local Limited Partnerships would be reduced.
See "Risk Factors - Investment Risks - Risks of Loss of Loans Made to Local
Limited Partnerships."
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The Local General Partners
Under the terms of the respective Local Limited Partnership Agreements, the
Local General Partners will operate and control the business of the Local
Limited Partnerships, and the role of a Series will be limited to that of a
limited partner or non-managing member. Hence, the experience and the financial
condition of the Local General Partners will be crucial to the success of any
investment by a Series in a Local Limited Partnership.
Financial Condition and Experience of Local General Partners. Prior to any
investment in a Local Limited Partnership, the Fund Manager will obtain from the
Local General Partners financial statements (which may be unaudited) and
information and representations with respect to the prior experience of the
Local General Partners in connection with real estate development. Except in the
case of non-profit organizations, the Local General Partners and any Affiliate
guaranteeing the obligations of any Local General Partner generally will be
required to demonstrate to the reasonable satisfaction of the Fund Manager an
aggregate net worth which is in an amount deemed appropriate by the Fund Manager
and which is sufficiently liquid or otherwise readily available to be able to
protect the Local Limited Partnership in view of the size and scope of its
Apartment Complex, the obligations of the Local General Partners and their
Affiliates to the Local Limited Partnership, any security or other assurances or
measures taken to perform such obligations and the material contingent
liabilities of the Local General Partners. A Series may invest in a Local
Limited Partnership whose Local General Partner does not satisfy the foregoing
standard if the Fund Manager determines that there are adequate alternative
forms of assurance protecting the Local Limited Partnership. Notwithstanding the
preceding, there cannot be any assurance that full disclosure in this regard
will be made by Local General Partners, or that their financial condition will
not adversely change during the course of a Series' investment in such Local
Limited Partnership.
Real estate development organizations which specialize in construction and
ownership of apartment complexes of the type in which the Fund expects to invest
are typically closely-held entities which depend, for their successful
management and operation, on one or a very limited number of principal owners.
In a typical Apartment Complex the principal owners of the development
organization will, directly or through various entities controlled by them,
provide rent-up, property management and other services involved in the
development and ownership of such Apartment Complex, and possibly will also,
through a separate entity, construct the Apartment Complex. Except in the case
of non-profit organizations, the principal owners of the development
organization will usually be the Local General Partners; in cases acceptable to
the Fund Manager an Affiliate of the principal owners will be the Local General
Partner, and all or some portion of its obligations under the Local Limited
Partnership Agreement may be guaranteed by the principal owners
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or by one or more of their Affiliates. For purposes of this Prospectus, the term
"Local General Partners" may include the various individuals and entities
comprising the development organization which has organized and is operating the
respective Local Limited Partnership.
Compensation of Local General Partners. The Local General Partners will
receive fees from the Local Limited Partnership in consideration of the
construction and development of the Apartment Complex, management of such
partnership and the Apartment Complex, their agreement to fund certain deficits
discussed below, the initial rent-up of the Apartment Complex, and for other
services rendered to such partnership, which may include a sales preparation fee
and/or real estate commission for services rendered with respect to sale of the
Apartment Complex. For a discussion of certain of these fees, see "Estimated Use
of Proceeds."
Withdrawal of Local General Partners. Each Series intends to invest only in
Local Limited Partnerships in which an experienced real estate developer will
agree to supervise management of the Apartment Complex or to serve as the
managing general partner for a period of time acceptable to the Fund Manager.
Under the terms of each Local Limited Partnership Agreement, the Local General
Partner will not be permitted to withdraw from the Local Limited Partnership
without the consent of the Series, unless a designated successor acceptable to
the Series is admitted in its place, or unless a successor meeting certain
specified criteria established in the Local Limited Partnership Agreement is
admitted in its place.
Terms of the Local Limited Partnership Agreements
It is anticipated that in each instance the Local Limited Partnership
Agreement will be negotiated by the Fund Manager in such a manner as to impose
on the Local General Partners significant responsibilities with respect to the
Apartment Complex. The precise terms of such responsibilities, and the
limitations thereon, will be subject to negotiation. However it is anticipated
that the terms of each Local Limited Partnership Agreement may include the
provisions described below.
Development Obligation. In the case of a new construction or rehabilitation
property, the Local General Partners will agree to provide all funds needed
through the completion of the construction or rehabilitation of the Apartment
Complex and the closing of its long-term mortgage financing, after applying
mortgage loan proceeds and the Series' capital contribution (net of fees payable
to the Local General Partners and their Affiliates). Funds so provided may or
may not be reimbursable by the Local Limited Partnership. In the event of the
failure of the Local General Partners to perform those obligations, the Local
General Partners or their Affiliates will be in default pursuant to the terms of
the Local Limited Partnership Agreement, and may be removed from the Local
Limited Partnership by the Series.
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Operating Guarantees. The Local Limited Partnership Agreement will typically
impose obligations on the Local General Partners to provide funds to the Local
Limited Partnership to defray any operating deficits for a minimum of four years
following the completion of the construction or rehabilitation of the Apartment
Complex or to create a reserve to provide a source of payment of such deficits.
The Local General Partners may or may not be entitled to reimbursement of such
funds by the Local Limited Partnership. A Series may invest in Local Limited
Partnerships for which such operating guarantees are not required if the Fund
Manager determines that there are adequate alternative forms of assurance
protecting the Series' investment in the Local Limited Partnership.
Protection Against Reduction or Loss of Tax Credits. To reduce the adverse
consequences which a Series would experience in the event that the amount of the
Tax Credits actually allocated to the Series should be less than the amount
represented when the investment was made, the Local Limited Partnership
Agreement will include so-called "adjuster" provisions designed to provide the
Series with a substantially similar aggregate return on investment as would have
been received had the Tax Credits been as originally anticipated. Such
provisions may adjust any one or more of the following: the required capital
contribution by the Series, the Local General Partners' share of the cash
available for distribution of such Local Limited Partnership, the development
fee, the property management fee or partnership administration fee payable to
the Local General Partners or their Affiliates, or the Series' share of Sale or
Refinancing proceeds of such Local Limited Partnership. While the intention is
to require the adjuster provisions described in this paragraph, such provisions
may not be included in each Local Limited Partnership Agreement if the Fund
Manager considers one or more of such provisions to be unnecessary for the
protection of the Series or if the Fund Manager determines that it is otherwise
in the interest of the Series to modify or eliminate such provisions. For
example, such adjuster provisions may be modified or eliminated in connection
with the acquisition of an interest in a Local Limited Partnership which owns a
completed Apartment Complex.
Each Local General Partner will covenant to take no action which would cause
a termination or discontinuance of the qualification of an Apartment Complex as
a "qualified low-income housing project" under Code Section 42(g)(1) or which
would cause the recapture of any Tax Credit under the Code without the consent
of the Series. In addition, the Local General Partner of a Local Limited
Partnership which owns a Property which is not receiving government financing or
operating subsidies will be obligated to pay to the Series an amount equal to
any Low Income Housing Credit which is recaptured as a result of any Low Income
Unit ceasing to qualify for Low Income Housing Credits (see "The Low Income
Housing Credit") or to furnish such other safeguards as the Fund Manager
determines are appropriate to protect the Series and the Unitholders against the
consequences of recapture.
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Prospective investors should note that, to the extent the Fund Manager is
successful in negotiating guarantees, undertakings and assurances from the Local
General Partners of the nature described in this Prospectus or otherwise, the
prices paid by a Series for its Local Limited Partnership investments may be
marginally higher than would otherwise be the case.
Rights of Limited Partner. As a limited partner or non-managing member of a
Local Limited Partnership, a Series will have no right to manage the operations
of such partnership. However, each Local Limited Partnership Agreement will
provide the Series with certain voting rights, including the right, in each case
without the concurrence of the Local General Partners, to replace the Local
General Partner on the basis of the performance and discharge of the Local
General Partner's obligations, 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 in the Local Limited Partnership.
Nonetheless, in the case of Apartment Complexes which are government assisted,
the ability of the Series to take such actions may be subject to the prior
approval of the government agency providing such assistance (see "Other
Government Assistance Programs" below and "Risk Factors - Investment Risks -
Risks of Government-Subsidized Housing Projects"). Similarly, each Local Limited
Partnership Agreement will provide the Series with certain other rights,
including rights relating to the calling of meetings, reports to holders of
limited partnership interests and access to records comparable to those which
the Partnership Agreement provides to the Unitholders. See "Summary of Certain
Provisions of the Partnership Agreement." No assurance can be given that the
exercise of such rights (and possibly their mere existence) will not cause the
Series to be deemed a general partner of any such Local Limited Partnership
which is a limited partnership. See "Risk Factors - Fund-Related Risks - Risks
of Unitholder Liability." Except where the Fund Manager or its Affiliates serve
as a Local General Partner of a Local Limited Partnership, each of the foregoing
voting and other rights of the Series as a limited partner or non-managing
member in the Local Limited Partnership will be exercised by the Fund Manager on
behalf of the Series, and Unitholders will not have any right to participate
therein. See "Conflicts of Interest."
Role of SLP Affiliate. It is anticipated that the SLP Affiliate will be a
special limited partner of certain Local Limited Partnerships and will have one
or more of the following: the right to assume the duties and receive the
benefits of the Local General Partner upon the removal or withdrawal of the
Local General Partner; the right to approve the selection of, and/or dismiss,
any manager of the Apartment Complex; the right to approve the selection of,
and/or dismiss, the accountants for the Local Limited Partnership; the right to
direct the decisions of the "tax matters partner" of the Local Limited
Partnership, including the right to bring and defend
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administrative and judicial actions and make tax elections; the right to compel
the Local General Partner to locate a buyer for the Apartment Complex or the
Series' Local Limited Partnership Interest; and the right to approve or
disapprove certain transactions outside of the ordinary course of business
proposed to be taken by the Local Limited Partnership. It should be noted that
in the case of Apartment Complexes which are government assisted, the ability of
the SLP Affiliate to take such actions may be subject to the prior approval of
the government agency providing such assistance (see "Other Government
Assistance Programs" below and "Risk Factors - Investment Risks - Risks of
Government-Subsidized Housing Projects").
Interests in Profits, Losses and Distributions. Each Series will normally
acquire at least a 90% interest in the profits, losses and Tax Credits of each
Local Limited Partnership, with the balance remaining with the Local General
Partners and the SLP Affiliate. However, in certain cases, at the discretion of
the Fund Manager, a Series may acquire a lesser interest (but normally at least
a 50% interest) in the profits, losses and Tax Credits of a Local Limited
Partnership. See "Joint Investments" below in this section. The Local General
Partners will generally receive as management fees and/or participations a
portion of the cash flow from operations of an Apartment Complex and
reimbursements payable from cash flow. The Local Limited Partnership Agreement
will normally provide that distributions of proceeds from a Sale or Refinancing
of the Apartment Complex will be paid in the range of from 95% to 100% 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) as well as providing the Series with a share
of any remaining Sale or Refinancing proceeds, which share may range from 10% to
90%. The sharing arrangements for cash distributions from operations and Sale or
Refinancing proceeds will depend upon the competition for interests in Apartment
Complexes which are suitable for investment and will also depend upon the
particular circumstances of each Apartment Complex, including the proportion of
residential units in the Apartment Complex eligible for Low Income Housing
Credits, the amount invested by the Series in the Apartment Complex relative to
the other sources of financing for the Apartment Complex, the percentage
interest in the profits and losses of the Local Limited Partnership which is
acquired by the Series relative to the interests held by other parties, and the
amounts of cash flow and appreciation anticipated or realized.
Joint Investments
Local Limited Partnerships may be invested in jointly by a Series and the
other Series or other limited partnership (including another limited partnership
sponsored by the Fund Manager or any of its Affiliates), provided that: (1) the
two partnerships have similar investment objectives, (2) there are no duplicate
property management or other fees, (3) the compensation to the sponsors of each
partnership
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is substantially similar, (4) each partnership will have a right of first
refusal if the other partnership wishes to sell its interest in the Local
Limited Partnership (although there is a risk that a partnership may not have
sufficient resources to accomplish such purchase), (5) the investment of each
partnership is on substantially the same terms and conditions, and (6) if the
other limited partnership is (a) controlled by the Fund Manager, the other
limited partnership must be publicly registered under the Securities Act of
1933, or (b) is not controlled by the Fund Manager, the Series must acquire a
controlling interest in the joint venture. See "Risk Factors - Investment Risks
- - Risks of Joint Investments" and "Conflicts of Interest." A Series cannot
engage in activities through a joint venture that it could not otherwise
undertake.
Use of Leverage
Except as may be necessary to make initial investments in Local Limited
Partnerships prior to the sale of Units, the Fund does not anticipate borrowing
funds, although the Fund Manager has full authority to cause a Series to borrow
money as deemed necessary or appropriate to the achievement of the Series'
investment objectives.
The Fund Manager or its Affiliates may advance funds from time to time to a
Series in order that the Series may make initial investments (including loans
and deposits) in Local Limited Partnerships prior to the sale of its Units. Such
advances, together with interest thereon, will be repaid from the proceeds of
the Offering. See "Estimated Use of Proceeds." All borrowings by a Series from
the Fund Manager or an Affiliate must (i) be on a short-term basis; (ii) not
bear any interest, charges or fees in excess of the amounts which would be
charged by unrelated lending institutions on comparable loans for the same
purpose in the same locality (and in no event may such interest exceed by more
than 2% per annum the Prime Rate); and (iii) not be subject to any prepayment
charge or penalty.
The ability of a Series to generate Tax Credits in the amounts anticipated
will depend in part on the use of leverage by the Local Limited Partnerships.
Accordingly, the Fund Manager expects that the Local Limited Partnerships will
use debt to finance, on a combined basis, approximately 60% to 90% of the
acquisition and development costs of their Apartment Complexes. Such financing
may include loans made, guaranteed or subsidized by agencies of Federal, state
or local governments, including state or local government bond financing,
balloon payment mortgages, loans providing for variable interest rates,
renegotiable interest rates or deferral of principal payments, wrap-around loans
and loans from non-profit organizations one of the tax-exempt purposes of which
includes the financing of low-income housing. See "Other Government Assistance
Programs" below and "Risk Factors - Investment Risks - Risks Associated With Use
of Leverage." No Series will impose any limitation on the indebtedness which may
be incurred by any
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Local Limited Partnership and, consistent with the investment objectives of the
Fund, the Fund Manager has discretion to select Local Limited Partnerships which
have structured the financing of their Apartment Complexes in any way and from
any source that the Local General Partners believe is feasible for the
properties, and that the Fund Manager believes is both (i) feasible for the
particular property and (ii) beneficial for the investors. Notwithstanding the
preceding, following the termination of the Offering of Units a Series' share of
such indebtedness may not exceed (i) with respect to conventionally-financed
Apartment Complexes, the sum of 85% of the aggregate purchase price of all
Apartment Complexes which have not been refinanced, and 85% of the aggregate
fair market value of all Apartment Complexes which have been refinanced and (ii)
with respect to subsidized Apartment Complexes, the sum of 100% of the aggregate
purchase price of all Apartment Complexes which have not been refinanced, and
100% of the aggregate fair market value of all Apartment Complexes which have
been refinanced.
Sale or Other Disposition of Investments
In general, sale or refinancing of an Apartment Complex or a Series'
interest in a Local Limited Partnership will be subject to various restrictions
which will require that investments be held for substantial periods. The present
expectation of the Fund Manager is that a Series will hold its investments for
at least 15 years after the Series acquires them in order to avoid recapture of
Tax Credits (see "The Low Income Housing Credit"), and will thereafter, subject
to the restrictions discussed below, attempt to sell or refinance the
investments with the objective of returning to the Unitholders of the Series, at
a minimum, their invested capital. However, when it determines that it is in the
best interests of the Series to do so under all of the then applicable
circumstances, the Fund Manager may cause the Series to sell or refinance any
investments at an earlier or later time.
The Low Income Units in an Apartment Complex generally must be rented as
low-income housing for the Low Income Use Period (i.e., a period of at least 30
years and, possibly, of up to 55 years), so that any sale of such an Apartment
Complex during that period must be to a purchaser who agrees to maintain the Low
Income Units as low-income housing for the duration of such period. However,
except where more stringent requirements are imposed under state law, the Low
Income Use Period can be terminated as to an Apartment Complex after the 15-year
Initial Compliance Period if the housing agency of the state in which the
Apartment Complex is located is unable to find a purchaser at a price that will
return the owner's adjusted equity investment in the Apartment Complex, although
existing tenant leases cannot be terminated by the owner during the three years
thereafter. See "The Low Income Housing Credit - Credits Subject to State
Allocation."
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Any Apartment Complexes receiving government financing or operating
subsidies will generally be subject to substantial additional restrictions on
sale or refinancing. For example, currently applicable RD regulations do not
permit the sale of a property which is financed by such agency except with the
specific approval of RD, and mortgage loans which are funded after December 14,
1989 cannot be prepaid at any time during their terms of up to 50 years.
Similarly, current HUD regulations require that HUD must approve the sale of
more than 50% of the interests in any limited partnership or limited liability
company which owns a property which is receiving some form of HUD subsidies.
However, consistent with the foregoing and other applicable regulatory
restrictions, the Fund Manager believes that the Local Limited Partnerships
should be able to sell or refinance the Apartment Complexes after a 15 to
20-year holding period under one or a combination of the following
circumstances:
(1) After the expiration of the Initial Compliance Period with respect
to its Apartment Complex, a Local Limited Partnership could seek to sell the
Apartment Complex to:
(a) another entity similar to the Fund or the Local Limited
Partnership which would agree to continue to operate the Low Income
Units as housing for low-income tenants for the balance of the Low
Income Use Period and otherwise in compliance with restrictions imposed
under the regulations applicable to Low Income Housing Credits and the
requirements of existing mortgage indebtedness. Such a sale would
likely be feasible only if at that time the Code includes provisions
extending significant tax benefits to purchasers of existing low-income
housing; or
(b) certain other types of purchasers who, irrespective of
then-existing Code provisions, may have incentives to acquire and
operate the Low Income Units as housing for low-income tenants, such as
the tenants of the Low Income Units (or a cooperative or other
organization formed on their behalf) or a state agency or non-profit
organization.
(2) With respect to Apartment Complexes which are subject to the RD
prepayment prohibition discussed above, RD will, under certain
circumstances, guarantee an equity loan to the Local Limited Partnership
owner 20 years after the original loan was made. The equity loan would be in
an amount of up to 30% of the amount of the original loan and would be
funded from monthly payments to a special RD national pool. See "Other
Government Assistance Programs - RD Financing and Rural Rental Assistance
Programs."
In connection with any disposition of an Apartment Complex (or Local Limited
Partnership Interest), the Local Limited Partnership (or the Series) will have
the
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right to engage in seller financing of the disposition of such Apartment Complex
(or Local Limited Partnership Interest) by accepting a promissory note in
partial payment of the sales price. However, it is anticipated that a Series as
a limited partner or non-managing member of the Local Limited Partnership will
have the right to approve or disapprove any such proposed sale. A Series will
thus be in a position to weigh the higher sales price that such seller financing
will generally provide against the credit risk that the obligor on such
promissory note would default in its payment obligations, and the fact that
distribution by a Series of Sale or Refinancing Proceeds, if any, would be
further delayed to the extent of the principal amount of such promissory note.
Reserves
Each Series initially will set aside at least 3% of the Capital
Contributions as a Reserve for contingencies. The Fund Manager will increase or
decrease such Reserve from time to time as it deems appropriate. The Reserve may
be used to cure any problems arising from the Apartment Complexes, although most
Apartment Complexes will have their own reserve requirements. Reserves of a
Series may also be utilized to pay expenses of the Series, including the annual
Asset Management Fee, to the extent other funds of the Series are not so
available.
Other Policies
No Series will lend funds (other than in the form of Temporary Investments
as described above) to any person or entity, including the Fund Manager and its
Affiliates, except that it may make loans to, or post letters of credit for, a
Local Limited Partnership in which the Series is expected to acquire an
interest, subject to certain limitations specified in the Partnership Agreement.
No Series will underwrite securities of other issuers, offer securities in
exchange for property or, except in connection with the investments of funds in
Local Limited Partnerships, invest in securities of other issuers, other than in
Temporary Investments as described above.
No Series will (i) utilize Cash Available for Distribution to acquire Local
Limited Partnership Interests; or (ii) reinvest Sale or Refinancing Proceeds
unless a sufficient portion thereof is distributed to the Series' Unitholders to
enable each such Unitholder (assuming that he is in a combined Federal, state
and local marginal income tax bracket of 30%) to pay the Federal, state and
local income tax liability arising from the Sale or Refinancing which generated
such proceeds, and in any event Sale or Refinancing Proceeds will not be
reinvested following the second anniversary of the first day of the calendar
quarter in which the Investment Date occurs, except to the extent of any
Reserves retained therefrom.
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A Series may, in the absolute discretion of the Fund Manager and once the
Series' offering has concluded, repurchase Units upon the written request of a
Unitholder. No Series has any obligation to repurchase any Units at any time,
and there is no assurance that any Units will in fact ever be repurchased by a
Series. No Units will be repurchased from the Fund Manager or any of its
Affiliates.
Neither of the Series is a real estate investment trust and, therefore,
neither is subject to the restrictions imposed on such entities by the Code.
Each Series will use its best efforts to conduct its operations so as not to be
required to register as an investment company under the 1940 Act.
No Series will engage in any transaction which would result in the receipt
by the Fund Manager or an Affiliate of the Fund Manager of any undisclosed
"rebate" or "give-up" or in any reciprocal business arrangement which results in
the circumvention of the restrictions contained in the Partnership Agreement.
THE LOW INCOME HOUSING CREDIT
Summary
Section 42 of the Internal Revenue Code of 1986 ("Code"), as amended by the
Technical and Miscellaneous Revenue Act of 1988 ("1988 Act"), the Omnibus Budget
Reconciliation Act of 1989 ("1989 Act"), the Omnibus Budget Reconciliation Act
of 1990 ("1990 Act") and the Omnibus Budget Reconciliation Act of 1993 (the
"1993 Act"), provides tax credits (the "Low Income Housing Credits") to
investors in certain low-income housing. Following is a summary of the more
salient provisions of Code Section 42 and its interrelation with other Code
provisions. Each of these provisions is discussed in greater detail in the
subsections below and under "Federal Income Tax Considerations."
Low Income Housing Credits are indirect Federal subsidies of low-income
housing and are being claimed by individuals, small businesses and large
corporations. Low Income Housing Credits offset tax liability dollar-for-dollar
regardless of a taxpayer's tax bracket because they are tax credits and not tax
deductions; thus, tax credits are more valuable than tax deductions or tax
deferrals. Taxes are one of the largest expenses faced by taxpayers throughout
their lifetimes, and therefore represent one of the greatest barriers to
retaining earned income. According to a report issued by the Tax Foundation, in
1997 the average American will have to work two hours and 49 minutes of each
eight-hour workday to pay all taxes. Federal taxes will exhaust one hour and 53
minutes of earnings, and state and local taxes will exhaust 56 minutes of
earnings. The report states that American workers utilized a greater portion of
the workday to pay taxes than to pay for food and tobacco, clothing, and housing
and household operations. An
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investment in Low Income Housing Credits reduces Federal tax liability and
thereby can increase after-tax spendable income.
It is important to note that Low Income Housing Credits are tax credits
rather than the more familiar tax deductions. For example, a married couple
filing jointly with taxable income of $125,000 in 1997 would be subject to
Federal income tax liability before Tax Credits in the amount of approximately
$30,000, or approximately 24% of taxable income. (The tax liability for later
years could be different due to changes in the tax rates resulting from
inflation adjustments or amendments to the tax laws. See "Federal Income Tax
Considerations - Other Important Tax Considerations - Tax Rates" and "- Changes
in Tax Law.")
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If the couple had $7,750 in Low Income Housing Credits (the maximum permissible
amount pursuant to the $25,000 deduction equivalent, as discussed under "Federal
Income Tax Considerations - Limitations on Losses and Credits from Passive
Activities - Exception for Low Income Housing Credits and Historic Tax
Credits"), their Federal tax liability of $31,000 would be reduced by $7,750 to
$23,250.
These pie charts are intended to graphically display that Tax Credits reduce
income taxes dollar-for-dollar, and are not intended to be, nor should they be
interpreted as, predictions of Tax Credits to be allocated to an investor. The
absolute and/or relative percentage reduction in Federal income taxes to be
realized by any investor will depend on his actual tax liabilities and his
actual Tax Credits.
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Low Income Housing Credits account for the construction of approximately
120,000 housing units annually. Nonetheless, the availability of quality
low-income housing has declined. According to the Joint Center of Housing
Studies of Harvard University, "[t]he national goal of decent and affordable
housing for all Americans remains out of reach because of two broad trends: the
persistence of poverty and the loss of low-cost rental units from the housing
inventory." According to another study (A Place To Call Home, Center On Budget
and Policy Priorities, based on information from the American Housing Survey
through 1993), the shortage of affordable rental housing is not a new problem,
but one that dates back to the early 1970's. Since 1970, the number of low rent
or affordable units has continued to fall in relation to the number of those in
need of these units. This persistent decline has created a shortage of 4.7
million affordable rental units nationwide. Among the problems the nation faces
is the loss of low-cost rental units that provide shelter for families, the
elderly and other citizens of modest means.
Low Income Housing Credits are designed to subsidize either 70% or 30% of
the costs of the low-income units in an apartment complex. Accordingly, the
amount of Low Income Housing Credits is based on the cost of a property, rather
than the operations of the property, and thus are pre-determined in amount. The
subsidies are realized by claiming Federal Tax Credits every year for 10 years,
with the entire amount of the subsidies allocated at the beginning of the
10-year period, resulting in a steady and predictable stream of Tax Credits.
Unlike other investments, once determined, the amount of Tax Credits does not
fluctuate.
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In exchange for the right to claim Low Income Housing Credits, the owner of
the apartment complex must agree to rent the low-income units to low-income
individuals at reduced rental rates for a period of at least 15 years. Failure
to do so will result in ineligibility for any portion of the Low Income Housing
Credits not yet claimed and, possibly, the recapture of such credits previously
claimed.
Code Section 42 authorizes a fixed amount of Low Income Housing Credits
which any state may allocate in any year. Generally, an apartment complex owner
must receive an allocation of Low Income Housing Credits from an agency of the
state in which the apartment complex is located.
Most taxpayers are not able to claim Low Income Housing Credits in unlimited
amounts. Rather, such ability is limited by the provisions of the Code known as
the "passive activity" rules, the "at risk" rules, the overall limitation on
"general business" credits, and the alternative minimum tax rules.
Prospective investors should note that the Low Income Housing Credit program
is extremely technical in nature. Few Treasury Regulations have been issued
interpreting Code Section 42, and there can be no assurance that the provisions
of that Section will be interpreted in a manner consistent with the description
set forth below. Furthermore, the discussion that follows is general in nature.
Because the Fund has not yet identified any of the Local Limited Partnerships in
which it will invest, it is impossible to predict how certain specific
provisions of the Low Income Housing Credit program will apply to the Apartment
Complexes.
Maximum Amount of Credit
Under Code Section 42, for a 10-year period an owner (which may include a
limited partner in a limited partnership owner or member of a limited liability
company owner) of an apartment building receives tax credits equal to the
"applicable percentage" (as explained in the next paragraph) times that portion
of the basis of the building qualified for the credit (the "qualified basis").
For a discussion of qualified basis, see "Qualified Properties" below. Such Low
Income Housing Credits may be used by the owner, subject to various limitations,
to reduce his Federal income tax liabilities over a 10-year period.
The "applicable percentage" is a percentage prescribed by the Secretary of
the Treasury for the earlier of (i) the month in which the building is placed in
service, or (ii) at the election of the owner, the month in which the owner and
the housing credit agency enter into an agreement as to the amount of Credit
Authority to be allocated to the building. The applicable percentage varies
essentially according to two major factors: (i) whether a property is newly
constructed or substantially rehabilitated or is an existing property and (ii)
whether or not a property is Federally subsidized. There are two basic credit
categories:
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1. Non-Federally subsidized new construction or substantial rehabilitation
properties receive a maximum credit which will yield a present value of 70% of
the qualified basis of the property. This is the applicable percentage expressed
in present value terms for recognition of credits over 10 years. Accordingly,
the applicable percentage is determined primarily by long-term interest rates,
and does not fluctuate with stock or bond prices. Congress determined that for
1987 a 9% credit would have a present value of 70%; thus 9% was the applicable
credit percentage for 1987. For years subsequent to 1987, each month the
Treasury Department redetermines the appropriate yearly percentage that will
yield a 70% present value over 10 years utilizing a prescribed discounting
methodology. For properties placed in service in June 1997, the yearly
percentage is 8.64%. "Substantial rehabilitation" is defined as capital
expenditures (other than acquisition costs) incurred in connection with
rehabilitation of a building aggregated over a 24-month period in an amount
equal to at least the greater of 10% of adjusted basis or $3,000 per Low Income
Unit.
2. Federally subsidized new construction or substantial rehabilitation
properties receive a maximum credit which will yield a present value of 30% of
the qualified basis of the property. Congress determined that for 1987 a 4%
credit would have a present value of 30%; thus 4% was the applicable credit
percentage for 1987. For years subsequent to 1987, the Treasury Department makes
monthly redeterminations in a manner corresponding to that described in the
preceding paragraph for the 70% present value credit. For properties placed in
service in June 1997, the yearly percentage for this 30% present value credit is
3.70%. For purposes of the Low Income Housing Credit program, Federal subsidies
include only tax-exempt financing and below-market-interest-rate Federal loans
the proceeds of which are used directly or indirectly with respect to the
property. See the material below under the caption "Other Government Assistance
Programs" for a discussion as to whether certain programs which may be utilized
for the Apartment Complexes are considered "Federally subsidized" within the
meaning of the 1986 Act, which used this term in a manner which is not
co-extensive with its customary definition. An owner has the option of excluding
Federally subsidized loans from qualified basis and then using the 70% present
value credit against the remaining qualified basis.
The acquisition costs of existing buildings will only be eligible for a
credit if the buildings are subject to substantial rehabilitation (as defined
above). (If the acquisition is from a government agency, the rehabilitation
expenditures must average at least $3,000 per low-income residential unit,
without regard to the 10% of adjusted basis rule.) If the substantial
rehabilitation test is satisfied the acquisition costs are eligible for the 30%
present value credit. However, acquisition costs are not available for the 30%
present value credit if the property was last transferred, or if it underwent
certain rehabilitation work, during the prior 10 years, although the Secretary
of the Treasury may waive this rule with respect to any
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Federally-assisted building in order to avert certain mortgage assignments or
claims against Federal mortgage insurance funds, or to preserve as low-income
housing properties which are acquired from failed thrift institutions or
properties as to which certain mortgages may be prepaid.
The qualified basis of a low-income housing property is determined at the
end of the first taxable year of the credit period. However, an owner may elect
to make more of a property eligible for Low Income Housing Credits after the
ten-year credit period has already begun. The so-called "addition to qualified
basis" provides a credit equal to two-thirds of the applicable percentage noted
above, and such credits are claimed over the remainder of the Initial Compliance
Period. Additional credits must be allocated from the state's Credit Authority
described below under "Credits Subject to State Allocation," but are not subject
to recapture. See "Recapture of Low Income Housing Credits" below in this
section.
Qualified Properties
Pursuant to Code Section 42(g), Low Income Housing Credits are available
only with respect to "qualified low-income housing projects." "Qualified
low-income housing projects" are generally residential rental projects in which
(a) 20% or more of the aggregate residential rental units are occupied by
individuals with incomes of 50% or less of area median income, as adjusted for
family size (the "20-50 set-aside test") or (b) 40% or more of the aggregate
residential rental units are occupied by individuals with incomes of 60% or less
of area median income, as adjusted for family size (the "40-60 set-aside test").
This requirement, referred to as the minimum set-aside, must be met in order for
any portion of an apartment development to be eligible for Low Income Housing
Credits. Additional residential rental units in an apartment development, beyond
the minimum set-aside, also will qualify for Low Income Housing Credits if such
residential rental units meet the income standards selected for the minimum
number of residential rental units.
Additionally, in order to qualify for Low Income Housing Credits, the gross
rent charged to tenants who meet the applicable income limitation cannot exceed
30% of the applicable set-aside income (i.e., 50% or 60% of area median income),
assuming that, in the case of a unit which does not have a separate bedroom, the
unit is occupied by one individual, and, in all other cases, that the unit is
occupied by one and one-half individuals per separate bedroom (the "rent
restriction test"). Gross rent for this purpose includes the cost of any
utilities, other than telephone, and any mandatory costs for services such as
meals and social services. Federal, state and local rental assistance payments
are not included in gross rent and thus an owner may receive a rental subsidy
payment under the RD Rental Assistance Program or similar programs of other
agencies in addition to the amount paid by the tenant.
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Units which are both rent-restricted and occupied by individuals who meet
the applicable income limitation are referred to herein as "Low Income Units."
Low Income Units must be suitable for occupancy, and used, on a non-transient
basis.
Pursuant to Code Section 42(g)(3) an apartment development must, in general,
meet the minimum set-aside requirements as well as the rent restriction test not
later than the close of the first year of the 10-year credit period for the
development. The owner may elect which of the minimum set-aside tests (i.e., the
20-50 set-aside test or the 40-60 set-aside test) it proposes to meet but, once
made, the election is irrevocable. In order to avoid credit recapture, the
apartment development must remain in compliance with the rules governing the Low
Income Housing Credit program for the 15-year Initial Compliance Period.
However, a separate 15-year compliance period commences in the year that
substantial rehabilitation is completed. Thus, with respect to a building
undergoing substantial rehabilitation, the effective compliance period will be
extended by the time period between acquisition and the completion of such
substantial rehabilitation.
The "qualified basis" of an apartment development with respect to which Low
Income Housing Credits are computed is generally the portion of the "eligible
basis" in a building attributable to the Low Income Units. This proportion is
the lesser of (1) the proportion of occupied low-income units to all residential
rental units (whether or not occupied), or (2) the proportion of floor space in
the occupied low-income units to the total floor space of all residential rental
units (whether or not occupied) in the building.
In general, the "eligible basis" of a building is its adjusted basis for
Federal income tax purposes, determined as of the close of the first taxable
year of the Initial Compliance Period. For a newly-constructed building,
eligible basis will be the cost of construction, including all direct costs and
various related "soft" costs, such as construction period interest, developer's
and architects' fees, other compensation, insurance and general and
administrative expenses related to construction. For a
substantially-rehabilitated building eligible basis would be comprised of
rehabilitation costs aggregated over a 24-month period, provided that such costs
are in an amount equal to at least the greater of 10% of adjusted basis or
$3,000 per Low Income Unit. Acquisition costs may only be included in eligible
basis to the extent they satisfy the principles for inclusion discussed above
under "Maximum Amount of Credit." Land costs may not be included in eligible
basis. Because only the adjusted basis of a building may be included in eligible
basis, one must take into account the adjustments to basis described in Section
1016 of the Code, except for depreciation. For example, a reduction in basis
equal to any Historic Tax Credit allowed with respect to a property would be
taken into account. As indicated in "Federal Income Tax Considerations - Basis
of Local Limited Partnerships in Their Apartment Complexes" and " -
Depreciation," no opinion of Counsel or of counsel to a Local Limited
Partnership will be rendered with respect
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to the calculation of an Apartment Complex's adjusted basis. It should be noted
that the eligible basis for any building is reduced by an amount equal to the
portion of the adjusted basis of the building which is attributable to
residential rental units in the building which are not Low Income Units and
which are above the average quality standard of the Low Income Units in the
building. However, at the election of the taxpayer, the cost of a unit that
would otherwise be so excluded from eligible basis may be included in eligible
basis if (1) the excess cost of such unit over the average cost of the Low
Income Units does not exceed 15% of the average cost of the Low Income Units and
(2) the excess cost is excluded from eligible basis.
For all types of buildings, the eligible basis includes not only the
adjusted basis of the residential rental units (subject to the limitations
discussed above) but also the adjusted basis of facilities and certain personal
property (such as major appliances) for use by the tenants and other facilities
reasonably required for use in the common areas of the building. The costs of
amenities in non-Low Income Units may only be included if the amenities are
comparable to the costs of amenities in the Low Income Units. Also, the
allocable costs of tenant facilities such as swimming pools or other
recreational facilities and parking areas may be included provided there is not
a separate fee for use of these facilities and they are available on a
comparable basis to all tenants.
Residential rental property may qualify for Low Income Housing Credits even
though a portion of the building in which residential units are located is
available for commercial use. However, no portion of the cost of such
nonresidential property may be included in the eligible basis. The legislative
history of the 1986 Act suggests that it was the Congressional intention that
the costs of such mixed-use facilities would be allocated according to a
reasonable method that properly reflects proportionate benefits to be derived
directly or indirectly by the nonresidential rental property and the residential
units. The portion of the cost of each Apartment Complex owned by Local Limited
Partnerships allocable to commercial space will be determined on a pro rata
basis using a ratio of the area of commercial space to the total area of such
Apartment Complex.
Eligible basis may not include in any taxable year the amount of any Federal
grant, whether or not such grant is includable in gross income. A Federal grant
for such purpose (as opposed to a Federal loan or rental subsidy) includes any
grant to the extent it is Federally funded.
The eligible basis of a building located in an area designated by HUD as a
"qualified census tract" or as "difficult to develop" will be deemed to be 130%
of the eligible basis determined under the principles outlined above. For this
purpose, a "qualified census tract" means a census tract designated by the
Secretary of HUD (or, if census tract information is unavailable, an enumeration
district) in which 50% or more of the households have an income which is less
than 60% of the area
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median gross income. An area is treated as "difficult to develop" if it has high
construction, land and utility costs relative to area median gross income. No
more than 20% of the population of a metropolitan statistical area may be
designated as within a qualified census tract or as difficult to develop, and no
more than 20% of nonmetropolitan areas may be designated as difficult to
develop.
Credits Subject to State Allocation
All buildings, except those financed through proceeds of tax-exempt bonds
subject to the tax-exempt bond ceiling included in the Code, must be allocated
Credit Authority by the state or local credit agency for the jurisdiction in
which the buildings are located. The aggregate annual Credit Authority is $1.25
per resident of the jurisdiction. In the event that a state fails to allocate
its entire Credit Authority in a given year, the Code permits a one-year carry
forward of the unused amount; to the extent the unused amount is not utilized
during the carryforward period, it will be reallocated to other states through a
national pool.
Once Credit Authority is allocated by the credit agency to a particular
housing development, the development does not have to reapply for Credit
Authority in later years nor does the aggregate amount of the Credit Authority
allocated to a housing development reduce the amount of Credit Authority
available to other buildings in later years, if any. Accordingly, it is the case
that all Low Income Housing Credits to be claimed by investors over a 10-year
period are allocated at the outset of the 10-year period. However, in some
circumstances it may be necessary to seek additional allocations of Credit
Authority, if available, with respect to increases in qualified basis.
Generally, a building must be placed in service during the calendar year for
which the Credit Authority is allocated by the housing credit agency. The
exceptions to this general rule are as follows: (i) allocations pursuant to a
binding commitment made by a housing credit agency (not later than the close of
the calendar year in which the building is placed in service) to allocate a
specified dollar amount of Credit Authority to the building beginning in a
specified later year; (ii) allocations attributable to an increase in qualified
basis made not later than the close of the calendar year in which ends the
taxable year to which the allocation will first apply; and (iii) allocations
respecting a building which is placed in service not later than the close of the
second calendar year following the calendar year in which the allocation is
made, provided that the taxpayer's basis in the building as of the close of the
calendar year in which the allocation is made is more than 10% of the taxpayer's
reasonably expected basis in such building as of the close of such second
calendar year. An additional exception to the general rule exists in the case of
a development which includes (or will include) more than one building. Under
this exception, the state agency has authority to allocate Credit Authority on a
development rather than on a building-by-building basis, and the allocation to
the
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development generally will be valid if (a) it is made to the development at any
time during the period beginning with the first calendar year for which an
allocation may be made for the first building placed in service as part of the
development and ending with the calendar year the last building is placed in
service as part of such development, and (b) the portion of such allocation
which is allocated to any building in the development is specified not later
than the close of the calendar year in which the building is placed in service.
An allocation of Credit Authority to a development only applies to buildings in
the development which are placed in service during or after the calendar year
for which the allocation is made.
Low Income Housing Credits are not permitted for any building unless an
Extended Low Income Housing Commitment is executed between the owner of the
building and the state which allocates the Credit Authority. In general, an
Extended Low Income Housing Commitment requires that the building qualify as
low-income housing for a Low Income Use Period equal to the longer of (a) 30
years, beginning with the commencement of the Initial Compliance Period, or (b)
the period specified by the state in the Extended Low Income Housing Commitment.
The Extended Low Income Housing Commitment does not prevent the sale of the
building to a new owner; rather, it only requires that the new owner continue to
rent the building as low-income housing. Further, after a period of 14 years the
owner may make a written request to the state to find a person to acquire the
Low Income Units within the building. The state will have one year to locate a
buyer at a price no less than (i) with respect to the portion of the building
which does not constitute Low Income Units, the fair market value thereof, and
(ii) with respect to the Low Income Units, the applicable fraction (specified in
the Extended Low Income Housing Commitment and determined by the extent to which
units within the building constitute Low Income Units) of the excess of (1) the
sum of (A) the outstanding indebtedness secured by the building and (B) the
adjusted investor equity in the building (i.e., the aggregate amount of cash
invested in the building increased by a cost of living adjustment), over (2)
cash distributions (or available distributions) from the building. If no buyer
is located the building may be converted to market-rate use with the
qualification that existing low-income tenants may not be evicted within three
years. The "one-year notice" provision will not apply to the extent more
stringent requirements are imposed under the commitment or state law. The
Extended Low Income Housing Commitment must be binding on all successors of the
owner, grant all individuals meeting the income limitation applicable to the
building the right to enforce its terms in state court, be recorded as a
restrictive covenant, prohibit the eviction or other termination of tenancy
(other than for good cause) of an existing tenant of a Low Income Unit before
the close of the three-year period following the Low Income Use Period, prohibit
any increase in the gross rent for a Low Income Unit not otherwise permitted by
Code Section 42, prohibit the refusal to lease to a holder of a Section 8
voucher or certificate of eligibility (see "Government Assistance Programs"
below) because of the status of the prospective tenant as such a holder, and
prohibit the disposition to
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any person of any portion of the building to which the Extended Low Income
Housing Commitment applies unless all of the building to which the Extended Low
Income Housing Commitment applies is disposed of to such person.
Code Section 42(m) imposes requirements on the state agencies which allocate
Credit Authority. In general, an allocating agency must develop and follow a
qualified allocation plan which includes pre-established criteria for ranking
the various developments applying for Credit Authority. The selection criteria
must include development location factors (e.g., broad geographic distribution,
designated target areas such as inner cities, Community Development Block Grant
neighborhoods, distressed communities, pockets of poverty and rural areas),
housing needs characteristics (e.g., low vacancy rate, income mix of tenants
within the development and meeting state, regional or local housing needs and
priorities), development characteristics (e.g., whether the development
increases the stock of low-income housing, whether substantial rehabilitation
expenditures are needed by the development, energy conservation, quality of
units and type of financing), sponsor characteristics (e.g., nonprofit
sponsorship and minority participation in development and management), tenant
populations with special housing needs (e.g., elderly, handicapped, disabled,
homeless, large families and the displaced) and public housing waiting lists.
Once the agency has selected its developments, it must allocate the Credit
Authority by giving preference to developments serving the lowest income tenants
and developments obligated to serve tenants for the longest periods. Further, an
allocating agency must use good faith efforts to allocate no more Credit
Authority to a development than is necessary for its financial feasibility and
viability as low-income housing through the 10-year credit period. In making
this determination the agency must consider the sources and uses of funds, the
available Federal, state and local subsidies committed to the development, the
total financing planned for the development, the proceeds or receipts expected
to be generated by reason of tax benefits, the percentage of the Credit
Authority to be used for project costs other than the cost of intermediaries and
the reasonableness of the developmental and operational costs of the
development. In this regard the allocating state agency may reduce the
applicable percentage and/or the qualified basis from the amounts for which the
development would otherwise be eligible if the agency believes that the full
amounts are not necessary in light of other sources of assistance that are
available to the development. The allocation plan must also include a procedure
whereby the agency will monitor the development for non-compliance with the
provisions of the Code respecting Low Income Housing Credits and will notify the
IRS of any noncompliance of which the agency becomes aware.
At least 10% of a state's annual Credit Authority must be allocated to
buildings as to which a qualified nonprofit organization has an ownership
interest and materially participates in the development and operation thereof.
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The Series will only purchase interests in Apartment Complexes which have
been allocated Credit Authority by the appropriate credit agency or as to which
there appears a reasonable probability that such Credit Authority will be
allocated. However, there can be no assurance that delay in the completion of an
Apartment Complex will not deprive the Unitholders of anticipated Low Income
Housing Credits.
Utilization of the Low Income Housing Credit
Low Income Housing Credits are claimed by taxpayers owning an interest in a
"qualified low-income project" over a 10-year period. In the first year the
credit is claimed the allowable credit amount is determined using an average
convention to reflect the number of months Low Income Units were occupied by
low-income individuals during the year. For example, if half of the Low Income
Units included in qualified basis were first occupied in October and the
remaining half were first occupied in December, a calendar year taxpayer would
adjust the amount of Low Income Housing Credits claimed in the first year to
reflect that these units were occupied on average only 2 months or 1/6 of the
year. To the extent that there is such a reduction of the credit amount in the
first year, an additional credit in the amount of such reduction is available in
the 11th taxable year.
In order to fully utilize Low Income Housing Credits, a taxpayer who is an
individual, an S Corporation or a "closely-held corporation" (i.e, one in which
five or fewer shareholders directly or indirectly owned, by value, more than 50%
of the stock at any time during the last half of its relevant fiscal year), must
be "at risk" with respect to his investment in the low-income housing.
Generally, the qualified basis of any low-income housing property is reduced for
"at risk" purposes by the amount of any non-qualified nonrecourse financing with
respect to such property.
However, "qualified commercial financing" is not considered non-qualified
nonrecourse financing and therefore a taxpayer will be considered to be "at
risk" for purposes of Low Income Housing Credits with respect to such financing.
For purposes of Low Income Housing Credits, qualified commercial financing is
defined as financing with respect to any property if (a) such property is
acquired by the taxpayer from a person who is not a related person, and (b) such
financing is borrowed from a qualified person or represents a loan from any
Federal, state or local government instrumentality. A "qualified person" for
such purposes is a person who is actively and regularly engaged in the business
of lending money and who is not (a) a person from whom the taxpayer acquired the
property, or (b) a person who receives a fee with respect to the taxpayer's
investment in the property. An exception is provided for financing borrowed from
a nonprofit organization which is not affiliated with or controlled by a
for-profit organization and whose exempt purpose includes fostering low-income
housing, i.e., a "qualified nonprofit organization." Such financing is
considered "qualified commercial financing" even
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if it is seller financing or if the lender is not regularly engaged in the
business of lending money, provided such financing is (a) generally not in
excess of 60% of the eligible basis of the qualified low-income building, (b)
secured by the building, and (c) fully repaid on or before the earliest of (1)
the date the financing matures, (2) the ninetieth day after the close of the
Initial Compliance Period with respect to the building, except that, for
property financed by qualified nonprofit organizations, such date is 90 days
after the earlier of the date upon which the building ceases to be a qualified
low-income building or the date which is 15 years after the close of the Initial
Compliance Period, but only if such financing does not constitute seller
financing, or (3) the date of the refinancing or sale of the building.
It is not anticipated that the amount of Low Income Housing Credits
allowable to a Series will be limited under the "at risk" rules because the
Series intends to invest in Local Limited Partnerships that obtain "qualified
commercial financing," as described above, which will be included in the Series'
(and the Partners') amount "at risk." However, Counsel has rendered no opinion
on this issue or on the qualification of any Apartment Complex for Low Income
Housing Credits because these issues depend upon the specific nature of each
Apartment Complex and its financing.
Taxpayers cannot use Low Income Housing Credits in unlimited amounts.
Generally, individuals who have no net passive income can only use Tax Credits
(i.e., Low Income Housing Credits and Historic Tax Credits) to shelter up to the
equivalent of $25,000 of active or portfolio income with deductions from rental
real estate activities in which they actively participate and with Tax Credits.
Further, the allowance of these deductions and Tax Credits is subject to other
limitations. Corporations, other than S Corporations or personal service
corporations, can generally use Tax Credits against taxes on all income and can
use losses to reduce taxable income. However, closely-held corporations can only
use Tax Credits against active income. Tax Credits are not a preference item for
purposes of the Federal alternative minimum tax but cannot be used to offset
that tax.
For a more complete discussion of these limitations on the utilization of
Tax Credits, see "Federal Income Tax Considerations - Limitations on Losses and
Credits from Passive Activities," "- General Business Tax Credit Limitations"
and " - Other Important Tax Considerations - Alternative Minimum Tax."
Recapture of Low Income Housing Credits
Following the close of the first taxable year for which Low Income Housing
Credits are claimed and for each taxable year thereafter during the Initial
Compliance Period, the owner must certify to the Secretary of the Treasury that
the development has continuously complied throughout the year with the minimum
set-aside requirements and report the dollar amount of the qualified basis of
the
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development and the maximum applicable percentage and qualified basis permitted
to be taken into account by the housing credit agency.
The owners of a "qualified low-income housing project" will lose their
entitlement to Low Income Housing Credits and will be required to recapture
(with interest) a portion of any credit previously taken if, in any year during
the Initial Compliance Period, any of the following events occur, although
certain rules, described below, provide some flexibility:
(1) the project fails to meet the minimum set-aside or rent restriction
requirements of Code Section 42(g);
(2) there is a change of ownership (with exceptions noted below);
(3) there is a decrease in the qualified basis of the project (even
though the minimum set-aside requirements continue to be met); or
(4) there is a failure to fully repay the principal and interest
attributable to financing borrowed from a "qualified nonprofit organization"
within the required time period (see "Utilization of the Low Income Housing
Credit" above in this section).
Recapture event (1) results in a recapture of a portion of Low Income
Housing Credits previously claimed with respect to the qualified basis of the
entire development. Recapture event (2) results in a recapture of a portion of
Low Income Housing Credits previously claimed with respect to the portion of the
development that has changed ownership. Recapture event (3) results in the
recapture of a portion of Low Income Housing Credits previously claimed with
respect to the residential units which no longer qualify as Low Income Units or
to the other decreases in the qualified basis of the development. In each case,
the amount of Low Income Housing Credits recaptured is the accelerated portion
thereof (as discussed below) for all prior years. Recapture event (4) results in
a recapture of the amount of Low Income Housing Credits previously claimed that
are attributable to the financing.
Upon the occurrence of recapture events (1), (2) or (3), the amount of
recapture is the accelerated portion of Low Income Housing Credits (hereinafter
described) on the project for all prior years. In addition, interest will be
charged on the recapture amount calculated from the due date for filing the
return for the year any recapture amount was claimed at the rate established
under Code Section 6621. The accelerated portion of Low Income Housing Credits
in any year is the amount of the credit determined for the year less the amount
which would have been determined for the year if all Low Income Housing Credits
had been allowable
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ratably over the Initial Compliance Period. Low Income Housing Credits are
recaptured in the year of noncompliance as follows:
Year of Event Giving
Rise to Recapture Portion Recaptured
1-11 5/15
12 4/15
13 3/15
14 2/15
15 1/15
After Year 15 0
The Code provides certain rules for avoiding recapture penalties. No
recapture applies if the failure to satisfy the minimum set-aside requirement is
de minimis error and the failure is waived by the Secretary of the Treasury. No
recapture occurs if noncompliance with the set-aside requirement or the
reduction of qualified basis is corrected within a "reasonable period," although
the term "reasonable" is not defined in the Code. A tenant's income, which must
be recertified annually during the Initial Compliance Period unless the entire
building is occupied by low-income tenants and recertification is waived by the
Secretary of the Treasury, may rise by as much as 140% over the then-current
qualifying income for that unit and the unit may still be considered a Low
Income Unit if it continues to be rent-restricted. Even if the tenant's income
increases by more than that 140% amount, no recapture results unless any vacant
unit of comparable or smaller size in the development is rented to a
non-qualifying tenant.
Generally, any change of ownership of a development during the Initial
Compliance Period is an event of recapture. Although a partner in a partnership
generally will be treated as the taxpayer for purposes of recapture of Low
Income Housing Credits, any partnership that has 35 or more partners will be
treated as the taxpayer with respect to Low Income Housing Credits, unless the
partnership otherwise elects. Because a Series will invest in Apartment
Complexes only through Local Limited Partnerships, which will not have 35 or
more direct partners, this exception will not permit a Local Limited Partnership
to be treated as the taxpayer upon transfer of a Local Limited Partnership
Interest or Apartment Complex, respectively. However, because such Series will
have more than 35 partners, it appears as if this exception will permit a
Unitholder to transfer his Units without recapture, unless 50% or more of the
Units are transferred in a single 12- month period.
A Local Limited Partnership may avoid recapture upon change of ownership by
posting a bond with the Secretary of the Treasury in an amount satisfactory to
the Secretary and provided it can reasonably be expected that the development
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will continue to be operated as a "qualified low-income project" for the
remainder of the Initial Compliance Period.
There is no recapture of Low Income Housing Credits if there is a reduction
in qualified basis by reason of a casualty loss to the extent such loss is
restored by reconstruction or replacement within a reasonable period of time as
established by the Secretary of the Treasury.
State Low Income Housing Credits
In addition to Federal Low Income Housing Credits, a few states have enacted
provisions for similar credits which can be used to offset liability for income
taxes otherwise payable to the respective state with respect to low income
housing which is constructed, substantially rehabilitated or otherwise placed in
service within the state. However, the Fund does not expect that a significant
number, if any, of the Apartment Complexes in which any Series invests will
qualify for a state credit.
OTHER GOVERNMENT ASSISTANCE PROGRAMS
THE DISCUSSION WHICH FOLLOWS DESCRIBES VARIOUS FEDERAL AND STATE GOVERNMENT
FINANCING AND OPERATING SUBSIDY PROGRAMS TO WHICH APARTMENT COMPLEXES IN WHICH
THE FUND INVESTS MAY BE SUBJECT. THE DISCUSSION IS NOT INTENDED TO BE ALL
INCLUSIVE. THERE CAN BE NO ASSURANCE THAT THE TERMS OF SUCH PROGRAMS, OR THE
REGULATIONS GOVERNING THEM, WILL REMAIN THE SAME. The Fund is unable to predict
which of the government subsidy programs described below will be utilized for
the Apartment Complexes, or the percentage of Apartment Complexes which will
receive government financing or operating subsidies.
As discussed above, Low Income Housing Credits can be utilized in
conjunction with projects that receive financing or operating subsidies from
Federal, state or local governments as well as those that do not receive such
subsidies, and the Fund expects that the Series may invest some of the Net
Proceeds in such "conventional" Apartment Complexes.
RD Financing and Rural Rental Assistance Programs
Section 515 of the Housing Act of 1949 authorizes the U.S. Department of
Agriculture, Rural Development ("RD") (formerly, the Farmers Home Administration
of the U.S. Department of Agriculture) to provide direct below-
market-interest-rate mortgage loans for rural rental housing. Such loans are
extended to qualified sponsors organized exclusively for the purpose of
providing housing in amounts of up to 95% of apartment complex costs as
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determined pursuant to RD regulations and for terms of up to 50 years. In
addition, RD may provide an owner with mortgage interest subsidies, which
effectively lower the interest rate of the loan to 1% per annum after the
completion of the apartment complex, the benefits of which the owner must pass
on to eligible tenants in the form of lower rents. Section 515 apartment
complexes may be eligible for Low Income Housing Credits. However, because such
apartment complexes are the beneficiaries of Federal below-market-interest-rate
loans, they would be considered to be Federally subsidized for purposes of Low
Income Housing Credits and thus eligible only for the 30% present value credit.
See "The Low Income Housing Credit."
Each apartment complex receiving a permanent mortgage loan from RD is
subject to various RD regulations with respect to its operation. Failure of an
owner to operate its apartment complex in conformity with RD regulations could
result in termination of RD assistance.
RD regulations limit cash distributions to owners of apartment complexes
which it finances with mortgage loans or interest subsidies to a maximum
cumulative return of 8% per annum on their equity investments. RD also requires
that monthly payments to a reserve account be made until the maximum amount of
10% of the total construction cost of the apartment complex has been set aside.
Rent increases required to meet increased operating expenses for such an
apartment complex must be approved by RD. The management agent and the terms of
the management agreement for each such apartment complex must also be approved
by RD.
RD approval is required before an owner may sell or otherwise transfer or
encumber title to its apartment complex. Furthermore, RD approval is required
before a partnership owner may admit or remove a general partner thereof or
permit a general partner thereof to reduce its percentage interest in that
partnership. Similar restrictions may apply to limited liability company owners.
In addition, for projects funded after December 14, 1989, prepayment of an
RD mortgage loan is prohibited during its 50-year term. However, if it
determines that there is a reasonable likelihood that the Apartment Complex will
continue to be decent, safe and sanitary housing for the remaining term of the
original loan and that neither an undue hardship on tenants or an unreasonable
cost to the government would result therefrom, RD can guarantee an equity loan
to the owner 20 years after the original loan was made. The equity loan would be
in an amount equal to the difference between the outstanding principal balance
of debt secured by the property and 90% of the appraised value of the property,
but not to exceed 30% of the amount of the original loan, and would be funded
from monthly payments to a special RD national pool.
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In its application for interest credit subsidies, the owner of the apartment
complex must submit to RD budgets for "market rentals" (rents required to
operate on a limited profit basis with mortgage payments based on the interest
rate provided in the RD mortgage loan) and budgets for "basic rentals" (rents
required to operate on a limited profit basis assuming a mortgage bearing
interest at 1% per annum). The owner will have the option of charging basic rent
or rent equal to 30% of each tenant's monthly adjusted income less a utility
allowance. In neither case would the tenant be charged more than the "market
rent" or less than the "basic rent." Utilities are not included in either the
basic rent or market rent. The owner will receive interest subsidies so that the
additional amount which it must pay for debt service is the same as if the
interest rate on its RD mortgage loan were 1% per annum (rather than the actual
interest rate on the RD mortgage loan), plus the amount of "overage" for the
month (if any). Overage is the amount by which 30% of one-twelfth of a tenant's
adjusted gross annual income exceeds the "basic rent" for his unit.
RD also provides rent subsidies ("Rental Assistance Payments") to low-income
tenants in apartment complexes receiving direct loans from RD pursuant to the
Section 515 Rural Rental Housing Program.
Tenants with adjusted annual incomes at a level established from time to
time by RD are eligible for assistance under the rental assistance program. Each
eligible tenant is required to pay rent at the lesser of 30% of his adjusted
gross income or the "basic rent" established for the applicable apartment
complex. Funds provided by RD are applied to cover any difference between rents
required to be paid by eligible tenants and basic rents. When tenants pay
utility bills directly a utility allowance is established by RD. The amount of
the allowance is subtracted from the rental subsidy otherwise payable to the
apartment complex owner. If the monthly rent plus the utility allowance exceeds
30% of the tenant's income, the tenant will receive the difference directly from
the apartment complex owner out of the rental subsidy funds paid by RD.
In order to obtain Rental Assistance Payments for a newly-constructed or
substantially-rehabilitated apartment complex, the owner executes a rental
assistance agreement with RD for a term of up to 20 years. However, some
contracts may have only a five-year term. Upon expiration of the term of the
agreement, a new agreement may be executed for a period of up to five years.
Additional units in the apartment complex may subsequently be eligible if funds
are available.
HOME Program
The Home Investment Partnership program ("HOME") was authorized under Title
II of the Cranston-Gonzalez National Affordable Housing Act, enacted into
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law in 1990. HOME is a formula-based Federal housing program intended to support
a wide variety of state and local affordable housing programs.
HOME funds, which are allocated by HUD on a formula basis to participating
state and local governments, can be used by such governments to expand the
supply of affordable housing and increase the number of households who can be
served by assisted housing programs. Funds can be used for acquisition,
construction, moderate or substantial rehabilitation activities or for
tenant-based rental assistance programs.
State and local jurisdictions are statutorily required to meet matching
requirements in order to qualify for HOME funding. This requires a 30% match for
new construction and a 25% match for rehabilitation.
Participating jurisdictions are allowed to use funds for equity investments,
interest-bearing or non-interest-bearing loans, advances, interest subsidies or
other forms of assistance that HUD finds to be consistent with the purpose of
law. If a jurisdiction were to make a loan to an apartment complex with an
interest rate below the applicable borrowing rate, the apartment complex would
be eligible only for the 30% present value Low Income Housing Credits because
the apartment complex would be considered to be Federally subsidized.
Specific apartment complexes which are assisted with HOME funds must be
occupied by low-income families (those whose incomes do not exceed 80% of area
median income) with the further condition that at least 20% of the dwelling
units are occupied by very low-income families, i.e., those whose incomes do not
exceed 50% of the area median income, adjusted for family size, who pay rent
equal to no more than 30% of their adjusted income or rent which does not exceed
the amount permitted under the Low Income Housing Credit program. Remaining
units must be rented at amounts which do not exceed the lesser of (1) the
existing fair market rent under the HUD Section 8 program or (2) an amount equal
to 30% of the adjusted income of a family whose income is 65% of the area median
income, adjusted for family size. It should be noted that the rents allowed for
such remaining units may exceed the amounts permitted for units under the Low
Income Housing Credit program.
State and Local Bond Programs
A number of states and some local governmental entities have established
housing finance agencies ("HFAs") to assist in the development and financing of
low- and moderate-income housing. HFAs are empowered to issue their own
obligations (short-term notes and long-term revenue bonds) which, due to the
status of the HFAs as governmental entities, are under certain conditions exempt
from Federal income taxation and thus are sold in the tax-exempt municipal bond
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market at interest costs to the HFAs below conventional money market rates.
The HFAs then use the proceeds of the sale of their notes and/or bonds to make
or purchase mortgage loans for low- and moderate-income apartment complexes.
When an HFA provides direct construction and permanent mortgage loans for
multi-family housing without HUD mortgage insurance, the HFA itself generally
determines the economic feasibility, market need and demand for, and
architectural construction characteristics of, the apartment complex. In such
cases, the HFA generally also monitors the progress of construction, marketing,
rent-up of dwelling units and the management of the completed apartment complex.
Although HFAs' criteria and requirements for non-HUD-insured direct
construction and permanent mortgage loans vary, generally such loans are
available in an amount of up to 90% of an HFA's estimate of the total
development cost of the apartment complex, for terms of up to 40 years, for
newly constructed or substantially rehabilitated multi-family rental housing
intended for occupancy by individuals and families, elderly individuals and
handicapped individuals of low and moderate incomes, where the owner accepts a
limitation on the amount of operating income from the apartment complex which
may be distributed to it annually. The HFAs' direct loan programs frequently
include requirements as to operating assurances, escrow, working capital and
other deposits. While certain of these operating assurances may be funded from
mortgage loan proceeds, most are to be provided by the developer/owner either in
cash, in the form of letters of credit or through the pledge of certain equity
syndication proceeds.
Generally, in cases where the mortgage loans of HFAs are also HUD-insured,
the underwriting and regulatory standards and procedures of HUD pursuant to the
applicable HUD mortgage insurance program are employed without any substantial
additional requirements.
State enabling laws establishing HFA direct mortgage loan programs generally
do not require the apartment complex to receive additional subsidy assistance if
it otherwise can meet the housing needs of low- and moderate-income individuals
and families. However, the preponderance of HFA-financed multi-family housing is
also assisted (as to at least a portion of the dwelling units in each
development) pursuant to the HUD Section 8 program.
In order to maintain the tax-exempt nature of obligations issued by HFAs,
20% of the units in an apartment complex must be rented to households at 50% of
the area median income (or 40% at 60% of area median income) as adjusted for
family size, and tenants may not pay more than 30% of their adjusted incomes for
rent. These tenant qualification requirements must be satisfied annually based
on income earned each year by tenants over the term of the qualified project
period. This period extends until the latest of (a) 15 years from the date 50%
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of the units are occupied; (b) redemption of the bonds; or (c) termination
of any Section 8 Program rental assistance. Typically, a mortgage loan financed
with the proceeds of tax-exempt bonds may not be prepaid during this period and,
thereafter, may be prepaid only upon payment of amounts necessary to redeem the
bonds, including the payment of premiums for early redemption. HFAs' direct
mortgage loan programs also generally impose limitations on the sale,
refinancing or change in use of the apartment complex. They may also require
that a restrictive covenant be placed on record prohibiting the use of the
apartment complex for anything other than rental housing. Further, they may
require approval of the sale of an interest in a partnership or limited
liability company owner. These requirements may make it more difficult for a
Series to sell its interest in a Local Limited Partnership owning an Apartment
Complex financed with the proceeds of tax-exempt bonds or to refinance the
mortgage loan on such an Apartment Complex.
Apartment complexes financed by tax-exempt bonds issued by HFAs may be
eligible for Low Income Housing Credits. In such cases, Low Income Housing
Credits are not allocated from Credit Authority; rather, the amount of
tax-exempt bond authority available to a state or local agency is subject to a
strict state bond ceiling. Apartment Complexes financed through tax-exempt
financing are considered to be Federally subsidized for purposes of Low Income
Housing Credits, and thus eligible only for the 30% present value credit. See
"The Low Income Housing Credit."
HUD Section 8 Rental Assistance Programs
HUD administers the Existing Housing Program under Section 8 of the National
Housing Act, under which tenants whose incomes do not exceed certain specified
percentages of area median incomes are given housing vouchers through a local
housing authority. These vouchers can be used to pay a significant portion of
the rents for housing available in the private market, but only in projects
approved by HUD on the basis of housing quality and suitability standards.
The definition of "Federally subsidized" for purposes of Low Income Housing
Credits excludes all of the Section 8 programs except for the Moderate
Rehabilitation Section 8 program (other than funds disbursed under the Stewart
B. McKinney Homeless Assistance Act of 1988), so that units receiving such
assistance may be eligible for the 70% present value credit.
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MANAGEMENT
The Fund Manager
The Fund Manager is WNC & Associates, Inc. The Fund Manager has the
shareholder's equity reflected in its audited balance sheet (see "Financial
Statements"). The Fund Manager will be responsible for all aspects of the
operations of the Series. The Fund Manager will provide executive supervisory
and certain administrative services for the operations of the Series. Property
management will be provided at the expense of each Local Limited Partnership by
agents, which may include Affiliates of the Fund Manager. See "Management
Compensation." The services provided by the Fund Manager will include exercising
all of the rights of the Series under the Local Limited Partnership Agreements.
Unitholders will have no right to participate in the management of their Series.
The Fund Manager and its Affiliates are serving as the general partners of
the limited partnerships described below under "Prior Performance Summary" and
may serve as general partners for other real estate limited partnerships in the
future. It is anticipated that the officers of the Fund Manager will initially
devote approximately 5% to 50% of their time to the Fund; however, the amount of
time devoted to the Fund by all of these individuals is expected to decrease
significantly after the investment of the Net Proceeds in Local Limited
Partnership Interests. See "Conflicts of Interest."
The Fund Manager is a California corporation which was organized in 1971.
Its officers and significant employees are:
Wilfred N. Cooper, Sr............. Chief Executive Officer
John B. Lester, Jr................ President, Chief Operating
Officer and Secretary
David N. Shafer, Esq.............. Senior Vice President and
General Counsel
Wilfred N. Cooper, Jr............. Senior Vice President
Theodore M. Paul, CPA............. Vice President - Finance
and Chief Financial Officer
Thomas J. Riha.................... Vice President - Asset Management
Sy P. Garban...................... Vice President - National
Sales
Carl Farrington................... Director - Originations
David Turek....................... Director - Originations
N. Paul Buckland.................. Director - Acquisitions
Michele M. Taylor................. Investor Services Director
Theresa I. Champany............... Marketing Services Director
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The directors of WNC & Associates, Inc. are Wilfred N. Cooper, Sr., who
serves as Chairman of the Board, John B. Lester, Jr., David N. Shafer, Wilfred
N. Cooper, Jr. and Kay L. Cooper. Substantially all of the shares of WNC &
Associates, Inc. are owned by Wilfred N. Cooper, Sr., through the Cooper
Revocable Trust, and John B. Lester, Jr., through the Lester Family Trust.
Wilfred N. Cooper, Sr., age 66, has been the principal shareholder and a
Director of WNC & Associates, Inc. since its organization in 1971, of Shelter
Resource Corporation since its organization in 1981 and of WNC Resources, Inc.
from its organization in 1988 through its acquisition by WNC & Associates, Inc.
in 1991, serving as President of those companies until 1992 and as Chief
Executive Officer since 1992, and has been a Director of WNC Capital Corporation
since its organization. He is also a general partner with WNC & Associates, Inc.
in WNC Financial Group, L.P. and WNC Tax Credit Partners, L.P. During 1970 and
1971 he was a principal of Creative Equity Development Corporation, a
predecessor of WNC & Associates, Inc., and of Creative Equity Corporation, a
real estate investment firm. For 12 years prior to that, Mr. Cooper was employed
by Rockwell International Corporation, last serving as its manager of housing
and urban developments. Previously, he had responsibility for new business
development including factory-built housing evaluation and project management in
urban planning and development. Mr. Cooper is a Director of the Executive
Committee of the National Association of Home Builders (NAHB) and a past
Chairman of the NAHB's Rural Housing Council, a Director of the National Housing
Conference, a Director of the Affordable Housing Tax Credit Coalition, a past
President of the Rural Builders Council of California (RBCC), and a past
President of Southern California Chapter II of the Real Estate Syndication and
Securities Institute (RESSI) of the National Association of Realtors (NAR). Mr.
Cooper graduated from Pomona College in 1956 with a Bachelor of Arts degree.
John B. Lester, Jr., age 63, has been a shareholder, a Director and
Secretary of WNC & Associates, Inc. since 1986, Executive Vice President from
1986 to 1992, and President and Chief Operating Officer since 1992, and has been
a Director of WNC Capital Corporation since its organization. He was a
shareholder, Executive Vice President, Secretary and a Director of WNC
Resources, Inc. from 1988 through its acquisition by WNC & Associates, Inc. in
1991. From 1973 to 1986 he was the Chairman of the Board and Vice President or
President of E & L Associates, Inc., a provider of engineering and construction
services to the oil refinery and petrochemical industries which he co-founded in
1973. Mr. Lester is a former Director of the Los Angeles Chapter of the
Associated General Contractors of California. His responsibilities at WNC &
Associates, Inc. include property acquisitions and company operations. Mr.
Lester graduated from the University of Southern California in 1956 with a
Bachelor of Science degree in Mechanical Engineering.
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David N. Shafer, age 45, has been a Director of WNC & Associates, Inc. since
1997, a Senior Vice President since 1992 and General Counsel since 1990, and
served as Asset Management Director from 1990 to 1992. Previously he was
employed as an associate attorney by the law firms of Morinello, Barone, Holden
& Nardulli from 1987 until 1990, Frye, Brandt & Lyster from 1986 to 1987 and
Simon and Sheridan from 1984 to 1986. Mr. Shafer is a Director and President of
RBCC, a member of NAHB's Rural Housing Council, a past President of Southern
California Chapter II of RESSI, a past Director of the Council of Affordable and
Rural Housing and Development and a member of the State Bar of California. Mr.
Shafer graduated from the University of California at Santa Barbara in 1978 with
a Bachelor of Arts degree, from the New England School of Law in 1983 with a
Juris Doctor degree (cum laude) and from the University of San Diego in 1986
with a Master of Law degree in Taxation.
Wilfred N. Cooper, Jr., age 34, has been employed by WNC & Associates, Inc.
since 1988 and has been a Director since 1997 and a Senior Vice President or
Vice President since 1992. Mr. Cooper heads the Acquisition Originations
department at WNC and has been President of, and a registered principal with,
WNC Capital Corporation since its organization. Previously, he was employed as a
government affairs assistant by Honda North America from 1987 to 1988, and as a
legal assistant with respect to Federal legislative and regulatory matters by
the law firm of Schwartz, Woods and Miller from 1986 to 1987. Mr. Cooper is an
alternate director and member of NAHB's Rural Housing Council and serves as
Chairman of its Membership Committee. Mr. Cooper graduated from The American
University in 1985 with a Bachelor of Arts degree.
Theodore M. Paul, age 41, has been Vice President - Finance of WNC &
Associates, Inc. since 1992 and Chief Financial Officer since 1990. Previously,
he was a Vice President and the Chief Financial Officer of National Partnership
Investments Corp., a sponsor and general partner of syndicated partnerships
investing in affordable rental housing qualified for tax credits, from 1986
until 1990, and was employed as an associate by the accounting firms of
Laventhol & Horwath, during 1985, and Mann & Pollack Accountants, from 1979 to
1984. Mr. Paul is a member of the California Society of Certified Public
Accountants and the American Institute of Certified Public Accountants. His
responsibilities at WNC & Associates, Inc. include supervision of investor
partnership accounting and tax reporting matters and monitoring the financial
condition of the Local Limited Partnerships in which the Fund will invest. Mr.
Paul graduated from the University of Illinois in 1978 with a Bachelor of
Science degree and is a Certified Public Accountant in the State of California.
Thomas J. Riha, age 42, has been Vice President - Asset Management of WNC
& Associates, Inc. since 1994. He has more than 18 years' experience in
commercial and multi-family real estate investment and management. Previously,
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<PAGE>
Mr. Riha was employed by Trust Realty Advisor, a real estate acquisition and
management company, from 1988 to 1994, last serving as Vice President
Operations. His responsibilities at WNC & Associates, Inc. include monitoring
the operations and financial performance of, and regulatory compliance by,
properties in the WNC portfolio. Mr. Riha graduated from the California State
University, Fullerton in 1977 with a Bachelor of Arts degree (cum laude) in
Business Administration with a concentration in Accounting and is a Certified
Public Accountant in the State of California and a member of the American
Institute of Certified Public Accountants.
Sy P. Garban, age 51, has 20 years' experience in the real estate securities
and syndication industry. He has been associated with WNC & Associates, Inc.
since 1989, serving as National Sales Director through 1992 and as Vice
President National Sales since 1992. Previously, he was employed as Executive
Vice President by MRW, Inc., Newport Beach, California from 1980 to 1989, a real
estate development and management firm. Mr. Garban is a member of the
International Association of Financial Planners. He graduated from Michigan
State University in 1967 with a Bachelor of Science degree in Business
Administration.
Carl Farrington, age 51, has been associated with WNC & Associates, Inc.
since 1993, and has served as Director-Originations since 1994. Mr. Farrington
has more than 12 years' experience in finance and real estate acquisitions.
Previously, he served as Acquisitions Director for The Arcand Company from 1991
to 1993, and as Treasurer and Director of Finance and Administrator for Polytron
Corporation from 1988 to 1991. Mr. Farrington is a member and Director of the
Council of Affordable and Rural Housing and Development. Mr. Farrington
graduated from Yale University with a Bachelor of Arts degree in 1966 and from
Dartmouth College with a Masters of Business Administration in 1970.
David Turek, age 42, has been Director - Originations of WNC & Associates,
Inc. since 1996. He has 23 years' experience in real estate finance and
acquisitions. Previously, from 1995 to 1996 Mr. Turek served as a consultant for
a national Tax Credit sponsor where he was responsible for on-site feasibility
studies and due diligence analyses of Tax Credit properties, from 1992 to 1995
he served as Executive Vice President for Levcor, Inc., a multi-family
development company, and from 1990 to 1992 he served as Vice President for the
Paragon Group where he was responsible for Tax Credit development activities.
Mr. Turek graduated from Southern Methodist University in 1976 with a Bachelor
of Business Administration degree.
N. Paul Buckland, age 34, has been employed by WNC & Associates, Inc. since
1994 and currently serves as Director - Acquisitions. He has 11 years'
experience in analysis pertaining to the development of multi-family and
commercial properties. Previously, from 1986 to 1994 he served on the
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<PAGE>
development team of the Bixby Ranch which constructed more than 700
apartment units and more than one million square feet of "Class A" office space
in California and neighboring states, and from 1984 to 1986 he served as a land
acquisition coordinator with Lincoln Property Company where he identified and
analyzed multi-family developments. Mr. Buckland graduated from California State
University, Fullerton in 1992 with a Bachelor of Science degree in Business
Finance.
Michele M. Taylor, age 42, has been employed by WNC & Associates, Inc. since
1986, serving as a paralegal and office manager, and currently is the Investor
Services Director. Previously she was self-employed between 1982 and 1985 in
non-financial services activities and from 1978 to 1981 she was employed as a
paralegal by a law firm which specialized in real estate limited partnership
transactions. Ms. Taylor graduated from the University of California at Irvine
in 1976 with a Bachelor of Arts degree.
Theresa I. Champany, age 39, has been employed by WNC & Associates, Inc.
since 1989 and currently is the Marketing Services Director and a registered
principal with WNC Capital Corporation. Previously, she was employed as Manager
of Marketing Services by August Financial Corporation from 1986 to 1989 and as
office manager and Assistant to the Vice President of Real Estate Syndications
by McCombs Securities Co., Inc. from 1979 to 1986. Ms. Champany attended
Manchester (Conn.) Community College from 1976 to 1978.
Kay L. Cooper, age 60, has been an officer and Director of WNC &
Associates, Inc. since 1971 and of WNC Resources, Inc. from 1988 through its
acquisition by WNC & Associates, Inc. in 1991. Mrs. Cooper has also been the
sole proprietor of Agate 108, a manufacturer and retailer of home accessory
products, since 1975. She is the wife of Wilfred N. Cooper, Sr., the mother of
Wilfred N. Cooper, Jr. and the sister of John B. Lester, Jr. Ms. Cooper
graduated from the University of Southern California in 1958 with a Bachelor of
Science degree.
Statement of Purpose. Organized in 1971, WNC & Associates, Inc. since then
has specialized in providing quality investment opportunities exclusively in the
field of affordable housing. WNC & Associates, Inc. has a time-honored tradition
of prudent investing and is one of the nation's oldest sponsors of Tax Credit
investments. Its officers believe that WNC & Associates, Inc. has developed an
insight into the affordable housing business based upon the fundamental
principles of diversification and market need that few other companies can
match. Using a disciplined selection process it evaluates all investment
properties for value and location, placing particular emphasis on long-term
economic stability and rental demand.
Prior to 1982 WNC & Associates, Inc. was in the business of structuring and
sponsoring private placements of equity securities in limited partnerships
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<PAGE>
organized to develop and operate residential rental properties which
benefit from Government Assistance, and thereafter monitoring the investments
made by such partnerships and providing certain administrative services to the
investors. A discussion of these partnerships is set forth below under
"Syndicated Partnerships."
In addition to the Syndicated Partnerships, through December 31, 1996, WNC
& Associates, Inc. and/or its Affiliates had sponsored 14 public and 48
non-public real estate programs as managing general partner. See "Prior
Performance Summary."
Syndicated Partnerships. WNC & Associates, Inc. structured for independent
real estate developers 57 private placements of partnerships formed to own real
estate projects ("Syndicated Partnerships"). In such transactions, investors
paid an aggregate of approximately $15,825,000 in equity capital contributions
to limited partnerships with respect to projects having an aggregate acquisition
cost estimated at approximately $82,000,000. Estimates of acquisition costs of a
project herein are made by adding the related limited partner and general
partner capital commitments to the principal amount of its mortgage financing.
These investment programs invested in 57 apartment properties, all of which
benefit from Government Assistance, in the following jurisdictions:
Arizona (2) Ohio (6)
California (29) Texas (4)
Colorado (1) Utah (1)
Florida (6) Virginia (1)
Kansas (1) Washington (1)
Kentucky (1) West Virginia (3)
New Mexico (1)
As of December 31, 1996, nine of the Syndicated Partnerships had either
sold, resyndicated (to Affiliates) or refinanced their properties, returning to
their investors between approximately 100% and 200% of their invested capital in
addition to providing tax deductions averaging in excess of 200% of their
invested capital.
In connection with the Syndicated Partnerships, WNC & Associates, Inc., in
addition to providing structuring and consulting services to developers,
directly or through professional consultants, arranged for preparation of
partnership agreements and other requisite documents for such projects,
including legal opinions as to Federal income tax and organizational matters,
and arranged for the placement of such securities, typically pursuant to
Regulation D under the Securities Act of 1933. It relied on independent
broker-dealers to place such securities.
WNC & Associates, Inc., as an investor service agent, typically has also
provided certain on-going partnership administrative services to the Syndicated
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<PAGE>
Partnerships. In this role, it has gathered and evaluated information, handled
all communications between the partnerships and investors, including the
forwarding of financial statements and tax reporting forms, and served as the
initial channel for investor inquiries. In cases where projects have failed to
perform as expected, WNC & Associates, Inc. has intensified its monitoring
operations, visited the projects, attempted to organize the interests of the
investors, to provide general advice to the partners and to help seek a
resolution of pending problems, and, with respect to five of the Syndicated
Partnerships, each of which owned a single property, become the successor
managing general partner after the original managing general partners had
misappropriated partnership accounts. With respect to three of those Syndicated
Partnerships (which had the same original managing general partner), WNC &
Associates, Inc. became the successor managing general partner in 1986;
thereafter, the three Syndicated Partnerships sold their respective properties
to three other partnerships which were not Affiliates of WNC & Associates, Inc.
After the general partner thereof obtained Tax Credits for such properties, a
partnership sponsored by WNC & Associates, Inc. (see "Prior Performance
Summary") purchased the limited partnership interests therein. With respect to
the other two Syndicated Partnerships, WNC & Associates, Inc. became successor
managing general partner in 1989. Thereafter, using the proceeds from RD loans,
the properties were substantially rehabilitated and continue to be owned and
operated by the Syndicated Partnerships.
Change in Management
The management and control of the Fund Manager may be changed at any time in
accordance with its organizational documents, without the consent or approval of
the Unitholders. In addition, the Partnership Agreement provides for the
admission of one or more additional or successor Fund Managers to any Series in
certain circumstances.
First, with the consent of any other Fund Managers of the Series and a
majority-in-interest of the Unitholders, the Fund Manager may designate one or
more persons to be successor or additional Fund Managers to the Series. In
addition, the Fund Manager may, without the consent of any other Fund Manager or
the Unitholders, (i) substitute in its stead as Fund Manager any entity which
has, by merger, consolidation or otherwise, acquired substantially all of its
assets, stock or other evidence of equity interest and continued its business,
or (ii) cause to be admitted to the Series an additional Fund Manager or Fund
Managers if it deems such admission to be necessary or desirable so that the
Series will be classified as a partnership for Federal income tax purposes.
Finally, a majority-in-interest of the Unitholders may at any time remove the
Fund Manager of their Series and elect a successor Fund Manager. The Partnership
Agreement provides that if at any time a Series does not have a Fund Manager
which is an Affiliate of WNC & Associates,
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<PAGE>
Inc., the Series shall change its name in such a manner as not to include
the initials "WNC."
WNC Capital Corporation
WNC Capital Corporation, a California corporation which is wholly-owned by
WNC & Associates, Inc., was organized in February 1994 principally to facilitate
the distribution of securities of partnerships sponsored by the Fund Manager.
WNC Capital Corporation is a member firm with the NASD, and is registered as a
broker-dealer with the Securities and Exchange Commission, the California
Department of Corporations and regulatory agencies of certain other states. The
officers of WNC Capital Corporation are Wilfred N. Cooper, Jr., President and
Theresa I. Champany, Vice President.
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<PAGE>
PRIOR PERFORMANCE SUMMARY
WNC & Associates, Inc. directly and through its Affiliates has had
significant prior experience in the syndication and management of real estate
programs. From its formation through May 27, 1997 the Fund Manager and its
Affiliates have raised equity from more than 11,800 investors to acquire
interests in more than 500 properties located in 37 states and one territory,
and representing more than $826,000 in aggregate acquisition costs. The
information which follows and the section of this Prospectus entitled
"Management" contain discussions as of December 31, 1996 of all of the prior
real estate investment programs in which the Fund Manager and its Affiliates
have been involved.
In addition to the Syndicated Partnerships for which the Fund Manager has
performed syndication and related services for third parties as discussed above
under "Management," as of December 31, 1996 the Fund Manager and its Affiliates
have sponsored a total of 14 public and 48 non-public real estate programs
(excluding the Fund). As of December 31, 1996, two of the non-public real estate
programs had not sold their limited partnership interests; the other 60
partnerships had raised an aggregate of approximately $229,719,000 from
approximately 10,800 investors. These 60 programs invested in a total of 410
apartment properties at an aggregate acquisition cost of approximately
$654,281,000 in the following jurisdictions:
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Alabama (15) Mississippi (8)
Arizona (7) Missouri (12)
Arkansas (10) Nebraska (6)
California (95) New Mexico (11)
Florida (4) North Carolina (26)
Georgia (5) Ohio (4)
Idaho (1) Oklahoma (9)
Illinois (10) Oregon (5)
Indiana (4) South Carolina (14)
Iowa (7) South Dakota (1)
Kansas (3) Tennessee (26)
Kentucky (2) Texas (85)
Louisiana (13) U. S. Virgin Islands (1)
Maryland (2) Virginia (5)
Michigan (1) West Virginia (1)
Wisconsin (17)
Of these 60 partnerships, 12 public and 32 private real estate programs
commenced their offerings during the 10-year period beginning January 1, 1987
(the "Prior Programs"). See "Public Programs Sponsored" and "Private Programs
Sponsored" below. The Prior Programs were organized to invest in apartment
complexes (by acquiring limited partnership interests in other limited
partnerships which owned the apartment complexes) benefitting from Low Income
Housing Credits and, in most instances, one or more other forms of Government
Assistance. See "Other Government Assistance Programs." As will be the case with
respect to the Apartment Complexes in which the Fund will invest, management and
operational control of the properties in which the Prior Programs have invested
is exercised by the general partners of the local limited partnerships.
Public Programs Sponsored
The 12 public Prior Programs are WNC Housing Tax Credit Fund, L.P. ("HTCF"),
WNC California Housing Tax Credits, L.P. ("CHTC"), WNC Housing Tax Credit Fund
II, L.P. ("HTCFII"), WNC California Housing Tax Credits II, L.P. ("CHTCII"), WNC
Housing Tax Credit Fund III, L.P. ("HTCFIII"), WNC California Housing Tax
Credits III, L.P. ("CHTCIII"), WNC Housing Tax Credit Fund IV, L.P., Series 1
("HTCFIV Series 1"), WNC Housing Tax Credit Fund IV, L.P., Series 2 ("HTCFIV
Series 2"), WNC California Housing Tax Credits IV, L.P., Series 4 ("CHTCIV
Series 4"), WNC California Housing Tax Credits IV, L.P., Series 5 ("CHTCIV
Series 5"), WNC Housing Tax Credit Fund V, L.P., Series 3 ("HTCFV Series 3") and
WNC Housing Tax Credit Fund V, L.P., Series 4 ("HTCFV Series 4"). With the
exception of HTCFV Series 4, each of the public Prior Programs had completed its
offering as of December 31, 1996.
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<PAGE>
Through December 31, 1996, the 12 public Prior Programs had raised an
aggregate of approximately $138,494,000 in capital contributions from an
aggregate of approximately 9,000 investors and invested in a total of 206
apartment properties located in the following jurisdictions:
Alabama (13) Mississippi (6)
Arizona (3) Missouri (3)
Arkansas (5) Nebraska (6)
California (48) New Mexico (4)
Florida (1) North Carolina (15)
Georgia (2) Ohio (4)
Idaho (1) Oklahoma (3)
Illinois (8) Oregon (3)
Indiana (4) South Carolina (1)
Iowa (7) South Dakota (1)
Kansas (2) Tennessee (6)
Kentucky (1) Texas (40)
Louisiana (3) Virginia (4)
Maryland (1) Wisconsin (11)
The aggregate mortgage debt encumbering the properties was approximately
$247,618,000 and the aggregate acquisition cost of the properties was
approximately $348,261,000. At the times of the Prior Programs' investments
therein 73 of the properties were existing apartment complexes and 133 were
under development or construction by the local partnerships which own them.
All of the public Prior Programs have as their principal investment
objective providing Federal Low Income Housing Credits to their investors, and
CHTC, CHTCII, CHTCIII, CHTCIV Series 4, and CHTCIV Series 5 have the additional
objective of providing California Low Income Housing Credits.
Certain information with regard to the public Prior Programs is set forth in the
tables which follow:
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<TABLE>
Federal Credit Programs
Federal
Offering Partnership Credits Received Per $10,000 Investment Credit Years
Commencement Name Total 1996 1995 1994 1993 1992 1991 1990 1989 Remaining(1)
- ------------ ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 HTCF $10,170 $1,410 $1,410 $1,410 $1,410 $1,410 $1,400 $1,640 $80 5
1990 HTCFII 9,010 1,450 1,450 1,460 1,380 1,210 1,300 760 -- 7
1992 HTCFIII 5,000 1,570 1,520 1,190 680 40 -- -- -- 9
1993 HTCFIV
Series 1 2,690 1,360 1,010 320 -- -- -- -- -- 10
1994 HTCFIV
Series 2 1,960 1,050 700 210 -- -- -- -- -- 10
1995 HTCFV
Series 3 650 620 30 -- -- -- -- -- -- 11
1996 HTCFV
Series 4 140 140 -- -- -- -- -- -- -- 12(2)
Federal and California Credit Programs
Federal
Offering Partnership Credits Received Per $10,000 Investment Credit Years
Commencement Name Total 1996 1995 1994 1993 1992 1991 1990 1989 Remaining(1)
- ------------ ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ------------
1989 CHTC $13,660 $ 990 $ 990 $1,180 $1,720 $2,360 $2,590 $2,270 $1,560 5
1991 CHTCII 9,770 1,530 2,060 1,940 1,780 1,810 650 -- -- 4(2)
1993 CHTCIII 4,630 1,970 1,800 800 60 -- -- -- -- 10
1994 CHTCIV
Series 4 2,050 1,340 710 -- -- -- -- -- -- 10
1995 CHTCIV
Series 5 -- -- -- -- -- -- -- -- -- 11
<FN>
(1) As of December 31, 1996.
(2) These Prior Programs will generate a small amount of Tax Credits for four
years beyond the stated number of years due to increases in qualified basis.
</FN>
</TABLE>
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Private Programs Sponsored
As of December 31, 1996, the 32 private Prior Programs involved an aggregate
of approximately $75,891,000 in commitments for capital contributions payable in
installments from an aggregate of approximately 1,470 investors. These private
Prior Programs invested in a total of 159 apartment properties located in the
following jurisdictions:
Alabama (2) Missouri (6)
Arizona (3) New Mexico (6)
Arkansas (5) North Carolina (9)
California (35) Oklahoma (3)
Florida (3) Oregon (2)
Georgia (2) South Carolina (7)
Illinois (1) Tennessee (18)
Kentucky (1) Texas (39)
Louisiana (7) Virginia (1)
Maryland (1) Wisconsin (6)
Mississippi (2)
The aggregate mortgage debt encumbering the properties was approximately
$187,401,000 and the aggregate acquisition cost of the properties was
approximately $246,869,000.
All of the 32 private Prior Programs have as their principal investment
objective providing Federal Low Income Housing Credits to their investors, and
12 of the 32 programs have the additional objective of providing California Low
Income Housing Credits.
In addition to the 32 private Prior Programs discussed above (each of which
had completed its offering as of December 31, 1996), the Sponsor has sponsored
WNC Institutional Tax Credit Fund III, L.P. ("ITC III"), and WNC California
Institutional Tax Credits, L.P. ("CTC"). ITC III sold all $20,000,000 of its
units of limited partnership interest in 1997 and has invested in nine Apartment
Complexes. CTC sold all $27,000,000 of its units of limited partnership interest
in 1997 and has invested in four Apartment Complexes. It is expected that
additional properties will be acquired by ITC III and CTC.
Certain additional information with regard to the 32 private Prior Programs
is set forth in the tables which follow:
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<PAGE>
<TABLE>
Federal Credit Programs
Offering Federal
Commence- Partnership Credits Received Per $10,000 Investment(1) Credit Years
ment Name Total 1996 1995 1994 1993 1992 1991 1990(3) 1989 1988 1987 Remaining(2)
- ------- ---- ----- ---- ---- ---- ---- ---- ---- ------- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 Pepper Tree (4) $13,650 1,470 1,470 $1,470 $1,470 $1,470 $1,470 $2,370 $1,530 $ 900 $ 30 2
1987 East Bay 13,940 1,360 1,350 1,360 1,360 1,360 1,360 1,670 1,700 1,400 1,020 1
1987 Sequoia Manor 13,440 1,370 1,370 1,370 1,370 1,350 1,380 2,220 1,460 1,340 210 2
1987 Bayou 12,890 1,290 1,290 1,290 1,290 1,290 1,290 2,110 1,400 1,330 310 1
1987 Laurel Hill 12,770 1,320 1,320 1,320 1,320 1,320 1,300 2,090 1,320 1,230 230 2(5)
1988 Ridgetop 12,310 1,390 1,390 1,390 1,390 1,390 1,390 2,250 1,500 220 -- 2(6)
1989 Alta Mesa 10,410 1,320 1,320 1,320 1,320 1,320 1,320 1,950 540 -- -- 4
1990 WNC-90 8,240 990 1,400 1,400 1,400 1,400 1,400 250 -- -- -- 4
1991 Shelter Resource XIX 7,920 1,440 1,440 1,440 1,440 1,440 720 -- -- -- -- 5
1991 WNC Tax Credits XX 8,240 1,460 1,460 1,460 1,460 1,460 940 -- -- -- -- 5
1991 WNC Tax Credits XXI 6,520 1,360 1,360 1,360 1,360 1,030 50 -- -- -- -- 6
1992 WNC Tax Credits XXII 6,730 1,410 1,410 1,410 1,410 1,090 -- -- -- -- -- 6
1992 WNC Tax Credits XXIII 6,440 1,400 1,400 1,400 1,370 870 -- -- -- -- -- 6
1992 WNC Tax Credits XXV 5,060 1,380 1,380 1,280 870 150 -- -- -- -- -- 8
1993 WNC Tax Credits XXVI 4,820 1,330 1,330 1,320 840 -- -- -- -- -- -- 7
1993 WNC Tax Credits XXVIII 3,350 1,300 1,300 640 110 -- -- -- -- -- -- 8
1993 WNC Tax Credits XXIX 3,220 1,290 1,110 790 30 -- -- -- -- -- -- 9
1994 WNC Tax Credits XXX 2,330 1,220 1,000 110 -- -- -- -- -- -- -- 9
1994 ITC I 2,860 1,670 780 410 -- -- -- -- -- -- -- 10
1995 ITC II 660 590 70 -- -- -- -- -- -- -- -- 11
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<PAGE>
Federal and California Credit Programs
Offering Federal
Commence- Partnership Credits Received Per $10,000 Investment(1) Credit Years
ment Name Total 1996 1995 1994 1993 1992 1991 1990(3) 1989 1988 1987 Remaining(2)
- -------- ---- ----- ---- ------------ ---- ---- ---- ------- ---- ---- ---- --------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 Beech Villa $17,750 $1,360 $1,360 $1,350 $1,350 $1,350 $1,350 $2,670 $3,210 $3,210 $540 1
1988 Elmwood Villa 17,030 990 990 990 990 1,330 2,610 4,010 3,460 1,660 -- 3
1988 Poplar Villa 16,650 970 970 970 970 970 2,280 3,420 3,410 2,690 -- 1
1988 Olive Tree 16,490 970 970 970 970 970 1,620 3,990 3,310 2,720 -- 2
1988 Pine Rock 15,530 940 940 940 880 1,220 3,280 3,810 3,240 280 -- 3
1988 Mesa Verde 15,030 1,020 1,030 1,030 1,030 1,870 1,690 3,610 2,760 990 -- 3
1988 Sunfield 14,310 1,340 1,340 1,340 1,340 1,340 1,650 3,090 2,080 790 -- 3
1988 Foxglove 11,880 1,360 1,360 1,360 1,550 2,020 2,020 1,920 290 -- -- 4
1989 Elliot Place 14,160 1,200 1,200 1,200 1,200 1,670 2,460 3,200 2,030 -- -- 4
1990 Wheatridge 10,880 1,120 1,120 1,120 1,480 2,240 2,230 1,570 -- -- -- 5
1992 WNC Tax Credits XXIV 8,590 1,260 1,740 2,180 2,180 1,230 -- -- -- -- -- 6
1993 WNC Tax Credits XXVII 6,070 1,560 1,750 1,740 1,020 -- -- -- -- -- -- 8
<FN>
(1) Represents the return received by investors utilizing deferred payment
purchase plans. In many instances the respective returns to cash investors were
higher than those listed above inasmuch as the use of deferred payment purchase
notes entailed the payment of interest.
(2) As of December 31, 1996.
(3) In 1990 certain partnerships were permitted to, and did, elect to
utilize 150% of the Federal Low Income Housing Credit otherwise allowable for
1990.
(4) Pepper Tree originally offered Federal Tax Credits only. After the
investors were admitted to the Prior Program, the Local General Partners
obtained California Low Income H using Credits as well, which are not reflected
in this chart.
(5) These Prior Programs will generate a small amount of Tax Credits for
five years beyond the stated number of years due to increases in qualified
basis.
(6) These Prior Programs will generate a small amount of Tax Credits for
five years beyond the stated number of years due to increases in qualified
basis.
</FN>
</TABLE>
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Additional Information
In one prior private program sponsored in 1981, WNC & Associates, Inc.,
became successor managing general partner in 1989 after the original managing
general partner had misappropriated partnership accounts. Thereafter, using the
proceeds from an RD loan, the property was substantially rehabilitated and
continues to be owned and operated by the prior program. In another prior
private program sponsored in 1996, a Local General Partner filed a petition in
bankruptcy; the Sponsor's motion to remove the Local General Partner from the
Local Limited Partnership and replace him with an experienced non-profit agency
was approved by the bankruptcy court in 1997. And in a public program sponsored
in 1993, a Local General Partner was removed and replaced by the Sponsor in 1997
after the Local General Partner violated provisions of the Local Limited
Partnership Agreement. The remaining Local General Partner, which is an agency
of the county in which the property is located, is expected to be replaced by
the Sponsor and/or an experienced non-profit agency.
Additional information with regard to certain of the Prior Programs is set
forth in Tables I, II and III, which comprise Exhibit A to this Prospectus, and
in Table VI which appears in Part II of the Registration Statement of which this
Prospectus is a part and describes in greater detail the properties in which
these programs have invested. Tables IV and V have been omitted since none of
the prior programs sponsored by the Fund Manager or its Affiliates have sold any
of their properties or completed operations.
There will be made available to any prospective investor, upon request and
without charge, copies of Table VI and of the most recent report on Form 10-K
filed by any of the public programs with the Securities and Exchange Commission,
and upon request, for a reasonable fee, the exhibits to such Form 10-K will also
be provided.
FEDERAL INCOME TAX CONSIDERATIONS
Introduction
The following discussion summarizes the material Federal income tax aspects
of the purchase, ownership and disposition of Units and the opinion of Derenthal
& Dannhauser, counsel to the Fund, the Fund Manager and their Affiliates
("Counsel") with regard to such aspects, other than Low Income Housing Credits,
which are discussed under "The Low Income Housing Credit." This discussion,
Counsel's opinion and the discussion of Low Income Housing Credits are based on
the Code, Treasury Regulations thereunder, published administrative rulings, and
judicial decisions in effect on the date of this Prospectus. The 1986 Act and
the 1987 Act substantially altered the Federal income tax system, particularly
as it
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relates to the tax consequences of investments by limited partnerships in real
estate, and the 1988 Act, the 1989 Act, the 1990 Act and the 1993 Act have made
numerous other changes in the Code. Consequently, significant uncertainty exists
regarding various aspects of the taxation of limited partnerships. Furthermore,
applicable regulations and interpretations in this area have not yet been
written or are under continuing review by the IRS. No assurance can be given
that future legislative or administrative changes or court decisions will not
significantly modify the statements and opinions expressed in this Prospectus.
Any such changes may or may not be retroactive with respect to transactions
completed prior to the effective dates of such changes.
Summary
The following is a summary of, and is qualified by, the more extensive
discussion of the Federal income tax consequences set forth below in this
section.
Opinion of Counsel. In connection with its preparation of the following
discussion Counsel has rendered its opinion as to certain of the material
Federal income tax issues. With regard to certain other matters Counsel is
unable to render an opinion. See "Opinions of Counsel." The Fund has not
received and will not apply for a ruling from the IRS with respect to any of
these matters.
Classification as a Partnership. As indicated throughout this Prospectus,
the primary tax benefit to investors will be Low Income Housing Credits.
However, Low Income Housing Credits will only be available to Unitholders in a
Series if, among other things (see "The Low Income Housing Credit" as well as
the discussion which follows), the Series is classified as a partnership for
Federal income tax purposes. As indicated below (see "Classification as a
Partnership"), Counsel has rendered its opinion that each Series will be
classified as a partnership in this regard.
Tax Treatment of Unitholders. As set forth below (see "Tax Treatment of
Unitholders"), the Series themselves will not be subject to Federal income tax.
Rather, each Unitholder will report on his own income tax return his share of
his Series' Profits and Losses for Tax Purposes and Tax Credits, which includes
his share of the Series' share of such items from the Local Limited
Partnerships. See "Investment in Local Limited Partnerships."
Because a Unitholder's share of cash distributions will not ordinarily equal
his share of Taxable Income for Tax Purposes, a Unitholder may have taxable
income for a year in an amount which exceeds his distributions for the year. See
"Tax Treatment of Unitholders" and "Tax Liabilities in Later Years."
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A Unitholder's ability to utilize his Tax Credits and to deduct Losses for
Tax Purposes is limited. For example, because the Fund's credits and losses will
for most investors be classified as "passive," a Unitholder might need income
from other sources to fully utilize his Tax Credits, and in most instances will
need income from other sources to deduct his Losses for Tax Purposes. See
"Limitations on Losses and Credits from Passive Activities" and "General
Business Tax Credit Limitations." In addition, a Unitholder may not deduct
Losses for Tax Purposes in excess of his basis in his Units. See "Tax Basis for
the Units." A Unitholder may not deduct Losses for Tax Purposes in excess of his
amount "at risk" in his Series' activities (see "Application of At Risk
Limitation"), nor may he utilize Low Income Housing Credits in excess of the
amount he has "at risk" with respect to expenditures qualifying for Low Income
Housing Credits. See "The Low Income Housing Credit - Utilization of the Low
Income Housing Credit." Further, no deductions will be available to a Unitholder
if his investment in his Series and/or the Series' activities are "not engaged
in for profit." See "Profit Motive."
Historic Tax Credits and Recapture. In addition to Low Income Housing
Credits, tax credits generally are available for certain rehabilitation
expenditures incurred in improving certified historic structures and certain
other buildings originally placed in service before 1936 (the "Historic Tax
Credit"). If an expenditure respecting such a building is a qualified
expenditure, 20% of the expenditure will give rise to an Historic Tax Credit.
See "Federal Income Tax Considerations - Historic Tax Credit."
Historic Tax Credits are subject to recapture in the event of early
disposition of the building. See "Federal Income Tax Considerations - Historic
Tax Credit Recapture."
Fund Allocations. The Code and Treasury Regulations include certain highly-
technical provisions respecting allocations which are included in a partnership
agreement. The Partnership Agreement has been drafted in an attempt to comply
with such provisions. For a discussion of them, and the terms of the Partnership
Agreement in this regard, see "Fund Allocations."
The Code also prohibits the allocation to a partner of partnership items
incurred prior to the admission of the partner as a partner. See "Allocations
Prior to Admission."
Fund Deductions. In general, the Code requires that the Fund use the
accrual method of accounting. However, the Code provides special rules for the
treatment of such items as depreciation, Acquisition Fees, management fees and
organization expenses. See "Basis of Local Limited Partnerships in Their
Apartment Complexes," "Depreciation," "Deductibility of Fees," "Organization and
Offering Expenses" and "Start-Up Expenditures."
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Sale of Apartment Complexes. Gain or loss on the sale of an Apartment
Complex will equal the amount of consideration received (including the amount of
any liability to which the Apartment Complex was subject), minus the Local
Limited Partnership's basis in the Apartment Complex. This rule applies to all
dispositions of an Apartment Complex, including a foreclosure, so that the tax
liability on a disposition may exceed the cash received therefor. The character
of gain or loss as ordinary or capital, and as passive or portfolio, will depend
upon, among other things, the manner in which the Local Limited Partnership held
the Property. See "Sales or Exchanges of Local Limited Partnership Property;
Depreciation Recapture."
Treatment of Debt. If a promissory note issued or received by a Series or a
Local Limited Partnership includes original issue discount, the original issue
discount must be claimed as an expense or recognized as income annually over the
term of the loan regardless of the amount of interest actually paid or received.
See "Treatment of Mortgage Loans."
Transfers of Units. On a sale of his Units, a Unitholder will recognize
taxable gain in an amount equal to the excess, if any, of the consideration
received for the Units (including his share of Series or Local Limited
Partnership nonrecourse liabilities), over his basis in the Units. The tax
consequences of a transfer of Units as a gift or upon the death of a Unitholder
will depend upon, among other things, the Unitholder's particular circumstances.
See "Sales or Exchanges of Units and Local Limited Partnership Interests;
Transfers by Gift or at Death."
Liquidation. Upon liquidation of his Series, a Unitholder will recognize
taxable gain if the cash received by him (including his share of Series or Local
Limited Partnership nonrecourse liabilities) exceeds his basis in his Units. See
"Dissolution and Liquidation of a Series or Local Limited Partnership."
Section 754 Election. No Series is expected to file an election under
Section 754 of the Code. The absence of an election may have an adverse effect
on the marketability and sales price of Units. See "Elections."
Other Considerations. The following discussion also includes other
subsections which discuss less significant tax consequences. See "Other
Important Tax Considerations," "Tax Returns and Tax Information," "Tax Shelter
Registration" and "Changes in Tax Law."
These and other material Federal income tax issues are discussed below.
However, the following discussion does not purport to deal with Federal income
tax consequences applicable to all categories of investors, some of which may be
subject to special rules, and is not intended as a substitute for careful
planning. Prospective investors are urged to consult their own tax advisers,
attorneys or accountants with
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specific reference to their own tax situations and the effect thereon of an
investment in the Fund.
Opinion of Counsel
Counsel is of the opinion that to the extent that the summaries of Federal
income tax consequences to the Unitholders set forth in this "Federal Income Tax
Considerations" section and under the headings "Risk Factors - Risks Related to
Tax Credits" and " - Other Tax Risks" and "The Low Income Housing Credit"
involve matters of law, such statements are accurate in all material respects
under the Code, Treasury Regulations and existing interpretations thereof and
address fairly the principal aspects of each material Federal income tax issue
relating to an investment in the Fund. Based on the assumptions and
representations described herein, Counsel is of the opinion that for Federal
income tax purposes (i) each Series will be classified as a partnership and not
as an association taxable as a corporation; (ii) upon admission to a Series, an
investor will be a limited partner of the Series; (iii) each Unitholder will be
permitted to include in his tax basis of his Units his share of the bona fide
nonrecourse liabilities of his Series, including his Series' share of bona fide
nonrecourse liabilities of each Local Limited Partnership; (iv) the allocations
of Profits and Losses for Tax Purposes and Tax Credits provided for in the
Partnership Agreement will not be significantly modified; (v) Profits and Losses
for Tax Purposes and Tax Credits (other than the portion thereof classified as
portfolio income) will be treated as derived from a passive activity; and (vi)
no Series will be considered "publicly traded" within the meaning of Section
469(k) or 7704 of the Code.
Notwithstanding the foregoing, no Series has yet acquired any particular
investment, and the tax benefits available to Unitholders necessarily will
depend in large part upon the characteristics of the particular investments
acquired. Due to the factual nature of the issues involved, Counsel is unable to
render an opinion at this time regarding the specific application of the Federal
income tax laws to such investments. As a condition to an investment by any
Series in any Local Limited Partnership, the Series will obtain an opinion of
counsel, which may be based on assumptions and on representations from the Fund
Manager and the general partners of such Local Limited Partnership,
substantially to the effect that for Federal income tax purposes (i) the Local
Limited Partnership will be classified as a partnership and not as an
association taxable as a corporation; (ii) the Local Limited Partnership will be
the owner of the relevant Apartment Complex; (iii) upon admission, the Series
will be a limited partner of the Local Limited Partnership; (iv) the allocations
of profit or loss and Tax Credits under the Local Limited Partnership Agreement
will not be significantly modified by the IRS; (v) for purposes of determining
its tax basis and amount "at risk" (under Code Sections 42 and 465) for the
Local Limited Partnership, the Series will be permitted to take into account its
properly allocable share of such Local Limited Partnership's nonrecourse
liabilities;
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(vi) the relevant Apartment Complex will qualify for Tax Credits; and (vii) the
Local Limited Partnership will not be considered "publicly traded" within the
meaning of Section 469(k) or 7704 of the Code. In addition to reaching the
foregoing conclusions, such opinion will conclude that substantially more than
half of the material Federal income tax benefits anticipated from such
investment more likely than not will be realized by the Series.
Prospective investors should note that no legal opinion has been obtained,
and it is not anticipated that an opinion will be obtained, regarding
determinations, the correctness of which depends in significant part on future
factual circumstances, regarding matters peculiar to certain investors or
regarding matters in which opinions are not customarily obtained. Such
determinations and matters may include:
- - the allocation of basis among various components of a property, particularly
as between buildings, the cost of which is depreciable, and the underlying
land, the cost of which is not depreciable; a successful challenge by the
IRS to the amount of basis allocated to buildings would decrease
depreciation attributable to the property;
- - the estimated useful lives for depreciation purposes of properties
ineligible for depreciation under the cost recovery provisions of the Code;
a successful challenge by the IRS to the useful life selected by a Local
Limited Partnership would extend the period over which the cost of the
property was recovered through depreciation deductions;
- - the characterization of various expenses and payments made to or by a Series
or a Local Limited Partnership (for example, the extent to which such
payments represent deductible fees or interest); a successful challenge by
the IRS to the characterization of an expense as deductible would require
that such expense be capitalized and recovered, if at all, upon liquidation;
- - the portion of the cost of any Apartment Complex that qualifies for Tax
Credits (but see the discussion of so-called "adjuster" provisions in
"Investment Objectives and Policies - Investment Policies"); a successful
challenge by the IRS would reduce the amount of such credits;
- - the application to any specific Unitholder of the limitation on the
availability of passive activity losses and credits; Unitholders must
determine for themselves the extent to which their passive income and the
"$25,000 deduction equivalent" are available to them to claim Tax Credits
and Losses for Tax Purposes;
- - the classification of any Series or any Local Limited Partnership as a
dealer in interests in Local Limited Partnerships or Apartment Complexes,
respectively;
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a dealer generally may not claim depreciation deductions; and
- - the application of the alternative minimum tax to, or the calculation
thereof by, any Unitholder; if a Unitholder is subject to the alternative
minimum tax, tax benefits from an investment in a Series could be reduced.
There can be no assurance, therefore, that some of the deductions to be
claimed by a Series, or the allocation of items of Profits and Losses for Tax
Purposes and Tax Credits among its Fund Manager and Unitholders, will not be
challenged by the IRS and that such challenge will not be sustained by the
courts. Such challenge, if successful, could have a detrimental effect on the
ability of a Series to realize its investment objectives. See also "Risk Factors
- - Other Tax Risks."
Classification as a Partnership
The Fund does not plan to apply for a ruling from the IRS as to the status
of any Series as a partnership. Counsel is of the opinion that, under the
default provisions of newly-issued Treasury Regulations under Code Section 7701,
each Series will be classified as a partnership and will not be treated as an
association taxable as a corporation for Federal income tax purposes. Counsel's
opinion as to partnership status for each Series assumes and is conditioned on
the Fund Manager's representation that neither Series will elect to be treated
as a corporation for Federal income tax purposes.
As indicated above, Counsel's opinion is based upon the present provisions
of the Code and Regulations thereunder. If the IRS were to amend its
Regulations, it is possible that the Series would not qualify as partnerships
under the amended regulations.
Additionally, under Section 7704 of the Code, a publicly traded partnership
will be treated as a corporation for Federal income tax purposes, unless the
partnership meets certain gross income requirements, described below. For this
purpose, a publicly traded partnership is one the interests in which are (a)
traded on an established securities market, or (b) readily tradable on a
secondary market (or the substantial equivalent thereof). As indicated under the
heading "Transferability of Units," it is not anticipated that a public market
for the Units will develop. The report of the Conference Committee on the 1987
Act (the "Conference Report") indicates that where interests are quoted and
traded on an irregular basis and such interests cannot be disposed of within the
time that they could be disposed of in an over-the-counter market, the interests
are not to be treated as readily tradable on the substantial equivalent of a
secondary market.
The Partnership Agreement provides that a transfer of a Unit will not be
recognized by a Series unless (i) the transferror represents that the
transaction will
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not occur through a market maker in the Units, through a broker-dealer that
provides a readily available, regular, and ongoing opportunity to Unitholders to
sell or exchange their Units, through a public means of obtaining or providing
information on offers to buy, sell or exchange Units or through a broker-dealer
or matching agent whose procedures for transfer of the Units have not been
approved by the Fund Manager as not being incident to trading on an established
securities market or a secondary market, or (ii) if in the opinion of Counsel,
such transfer would cause the Series to be considered publicly traded.
Furthermore, the Partnership Agreement provides that any transfer of a Unit not
made for investment but for resale will be void if the transferee is a person
who makes a market in securities. Finally, the Fund Manager is empowered to
amend the Partnership Agreement to the extent necessary to prevent a Series from
being taxed as an association taxable as a corporation. Based on these
provisions of the Partnership Agreement and on representations that these
provisions will be enforced according to their terms, Counsel is of the opinion
that the Series will not be "publicly traded" within the meaning of Section 7704
of the Code.
Even if a Series is treated as publicly traded under Section 7704 of the
Code, it will not be classified as a corporation if 90% or more of its income
for the taxable year is qualifying income. For this purpose, qualifying income
includes interest, dividends, real property rents and gain from the sale or
other disposition of real property. The Fund Manager has represented that 90% or
more of the gross income of each Series will consist of such interest,
dividends, real property rents and gains from the sale or other disposition of
real property. Accordingly, based on this representation, Counsel is of the
opinion that the Series will not be treated as associations taxable as
corporations for Federal income tax purposes under Section 7704 of the Code even
if the Series were to be considered publicly traded. However, see "Limitations
on Losses and Credits from Passive Activities" for a discussion of additional
restrictions that may be imposed if the Series were considered publicly traded.
In the event that a Series were to become a publicly traded partnership, the
Fund Manager would be responsible for monitoring the composition of the income
of the Series and would be empowered to take such action as may be necessary to
avoid classification of the Series as an association taxable as a corporation.
Section 7704 of the Code generally would apply to a Series in its first taxable
year in which it became a publicly traded partnership.
If, for any reason, a Series were treated for Federal income tax purposes as
a corporation in any taxable year, income, gain, loss, deductions, Tax Credits
and tax preferences of the Series would be reflected only on its own tax return
rather than being passed through to the Partners. In that event, the Low Income
Housing Credits, as well as any losses, deductions or Historic Tax Credits of
the Local Limited Partnerships or the Series, would not be available to reduce
the tax liability of any Unitholder. In addition, the Series would be required
to pay Federal income tax (at the corporate tax rates described in "Other
Important Tax Considerations -
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Tax Rates") on its net income, thereby potentially reducing the amount of cash
available to be distributed to the Unitholders, and all or a portion of any
distributions to Unitholders could be treated as dividends, taxable to them as
ordinary income to the extent of the current and accumulated earnings and
profits of the Series. Distributions in excess of earnings and profits would be
treated as a return of capital to the extent of the recipient's basis (which
would not include the Unitholder's share of any nonrecourse liabilities of the
Series), while the remainder would be treated as capital gain (assuming the
Unitholder's Units qualified as capital assets). In addition, such a change in
the Series' status for tax purposes could be treated by the IRS as a taxable
event, in which case the Unitholders could have a tax liability under
circumstances where they would not receive a cash distribution from the Series.
Investment in Local Limited Partnerships
The Series will not invest directly in the Apartment Complexes. Rather, the
Series will invest in Local Limited Partnerships each of which will own an
Apartment Complex. The availability to prospective Unitholders of the tax
benefits that are anticipated to be derived from an investment in the Units is
dependent, in the first instance, on the following general principles of
partnership taxation:
1. Each of the Local Limited Partnerships must be classified as a
partnership for Federal income tax purposes, and not as an association taxable
as a corporation.
2. The allocation of the items of income, gain, loss, deduction, and Tax
Credit to the Series by each Local Limited Partnership must have substantial
economic effect or otherwise be in accordance with the Series' interest in such
Local Limited Partnership.
3. The Series' tax basis in each of the Local Limited Partnerships must
exceed the amounts of losses and deductions allocated to the Series from such
Local Limited Partnership.
4. The Series' amount "at risk" in each of the Local Limited Partnerships
must exceed the amount of losses and deductions allocated to the Series from
such Local Limited Partnership.
5. The Series' amount "at risk" with respect to expenditures of each Local
Limited Partnership that qualify for Low Income Housing Credits must exceed the
amount of such expenditures allocated to the Series.
The application of these general principles of Federal income taxation to
any investment by a Series in a Local Limited Partnership will depend on the
specific facts associated with that investment, including the provisions of the
partnership
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agreement of such Local Limited Partnership and the nature of the debts incurred
by such Local Limited Partnership to finance its investment in its Apartment
Complex.
As indicated above in "Opinion of Counsel," as a condition to acquiring any
Local Limited Partnership Interest, a Series will obtain an opinion of counsel
to the Local Limited Partnership or the Series respecting certain Federal income
tax matters. The discussion set forth below and opinions of Counsel described
herein regarding the Federal income tax consequences of an investment in the
Units assume that the Series will obtain such opinions regarding each of the
Local Limited Partnerships in which it invests, and rely on the accuracy of each
of such opinions. Prospective investors should be aware that the Fund Manager
does not intend to seek a ruling from the IRS regarding any of the tax
consequences of an investment by a Series in any Local Limited Partnership, and
that an opinion of counsel is not binding on the IRS and has no official status
of any kind.
The IRS has rendered several published rulings regarding the Federal income
tax consequences of an investment by a partnership in another partnership.
Although such rulings have not addressed every Federal income tax consequence of
such an investment, they have addressed the material consequences expected to be
relevant to an investment in the Units. Based on such rulings and the general
principles of partnership taxation, except as specifically noted below, the
discussion of the Federal income tax consequences of an investment in the Units
is equally applicable to an investment by a Series as a limited partner or
non-managing member in each Local Limited Partnership.
Tax Treatment of Unitholders
A Series itself will not be subject to Federal income tax (subject to the
matters discussed under "Classification as a Partnership" above), although it is
possible that a Series will be subject to income tax in one or more states or
local tax jurisdictions. Instead, each Unitholder will be required to report on
his own income tax return his share of the Series' Profits and Losses for Tax
Purposes and Tax Credits.
The share of each Unitholder in Profits and Losses for Tax Purposes and in
Tax Credits is based on the application to the Local Limited Partnerships of the
general principles of Federal income taxation of partnerships that are discussed
above under the heading "Investment in Local Limited Partnerships." Thereafter,
in determining the Federal income tax liability of a Unitholder as a consequence
of his investment in the Units, the following principles will apply in the order
summarized below:
1. The allocation provisions contained in Article 4 of the Partnership
Agreement will determine each Unitholder's share of the items of Profits and
Losses
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for Tax Purposes and Tax Credits to the extent that such allocations have
substantial economic effect or are otherwise in accordance with the Unitholder's
interest in his Series.
2. The Unitholder's tax basis in his Units must exceed the amount of losses
and deductions allocated to such Unitholder.
3. The Unitholder's amount "at risk" in his Units must exceed the amount of
losses and deductions allocated to the Unitholder.
4. The Unitholder's amount "at risk" with respect to expenditures of each
Local Limited Partnership that qualify for Low Income Housing Credits must
exceed the amount of such expenditures allocated to the Unitholder.
To the extent that the allocation of any Profits or Losses for Tax Purposes
or Tax Credits is disallowed to a Unitholder as a result of the application of
any of the principles set forth above, such Unitholder will not be permitted to
take such allocation into account in determining his Federal income tax
liability unless and until that principle, and each of the principles, if any,
stated thereafter, has been satisfied. Each of these principles is described in
greater detail below.
In addition to and after satisfying the foregoing principles, the ability of
a Unitholder to take advantage of any Losses for Tax Purposes or Tax Credits
allocated to him with respect to his Units may be limited by the passive loss
and passive credit limitations described below in "Limitations on Losses and
Credits from Passive Activities," by the overall limitation on business credits
described below under "General Business Tax Credit Limitations," by the
limitations on miscellaneous itemized deductions described below in "Other
Important Tax Considerations - Tax Rates," and by the alternative minimum tax
described below under "Other Important Tax Considerations - Alternative Minimum
Tax."
The amount of a Unitholder's share of Profits for Tax Purposes for any year
will not ordinarily be identical to the amount of his share of Cash Available
for Distribution for the year. Accordingly, in a particular year a Unitholder
may be allocated Profits for Tax Purposes without receiving a distribution of
Cash Available for Distribution. See "Tax Liabilities in Later Years."
Conversely, a Unitholder may receive a distribution of Cash Available for
Distribution in a year when a Loss for Tax Purposes is reportable by him. See
"Fund Allocations" below.
Cash received by a Unitholder from his Series generally will not cause
recognition of income by the Unitholder but will reduce his basis in his Units.
A distribution of Cash Available for Distribution in excess of a Unitholder's
adjusted basis in his Units prior to the distribution will result in the
recognition of taxable income to the extent of the excess. Any such taxable
income generally will be
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treated as capital gain. The gain realized in a non-pro rata distribution may be
taxed to Unitholders as ordinary income to the extent attributable to the
Unitholders' share of "unrealized receivables" and inventory that has
substantially appreciated in value. See "Sales or Exchanges of Units and Local
Limited Partnership Interests; Transfers by Gift or at Death" below.
The most significant Federal income tax benefits of an investment in the
Units are expected to be derived from Low Income Housing Credits (and, to a
substantially lesser extent, Losses for Tax Purposes and, possibly, Historic Tax
Credits) allocated to each Unitholder. However, as indicated above, the Code
imposes substantial restrictions on the ability of all individuals, trusts and
estates and certain corporate taxpayers to take advantage of losses and credits
generated from so-called "passive activities." Although the rules applicable to
tax credits, including Low Income Housing Credits and Historic Tax Credits, and
to losses from passive activities are to be applied after the application of the
limitations on deductibility of losses to the amount of a Unitholder's basis and
amount "at risk" in his Units (see "Tax Basis for the Units" and "Application of
At Risk Limitations" below), the rules applicable to passive losses and credits
will be described first due to their importance in evaluating the advisability
of an investment in the Fund. The rules regarding the availability of Low Income
Housing Credits are discussed in "The Low Income Housing Credit," which should
be reviewed carefully by each prospective investor and his advisers.
Limitations on Losses and Credits from Passive Activities
A. General Limitations
In the case of individuals, trusts, estates and certain corporations (as
discussed below), Code Section 469 imposes limits on the ability of such
taxpayers to use losses and credits from so-called "passive activities" to
offset taxable income and tax liability arising from non-passive sources. A
passive activity includes (a) one which involves the conduct of a trade or
business in which the taxpayer does not materially participate, or (b) any
rental activity, regardless of the level of participation. With certain limited
exceptions, a limited partner will not be treated as materially participating in
a limited partnership's activities. Accordingly, absent satisfaction of the
conditions to such limited exceptions, and with the exception of the portion of
a Series' income that is portfolio income and any gain or loss from the
disposition of Series' property that Treasury Regulations under Code Section 469
classify as not arising from a passive activity, based on the anticipated
activities of each Series and Local Limited Partnerships in which it will
invest, Counsel is of the opinion that Profits and Losses for Tax Purposes and
Tax Credits of each Series will be treated as derived from a passive activity.
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Generally, a taxpayer's deductions and credits from passive activities may
be used to reduce his tax liability in a given taxable year to the extent such
liability arises from passive activities. In determining the amount of income
from passive activities in any taxable year, a taxpayer must exclude "portfolio
income," that is, (a) any gross income from the activity that is derived from
interest, dividends, annuities or royalties, unless such income is derived in
the ordinary course of a trade or business; (b) expenses (other than interest)
directly and clearly allocable to such income; and (c) interest expenses
properly allocable to such income. For this purpose, portfolio income also
includes any gain or loss from the disposition of property that produces
portfolio income or that is held for investment. Any income, gain or loss that
is attributable to an investment of working capital also will be treated as
portfolio income. Prospective investors should note that any portfolio income of
the Fund must be reported as taxable income, without reduction for any of the
expenses of the Fund (other than those described in clauses (b) and (c) of the
second sentence of this paragraph), and that each Unitholder will be required to
pay Federal income tax on his share of such portfolio income, even if no
corresponding distribution is made to the Partners and regardless of the fact
that overall operations result in Losses for Tax Purposes.
To the extent that a taxpayer's aggregate losses from all passive activities
exceed his aggregate income from all such activities in a taxable year, the
taxpayer has a "passive activity loss" for such year. Similarly, a "passive
activity credit" arises in any year to the extent that the taxpayer's tax
credits (with certain limited exceptions) arising from all passive activities
exceed his tax liabilities allocable to all passive activities. Such a loss or
credit may be carried forward to successive taxable years until fully utilized
against income from passive activities in such years; however, such losses and
credits may not be carried back to prior years.
With respect to gain on the disposition of property used in an activity, the
Treasury Regulations generally provide that such gain will be treated as passive
if the activity in which the property was used in the year of disposition was a
passive activity.
In the event a taxpayer disposes of his entire interest in a passive
activity to an unrelated party in a transaction in which all of the gain or loss
realized on such disposition is recognized, any loss (but not a credit) from the
activity that was disallowed by the passive activity rules will cease to be
treated as a passive activity loss and any loss on such disposition will not be
treated as arising from a passive activity. Such losses will be allowed as
deductions against income in the following order: (i) gain recognized on such
disposition; (ii) net income or gain for the taxable year from all passive
activities; and (iii) any other income or gain. Suspended Tax Credits are not
made available as a result of a disposition of a taxpayer's interest
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in an activity. Rather, to the extent not subject to recapture, such credits are
carried forward to subsequent tax years. Special rules apply to dispositions by
gift or by death and to certain installment sales.
Counsel has rendered no opinion regarding the manner in which the
limitations on losses and credits from passive activities and/or the exceptions
thereto discussed below will apply to any particular Unitholder, because these
limitations are applied at the Unitholder rather than the Series level and will
depend on the particular circumstances of each Unitholder. Each Unitholder is
strongly advised to consult his own tax adviser regarding the effect on such
Unitholder of the limitations on the allowance of passive losses and credits.
B. Exception for Low Income Housing Credits and Historic Tax Credits
1. Individuals. An exception to the general rules discussed above permits
certain taxpayers to shelter up to $25,000 of nonpassive income with losses from
certain rental real estate activities in which they actively participate and
with Low Income Housing Credits and Historic Tax Credits regardless of the level
of participation. Generally, a limited partner will not be treated as actively
participating in a rental real estate activity conducted by a partnership of
which he is a member.
The exception is commonly referred to as the "$25,000 deduction equivalent"
and is available to individuals and, in limited circumstances (as discussed
below), estates. Special rules apply to married individuals as follows: (i) in
the case of married individuals filing jointly, the full $25,000 deduction
equivalent is available, (ii) in the case of married individuals filing
separately who have lived apart for the entire taxable year, the deduction
equivalent for each individual is reduced to $12,500, and (iii) in the case of
married individuals filing separately who have not lived apart for the entire
taxable year, no deduction equivalent is available.
For (i) all rental real estate losses in which the taxpayer actively
participates, (ii) Historic Tax Credits, and (iii) Low Income Housing Credits
attributable to property placed in service prior to January 1, 1990, the $25,000
maximum deduction equivalent ($12,500 for certain married individuals filing
separate returns) is reduced in the event the adjusted gross income of the
taxpayer (including the taxpayer's spouse where a joint return is filed) exceeds
certain limits. In the case of losses from rental real estate activities in
which the taxpayer actively participates, the maximum deduction equivalent is
reduced by one-half of the amount by which the taxpayers' adjusted gross income
exceeds $100,000 ($50,000 in the case of a married individual filing a separate
return). In the case of Tax Credits described in the first sentence of this
paragraph, the maximum deduction equivalent is reduced by one-half of the amount
by which the taxpayer's adjusted gross income exceeds $200,000 ($100,000 in the
case of a married individual filing a separate return).
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Adjusted gross income for this purpose is determined without regard to
contributions to Individual Retirement Accounts, taxable social security
benefits and passive activity losses, but is otherwise determined in accordance
with Section 62 of the Code. It is not anticipated that any Series will invest
in Local Limited Partnerships owning Apartment Complexes which were placed in
service prior to January 1, 1990; accordingly, the adjusted gross income
limitations described in this paragraph should not apply to Unitholders, except
to the extent that Local Limited Partnerships generate Historic Tax Credits.
There are several important ordering rules that must be understood to
determine whether and to what extent the $25,000 deduction equivalent (subject
to the phase-out rules discussed above) will be available to a Unitholder who is
an individual. First, losses from a passive activity, including losses generated
from rental real estate activities in which the taxpayer actively participates,
must be offset by any income from a passive activity. The $25,000 deduction
equivalent is then used against (i) the remaining passive activity losses
generated from the rental real estate activities in which the taxpayer actively
participates, which, as noted above, will not include any Losses for Tax
Purposes generated by the Units; (ii) the passive activity credits generated
from rental real estate activities in which the taxpayer actively participates,
other than Historic Tax Credits and Low Income Housing Credits; (iii) the
Historic Tax Credits (subject to the phase-out rules); and (iv) the Low Income
Housing Credits. In this regard the Fund has not sought and will not seek to
determine the extent to which potential investors have losses (including losses
from rental real estate activities in which potential investors actively
participate) or credits from passive activities. Further, there is no limitation
on the number of Units which may be purchased by a single investor. Accordingly,
potential individual investors should consult with their own tax advisers as to
whether they may fully utilize any Low Income Housing Credits or Historic Tax
Credits which may be generated by an investment in the Fund under the ordering
rules set forth above.
Assuming that a prospective individual investor does not have a passive
activity loss generated from rental real estate activities in which he actively
participates (or that such losses are not allowable because his adjusted gross
income exceeds $150,000), and that he does not have passive activity income for
the taxable year (that is, the excess of income over losses from passive
activities), such investor could use up to $7,000 of Tax Credits a year based on
a 28% marginal tax rate, $7,750 a year based on a 31% marginal tax rate, $9,000
a year based on a 36% marginal tax rate, and $9,900 a year based on a 39.6%
marginal tax rate. See "Other Important Tax Considerations - Tax Rates." In each
instance, because Federal income tax is imposed at marginal rates, the maximum
amount of credits could be used only if the investor has at least $25,000 in
income subject to the marginal rate.
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Maximum Annual Tax Credits
Federal Maximum Annual
Tax Bracket Income Federal Credit
15% x $25,000 = $3,750
28% x $25,000 = $7,000
31% x $25,000 = $7,750
36% x $25,000 = $9,000
39.6% x $25,000 = $9,900
Most taxpayers pay a substantial portion of their Federal annual tax
liability by way of regular employer withholding from their salaries and/or by
way of estimated Federal tax payments due on the April 15, June 15, September 15
and January 15 preceding the filing date of the taxpayers' annual Federal income
tax returns. To the extent that an individual taxpayer has Tax Credits which are
otherwise allowable for a year, the taxpayer may use the Tax Credits to reduce
his regular withholding amounts or to reduce his estimated tax payments. For
example, a married couple filing jointly with taxable income of $75,000 in 1997
would be subject to Federal tax liability before Tax Credits in the amount of
approximately $16,000. (The tax liability for later years could be different due
to changes in the tax rates resulting from inflation adjustments or amendments
to the tax laws. See "Other Important Tax Considerations - Tax Rates.") If the
couple had $7,000 in Tax Credits for 1997 (the maximum permissible amount
pursuant to the $25,000 deduction equivalent), and the couple would otherwise
make estimated tax payments of their Federal tax liability in the amount of
$4,000 each, the couple could reduce each estimated tax payment by $1,750, for a
net payment of $2,250. If a taxpayer does not adjust his withholding or
estimated tax payments for allowable Tax Credits, his annual tax refund or
annual tax liability will be increased or reduced, respectively. Accordingly,
Tax Credits can be used to reduce tax liability from all sources, including
taxable income arising from wages, self-employment income, retirement account
withdrawals, and capital gains from the sale of stock and other investments.
If an investor is able to utilize Tax Credits under the passive activity
rules discussed above, and under the other Federal income tax rules discussed in
this section, Tax Credits would be claimed on the investor's individual IRS Form
1040 as follows: First, the investor enters all taxable income and subtracts all
available deductions and exemptions to compute taxable income. The tax imposed
on such taxable income is entered on line 38 of the Form 1040, and the total
amount of the investor's tax liability is entered on line 40. The investor's
utilizable Tax Credits are entered on line 44 and are subtracted, on a
dollar-for-dollar basis, from the taxes which appear on line 40.
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The 1987 Act added Section 469(k) to the Code pursuant to which the
limitations on losses and credits from passive activities will be applied
separately to, and the $25,000 deduction equivalent will not be available for,
investments in publicly traded partnerships, except with respect to Low Income
Housing Credits and Historic Tax Credits. As discussed under the heading
"Classification as a Partnership," Counsel is of the opinion that the Series
will not be treated as publicly traded. If any Series were to be treated as
publicly traded, individual investors in the Series could not use Losses for Tax
Purposes to offset passive income from other sources, but could use Tax Credits
generated by the Series to offset tax liability from all other sources to the
extent of the $25,000 deduction equivalent. Losses for Tax Purposes could not be
used to offset income from another publicly traded partnership whether or not
the Series were considered publicly traded.
2. Other Investors. As noted above, the limitations on the utilization of
passive losses and credits apply to all individuals and, subject to certain
additional limitations, to all trusts and estates. In the case of a grantor
trust, the provisions apply at the grantor rather than the trust level.
Generally, neither a nongrantor trust nor an estate can take advantage of the
$25,000 deduction equivalent. A limited exception is provided to allow an estate
to take advantage of the $25,000 deduction
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equivalent in any taxable year ending less than two years after the death of the
decedent.
Certain corporations are also subject to limitations on their use of passive
losses and credits. The corporations subject to these rules are (a) all
"regular" or "C" corporations that at any time during the last half of the
taxable year were more than 50% owned, by value, directly or indirectly, by five
or fewer individuals ("closely-held corporations"), and (b) all personal service
corporations. For this purpose, the term "personal service corporation" is
defined to mean a corporation the principal purpose of which is the performance
of personal services in the fields of health, law, engineering, architecture,
accounting, actuarial science, performing arts, or consulting, when such
services are substantially performed by any employee who owns, on any day during
the year, any of the outstanding shares of such corporation. Stock held by
related parties is taken into account pursuant to special attribution rules.
Closely-held corporations, but not personal service corporations, are
allowed to utilize their passive activity losses and their passive activity
credits to offset their tax liabilities arising from certain net active income,
i.e, taxable income from other sources, other than portfolio income. However, if
a Series were to be treated as publicly traded under Section 469(k) of the Code,
Losses for Tax Purposes could not be used to offset income from other sources.
Furthermore, if a closely-held corporate investor were to have an interest in
another partnership that was publicly traded, Losses for Tax Purposes and Tax
Credits from the Series could not be used to offset the net income or the tax
liability attributable to the net income, respectively, of such other
partnership, whether or not the Series were considered publicly traded.
Generally, personal service corporations will only be allowed to use passive
losses and credits, including Losses for Tax Purposes and Tax Credits, to
shelter passive income, subject to the provisions of Section 469(k), and will
not be allowed to take advantage of the $25,000 deduction equivalent that is
available to individuals.
With respect to S Corporations and partnerships, the passive activity rules
are applied to the shareholders and partners, respectively.
Historic Tax Credit
In addition to the Federal Low Income Housing Credit, a tax credit generally
is available for certain rehabilitation expenditures incurred in improving
certified historic structures and certain other buildings originally placed in
service before 1936 (the "Historic Tax Credit"). If an expenditure is a
qualified rehabilitation expenditure on a certified historic structure, Code
Section 47 provides that the
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taxpayer is entitled to a credit equal to 20% of the expenditure against his
income tax liability for that year. Such qualification depends upon the approval
by the Department of Interior of the plans and completed rehabilitation work.
The historic structure generally must be left in place, must be rehabilitated in
a manner consistent with history and the rehabilitation expenditures must exceed
the greater of $5,000 or the adjusted basis of the building during a 24-month
period. In the case of certain nonresidential buildings placed in service prior
to 1936 (other than certified historic structures) a 10% credit is allowed. The
tax basis of rehabilitated real property is reduced by 100% of the allowed
Historic Tax Credit. Therefore, the gain upon disposition of an interest in such
a property is increased by 100% of the allowed Historic Tax Credit. See
"Depreciation."
Moreover, in order to utilize the Historic Tax Credit a taxpayer must
satisfy the same "at risk" requirements with regard to any investment which
generates a Historic Tax Credit as is required under the "at risk" rules
applicable to Federal Low Income Housing Credits. See "The Low Income Housing
Credit." In addition, to be considered "at risk" with respect to an investment
which generates Historic Tax Credits, it is also necessary that the amount of
all nonrecourse financing (which is defined very broadly for this purpose) with
respect to such property not exceed 80% of the credit base of the qualified
rehabilitation expenditures.
A Series may invest in a Local Limited Partnership that incurs
rehabilitation expenditures that will qualify for such Historic Tax Credit,
which would then be available to the Unitholders to reduce their Federal income
taxes, but the ability of a Unitholder to utilize such credits may be restricted
by the passive activity limitation rules, the limitation on general business
credits, and the alternative minimum tax rules. See "Limitations on Losses and
Credits from Passive Activities," "General Business Tax Credit Limitations" and
"Other Important Tax Considerations - Alternative Minimum Tax." Counsel has
rendered no opinion regarding the qualification of any Apartment Complex for the
Historic Tax Credit or the application of related "at risk" limitations to such
Apartment Complex, because such issues depend on the nature of the Apartment
Complexes and their financing, none of which are known at this time.
Historic Tax Credit Recapture
Any Historic Tax Credit taken for qualified rehabilitation expenditures is
subject to recapture in the event of early disposition of the property. If such
property is disposed of by the Partnership or a Local Limited Partnership within
five years after the property is placed in service, a Partner's tax for the year
of disposition will be increased by the total credit taken for rehabilitation
expenditures, multiplied by a "recapture percentage" determined on the basis of
the holding period of the property. The amount of recapture decreases by 20% for
each full year that elapses
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after the property is placed in service. Thus, there is 100% recapture if the
property is disposed of less than one year after the property is first placed in
service; there is 80% recapture after one year, 60% after two years, 40% after
three years, 20% after four years and no recapture after five years.
Moreover, recapture will also result if a Unitholder sells or disposes of
his entire interest in the Partnership within five years from the date property
for which the Historic Tax Credit is claimed is placed in service. Additionally,
if a Unitholder's interest in the profits of the Partnership is reduced to less
than 66 2/3% of what it was when the property for which the Historic Tax Credit
is claimed was placed in service, the reduction will be treated as a
proportional disposition of the property by the Unitholder. Therefore, for
example, if a Unitholder disposed of 50% of his partnership interest in the
first year in which an Historic Tax Credit was claimed, then 50% of the Historic
Tax Credit claimed by the Unitholder will be recaptured.
General Business Tax Credit Limitations
The ability of taxpayers to use Tax Credits is subject to an annual
limitation on the allowance of aggregate general business tax credits (i.e., the
Low Income Housing Credit, the Historic Tax Credit, any other investment tax
credit, the targeted jobs credit, the alcohol fuels credit, the research credit,
the enhanced oil recovery credit, the disabled access credit, the renewable
electricity production credit, the empowerment zone employment credit, the
Indian employment credit and the employer social security credit). Such annual
limitation is generally equal to the first $25,000 of tax liability ($12,500 for
married persons filing separately) plus 75% of tax liability in excess of that
amount, except that (i) business tax credits may not be used to offset any
applicable alternative minimum tax, and (ii) even if no alternative minimum tax
is imposed in a particular year (because "regular" tax liability exceeds the
amount which would have been imposed under the alternative minimum tax rules),
business tax credits may not be used to reduce regular tax liability below the
amount which would be imposed under the alternative minimum tax rules. Tax
credits limited by this rule are first carried back three years and then forward
15 years. It should be noted that, for purposes of determining which of a
taxpayer's general business tax credits will be treated as exceeding the limit
in any year, Low Income Housing Credits will be treated as being used only after
all of the other general business tax credits.
Any Tax Credit that is allowable in any year under the passive activity
rules described above, but is disallowed in such year as a result of the
application of the general business credit limitations described in this
section, ceases to be subject to the limitations on credits from passive
activities for purposes of any carryback or carryforward of such Tax Credit.
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Tax Basis for the Units
A Unitholder's tax basis for his Units generally will be equal to his
Capital Contribution plus his share of his Series' nonrecourse liabilities to
the extent that they do not exceed the fair market value of the assets subject
thereto. From time to time such tax basis will be (a) increased by the amount of
Profits for Tax Purposes allocated to him, and (b) decreased by the amount of
Losses for Tax Purposes allocated to him and by the amount of Cash Available for
Distribution and Sale or Refinancing Proceeds distributed to him.
In the opinion of Counsel, a Series' nonrecourse liabilities will include
its share of the nonrecourse liabilities of each Local Limited Partnership, to
the extent that such liabilities do not exceed the fair market value of the
property subject thereto. Further, in the opinion of Counsel, each Unitholder
will be permitted to include in his tax basis of his Units his share of the
nonrecourse liabilities of his Series, including the Series' share of such
liabilities of each Local Limited Partnership, as so determined. Pursuant to
Treasury Regulations promulgated under Section 752 of the Code, a partner's
share of nonrecourse liabilities of a partnership (those liabilities with
respect to which no partner or related person bears the economic risk of loss)
is determined as follows: first, an amount of liabilities is allocated among the
partners to reflect their respective shares of partnership minimum gain; second,
any tax gain that would be allocated to the partners under the principles of
Section 704(c) if the partnership's property were sold for an amount equal to
the nonrecourse debt securing the property is matched by an allocation of
partnership nonrecourse debt; and, third, to the extent that nonrecourse
liabilities exceed these items, such liabilities are allocated among partners in
accordance with their profits interests in the partnership.
Each Unitholder may deduct, on his own Federal income tax return, his share
of the Losses for Tax Purposes, if any, to the extent that he has tax basis in
his Units. Any losses in excess of a Unitholder's tax basis may be carried over
indefinitely and may be deducted in future years to the extent that the
Unitholder's basis has increased above zero. It is anticipated that
substantially all of the liabilities of the Local Limited Partnerships will
constitute nonrecourse liabilities for this purpose; consequently, it is
anticipated that each Unitholder will have sufficient basis in his Units to
claim his allocable share of Losses for Tax Purposes. See, however, "Tax
Treatment of Unitholders," "Application of At Risk Limitations," and
"Limitations on Losses and Credits from Passive Activities" for other
limitations on the amount of losses that may be claimed by a Unitholder.
A decrease in a Partner's proportionate share of nonrecourse liabilities
(as, for example, when a mortgage is paid off in whole or in part by a Local
Limited Partnership, or when an Apartment Complex subject to a mortgage is
transferred by a Local Limited Partnership, or when nonrecourse debt of a Local
Limited
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Partnership is refinanced with recourse debt) is treated for tax purposes as
though it were a cash distribution. Such a constructive cash distribution
reduces a Unitholder's tax basis in his Units (but not below zero), and any
remaining portion of his share of the reduction in liabilities is taxable to him
as though it were gain on the sale or exchange of his Units. See "Sales or
Exchanges of Units and Local Limited Partnership Interests; Transfers by Gift or
at Death" below.
Application of At Risk Limitations
Section 465 of the Code provides that the amount of any losses (otherwise
allowable for the year in question) that may be deducted by an individual, an S
corporation, or a closely-held corporation other than a leasing company, in
connection with an activity that is part of a trade or business or that is
engaged in for the production of income, cannot exceed the aggregate amount with
respect to which such taxpayer is "at risk" in such activity at the close of the
tax year. In the case of a partnership, the limitations apply to each partner
who is an individual, S corporation or closely-held corporation.
A partner generally will be considered "at risk" to the extent of the cash
and adjusted basis of the other property contributed to the partnership, as well
as any borrowed amounts contributed to the partnership with respect to which
such partner has personal liability for payment from his own assets.
In addition, special rules apply to an activity involving the holding of
real estate. A taxpayer engaged in such activity will be considered "at risk"
with respect to any "qualified nonrecourse financing" that is secured by real
property used in the activity. In general, "qualified nonrecourse financing" is
non-convertible, nonrecourse debt which is borrowed from a government or an
instrumentality thereof (or is guaranteed by a government) or any person
actively and regularly engaged in the business of lending money, other than (a)
the person from whom the taxpayer acquired the property, (b) a person receiving
a fee with respect to the taxpayer's investment in the property, or (c) a person
related to either of such persons. However, if a lender that is otherwise a
qualified person is related to the taxpayer, the loan will qualify as "qualified
nonrecourse financing" only if the loan is commercially reasonable and on
substantially the same terms as loans involving unrelated persons. A partner's
share of "qualified nonrecourse financing" for purpose of the "at risk" rules
will be the same as his share of such financing for the purpose of determining
his tax basis in his partnership interests. See "Tax Basis for the Units" above.
If at the end of a taxable year a taxpayer's amount "at risk" has been
reduced below zero, the deficit amount "at risk" is recaptured and must be
included in gross income in that year. The amount recaptured is treated in
future years as if it were a deduction suspended by the "at risk" provisions. To
the extent that the taxpayer's
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amount "at risk" is increased above zero in a subsequent year, an additional
deduction may be allowable at such time.
Based on the anticipated investments of the Fund described in "Investment
Objectives and Policies" above, the "at risk" rules under Code Section 465
should not limit the amount of deductions available for a Unitholder, because a
substantial portion of the financing secured by each Apartment Complex is
expected to consist of qualified nonrecourse financing that is includable in the
Unitholder's amount "at risk." It is expected that an opinion of counsel will be
rendered on this issue as a condition to a Series' investment in a Local Limited
Partnership. See "Opinion of Counsel" above.
Fund Allocations
The Partnership Agreement provides for allocations of Profits and Losses for
Tax Purposes and Tax Credits as described under "Profits and Losses for Tax
Purposes, Tax Credits and Cash Distributions." Generally, each partner's
distributive share of income, gain, loss, deduction or credit of a partnership
is determined in accordance with the partnership agreement. However, Section 704
of the Code provides that an allocation to a partner under a partnership
agreement of income, gain, loss, deduction or credit (or item thereof) will not
be respected unless such allocation has "substantial economic effect." If an
allocation does not have substantial economic effect, the partner's distributive
share of income, gain, loss, deduction or credit (or item thereof) is determined
in accordance with the partner's interest in the partnership (determined by
taking into account all facts and circumstances).
Treasury Regulations have been issued governing the interpretation of
Section 704 of the Code. The Regulations in general provide that an allocation
does not have "economic effect" unless (i) a capital account is maintained for
each partner in accordance with Federal income tax accounting principles; (ii)
allocations of income, gain, loss and deduction are reflected by appropriate
increases, or decreases, to the partners' capital accounts; (iii) liquidation
proceeds throughout the term of the partnership are to be allocated in
accordance with the partners' capital account balances; and (iv) any partner
with a deficit in his capital account following the distribution of liquidation
proceeds is required to restore ("makeup") such deficit amount to the
partnership, which amount is to be distributed to partners in accordance with
their positive capital account balances or paid to creditors. The Regulations
provide another test as an alternative to the fourth requirement, under which an
allocation will have economic effect to the extent it does not create a deficit
or increase an existing deficit in any partner's capital account balance and the
partnership agreement has provisions allocating income and gain to partners who
do have deficit capital account balances. Counsel has advised the Fund that the
Partnership Agreement contains provisions which, if followed throughout the
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existence of the Series, substantially comply with requirements (i), (ii) and
(iii) above and the alternative test to the fourth requirement.
An allocation which has economic effect nevertheless may be disregarded by
the IRS if the effect of the allocation is not "substantial." The IRS may assert
that the effect of certain allocations provided in the Partnership Agreement is
not substantial. If at any time the allocations of a Series among its Partners
do not have economic effect or are not substantial, they will be made in
accordance with the interests of the Partners in the Series. The Regulations
indicate that the determination of a partner's interest in a partnership is made
by taking into account all facts and circumstances relating to the economic
arrangement of the partners. The Regulations further provide that where capital
accounts are maintained in accordance with the rules set forth in the
Regulations and liquidating distributions are to be made in accordance with
positive capital account balances, the partners' interests in the partnership
each year generally will be determined by comparing the manner in which
distributions and contributions would be made if all partnership property were
sold at book value and the partnership were liquidated immediately prior to the
taxable year with the manner in which distributions and contributions would be
made if the sale of partnership property at book value and liquidation occurred
at the end of the taxable year. Allocations made under this rule generally would
be similar to those provided in the Partnership Agreement, although there is no
assurance the IRS would not be successful in reallocating a Series' income or
losses in a different manner with the result that the shares of Profits for Tax
Purposes of any or all Unitholders might be increased or their shares of Losses
for Tax Purposes or Tax Credits decreased.
The Regulations state that an allocation of an item of loss or deduction
(such as depreciation) attributable to nonrecourse debt secured by a partnership
property cannot have substantial economic effect. However, such an allocation is
deemed to be made in accordance with the partners' interests in the partnership
if requirements (i), (ii) and (iii) of the economic effect test set forth above
are satisfied, allocations of nonrecourse deductions are made among partners in
a manner which is reasonably consistent with allocations which have substantial
economic effect of some other significant partnership item attributable to
assets securing the nonrecourse debt, the partnership agreement contains a
"minimum gain chargeback" provision (i.e., a provision requiring chargeback of
income or gain to partners who have been allocated nonrecourse deductions and
who have deficit capital account balances) and all other material allocations
and capital account adjustments under the partnership agreement are recognized
under the Regulations. The Partnership Agreement contains provisions which are
intended to comply with the requirements of these Regulations. If the
nonrecourse debt allocation provision of the Regulations is not satisfied, the
allocation of income, gain, loss and deduction attributable to nonrecourse
indebtedness is to be made in accordance with the overall economic interests of
the partners in the partnership.
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The Regulations provide that because allocations of tax credit and recapture
do not give rise to adjustments to partners' capital accounts (except to the
extent of basis adjustments attributable to Section 38 property), they cannot
have economic effect. Accordingly, tax credits and recapture must be allocated
in accordance with the partners' interests in the partnership as of the time the
tax credit or recapture arises. In the case of tax credits other than the
investment tax credit (such as Low Income Housing Credits), the Regulations
provide that allocations will be deemed to be in accordance with the partners'
interests in the partnership if made in the ratio in which the partners share
the expenditures giving rise to the credits. In the case of investment tax
credits (such as Historic Tax Credits), credits should be allocated in
accordance with the ratio in which partners share the general profits of the
partnership for the year in which the property is placed in service, or, in some
cases, for the date on which the property is placed in service. The Partnership
Agreement contains provisions which are intended to comply with these provisions
of the Regulations.
It is possible that the Regulations under Section 704(b) of the Code which
are described in the preceding paragraphs may be modified. Under the Partnership
Agreement, the Fund Manager is authorized to amend the Partnership Agreement to
the minimum extent necessary to preserve the plan of allocations and
distributions provided in the Partnership Agreement if the Fund is advised by
its counsel or accountants that such modifications are necessary because of the
adoption of new regulations under Section 704 of the Code or other developments
in the law.
Notwithstanding the possibility of challenge by the IRS, provided that the
Partnership Agreement is followed throughout the entire term of a Series in
allocating and making distributions, maintaining capital accounts, allocating
Profits and Losses for Tax Purposes (and items thereof) and Tax Credits, and
determining the rights and obligations of the Unitholders and Fund Manager of
the Series upon dissolution and liquidation of the Series, Counsel is of the
opinion that the Unitholders would not be allocated significantly more Profits
for Tax Purposes or less Losses for Tax Purposes or Tax Credits than is
allocated to them under the Partnership Agreement if the allocations were fully
litigated in court. However, there can be no assurance that the IRS will not
challenge the allocations in the Partnership Agreement on the ground that they
lack substantial economic effect or do not reflect a Unitholder's interest in
his Series. If such a challenge were successful, all income and losses and Tax
Credits of the Series would be reallocated to its Unitholders and Fund Manager
in accordance with their respective interests in the Series.
The Series will enter into Local Limited Partnerships the partnership or
limited liability company agreements of which will be subject to future
negotiations. As a condition to entering into each of such partnership
agreements, the Fund Manager will obtain an opinion of tax counsel regarding the
Federal income tax consequences
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of an investment by a Series in the respective Local Limited Partnership,
including specifically an opinion that the allocation provisions of such
partnership agreement will not be substantially modified by the IRS. See
"Opinion of Counsel" above. Counsel's opinion stated above regarding the
allocation provisions of the Partnership Agreement assumes the Fund Manager will
obtain (and the accuracy of) such an opinion of tax counsel regarding the
allocation provisions of each Local Limited Partnership.
It is possible that the IRS will seek to recharacterize the relationship
between a Local Limited Partnership and other parties. Such recharacterization
could adversely affect the tax treatment of a Local Limited Partnership (and
consequently of the Unitholders). For example, the IRS might contend that a
lender to a Local Limited Partnership is actually a partner, either because the
lender is entitled to interest measured in whole or in part by the income
generated by certain property or because the lender had made a subordinated
nonrecourse loan whose repayment arguably is subject to an equity-type risk. In
that event, some or all of the payments to the lender would be partnership
distributions. The Local Limited Partnership would be denied an interest
deduction for such payments, and the lender might be allocated a share of the
deductions of the Local Limited Partnership attributable to the property.
Allocations of taxable income and losses also may be affected by possible
IRS recharacterizations and disallowances of Series or Local Limited Partnership
deductions. For example, a Local Limited Partnership might pay a general partner
or an Affiliate of a general partner fees for services performed or to be
performed. The IRS might contend that such fees are not deductible expenses, but
are actually partnership distributions, and that the general partner was
entitled to a larger percentage of the Local Limited Partnership's taxable
income or loss.
Whether the IRS would be successful in any attempted recharacterization
would depend upon all the facts and circumstances of the transaction, including,
in the case of fees, the nature of the services for which the fees actually are
being paid. Because such facts and circumstances are unknown at present, Counsel
has rendered no opinion with respect thereto.
Allocations Prior to Admission
Items of partnership income, gain, loss, deduction or credit are allocable
to a partner only if realized, paid or incurred by the partnership during the
portion of the year in which the partner is a member of the partnership. Items
realized, paid or incurred during periods prior to the partner's admission may
not be allocated retroactively to the partner. In determining whether any items
have been realized, paid or incurred prior to a Unitholder's admission, the
Partnership Agreement provides that the items of income, gain, loss deduction or
credit accrued during each
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month are allocated among persons who are Partners of the Series at the end
of that month.
The Tax Reform Act of 1984 authorizes the Treasury Department to issue
regulations concerning the allocation of income, gain, loss, deduction and
credit to partners whose interests in a partnership vary during the
partnership's tax year. The General Explanation of the Tax Reform Act of 1986
indicates that Congress intended that these regulations apply to the allocation
of Tax Credits where a partner is admitted to a partnership or his interest
therein changes during a taxable year. The General Explanation of the Tax Reform
Act of 1984 indicates that until such Treasury Regulations are issued and for a
reasonable period thereafter any reasonable convention will be permissible. As
of the date of this Prospectus, Treasury Regulations have not been issued and
consequently, Counsel is of the opinion that the method of allocation used by
the Fund is proper. However, Treasury Regulations, when issued, may require that
some other method of allocation be used.
Basis of Local Limited Partnerships in Their Apartment Complexes
A Local Limited Partnership's basis in its Apartment Complex determines in
part its (and thus the Unitholders') depreciation and interest deductions.
Section 1012 of the Code provides that the basis of property acquired by
purchase is its cost. This cost includes cash paid to acquire such property and
certain purchase transaction costs such as real estate commissions, attorneys'
fees and appraisal costs. The basis of property is increased to the extent of
the cost of capital improvements thereon. Moreover, where property is acquired
or improved with proceeds of the owner's note, the owner's basis in the property
includes the principal amount of the note regardless of whether the owner is
personally liable for payment thereof. The foregoing rule has been applied in
cases where little or no downpayment has been made, where payments of principal
are not made currently and where the note itself is payable partially or
entirely from the proceeds realized from the property acquired.
The principal amount of a nonrecourse note may not, however, be included in
the basis of acquired property unless it is recognized for tax purposes as a
bona fide liability. The rule adopted by the courts which is most often asserted
by the IRS in attacking the bona fide nature of a nonrecourse liability is that
the principal amount of a nonrecourse liability may not be included in the basis
of acquired or improved property unless the fair market value of such property
is at least equal to the face amount of the nonrecourse note. (See Wilman v.
Commissioner, 78 T.C. 943 (1982); Narver v. Commissioner, 75 T.C. 53 (1980).)
Additionally, in Hager v. Commissioner, 76 T.C. 759 (1981), the Tax Court stated
that in a transaction involving a large amount of nonrecourse debt incurred in
the purchase of a property at an inflated price, the entire sale may be
disregarded. Thus, the IRS will closely
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scrutinize any transaction involving nonrecourse liability to determine whether
the principal amount of the liability approximates the value of the property
purchased.
It is anticipated that nonrecourse liabilities will exist only at the Local
Limited Partnership level. Accordingly, if any such liabilities are successfully
challenged by the IRS, a Unitholder's share of Tax Credits, depreciation and
interest deduction and the basis in his Units (to the extent attributable to
such Local Limited Partnership liability) would be reduced. It is expected that
an opinion of counsel will be rendered in this regard prior to a Series'
investment in a Local Limited Partnership. See "Opinion of Counsel" above.
Depreciation
In determining profits and losses for tax purposes and under generally
accepted accounting principles, a partnership's income for any year is reduced
by deductions representing depreciation of the partnership's assets. The larger
the depreciation deductions, the lower the income or higher the loss reportable
on the partnership's tax information return will be. Consequently, Partners may
receive Cash Available for Distribution in years in which they are not required
to report any Profits for Tax Purposes attributable to their Units.
Code Section 168 provides rules for determining the manner in which tangible
assets are to be depreciated. Subject to certain transitional rules that may
apply to one or more Apartment Complexes, residential rental property placed in
service on or after January 1, 1987 may be depreciated over a 27.5-year period
or a 40-year period using the straight-line method. Personal property is
depreciated over recovery periods of three, five, seven, ten, 15 or 20 years,
depending on the nature of the asset, using an accelerated method.
Residential rental property depreciated pursuant to the rules described in
the preceding paragraph is not subject to depreciation recapture upon
disposition except to the extent of any adjustment to the basis of such property
required by Section 50 of the Code in the case of expenditures eligible for
Historic Tax Credits. Prior depreciation for all personal property will result
in recapture when the property is disposed of at a gain. Any such recapture will
be taxed as ordinary income to the Unitholders. The excess of accelerated
depreciation over straight-line depreciation for all types of property generally
is an item of "tax preference" that may result in additional Federal income tax
to a Unitholder, as discussed below under "Other Important Tax Considerations -
Alternative Minimum Tax."
The purchase price of the Apartment Complexes must be allocated between
depreciable assets (such as improvements on real estate and personal property)
and nondepreciable items (such as land). Such allocations are questions of fact
which will not be subject to Counsel's review or opinion, and IRS reallocations
of
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purchase price may result in Losses for Tax Purposes and Tax Credits being
decreased or Profits for Tax Purposes being increased. A Series may invest in
Local Limited Partnerships which have Apartment Complexes under construction.
Both the direct costs and any indirect costs properly allocable to such
property, including interest and taxes incurred during construction, must be
capitalized and may be deducted only through cost recovery deductions.
Deductibility of Fees
A. Development Fees and Acquisition Fees
The Fund Manager anticipates that each Local Limited Partnership will pay
its Local General Partners a fee for services in connection with the development
of its Apartment Complex. Further, each Series will pay Acquisition Fees to the
Fund Manager for services in connection with the acquisition of Local Limited
Partnership Interests. The Local Limited Partnerships will capitalize the
development fees as part of the basis of their respective Apartment Complexes
and recover the cost thereof through depreciation deductions to the extent
applicable to depreciable property. Each Series will capitalize Acquisition Fees
related to the acquisition of its Local Limited Partnership Interests as part of
the respective basis of such interests. Such Acquisition Fees may be allocated
to depreciable property and deducted over the useful life of such property,
treated as start-up expenses that may be amortized over a 60-month period,
amortized over the life of the Local Limited Partnership, or treated as
nondeductible until the termination of the Local Limited Partnership, depending
on the facts and circumstances surrounding the investment in each Local Limited
Partnership, including the manner in which such investment is structured. The
balance of the Acquisition Fees will be amortized by the Series as start-up
costs or deducted as ordinary and necessary business expenses. Counsel has
rendered no opinion regarding the proper treatment of any development fees or
Acquisition Fees due to the inherently factual nature of the issues involved.
B. Management Fees
Each Local Limited Partnership intends to claim a deduction for certain fees
paid to its general partners or their Affiliates, including fees paid for
property management services, and each Series intends to deduct Asset Management
Fees paid to the Fund Manager. The Fund Manager believes that such property
management fees and Asset Management Fees should be deductible by each Local
Limited Partnership and each Series, as the case may be, as ordinary and
necessary business expenses. It is impossible to predict the outcome of
litigation if the IRS were to challenge the treatment of all or any portion of
these fees. Many of the issues involved in any such litigation would be factual,
not legal, issues. Resolution of the issue would depend upon, among other
things, the credibility of witnesses, the availability of expert witnesses, and
the strength of their testimony as to the
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value of the services to be performed. The disallowance of the deductibility of
these fees could result in an increase in the Profits for Tax Purposes of the
Unitholders with no associated increase in Cash Available for Distribution with
which to pay any resulting increase in tax liability, or a decrease in Losses
for Tax Purposes.
Organization and Offering Expenses
Each Series will incur expenses in connection with its organization and
Offering. See "Estimated Use of Proceeds." The Code requires that such expenses
be capitalized. However, each Series is permitted and intends to elect to
amortize over 60 months as much of these expenditures as qualify as
"organizational expenses" as defined in Section 709(b)(2) of the Code. Offering
and syndication expenses will be capitalized permanently, and no deduction will
be obtained by a Series with respect to such expenses. The IRS may challenge the
amount of expenses that a Series treats as "organizational expenses," and/or
attempt to recharacterize other payments, including, without limitation, a
portion of the fees described in the preceding section, as nondeductible
Offering or syndication expenses. Counsel has rendered no opinion on this issue
because of its inherently factual nature.
Start-Up Expenditures
Section 195 of the Code provides that certain "start-up expenditures" may,
at the election of the taxpayer, be amortized ratably over a period of not less
than 60 months beginning with the month in which the business begins. "Start-up
expenditures" include costs incurred (other than amounts properly allocable to
the acquisition cost of Local Limited Partnership Interests and amortizable
organization expenses as discussed above) prior to entering into an active trade
or business, which would have been deductible if incurred in connection with the
expansion of an existing trade or business in the same field as that entered by
the taxpayer. The determination of whether an item is a start-up expenditure is
based on the facts and circumstances in each case.
A Local Limited Partnership may deduct certain expenses incurred by it prior
to the date that it completes the construction of any Properties or generates
rental income, and a Series will deduct its allocable share of such expenses.
The IRS may disallow any such deductions as not having been incurred in
connection with an existing trade or business of any one or more of the Local
Limited Partnerships. If the IRS were successful, the disallowed expenses would
be available as deductions, if at all, only through amortization, either over
the applicable start-up expenditure period (to the extent that a proper election
is in place and these expenses qualify as start-up expenditures) or over another
applicable period. Due to the inherently factual nature of the issues involved,
Counsel is unable to render
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an opinion regarding the manner in which Section 195 may apply to any Series or
any Local Limited Partnership.
Sales or Exchanges of Local Limited Partnership Property; Depreciation
Recapture
Each Local Limited Partnership's gain on sale of an Apartment Complex will
be measured by the difference between the sale proceeds (including the amount of
any indebtedness to which the property is subject) and the adjusted basis of the
Apartment Complex. Consequently, the amount of tax payable by a Unitholder on
his share of his Series' allocable share of such gain may in some cases exceed
his share of the cash proceeds therefrom. In the event of a foreclosure of an
Apartment Complex, a Series may realize gain equal to the excess of the
indebtedness secured by the mortgage or trust deed over the adjusted basis of
the Apartment Complex, and the Unitholders may realize taxable income without
the receipt of any cash distributions as a result of the foreclosure.
Circumstances involving a disposition of an Apartment Complex that might
result in the Unitholders receiving insufficient cash with which to pay any tax
liability generated by the disposition could include: (i) the sale of the
Apartment Complex at a time when all or part of the net proceeds thereof may
have to be retained by the Local Limited Partnership or the Series to support
its remaining operations, and (ii) the sale of the Apartment Complex for
proceeds which include illiquid assets, such as promissory notes of the
purchaser. See "Treatment of Mortgage Loans." Unitholders should note that the
partnership agreements of the Local Limited Partnerships have not yet been
negotiated and that in certain instances such agreements may permit the
retention by a Local Limited Partnership of all or a portion of its sale or
refinancing proceeds.
The Apartment Complexes will most likely be considered to be "Section 1231
assets" (i.e., real property and depreciable assets used in a trade or business
and held for more than one year and not for sale to customers in the ordinary
course of business). In such event, a Unitholder's allocable share of gain or
loss from the sale of an Apartment Complex would be combined with any other
Section 1231 gains or losses incurred by him in that year and his net Section
1231 gains or losses would constitute capital gains or ordinary losses, as the
case may be. Notwithstanding the above, to the extent net Section 1231 losses
are treated as ordinary losses in any taxable year, net Section 1231 gains
recognized during the five succeeding taxable years will be treated as ordinary
income.
If an Apartment Complex is deemed to be held for sale to customers in the
ordinary course of business ("dealer property"), all gain on the disposition
thereof will constitute ordinary income. Because the determination as to whether
any Apartment Complex is dealer property depends on future facts, Counsel
expresses
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no opinion as to that issue. Further, gain realized by a Local Limited
Partnership on a disposition of an Apartment Complex will be ordinary income to
the extent of depreciation recapture. See "Depreciation" above. In addition, the
sale of an Apartment Complex may give rise to the recapture of Tax Credits. See
"Historic Tax Credit Recapture" above and "The Low Income Housing Credit -
Recapture of Low Income Housing Credits."
For a discussion of the income tax consequences attendant to a sale of an
Apartment Complex on the installment basis, see "Treatment of Mortgage Loans"
below.
Tax Liabilities in Later Years
After a period of years following commencement of operations by a Local
Limited Partnership, the Local Limited Partnership may generate Profits for Tax
Purposes rather than Losses for Tax Purposes. In earlier years, depreciation
deductions are expected to result in Losses for Tax Purposes. However, in later
years, as the portion of debt service payments attributable to deductible
interest decreases and the portion attributable to non-deductible principal
amortization increases, net operating income of the Local Limited Partnership
might exceed depreciation. A Unitholder's share of such Profits for Tax Purposes
would constitute passive income and would be taxable at regular rates unless the
Unitholder had unused "suspended" passive losses from his Series or other
investments, or current passive losses from other investments. See "Limitations
on Losses and Credits from Passive Activities" above. In such circumstances it
would be unlikely that the Unitholder would receive a cash distribution from his
Series with which to pay any tax liability resulting from the allocation of
Profits for Tax Purposes, and the tax liability would require a nondeductible
out-of-pocket payment of tax by such Unitholder.
Treatment of Mortgage Loans
A Local Limited Partnership may take back purchase money mortgages as part
of the consideration received upon sale of an Apartment Complex. The Fund
Manager anticipates that any such sale would qualify as an "installment sale"
for Federal income tax purposes and that taxable income therefrom generally
would be recognized over the period during which payments are received.
However, the 1986 Act and the 1987 Act substantially modified the timing of
the recognition of gain arising from installment sales under Code Section 453. A
taxpayer who disposes of property other than dealer property on the installment
basis may be required to pay interest on the portion of his tax liability
deferred by use of the installment method. This rule applies to installment
obligations arising from such dispositions if the aggregate face amount of all
such obligations arising
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in any one year and outstanding at the end of that year exceeds $5,000,000.
Interest is payable each year at the rate specified by the Code for
underpayments of tax (the short-term Federal rate plus three percentage points)
in effect for the month in which the tax year ends. In determining the
application of this rule, all taxpayers under common control within the meaning
of Section 52 of the Code are to be treated as a single taxpayer. It is likely
that a Series and each Local Limited Partnership in which it owns more than 50%
of the profits or capital interests will be treated as under common control.
Any depreciation or other ordinary income recapture is denied installment
sale treatment and must be recognized in the year of the sale. Further, the Code
provides for recognition of gain on installment obligations that are pledged to
secure indebtedness of the taxpayer. The proceeds of the secured indebtedness
are treated as payment on the pledged installment obligation.
A sale or exchange of dealer property is not eligible for installment sale
treatment. Accordingly, if a Local Limited Partnership disposes of an Apartment
Complex on an installment basis and the Apartment Complex is determined to have
been sold to customers in the ordinary course of business, all gain on such sale
would be recognized in the year of sale. In such a case, tax would be payable as
a result of such sale even though no proceeds of the sale had yet been received.
The Fund Manager intends to take into account the application of these new
rules regarding the timing of recognition of income in determining whether to
approve the sale of an Apartment Complex in return for a purchase money
mortgage.
Any notes held by a Local Limited Partnership as a result of an installment
sale generally will be secured by mortgages or deeds of trust. If the stated
redemption price at maturity of such notes exceeds the issue price (the amount
originally loaned), the difference will be treated as original issue discount
("OID"). In the case of purchase money financing, the issue price is determined
by discounting future payments of principal and interest to present value
utilizing specified rates that are intended to reflect market conditions at the
time of the sale. The stated redemption price at maturity generally consists of
the face amount of the notes, plus deferred interest and other amounts payable
at maturity. A Local Limited Partnership will be required to accrue, as interest
income in addition to that stated in the notes, a portion of any OID. The
accrued portion is calculated in accordance with the formula designed to
approximate the true economic yield on the notes.
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Sales or Exchanges of Units and Local Limited Partnership Interests; Transfers
by Gift or at Death
A Unitholder may not be able to sell his Units because the Fund Manager
intends to prohibit the development of a public trading market in the Units.
However, it may be possible to arrange a sale in some cases. See
"Transferability of Units." Any gain realized on a sale of Units by a Unitholder
who is not a "dealer" in the Units or other similar securities generally will be
a capital gain, except to the extent the gain is allocable to "unrealized
receivables" (which is defined in Section 751 of the Code to include
unrecognized depreciation recapture) or inventory items of his Series, if any,
that have appreciated substantially in value. In determining the amount received
upon the sale or exchange of a Unit, a Unitholder must include, among other
things, his allocable share of the Series' allocable share of each Local Limited
Partnership's nonrecourse indebtedness. In addition, as a result of the sale of
Units a Unitholder may be subject to the recapture of Tax Credits. See "Historic
Tax Credit Recapture" above and "The Low Income Housing Credit - Recapture of
Low Income Housing Credits." Similar rules will apply in the case of a sale or
exchange by a Series of its interest in a Local Limited Partnership. Therefore,
it is possible that the gain realized upon the sale of a Unit or Local Limited
Partnership Interest may exceed the cash proceeds of such sale, and in some
cases the income taxes payable with respect to such sale may exceed such cash
proceeds. See, however, "Limitations on Losses and Credits from Passive
Activities" above regarding the allowance of previously suspended passive
activity losses and passive activity credits upon the disposition of a
taxpayer's entire interest in a passive activity.
A gift of a Unit may result in Federal or state income tax (as well as
Federal or state gift tax) liabilities to the donor. The IRS will take the view
that a Unitholder who makes a gift of a Unit is relieved of his share of his
Series' allocable share of a Local Limited Partnership's nonrecourse
indebtedness and, therefore, will realize a taxable gain (taxable as described
above with respect to the sale of a Unit) on the gift to the extent his share of
such liabilities exceeds the tax basis for his Units. In addition, the tax basis
of any donated Unit will be increased in the hands of the donee by any suspended
passive activity losses of the donor and such losses will not be allowable as
deductions to either the donor or the donee. See "Limitations on Losses and
Credits from Passive Activities" above.
If a Unitholder dies, the fair market value of his Units at death (or, if
elected, at the alternative valuation date) will be subject to Federal estate
taxation. The cost or other basis of a Unit inherited from a decedent generally
is "stepped up" or "stepped down" to its fair market value for Federal estate
tax purposes. An estate is allowed to use the $25,000 deduction equivalent
attributable to rental real estate in which the decedent actively participated
before his death and to use Low Income Housing Credits only for its taxable
years ending less than two years after the date
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of death of the decedent. See "Limitations on Losses and Credits from Passive
Activities" above.
Dissolution and Liquidation of a Series or Local Limited Partnership
Generally, upon liquidation or termination of his Series, a Unitholder will
recognize income only to the extent that the sum of the cash distributed to him
and his proportionate share of the Series' allocable share of any then existing
nonrecourse liabilities of the Local Limited Partnerships exceeds his adjusted
basis in his Units at the time of distribution. Similar rules will apply in the
event of the dissolution or liquidation of a Local Limited Partnership.
Elections
The Code permits a partnership to elect to adjust the basis of partnership
property on the transfer of an interest in the partnership by sale or exchange
or on the death of a partner and on the distribution of property by the
partnership to a partner (a "Section 754 election"). The general effect of such
an election by a Series would be that transferees of Units would be treated, for
purposes of depreciation and taxable gain, as though they had acquired a direct
interest in the Series' assets, including the Series' interest in the assets
held by each Local Limited Partnership. As a result of the complexities of the
tax accounting required, the Fund Manager does not presently intend to make a
Section 754 election, although it is empowered to do so by the Partnership
Agreement. The absence of any such election may, in some circumstances, reduce
the value of Units to a potential purchaser.
In certain instances, a Section 754 election may have been made by a Series,
or the Fund Manager may require that one be made, with respect to a Local
Limited Partnership, effective for the year in which the Series acquires an
interest therein. Such election may affect the amount of the tax basis of an
Apartment Complex, including the amount of expenditures qualifying for Tax
Credits, properly allocable to the Series. See "Depreciation."
Transferability - Termination of a Series
The Code provides that if 50% or more of the capital and profits interests
in a partnership are sold or exchanged within a single 12-month period, such
partnership generally will terminate for Federal income tax purposes. Under the
Partnership Agreement, 50% or more of the Units may not be sold or exchanged
within a single 12-month period. However, if a termination should occur, it may
cause recapture and might require that the Series use the methods of
depreciation and recovery periods applicable to property placed in service in
the year in which termination occurs.
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Profit Motive
Under Section 183 of the Code, certain expenses (other than real estate
taxes and interest) from activities not engaged in for profit are disallowed as
deductions from other income. Notwithstanding the fact that low-income housing
typically does not generate a profit from operations, the Treasury Department
has issued Regulations stating that Code Section 183 will not be applied to
apartment complexes which qualify for the Federal Low Income Housing Credit so
long as the investment in such properties is bona fide and not an economic sham.
Accordingly, Counsel is of the opinion that it is more likely than not that
Section 183 would not be applied to disallow deductions arising from the
ownership of the Apartment Complexes.
Other Important Tax Considerations
In addition to the provisions of the Code specifically applicable or
directly relevant to investments in limited partnerships or in real property,
investors should be aware of other important Code provisions that are applicable
to investments in general, or that may, depending upon the facts and
circumstances, be applicable to certain taxpayers. While a detailed discussion
of such general tax aspects is beyond the scope of this section, prospective
investors should be aware of the following matters, among others, and should
consult their own tax advisers for more details if further information is
desired.
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A. Tax Rates
The Code includes five marginal tax rates for individuals, as set forth in
the following tables:
Filing Marginal
Status Income Tax
Married up to $41,200 15%
Filing between $41,200 and $99,600 28%
Jointly between $99,600 and $151,750 31%
between $151,750 and $271,050 36%
over $271,050 39.6%
Head up to $33,050 15%
of between $33,050 and $85,350 28%
household between $85,350 and $138,200 31%
between $138,200 and $271,050 36%
over $271,050 39.6%
Single up to $24,650 15%
between $24,650 and $59,750 28%
between $59,750 and $124,650 31%
between $124,650 and $271,050 36%
over $271,050 39.6%
Married up to $20,600 15%
Filing between $20,600 and $49,800 28%
Separate between $49,800 and $75,875 31%
between $75,875 and $135,525 36%
over $135,525 39.6%
The dollar amounts set forth above apply to 1997 and will be adjusted for
inflation in each year thereafter.
Notwithstanding the preceding, the maximum tax rate on capital gains is
28%. Capital losses are deductible to the extent of capital gains plus $3,000
($1,500 in the case of a married individual filing a separate return) of
ordinary income. The remainder is carried forward.
The personal exemption amount, established at $2,000 for 1989, is indexed
for inflation after 1989 ($2,650 for 1997). The personal exemption is phased out
by 2% (4% for a married person filing a separate return) for each $2,500 by
which a taxpayer's adjusted gross income exceeds certain threshold amounts.
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It also should be noted that under Code Section 67, noncorporate Unitholders
may claim most miscellaneous itemized deductions (including expenses paid or
incurred (a) for the production or collection of income, (b) for management,
conservation, or maintenance of property held for the production of income, (c)
in connection with the determination, collection or refund of a tax, or (d) for
the trade or business of being an employee) only to the extent such expenses
exceed 2% of adjusted gross income. This rule is to apply with respect to
indirect deductions through pass-through entities (such as the Series, the Local
Limited Partnerships and any corporation electing to be taxed under Subchapter S
of the Code (an "S corporation")) of amounts that are not allowable as a
deduction if paid or incurred directly by an individual.
Further, Code Section 68 imposes a limit on the individual's aggregate
itemized deductions, other than deductions for medical expenses under Section
213, investment interest under Section 163 and casualty, theft and wagering
losses under Section 165. For an individual whose adjusted gross income exceeds
the "applicable amount," the amount of the itemized deductions otherwise
allowable for the taxable year will be reduced by the lesser of (i) 3% of the
excess of the adjusted gross income over the "applicable amount," or (ii) 80% of
the itemized deductions otherwise allowable for the taxable year. For these
purposes, the "applicable amount" means $100,000 ($50,000 in the case of a
married person filing a separate return). The applicable amount is adjusted for
inflation in tax years beginning after December 31, 1991 ($121,200 for 1997).
Code Section 68 is to be applied after the application of any other Code
limitation on the allowance of itemized deductions.
With respect to corporations, other than personal service corporations, the
Code imposes the following tax rates:
(i) 15% of so much of the taxable income as does not exceed $50,000;
(ii) 25% of so much of the taxable income as exceeds $50,000 but does not
exceed $75,000;
(iii) 34% of so much of the taxable income as exceeds $75,000 but does not
exceed $10,000,000; and
(iv) 35% of so much of the taxable income as exceeds $10,000,000.
In the case of a corporation which has taxable income in excess of
$15,000,000, the amount of the tax determined under the foregoing provisions is
increased by an additional amount equal to the lesser of (i) 3% of such excess,
or (ii) $100,000.
With respect to personal service corporations, the 1993 Act imposes a single
rate of tax equal to 35%.
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B. Alternative Minimum Tax
In addition to the regular income tax, there is imposed under Code Sections
55- 59 an alternative minimum tax for noncorporate and corporate taxpayers. The
1986 Act significantly broadened the alternative minimum tax base. That base is
equal to a taxpayer's taxable income, subject to certain adjustments, increased
by items of tax preference and reduced by an exemption, all as described below.
For purposes of the alternative minimum tax, depreciation deductions on real
property are computed under the straight-line method over a 40-year recovery
period, and depreciation deductions on personal property are computed using the
150% declining balance method over the property's class life. A less favorable
alternative tax net operating loss deduction is used in lieu of the regular tax
net operating loss deduction.
For corporations, the Code requires an addition to taxable income of 75% of
the amount by which adjusted current earnings exceeds alternative minimum
taxable income.
In addition to the adjustments described above, alternative minimum taxable
income is increased by the amount of "items of tax preference." Tax preferences
include certain excess depletion deductions, excess intangible drilling costs,
certain tax-exempt interest, and the difference between the fair market value
and the exercise price of stock acquired by exercise of an incentive stock
option. No deduction is allowed for losses from a tax shelter farm activity.
Tax Credits cannot be used to offset alternative minimum tax. Rather, Tax
Credits may only be utilized to the extent they do not exceed the excess of the
taxpayer's net income tax (i.e., the sum of the regular tax liability and the
alternative minimum tax liability) over the greater of (i) his tentative minimum
tax liability, or (ii) 25% of his regular tax liability in excess of $25,000.
Any "excess" Tax Credits are first carried back three years and then forward 15
years.
The itemized deductions allowable in computing alternative minimum taxable
income include the following: charitable contributions, medical deductions in
excess of 10% of adjusted gross income, casualty losses, interest on certain
personal housing, and other interest to the extent of net investment income. No
standard deduction is allowed, but an exemption amount is available as discussed
below.
It should be noted that when a taxpayer pays alternative minimum tax, the
amount of such tax allocable to certain adjustments and timing preferences (such
as depreciation) is allowed as a credit against the regular tax liability of the
taxpayer in subsequent years. Timing adjustments and preferences are those for
which the timing, rather than the amount, of a deduction gives rise to its
treatment as an
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adjustment or tax preference. The credit allowed may not be used in any
subsequent year to reduce a taxpayer's alternative minimum tax liability.
The alternative minimum tax for individuals is equal to (A) 26% of so much
of the taxable excess as does not exceed $175,000, plus (B) 28% of so much of
the taxable excess as exceeds $175,000. For this purpose, "taxable excess" means
the amount by which alternative minimum taxable income exceeds the exemption
amount. The exemption amount is $45,000 for a married couple filing a joint
return or a surviving spouse, $33,750 for a single individual and $22,500 for a
married individual filing a separate return or for an estate or trust. However,
the exemption is reduced (but not below zero) by 25% of the amount by which the
alternative minimum taxable income exceeds $150,000 in the case of a married
couple filing a joint return, $112,500 in the case of a single individual and
$75,000 in the case of a married individual filing a separate return or for an
estate or trust. The Code eliminates any incentive for married taxpayers to file
separate returns by increasing the amount of alternative minimum taxable income
by the lesser of (i) 25% of the excess of alternative minimum taxable income
over $165,000, or (ii) $22,500.
The corporate alternative minimum tax is the amount, if any, by which (A)
20% of the excess of (1) the corporation's alternative minimum taxable income
over (2) the exemption amount, exceeds (B) the corporation's regular tax for the
year. The corporate exemption amount is $40,000. However, this exemption is
reduced by 25% of the amount by which alternative minimum taxable income exceeds
$150,000. The corporate alternative minimum tax does not apply to S
corporations; rather, the alternative minimum tax for taxpayers who are not
corporations applies to the shareholders of an S corporation.
Because the impact of the alternative minimum tax is dependent upon each
Unitholder's particular tax situation, each prospective Unitholder should
consult his own tax adviser as to the effect of an investment in a Series on the
calculation of his alternative minimum tax liability.
C. Deduction of Investment Interest
The 1986 Act imposed substantial limitations upon the deductibility of
interest on funds borrowed by an investor to purchase or to carry investment
assets. Code Section 163(d) provides that a deduction for "investment interest"
may be taken by an individual only to the extent of such individual's net
investment income for the taxable year. Investment interest generally is any
interest that is paid or accrued on indebtedness incurred or continued to
purchase or carry investment property. Investment interest includes interest
expense allocable to portfolio income and investment and interest expense
allocable to an activity in which the taxpayer does not materially participate,
if such activity is not treated as a passive activity under
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the passive loss rules. Investment interest does not include any interest that
is taken into account in determining a taxpayer's income or loss from a passive
activity or a rental activity in which a taxpayer actively participates.
Net investment income consists of the excess of investment income over
investment expenses. Investment income generally includes gross income (other
than gain on disposition) from property held for investment, gain (excluding
gain treated as capital gain) attributable to property held for investment and
amounts treated as portfolio income under the passive loss rules. Investment
income does not include income taken into account in computing gain or loss from
a passive activity. Investment expenses are deductible expenses (other than
interest) directly connected with the production of investment income.
Generally, in calculating investment expenses, only those expenses in excess of
2% of adjusted gross income are included. See "Other Important Tax
Considerations - Tax Rates."
Tax Returns and Tax Information
A. Audit and Assessment Procedure
The IRS could audit the tax information returns filed by a Series or a Local
Limited Partnership. Any such audit could result in the audit of a Unitholder's
tax return. An audit of a Unitholder's return could result in adjustments to
items related to the Series as well as items not related to the Series.
Unitholders should be aware that the Tax Equity and Fiscal Responsibility
Act of 1982 enhanced the ability of the IRS to assess partners for tax
deficiencies attributable to adjustments of partnership tax items. As a result
of the 1982 Act, a partnership is treated as a separate entity for purposes of
audit, settlement and judicial review. Thus, the IRS may audit and make a single
determination of the propriety of a partnership's treatment of partnership tax
items at the partnership level. In general, a partnership's "tax matters
partner" (the Fund Manager in the case of each Series) is charged with the
responsibility of representing the partnership and its partners in the event of
such an audit of the partnership's tax returns. All partners are nevertheless
entitled to participate in any such audit and each partner may enter into a
settlement agreement on his own behalf with the IRS.
Further, it should be noted that by reason of the 1982 Act partners must
report partnership items consistently with the position reported by the
partnership on its tax returns or file a statement identifying the
inconsistency. If an inconsistency statement is not filed, the IRS may treat the
inconsistency as a computational error on the return and assess any deficiency
resulting from such inconsistency, and may additionally assess negligence
penalties for failure to comply with the statute.
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If the IRS proposes any adjustments to the tax returns filed by a Series, a
Local Limited Partnership or a Unitholder, substantial legal and accounting
expenses and deficiency interest and penalties may be incurred by any of them. A
Series will not bear any expense that may be incurred by one of its Unitholders
in connection with his participation in an audit of the Series' or a Local
Limited Partnership's tax returns, the audit of his tax returns, or the
determination or redetermination of his tax liability even though resulting
solely from adjustments to the Series' or a Local Limited Partnership's tax
returns.
B. Imposition of Penalties
The 1989 Act included provisions which streamline and revamp the civil tax
penalty provisions of the Code. Changes were made in the following broad topic
areas: document and information return penalties; accuracy-related and fraud
penalties; preparer, promoter and protestor penalties; and penalties for failure
to file or pay. The latter two penalties are of no particular relevance to an
investment in the Fund and are not discussed herein.
Document and Information Return Penalties. Three separate and distinct
categories of penalties apply to information returns and payee statements, as
follows: a penalty for failing to file an information return or to include
correct information therein (e.g., Form 8308, which must be filed by a
partnership upon a transfer of its partnership interests); a penalty for failing
to file a payee statement or to include correct information on a payee statement
(e.g., Schedule K-1); and a penalty for failure to comply with other information
reporting requirements (e.g., the requirement that a transferor must give notice
to a partnership concerning the exchange of an interest in the partnership).
The penalties in this category differ in amount. Under certain
circumstances, some of the penalties may be reduced or avoided by filing
corrected returns within specific time limits, or if the omissions and
inaccuracies are inconsequential. On the other hand, the penalties may be
increased if the failure to comply is due to intentional disregard.
Accuracy-Related and Fraud Penalties. All penalties related to the accuracy
of tax returns are consolidated into one penalty equal to 20% of the portion of
an underpayment resulting from one or more of the following: negligence or
disregard of the rules and regulations; any substantial understatement of income
tax; any substantial valuation overstatement; any substantial overstatement of
pension liabilities; and any substantial estate or gift tax valuation
understatement.
A substantial understatement of income tax exists if the amount of the
understatement exceeds the greater of (i) 10% of the tax required to be shown,
or
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(ii) $5,000 ($10,000 in the case of a corporation other than an S
Corporation or a personal holding company).
A substantial valuation overstatement exists if the value or adjusted basis
of any property is 200% or more of the amount determined to be the correct value
or adjusted basis, or if the price for services or property in connection with
transactions between certain affiliated entities is 200% or more of the current
price. In the case of a gross overstatement (i.e., where the value or adjusted
basis or price is 400% or more of the correct amount), the penalty is increased
to 40%. In no event will a penalty be imposed unless the underpayment exceeds
$5,000 ($10,000 in the case of a corporation other than an S Corporation or a
personal holding company).
Any portion of an understatement which is attributable to fraud is subject
to a penalty at the rate of 75% of the understatement. The 20% accuracy-related
penalty will not apply to any portion of an understatement as to which the fraud
penalty is imposed.
Tax Shelter Registration
Under the Tax Reform Act of 1984, tax shelter organizers are required to
register their tax shelters with the IRS. Furthermore, tax shelter organizers
are required to maintain lists of investors in the tax shelter, which lists must
be turned over to the IRS upon request. Both of these requirements have enhanced
the ability of the IRS to audit tax shelters.
Each Series has applied to the IRS for a tax shelter registration number.
The registration number and the taxpayer identification number to be assigned to
a Series will be provided to the Unitholders of the Series upon availability.
EACH UNITHOLDER MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE
SERVICE IF HE CLAIMS ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR
REPORTS ANY INCOME BY REASON OF HIS INVESTMENT IN A SERIES.
Each Unitholder must report the registration number (as well as the name and
taxpayer identification number of his Series) on Form 8271.
FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH A UNITHOLDER CLAIMS THE
DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORTS ANY INCOME.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THE INVESTMENT
DESCRIBED HEREIN OR THAT THE CLAIMED TAX
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BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE INTERNAL REVENUE
SERVICE.
It should also be noted that a Local Limited Partnership may be required to
register as a tax shelter. If such is the case, each Unitholder may be required
to report the registration number of such Local Limited Partnership to the IRS
on Form 8271. If a Unitholder fails to include a required registration number on
his individual tax returns he is subject to a maximum penalty of $250 for each
such failure.
Further, Unitholders are required to notify transferees of their Units of
the Series' tax shelter registration number. If a Unitholder fails to notify his
transferee of the registration number, he is subject to a maximum penalty of
$100 for each such failure.
Changes in Tax Law
Many of the amendments to the Code enacted since 1980 have not been
interpreted by corresponding amendments to the Treasury Regulations. Also, few
judicial decisions or administrative rulings with regard thereto exist as of the
date of this Prospectus. Accordingly, certain of the Code provisions described
above may be further amended, modified or clarified by Congress, the IRS or the
courts so as to have an adverse effect on the Fund.
The passage of legislation does not preclude the enactment of further
amendments to the Code in later years (including amendments having a retroactive
effect) which could adversely affect an investment in the Fund.
STATE AND LOCAL TAX CONSIDERATIONS
In addition to the Federal income tax aspects described above, prospective
investors should consider potential state and local tax consequences of an
investment in the Fund. A Unitholder's distributive share of Series tax items
generally will be required to be included in determining his reportable income
for state or local tax purposes in the jurisdiction in which he is a resident.
Moreover, California and other states in which a Series may do business impose
taxes on nonresident Unitholders, determined with reference to their allocable
shares of Series income and gain derived from such states; and losses associated
with an investment in a Series from operations in one state may not be available
to offset income from the Series or other sources taxable in a different state.
Personal exemptions, computed in various ways, are allowed by some states and
may reduce the amount of tax owed to a particular state. A Series may be
required to withhold state taxes from distributions to Unitholders in some
instances.
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To the extent that a Unitholder who is not a resident of a state pays tax to
that state by virtue of Series operations within that state, he may be entitled
to a deduction or credit against tax owed to his state of residence with respect
to the same income, and should consult his tax adviser in that regard. In
addition, payment of such state taxes presently constitutes a deduction for
Federal income tax purposes, assuming that the taxpayer itemizes deductions.
Tax benefits that are available for Federal income tax purposes may not be
available for state income tax purposes. For example, certain states have not
adopted the Federal cost recovery depreciation rules and the Federal installment
sale rules. Thus, it is possible that investors in some states will be required
to recognize more or less income or loss from operations, or gain from the sale
of Series investments, for state tax purposes than for Federal tax purposes.
Finally, it should be noted that Unitholders may be subject to state estate
or inheritance taxes in the states in which the Series conducts business, as
well as in their own states of residence. Corporate Unitholders may be liable
for minimum state franchise taxes in such states. Each prospective investor
should therefore consult his own personal tax adviser concerning his individual
tax situation with respect to the state and local tax aspects of investing in a
Series.
PROFITS AND LOSSES FOR TAX PURPOSES,
TAX CREDITS AND CASH DISTRIBUTIONS
Set forth below in this section of the Prospectus is a discussion of the
allocation and distribution provisions of the Partnership Agreement.
Cash Available for Distribution
Subject to certain adjustments, Cash Available for Distribution will consist
of the Series' net cash flow from cash distributions by Local Limited
Partnerships after payment of all Operating Cash Expenses and amounts required
for Reserves.
Because of the high leverage expected to be utilized by most or all of the
Local Limited Partnerships, cash flow participations and fees expected to be
paid to the Local General Partners and restrictions which will be imposed by
Federal and state agencies on Apartment Complexes receiving government financing
or operating subsidies, it is not anticipated that there will be any significant
amounts of distributions of Cash Available for Distribution. The Partnership
Agreement provides that all Cash Available for Distribution of a Series shall be
paid or distributed 99% to its Unitholders and 1% to the Fund Manager within 120
days following the close of the fiscal year during which such Cash Available for
Distribution was generated.
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Sale or Refinancing Proceeds
Sale Proceeds will consist of net cash receipts arising from sales or other
dispositions of, and condemnations, damage awards and insurance recoveries with
respect to, Apartment Complexes of the Local Limited Partnerships. Refinancing
Proceeds will consist of net cash receipts arising from any mortgage financing,
refinancing or borrowing secured by the Apartment Complexes. Sale or Refinancing
Proceeds will not include any amounts necessary for the payment of Series debts
and the funding of Reserves.
Sale or Refinancing Proceeds received by a Series after the expiration of
two years from the beginning of the quarter in which the Investment Date occurs
will be distributed by the Series in the following order of priority:
(1) First, to its Unitholders, until they have received an amount equal to
(a) their Adjusted Capital Contributions, plus (b) their Return on Investment,
to the extent not previously received through Tax Credits and Cash Available for
Distribution;
(2) Second, to the Fund Manager, an amount equal to the Fund Manager's
Capital Contributions; and
(3) Third (after payment of any accrued but unpaid Subordinated Disposition
Fees), the balance 90% to its Unitholders and 10% to the Fund Manager.
Sale or Refinancing Proceeds distributed in connection with the liquidation
of the Series will be distributed in accordance with Capital Accounts as
maintained for Federal income tax purposes. It is anticipated that these
distributions would have the same effect in all material respects as those
described in clauses (1) through (3) above.
If a Local Limited Partnership sells an Apartment Complex on terms involving
its receipt of a purchase money mortgage or other installment obligation of the
purchaser, distribution of the proceeds of the installment obligation will be
based upon a distribution percentage determined by calculating the percentage of
the then present value of any sales proceeds that the respective classes
composed of the Fund Manager and the Unitholders would receive had the Local
Limited Partnership received the deferred installments in cash at closing in
lieu of the installment obligation. The present value of any sales proceeds
(including interest, if any, on the installment obligation) will be based on a
discount rate equal to the current yield, on the date of the installment sale,
of a United States Treasury obligation selected by the Fund Manager having a
stated maturity comparable to the ultimate stated maturity date of the
installment obligation. The Unitholders as a class
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thereafter will receive principal and interest payments on such installment
obligations according to their percentage share of such installment proceeds.
Allocations of Profits and Losses for Tax Purposes and Tax Credits
Low Income Housing Credits of a Series generally will be allocated among its
Unitholders and Fund Manager in the same manner that deductions attributable to
the expenditures giving rise to such credits will be allocated among them.
Historic Tax Credits of a Series generally will be allocated among its
Unitholders and Fund Manager in the manner in which Profits are or would be
allocated for the fiscal year in which the property qualifying for such tax
credits is placed in service. In accordance with these rules, it is anticipated
that Low Income Housing Credits and Historic Tax Credits of a Series will be
allocated 99% to its Unitholders and 1% to the Fund Manager.
Profits for Tax Purposes (including Profits) and Losses for Tax Purposes
(including Losses) are not the same as cash distributions. Profits and Losses
for Tax Purposes of a Partner are determined on a tax accounting basis for use
in the preparation of the individual income tax returns of each Partner. Because
of the effect of certain deductions allowable for Federal income tax purposes,
the amount of income taxable to each Partner may be greater or less than the
amount of cash distributable to him from his Series. Accordingly, the
Partnership Agreement provides separately for allocations of Profits and Losses
for Tax Purposes on the one hand and Cash Available for Distribution and Sale or
Refinancing Proceeds on the other.
Losses of a Series generally will be allocated: first, to the extent of the
positive Capital Account balances of its Partners, in such manner and amount as
is necessary to cause such balances, as so adjusted, to be in the ratio of 99%
to its Unitholders and 1% to the Fund Manager; second, to the extent of the
excess of Partnership Minimum Gain over the aggregate negative Capital Account
balances of the Partners with such balances, to the Fund Manager and Unitholders
in such manner and amount as is necessary to cause their negative Capital
Account balances, as so adjusted, to be in the ratio of 99% to its Unitholders
and 1% to the Fund Manager; and third, to the Fund Manager.
Partnership Minimum Gain generally is the aggregate of the excess, if any,
of the principal amount of each Local Limited Partnership's nonrecourse debts
over its adjusted basis in the property securing such debt, i.e., the amount of
income each Local Limited Partnership would realize if all of its properties
were sold for the amount of the outstanding nonrecourse debts secured by such
properties.
Profits of a Series generally will be allocated: first, in the event that
its Unitholders have an aggregate positive Capital Account balance and the Fund
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Manager has a negative Capital Account balance or vice versa, to the class of
Partners with and to the extent of such negative balance; second, to the extent
of the aggregate negative Capital Account balances of the Partners, to its
Unitholders and the Fund Manager in such manner and amount as is necessary to
cause the negative Capital Account balances of such Partners to be in the ratio
of 99% to its Unitholders and 1% to the Fund Manager; and third, to its
Unitholders to the extent that their positive Capital Account balances are less
than their Adjusted Capital Contributions.
Notwithstanding the above, to the extent that there are any Profits
remaining after the allocation of Profits under clause third of the preceding
paragraph or to the extent that the positive Capital Account balances of the
Unitholders before the allocation of any Losses to them exceed their Adjusted
Capital Contributions, such Profits or Losses shall be allocated among the
Unitholders and the Fund Manager in such manner and amount as is necessary to
cause the positive Capital Account balances of the Partners to be equal to such
Partners' respective Deemed Liquidation Distributions. A Partner's Deemed
Liquidation Distribution generally is the amount that would be distributed to
him if his Series were dissolved and liquidated and (i) the Series' assets were
sold for their Federal adjusted tax basis; (ii) the Series' liabilities were
paid; and (iii) the Series' remaining cash were distributed in accordance with
the provisions applicable to Sale or Refinancing Proceeds arising other than in
liquidation of the Series.
To the extent such relationships between the Capital Account balances of the
Fund Manager and the Unitholders cannot be maintained through the allocation of
Profits or Losses for a given year, the Partnership Agreement provides for
allocations of gross income or gain for such year (or in some instances,
subsequent years) to cause such relationships to be maintained as of the end of
each fiscal year. Further, the Partnership Agreement provides that if the
allocation of Profits and Losses for Tax Purposes by a Series fails to cause the
Capital Accounts of its Partners to be equal to their Deemed Liquidation
Distributions, or, where there would be no Deemed Liquidation Distributions to
the Partners, to cause the negative Capital Account balances of the Partners (to
the extent that the aggregate amount of such balances is not in excess of
Partnership Minimum Gain) to be in the ratio of 99% to the Unitholders and 1% to
the Fund Manager, the Fund Manager is authorized to amend the allocation
provisions applicable to Profits and Losses for Tax Purposes on the advice of
the Series' accountants or legal counsel to the extent necessary to cure such
defect, provided that the provisions related to the distribution of Cash
Available for Distribution and Sale or Refinancing Proceeds may not be amended
to cure such defect.
The Partnership Agreement provides that each Partner's Capital Account will
initially equal his Capital Contribution, with certain adjustments. Throughout
the existence of his Series each Partner's Capital Account will be (i) reduced
by the
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amount of Losses for Tax Purposes allocated and the amount of Cash Available for
Distribution and Sale or Refinancing Proceeds distributed to him, and (ii)
increased by the amount of Profits for Tax Purposes allocated to him.
Any interest income recognized by the Partnership in connection with the
payment to the Partnership of a Capital Contribution (or portion thereof) will
be allocated to the Limited Partner making such payment.
If a Local Limited Partnership sells its Apartment Complex under an
installment sale arrangement, the allocation of Profits and Losses for Tax
Purposes arising from such transaction generally will have the same effect as
the foregoing, but may vary depending on the percentage interest determined for
the Unitholders as a class in such installment proceeds, as discussed under
"Sale or Refinancing Proceeds" above.
The Partnership Agreement also includes provisions which are intended to
comply with Code Sections 704(b), 704(c) and 752 and the Regulations promulgated
thereunder and other official interpretations thereof. (See "Federal Income Tax
Considerations" above.) For example, the Partnership Agreement includes a
chargeback for Partnership Minimum Gain, a chargeback for Partner Nonrecourse
Debt Minimum Gain, a qualified income offset provision, a provision allocating
Nonrecourse Deductions, a provision allocating deductions attributable to
Partner Nonrecourse Debt to the Partner bearing the Economic Risk of Loss for
the Partner Nonrecourse Debt, an adjustment to Capital Accounts in the event
that the tax basis of a Series' property is adjusted pursuant to Code Sections
734(b) or 743(b), a provision respecting allocations attributable to Code
Section 704(c) property and a limitation on allocations creating or increasing
Adjusted Capital Account Deficits. Prospective investors are urged to read
Article 4 of the Partnership Agreement in its entirety for a full description of
the provisions summarized above.
Determination of Distributions and Allocations Among Unitholders
Payments of Cash Available for Distribution and Sale or Refinancing Proceeds
and allocations of Profits and Losses for Tax Purposes and Tax Credits for a
Series will be made among its Unitholders in proportion to the number of Units
owned by each of them. Distributions and allocations during the Offering period
will be as described under "Federal Income Tax Considerations - Allocations
Prior to Admission." Distributions and allocations with respect to holders of
transferred Units will be as described under "Transferability of Units."
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SUMMARY OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT
The Partnership Agreement (attached hereto as Exhibit B) is the governing
instrument establishing the rights and obligations of the Partners in each
Series. Each prospective investor should therefore read the Partnership
Agreement in full. Many of the principal provisions of the Partnership Agreement
have been summarized elsewhere in this Prospectus under various headings.
Certain other provisions of the Partnership Agreement are summarized below, but
for complete information reference should be made to the Partnership Agreement.
Default by Unitholder in Payment of the Deferred Capital Contribution
Under the Promissory Notes to be given to a Series by those investors who
are eligible, and elect, to do so in partial payment for their Units, an Event
of Default will include: (i) the failure to make any payment due under the
Promissory Note within 30 days after the due date ("Payment Default"), (ii) a
material misrepresentation by an investor in connection with the purchase of
Units, (iii) the filing of a proceeding by or against an investor under the
Federal bankruptcy laws, (iv) an assignment by an investor for the benefit of
creditors and (v) the appointment of a receiver or trustee for all or any part
of the investor's assets.
If an Event of Default occurs, the Series may declare the entire unpaid
balance of the Promissory Note due and payable and the Promissory Note will
continue to bear interest until paid. A late charge of 5% will be imposed on any
late payment. In addition, any distributions of cash to which the Unitholder
would be entitled may be offset against amounts due under the Promissory Note.
Pursuant to the terms of a security agreement in favor of the Series contained
in Section 3.4.1 of the Partnership Agreement, upon any such default the Series
will be entitled to the remedies available under the applicable Uniform
Commercial Code, including foreclosure and sale of the Units and proceeding
directly against the Unitholder. The Series may sell the Units (or fractional
interests thereof) of the defaulting Unitholder to the nondefaulting Unitholders
or to non-Partners for the highest price which the Series can obtain in a
commercially reasonable sale. The Fund Manager and its Affiliates may (but are
not obligated to) purchase any such Units, but only if such Units have first
been offered to the nondefaulting Unitholders. There can be no assurance that
the sales will provide sufficient funds to make the full payment to the Series
and the defaulting Unitholder; and any monies received through such sale shall
first be applied to the payments due to the Series.
In addition to the above-described right to sell a Unitholder's Units in
default, the Series is not restricted in the exercise of its rights to institute
legal proceedings against a defaulting Unitholder to compel payment of the
unpaid balance of the Promissory Note as well as all costs (including attorneys'
fees) incurred by the
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Series in enforcing its rights under the security agreement contained in the
Partnership Agreement. A defaulting Unitholder will remain liable for any
deficiency remaining after any properly conducted foreclosure sale. If a
defaulting Unitholder's Units are sold by or on behalf of the Series in a
foreclosure sale, the defaulting Unitholder will be deemed to have consented, by
having executed the Partnership Agreement, to the substitution of the purchaser
of the Units as a Unitholder. See "Risk Factors - Fund-Related Risks -
Obligations for Capital Contributions." In the event of a Payment Default, until
30 days after the Payment Default and notice thereof and intent to foreclose has
been given to the defaulting Unitholder, such Unitholder will have the right to
cure the Payment Default with late charges thereon without suffering any
reduction in interest in the Series and the Series may not commence proceedings
to enforce its security interest in the defaulting Unitholder's Units.
The Promissory Notes may be pledged as collateral to secure Series debt. If
a Unitholder defaults under his Promissory Note, a subsequent holder of the
Promissory Note will have the rights of the Series as described above.
Liability of Unitholders to Third Parties
The Fund Manager will be liable for all general obligations of the Series to
the extent not paid by the Series. Under California law, a Unitholder is not
personally liable for the debts, liabilities and obligations of his Series in
excess of his Capital Contribution, except for the payments due under his
Promissory Note, if any, and except to the extent and under the circumstances
discussed in "Risk Factors - Fund- Related Risks - Risks of Unitholder
Liability."
Dissolution and Liquidation
Each Series is intended to be self-liquidating and will be dissolved no
later than December 31, 2052, or earlier upon the prior occurrence of certain
events, including: (1) the disposition of all Local Limited Partnership
Interests and other assets of the Series; (2) the election by the Fund Manager
(with the consent of its Unitholders owning more than 50% of the Units in the
Series) or by Unitholders owning more than 50% of the Units in the Series to
dissolve the Series; or (3) unless the business of the Series is continued by
the Series or a reconstituted partnership under Section 8.1 of the Partnership
Agreement, the removal, bankruptcy or dissolution (or death or adjudication of
incompetence in the case of an individual) of a sole remaining Fund Manager. The
Fund Manager has agreed not to retire or withdraw voluntarily from the Series.
Upon dissolution of a Series unless its business is continued in accordance
with the Partnership Agreement, the Series will be liquidated and the proceeds
of liquidation will be applied first to the payment of obligations of the Series
to
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creditors and the expenses of liquidation, and to the setting up of any reserves
for contingencies which the Fund Manager considers necessary. Any remaining
proceeds of liquidation and any other funds or properties of the Series will
then be distributed in the manner described under "Profits and Losses for Tax
Purposes, Tax Credits and Cash Distributions - Sale or Refinancing Proceeds."
Removal of Fund Manager
The Partnership Agreement provides that the Fund Manager may be removed as
such with respect to any Series, and a new Fund Manager elected, upon the
written consent or affirmative vote of Unitholders owning more than 50% of the
Units in the Series. If the Fund Manager is removed, the fair market value of
the interest of the removed Fund Manager in the Series will be determined by
agreement of the former Fund Manager and the Series or, if they cannot agree, by
arbitration, and will be paid to the Fund Manager by delivery of a promissory
note of the Series for such fair market value payable in no less than five equal
consecutive annual installments commencing on the first anniversary of the date
of such note. Payments required under such promissory note could result in the
Series having to sell one or more of its interests in Local Limited
Partnerships. Such promissory note shall bear simple interest at a rate per
annum which is at all times equal to the Prime Rate, payable on the last day of
each calendar quarter while such note is outstanding; provided, however, that if
such note is delivered following an Event of Withdrawal of the Fund Manager
which is a Voluntary Withdrawal on its part then (i) such note shall neither be
secured nor bear interest and (ii) the principal payable to the withdrawing Fund
Manager shall be limited in amount and date of payment to distributions which
such withdrawing Fund Manager would have received under the Partnership
Agreement had it not withdrawn.
Within 120 days after the determination of the fair market value of the
former Fund Manager's Interest, the Series may, with the consent of any
remaining Fund Managers and the consent of a majority-in-interest of its
Unitholders, sell such Interest to one or more persons, who may be Affiliates of
any remaining Fund Manager or Fund Managers, and admit such person or persons to
the Series as substitute Fund Managers; provided, however, that the purchase
price to be paid to the Series for the Interest of the former Fund Manager shall
not be less than its fair market value as determined by the procedures described
above. Such substitute Fund Manager or Fund Managers may pay said purchase price
in installments in the manner set forth above.
Voting Rights
Unitholders owning more than 50% of the Units in a Series may amend the
Partnership Agreement of the Series at any time, except that an amendment which
would adversely affect the limited liability of a Unitholder or the rights,
powers,
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duties or compensation of the Fund Manager or any of its Affiliates, will also
require the consent of such Partner. The Partnership Agreement of a Series may
also be amended by the Fund Manager without the consent of the Unitholders to
admit Unitholders in connection with the sale or transfer of Units as described
in this Prospectus and for certain other amendments for the benefit of (or not
adverse to) the interests of the Unitholders as specified in Section 12.1.2 of
the Partnership Agreement.
The removal of the Fund Manager and the admission to a Series of a successor
or additional Fund Manager also requires the approval of Unitholders of the
Series owning more than 50% of the Units in the Series in certain circumstances.
See "Removal of Fund Manager" above in this section and "Management."
In addition, the Fund Manager may not, without the consent of Unitholders
owning more than 50% of the Units in the Series, (a) sell all or substantially
all the assets of the Series at one time, except in connection with the
liquidation and winding up of the Series business upon its dissolution; (b)
cause the merger or other reorganization of the Partnership; or (c) elect to
dissolve the Series.
Notwithstanding the general ability of Unitholders owning more than 50% of
the Units in a Series to amend the Partnership Agreement of the Series, Section
10.3 of the Partnership Agreement imposes strict limitations on the ability of a
Series to propose or participate in a Roll-Up. Unitholders owning more than 50%
of the Units in a Series could vote to revise or eliminate these limitations.
Nonetheless, in addition to these limitations, the California Revised Limited
Partnership Act, which governs each Series, gives limited partners who dissent
to a Roll-Up the right, subject to certain procedural limitations, to require
that their limited partnership repurchase their interests at a price equal to
their fair market value.
Meetings
There will be no annual or other periodic meetings of the Unitholders.
However, meetings of the Unitholders of a Series for any purpose may be called
by the Fund Manager and are required to be called by the Fund Manager upon
written request of Unitholders in a Series owning in the aggregate 10% or more
of the Units in the Series. In addition, the Fund Manager may, and the Fund
Manager shall upon request of Unitholders owning in the aggregate 10% or more of
the Units in a Series, submit any matter (upon which they are entitled to vote)
to the Unitholders in the Series for a vote without a meeting.
Books and Records
Each Series will maintain its books and records at the Fund's office
(currently 3158 Redhill Avenue, Costa Mesa, California 92626). The books and
records are
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open to inspection, reproduction and examination by the Unitholders of the
Series at all reasonable times. Further, upon request, the Fund Manager will
promptly deliver to a Unitholder of a Series a copy of the following books and
records of his Series: the Certificate of Limited Partnership and all amendments
thereto; the Partnership Agreement, and all amendments thereto; and a current
list of the full name and last known address of each Partner in the Series. If
such a list is requested, the Fund Manager is required to provide it within 10
days of the receipt of the request, such list to be arranged in alphabetical
order, on white paper and in a readily readable form. Under California law, if
the Fund Manager fails to provide the list of Partners and a court finds that
the failure to do so was without justification, the court may award, in addition
to any actual damages suffered, an amount sufficient to reimburse the Unitholder
bringing the court action for reasonable expenses incurred in connection
therewith.
TRANSFERABILITY OF UNITS
There are restrictions on the transfer of Units as set forth in Article 7 of
the Partnership Agreement and as described below. To transfer Units, a written
instrument of assignment must be signed by both the transferror and the
transferee and returned to the Fund Manager together with payment of all
reasonable legal fees and filing costs in connection with the transfer, but not
to exceed $100. The Fund Manager may also request additional documentation to
evidence the authority of the parties to the assignment and compliance of the
assignment with the terms of the Partnership Agreement, as well as the consent,
if required, of the Commissioner of Corporations of the State of California or
of any other state official who asserts jurisdiction over such assignment. For
these reasons, no Series will issue any transferable certificates representing
the Units, and an assignment shall not take effect for any purpose until it has
been registered on the books of the Series. A pledge or other encumbrance of a
Unit shall similarly not be effective unless so registered. On the death of a
Unitholder, his executor or administrator will have all rights of a Unitholder
for the purpose of settling his estate, including the same power as the decedent
had to assign his interest to another party.
It is not intended or anticipated that a public market will develop for the
purchase and sale of Units. Thus, Unitholders may not be able to liquidate their
investment promptly or at a reasonable price prior to the dissolution and
liquidation of their Series, and the Units should only be considered as a
long-term investment. See "Risk Factors - Fund-Related Risks - Lack of Liquidity
of Investment."
If a Unitholder is able to negotiate a sale, exchange or other transfer of
his Units, the effectiveness thereof may be denied or deferred by the Fund
Manager if necessary, in the opinion of counsel, to avoid: the premature
termination of the Series for tax purposes; the disqualification of the Series
for Low Income Housing
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Credits under Code Section 42(j)(5)(B); classification of the Series as a
publicly-traded partnership or as an association taxable as a corporation for
Federal income tax purposes; or recapture of Tax Credits. In addition, no
transfers may be made to tax-exempt or foreign entities, or through a securities
market or a secondary market. The Fund Manager will give written notice to all
Unitholders in the event that transfers of Units are generally suspended.
Section 7 of the Partnership Agreement gives the Fund Manager broad powers to
enforce or modify these provisions. The Fund Manager will review from time to
time the restrictions on transfer of Units and will modify such restrictions to
make them less restrictive if the Fund shall have received an opinion of counsel
that such modification may be made without material adverse tax consequences to
the Partners.
A transfer (except for a transfer by gift, inheritance, bequest or family
dissolution, or a transfer to an Affiliate of the transferror) will not be
recognized if, immediately thereafter, any transferror or transferee would hold
a fraction of a Unit.
Except as otherwise provided in Section 7.3.3 of the Partnership Agreement,
transfers will generally be recognized and entered on the records of a Series
only as of the first day of the fiscal quarter following the fiscal quarter in
which the Series receives appropriate documentation relating to the transfer
together with the payment described above. Cash Available for Distribution, if
any, will be allocated to the persons recognized as Unitholders on the last day
of each fiscal quarter. Profits and Losses for Tax Purposes from current
operations and Tax Credits for a fiscal year during which a transfer is
recognized will be allocated between a transferror and a transferee based upon
the number of quarterly periods that each was recognized as the holder of a
Unit, without regard to whether Series operations during particular quarterly
periods of such year produced profits or losses or cash distributions. Sale or
Refinancing Proceeds, if any, will be distributed, and all related Profits and
Losses for Tax Purposes will be allocated, to the persons recognized as
Unitholders as of the date on which the Sale or Refinancing occurred, and for
this purpose transfers will be recognized as of the date specified by the
transferror and the transferee in the instrument of assignment or, if no date is
specified, the first day of the fiscal quarter following the fiscal quarter in
which the Series receives the instrument of assignment. However, any Sale or
Refinancing Proceeds received as a result of an installment or other deferred
sale will be distributed, and any Profits and Losses for Tax Purposes will be
allocated, to the persons recognized as Unitholders on the day such Sale or
Refinancing Proceeds are received by the Series. Adverse Federal income tax
consequences may result from any transfer of Units, and Unitholders are advised
to consult their tax advisers prior to any such transfer. See "Federal Income
Tax Considerations."
Transferees may become Substitute Unitholders, entitled to all the rights of
a Unitholder, by obtaining the consent of the Fund Manager (which consent may
only
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be withheld for the purpose of preserving the Partnership's tax status or to
avoid adverse legal consequences to the Partnership) and by complying with the
provisions of Section 13.3 of the Partnership Agreement. The rights of an
assignee of a Unit who does not become a Substitute Unitholder will be limited
to the right to receive his share of Profits and Losses for Tax Purposes, Tax
Credits, Cash Available for Distribution and Sale or Refinancing Proceeds, and
will not include other rights, such as the voting rights described in "Summary
of Certain Provisions of the Partnership Agreement."
Transfer of Units by or to California Residents
Any sale or transfer of Units in California or involving any California
resident (but not a transfer which does not occur in California and does not
involve any California resident) requires the prior written consent of the
Commissioner of Corporations of the State of California, except as provided in
the Commissioner's Rules. Accordingly, any certificates representing Units will
bear the following legend:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OR THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
REPORTS
Within 120 days after the end of each year, each Series will distribute to
its Unitholders: (i) financial statements of the Series for such year, which
will include a balance sheet and statements of operations, partners' equity and
cash flows prepared on an accrual basis in accordance with generally accepted
accounting principles and accompanied by an auditor's report containing an
opinion of an independent accountant; (ii) a report of any distributions made
during the year; and (iii) a report of the Series' significant activities during
such year. In addition, each Series will distribute to its Unitholders unaudited
quarterly financial statements for each of the first three quarters of each
year, together with a report of the Series' activities during such quarter. Such
quarterly financial statements will consist of a balance sheet and a statement
of operations. Within 75 days after the end of each year, each Series will
distribute to its Unitholders such tax information as is necessary for the
preparation of their Federal and state income tax returns.
Until the Net Proceeds of its Offering are fully invested or returned to its
Unitholders, each Series will also furnish to its Unitholders, at least
quarterly, a report concerning the investments of the Series.
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Within 60 days after the end of each of the first three quarters of each
year, each Series will distribute to its Unitholders a detailed statement
describing any fees and other compensation paid by the Series or a Local Limited
Partnership during such quarter to the Fund Manager and its Affiliates. In
addition, each Series will send to its Unitholders within 120 days after the end
of each year a detailed statement of any transactions between the Series or a
Local Limited Partnership and the Fund Manager and its Affiliates and of the
fees, commissions, compensation and other benefits paid or accrued to the Fund
Manager and its Affiliates for the year.
Reporting requirements similar to those set forth above for each Series are
expected to be included in each Local Limited Partnership Agreement so that each
Series will be able to prepare the reports set forth above. The Fund Manager
shall, to the extent it deems it appropriate, transmit to the Unitholders of the
Series copies of all reports received by the Series in its capacity as a limited
partner of each Local Limited Partnership.
TERMS OF THE OFFERING AND PLAN OF DISTRIBUTION
The Fund is offering 50,000 Units for sale to the public in two Series. Each
Series will consist of 25,000 Units. The Fund Manager will determine in its
discretion when Series 5 will be terminated and Series 6 will begin. No Units in
a Series will be sold unless at least $1,400,000 of Capital Contributions
(defined to exclude contributions which are in the form of Promissory Notes -
see "How to Subscribe" below) from such Series are received and accepted prior
to termination of the Series Offering. See "Escrow Arrangements" below. In no
event will any Offering be conducted more than two years from the date of this
Prospectus. All Units will be sold at a price of $1,000 per Unit (except as
discussed below under "Volume Discounts" and "Purchases by Affiliates and
Designated Investors"), payable in cash upon subscription (except as discussed
below under "How to Subscribe").
Issuance of Units in Series
As indicated above, the Fund is offering Units in two Series. Each Series is
organized as a separate California limited partnership. Except as set forth
below, each Series will account for, and issue information with respect to, its
Units separately. Organizational and Offering Expenses may be higher for one
Series than for the other Series; if so, one Series will reimburse the other in
such a manner so that the pro rata portion of Organizational and Offering
Expenses borne by each Series is the same. With respect to Operating Cash
Expenses, (i) those expenses allocable to a Local Limited Partnership Interest
will be borne by the Series which owns such Local Limited Partnership Interest,
and (ii) those expenses not allocable to a Local Limited Partnership Interest
will be apportioned among and borne by the respective Series based upon the
advice of the Accountants.
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Any certificate representing Units will be marked to identify the Series to
which the certificate relates.
Underwriting Arrangements
Units are being offered on an all-or-nothing minimum, best-efforts maximum,
basis through WNC Capital Corporation (the "Dealer-Manager") and through other
members ("Soliciting Dealers") of the National Association of Securities
Dealers, Inc. ("NASD") selected by the Dealer-Manager. The Dealer-Manager will
manage the selling group and provide certain wholesaling services, and may
participate in the Offering. The Dealer-Manager is a wholly-owned subsidiary of
the Fund Manager formed to participate in offerings sponsored by the Fund
Manager. See "Conflicts of Interest" and "Management."
The Dealer-Manager will receive as compensation retail selling commissions
in an amount of up to 7% of the Capital Contributions. The Dealer-Manager will
also receive a Dealer-Manager Fee in an amount of up to 2% of the Capital
Contributions, and a Nonaccountable Expense Reimbursement in an amount of up to
1% of the Capital Contributions. From the accountable reimbursement of
Organizational and Offering Expenses to be paid by the Fund (see "Management
Compensation"), the Dealer-Manager may receive an amount not to exceed 0.5% of
the Capital Contributions for accountable, bona fide due diligence activities.
The Dealer-Manager may reallow any portion of its underwriting compensation to
Soliciting Dealers (i) proportionately in accordance with the number of Units
sold by them in payment for retailing and wholesaling activities, (ii) in
reimbursement of selling and due diligence activities, and (iii) subject to the
requirements set forth hereinafter, in payment of cash or noncash sales
incentive programs. Subject to the prior approval of the NASD and compliance
with the NASD's Conduct Rules, the Fund or the Dealer-Manager may establish cash
or noncash sales incentive programs, provided that the aggregate value of any
noncash incentive awards to individual registered representatives during any
year does not exceed $100. Sales incentives with a value in excess of $100, if
any, will consist of cash and will be paid directly to Soliciting Dealers, which
will have sole discretion as to how such incentives will be distributed to their
individual registered representatives. In no event will the aggregate of all
underwriting compensation paid to the Dealer- Manager and the Soliciting Dealers
exceed 10% of the Capital Contributions, plus a maximum of 0.5% of Capital
Contributions for expenses incurred for accountable, bona fide due diligence
purposes.
Underwriting compensation of any form payable with respect to proceeds
represented by the Promissory Notes will be payable only when, as and if the
Promissory Notes are paid in cash.
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The Fund has agreed to indemnify the Dealer-Manager and the Soliciting
Dealers against certain liabilities resulting from untrue statements of material
facts (or the omission to state material facts) in this Prospectus, the
Registration Statement or supplemental sales literature authorized for use by
the Fund, including liabilities under the Securities Act of 1933. In the opinion
of the Securities and Exchange Commission, indemnification for liabilities
arising out of the Securities Act of 1933 is against public policy and therefore
unenforceable.
Volume Discounts
As indicated above in this section and under "Management Compensation,"
generally the Fund will pay up to 7% of Capital Contributions as retail selling
commissions to the Dealer-Manager; the Fund also will pay up to 2% of Capital
Contributions as the Dealer-Manager Fee and up to 7% of Capital Contributions as
Acquisition Fees to the Fund Manager. However, with respect to retail selling
commissions, in connection with subscriptions for 100 or more of the Units in
one or more Series or other real estate syndications sponsored by the Sponsor,
such selling commissions will be determined in accordance with the following
schedule:
Amount of Units Subscribed Maximum Retail Selling
to by Any "Purchaser" Commissions Per Unit Price Per Unit
Up to 99 7.0% ($70) $1,000
100 to 199 5.5% ($55) $ 985
200 to 299 4.5% ($45) $ 975
300 to 399 3.5% ($35) $ 965
400 to 499 2.5% ($25) $ 955
500 and over (1) 1.5% ($15) $ 945
- ----------------
(1) Provided that the Fund and the Fund Manager may further reduce the retail
selling commission with respect to subscriptions to 500 Units and over, but any
such reduction must be the same for investors making investments of
substantially the same size.
Investors should note that reductions in retail selling commissions apply in
a graduated manner. For example, in connection with a purchase of 299 Units,
retail selling commissions of $70 per Unit will be payable in connection with
the first 99 Units, retail selling commissions of $55 per Unit will be payable
in connection with the next 100 Units, and retail selling commissions of $45 per
Unit will be payable in connection with the remaining 100 Units.
With respect to Acquisition Fees payable to the Fund Manager and Dealer-
Manager Fees payable to the Dealer-Manager, the Fund Manager and the Dealer-
Manager have reserved the right to agree upon lower Acquisition Fees and Dealer-
Manager Fees regarding subscriptions to a significant number of Units in one or
more Series or other real estate syndications sponsored by the Sponsor, but all
such
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discounts will be the same for investors making investments of substantially the
same size.
Subscriptions to one or more Series or other real estate syndications
sponsored by the Sponsor may be combined for the purpose of determining the
amounts reimbursable in the case of subscriptions made by any "Purchaser" as
that term is defined below. Any request to combine more than one subscription
must be made in writing on a form which will be available upon request from the
Series or the Soliciting Dealers, and must set forth the basis for such request.
If all of the information required in the form, including an indication that
subscriptions are to be combined, is not provided, the Series will not be
responsible for failing to properly combine subscriptions. Any request to
combine subscriptions will be subject to verification by the Series that all
such subscriptions were made by a single "Purchaser" as defined below.
In the event that a "Purchaser" subscribes for additional Units subsequent
to his initial purchase of Units, no reimbursement will be made with respect to
selling commissions or Acquisition Fees which have been paid or are payable in
connection with the prior subscription(s). However, in determining the selling
commissions or Acquisition Fees reimbursable in connection with the additional
purchase, all subscriptions made by such "Purchaser" will be aggregated.
For the foregoing purposes, the term "Purchaser" shall be deemed to include
(i) an individual, or an individual, his or her spouse and their children under
the age of 21, who purchase the Units for his or her or their own account, (ii)
a corporation, partnership, association, joint-stock company, trust, fund or any
organized group of persons, whether incorporated or not (provided that the
entities described in this clause (ii) must have been in existence for at least
six months before purchasing the Units), (iii) investors whose funds are managed
by a single professional investment adviser registered under the Investment
Advisers Act of 1940, and (iv) investors for whom a designated bank, insurance
company, trust company or other designated entity exercises discretionary
investment responsibility. Any such reduction in selling commissions will be
prorated among the separate subscribers considered part of a "Purchaser."
Purchases by Affiliates and Designated Investors
Prior to this Offering John B. Lester, Jr., a shareholder, officer and
director of the Fund Manager, purchased one Unit in Series 5, at a price of
$1,000. Similarly, Mr. Lester or another Affiliate of the Fund Manager will
purchase one Unit at a price of $1,000 in Series 6 prior to commencement of that
Series' Offering. The Fund Manager and its Affiliates do not presently intend to
purchase additional Units; however, the Fund Manager and its Affiliates may
purchase an unlimited number of Units for any reason deemed appropriate by the
Fund Manager and its
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Affiliates, provided that any Units acquired by such Persons will not be applied
to the requirement that a minimum of $1,400,000 in subscription funds be
received for a Series. The Fund Manager and its Affiliates will hold all Units
which they acquire for investment and not for distribution. Any purchase of
Units by the Fund Manager and its Affiliates will be for the same price and
subject to the same terms as all other Units issued by the Series, will be fully
disclosed to all purchasers of Units and will provide the purchaser thereof with
the same rights as other purchasers of Units, except that neither the Fund
Manager nor any of its Affiliates may vote any Unit in an election held pursuant
to Section 10.2 of the Partnership Agreement or in any vote otherwise required
by the Partnership Agreement which entails a conflict of interest on the part of
the Fund Manager or its Affiliates.
In addition to the schedule of reduced rates set forth above under "Volume
Discounts," the Soliciting Dealers and their employees, except any of such
persons who may be Affiliates of the Fund Manager (collectively referred to
herein as "Designated Investors"), may, in the discretion of the Fund Manager,
purchase Units on the same terms and conditions as other purchasers, except that
they will not pay the 7% retail selling commission. In addition, Designated
Investors will include clients of an investment adviser who have been advised by
such adviser on an ongoing basis regarding investments other than investments in
the Fund, and who are not being charged by such adviser or its Affiliates,
through the payment of commissions or otherwise, for the advice rendered by such
adviser in connection with the purchase of Units, if such adviser (i) is
registered under the Investment Advisers Act of 1940, as amended, (ii) is
registered as a broker-dealer under the Securities Exchange Act of 1934, and
(iii) has executed a Soliciting Dealer Agreement with the Dealer-Manager. In
connection with any purchases by Designated Investors, the proceeds to the
Series, net of retail selling commissions and any reductions thereof, will be
the same.
Any investor who pays a reduced retail selling commission or reduced
Acquisition Fees or Dealer-Manager Fees (through the application of the schedule
set forth above for certain volume purchasers or as a Designated Investor) will
receive an interest in Cash Available for Distribution, Sale or Refinancing
Proceeds, Profits or Losses for Tax Purposes and Tax Credits computed without
regard to the discount (i.e., such investor will receive the same share per Unit
owned of such items as an investor who purchased without a discount).
Investors who qualify as Designated Investors are urged to consider the
provisions of the Tax Reform Act of 1984 relating to the tax status of certain
fringe benefits, including employee discounts.
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How To Subscribe
In order to purchase Units, the subscriber must complete and execute the
Investor Form accompanying this Prospectus and deliver it to his account
executive. A specimen of the Investor Form is attached as part of Exhibit C to
the Prospectus. Execution copies of the Investor Form may be obtained from any
Soliciting Dealer. Certain Soliciting Dealers may use alternative forms of the
Investor Form, which may be obtained from such Soliciting Dealers.
The minimum investment is five Units ($5,000), except that employees of the
Fund Manager and its Affiliates and/or investors in limited partnerships
previously sponsored by the Fund Manager may purchase a minimum of two Units
($2,000). After an investor has purchased the required minimum number of Units
in any Series, he may make investments in increments of $1,000 in the same or
any subsequent series. Subscriptions for fewer than 10 Units must be accompanied
by a check for $1,000 per Unit payable to "National Bank of Southern California
- - WNC/HTCFVI." However, investors who subscribe for 10 Units ($10,000) or more
in any one Series may elect to utilize an installment payment method whereunder
their subscriptions need be accompanied by a check for only $500 per Unit, with
the balance of the $1,000 purchase price for such Unit (i.e., $500) to be
payable in accordance with the terms of the Promissory Note which is included
with the Investor Form in a single installment on (i) January 31, 1999, if the
investor subscribes between the date hereof and June 30, 1998, (ii) June 30,
1999, if the investor subscribes between July 1, 1998 and December 31, 1998, or
(iii) the later of the date of subscription or January 31, 2000, if the investor
subscribes after December 31, 1998. Each Promissory Note will be a full recourse
obligation of the investor and will bear interest at a fixed rate equal to the
one-year Treasury Bill rate, such rate to be determined quarterly. See "Risk
Factors - Fund-Related Risks - Obligations for Capital Contributions."
Completed Investor Forms and checks should be sent to the Escrow Agent, at
the following address:
National Bank of Southern California
4100 Newport Place, Suite 100
Newport Beach, CA 92660
Attention: WNC Escrow Manager
Each investor whose subscription is accepted will receive a letter of
welcome from the Fund Manager and a certificate of interest with the amount of
the investment and the number of Units purchased. No sale will be deemed
complete until at least five business days after the investor has received a
Prospectus.
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Escrow Arrangements
All subscribers' funds and Promissory Notes received by a Series will be
placed in an escrow account established by the Series with National Bank of
Southern California, Newport Beach, California, at the Series' expense. Pursuant
to the Escrow Agreement between each Series and the Escrow Agent, the Escrow
Agent shall deposit escrowed funds in accordance with instructions from the Fund
Manager in short-term U.S. government securities, securities issued or
guaranteed by the U.S. government, certificates of deposit or time or demand
deposits in commercial banks.
Upon receipt by a Series of a minimum of $1,400,000 of Capital Contributions
(defined to exclude contributions which are in the form of Promissory Notes),
the subscribers for such Units will be admitted to the Series and the Escrow
Agent will release to the Series all funds and Promissory Notes which it then
holds. Funds and Promissory Notes received from subsequent subscribers to such
Series will continue to be placed in escrow, and the Series will admit
additional Unitholders on a monthly (or more frequent) basis until the
termination of the Series Offering. Only subscribers whose subscriptions have
been received and accepted at least five days prior to an Investor Closing
(other than the initial Investor Closing) will be admitted as Unitholders at
such closing, unless the Fund Manager shall elect otherwise. Promptly after the
release to a Series of a subscriber's funds and Promissory Note, if any, the
Escrow Agent will pay to such subscriber any interest earned on the cash portion
of his subscription proceeds while in escrow.
Funds and the Promissory Note, if any, of an investor whose subscription is
rejected will be returned to him promptly after rejection, together with any
interest actually earned on the cash portion of his subscription proceeds while
in escrow.
A subscription is not subject to termination by the subscriber. If a Series
does not receive a minimum of $1,400,000 of Capital Contributions within one
year from the commencement of the Series Offering, the Series will cancel all
existing subscriptions to such Series and all funds and Promissory Notes paid on
account of each such subscription to such Series will be released from escrow
and returned promptly to the subscriber together with all interest earned on the
cash portion of his subscription proceeds while in escrow.
Pending the receipt of the initial $1,400,000 of Capital Contributions for a
Series, and in the sole discretion of the Fund Manager, the Series may borrow
funds from an institutional lender or from the Fund Manager or any of its
Affiliates to pay all or a portion of the selling commissions and reimbursements
to which Soliciting Dealers would become entitled after the receipt of the
initial $1,400,000 of Capital Contributions, provided that any such Soliciting
Dealer must agree to return all selling commissions and reimbursements received
by it in the event the
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initial $1,400,000 of Capital Contributions is not received by the Series. The
Series would repay the borrowed funds only after the receipt of such initial
$1,400,000 of Capital Contributions.
SALES MATERIAL
The Fund may make use of certain material in addition to this Prospectus in
connection with the Offering of the Units. Such material may consist of sales
brochures which will be distributed to prospective investors together with this
Prospectus, "tombstone" advertisements, invitations to seminars, prospecting
letters, videotapes and slide presentations.
The Fund has not authorized the use of sales material other than that
described above. The Offering of Units is made only by means of this Prospectus.
Although the information contained in the Fund's sales material is believed not
to conflict with any of the information contained in this Prospectus, such
material does not purport to be complete and should not be considered as part of
this Prospectus, as being incorporated in this Prospectus by reference or as
forming the basis of the Offering of the Units.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
As reflected in its financial statements, the Fund currently has only
nominal funds, as it is newly-formed, has not yet commenced operations and the
capital anticipated to be raised through its public Offering of Units has not
yet become available.
The Fund plans to raise equity capital from investors by means of this
public Offering, and then to apply such funds, including the installment
payments on the Promissory Notes as received, to the purchase price and
acquisition fees and costs of Local Limited Partnership Interests, Reserves and
expenses of this Offering.
It is not expected that any of the Local Limited Partnerships in which the
Fund will invest will generate cash from operations sufficient to provide
distributions to the Unitholders in any significant amount, except possibly in
the circumstances discussed under "Investment Objectives and Policies -
Principal Investment Objectives." Such cash from operations, if any, would first
be used to meet operating expenses of the Fund, including the payment of the
Asset Management Fee. See "Management Compensation."
The Fund's investments will not be readily marketable and may be affected by
adverse general economic conditions which, in turn, could substantially increase
the risk of operating losses for the Apartment Complexes, the Local Limited
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Partnerships and the Fund. These problems may result from a number of factors,
many of which cannot be controlled. See "Risk Factors - Investment Risks - Risks
of Real Estate Ownership." Nevertheless, the Fund Manager anticipates that
capital raised from the sale of the Units will be sufficient to fund the Fund's
future investment commitments and proposed operations.
The Fund will establish working capital Reserves of at least 3% of Capital
Contributions, an amount which is anticipated to be sufficient to satisfy
general working capital and administrative expense requirements of the Fund
including payment of the Asset Management Fee as well as expenses attendant to
the preparation of tax returns and reports to the Unitholders and other investor
servicing obligations of the Fund. Liquidity would, however, be adversely
affected by unanticipated or greater than anticipated operating costs. The
Fund's liquidity could also be affected by defaults or delays in payment of the
Promissory Notes, from which a portion of the working capital Reserves is
expected to be funded. To the extent that working capital Reserves are
insufficient to satisfy the cash requirements of the Fund, it is anticipated
that additional funds would be sought through bank loans or other institutional
financing. The Fund may also apply any cash distributions received from the
Local Limited Partnerships for such purposes or to replenish or increase working
capital Reserves.
Under the Partnership Agreement the Fund does not have the ability to assess
the Unitholders for additional Capital Contributions to provide capital if
needed by the Fund or Local Limited Partnerships. Accordingly, if circumstances
arise that cause the Local Limited Partnerships to require capital in addition
to that contributed by the Fund and any equity of the Local General Partners,
the only sources from which such capital needs will be able to be satisfied
(other than the limited Reserves available at the Fund level) will be (i)
third-party debt financing (which may not be available if, as expected, the
Apartment Complexes owned by the Local Limited Partnerships are already
substantially leveraged), (ii) additional equity contributions or advances of
the Local General Partners, (iii) other equity sources (which could adversely
affect the Fund's interest in Tax Credits, cash flow and/or proceeds of sale or
refinancing of the Apartment Complexes and result in adverse tax consequences to
the Unitholders), or (iv) the sale or disposition of the Apartment Complexes
(which could have the same adverse effects as discussed in (iii) above). There
can be no assurance that funds from any of such sources would be readily
available in sufficient amounts to fund the capital requirements of the Local
Limited Partnerships in question. If such funds are not available, the Local
Limited Partnerships would risk foreclosure on their Apartment Complexes if they
were unable to renegotiate the terms of their first mortgages and any other debt
secured by the Apartment Complexes to the extent the capital requirements of the
Local Limited Partnerships relate to such debt. See "Risk Factors - Investment
Risks - Risks Associated With Use of Leverage" and "Investment Objectives and
Policies - Use of Leverage."
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The Fund's capital needs and resources are expected to undergo major changes
during its first several years of operations as a result of the completion of
its Offering of Units and its acquisition of investments. Thereafter, the Fund's
capital needs and resources are expected to be relatively stable over the
holding periods of the investments, except to the extent of proceeds received in
payment of Promissory Notes and disbursed to fund the Fund's deferred
obligations. See, however, "Risk Factors - Investment Risks - Risks of Real
Estate Ownership."
LEGAL MATTERS
The legality of the Units offered hereby and certain Federal income tax
matters will be passed upon for the Fund by Derenthal & Dannhauser, San
Francisco, California, counsel for each Series and the Fund Manager.
EXPERTS
The balance sheet of WNC Housing Tax Credit Fund VI, L.P., Series 5 as of
April 30, 1997 and the balance sheet of WNC & Associates, Inc. as of August 31,
1996 which are included in this Prospectus and in the Registration Statement
have been audited by Corbin & Wertz, independent certified public accountants,
as set forth in their reports thereon appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such reports given upon
the authority of said firm as experts in accounting and auditing.
The matters of law discussed in the section entitled "Federal Income Tax
Considerations" and under the captions "Risks Related to Tax Credits" and "Other
Tax Risks" in the section entitled "Risk Factors" and in the section entitled
"The Low Income Housing Credit" as they relate to Federal income tax matters
have been reviewed by Derenthal & Dannhauser and are included herein in reliance
upon the authority of such firm as experts.
FURTHER INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits relating thereto which the Fund has
filed with the Securities and Exchange Commission under the Securities Act of
1933, and to which reference is hereby made. Copies of the Registration
Statement and exhibits relating thereto are on file at the principal office of
the Securities and Exchange Commission at 450 Fifth Street, Northwest,
Washington, D.C. 20549, and may be obtained, upon payment of the fee prescribed
by the Commission, or may be examined without charge, at the offices of the
Commission. The Commission also maintains a website on the Internet
(http://www.sec.gov) that contains all filings respecting the Fund.
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GLOSSARY
The meanings of the defined terms used in this Prospectus are set forth
below.
"Accountants" means Corbin & Wertz, Irvine, California, or such other firm
of independent public accountants as from time to time shall be engaged for a
Series by the Fund Manager.
"Acquisition Expenses" means expenses, including, but not limited to, legal
fees and expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on property not acquired, accounting fees and
expenses, title insurance and miscellaneous expenses related to selection and
acquisition by a Series of Local Limited Partnership Interests and the selection
and acquisition of Apartment Complexes by the Local Limited Partnerships,
whether or not acquired.
"Acquisition Fees" means the total of all fees and commissions paid by any
party in connection with the selection or purchase by a Series of any Local
Limited Partnership Interest, and the purchase, development or construction of
an Apartment Complex by a Local Limited Partnership, whether designated as a
real estate commission, acquisition fee, finders' fee, selection fee,
Development Fee, Construction Fee, nonrecurring management fee, consulting fee
or any fee of a similar nature however designated, with the exception of
Development Fees and Construction Fees paid to Persons not affiliated with the
Sponsor in connection with the actual development and construction of an
Apartment Complex. As used herein, a "Development Fee" shall be a fee for the
packaging of an Apartment Complex, including negotiating and approving plans,
and undertaking to assist in obtaining zoning and necessary variances, necessary
financing and Tax Credits for the Apartment Complex, either initially or at a
later date, and a "Construction Fee" shall be a fee or other remuneration for
acting as general contractor and/or construction manager to construct
improvements, supervise and coordinate projects or provide Major Repairs or
Rehabilitation for an Apartment Complex.
"Act" means the California Revised Limited Partnership Act (Corp. Code
Section 15611, et seq.), as now in effect and as the same may be amended from
time to time hereafter.
"Additional Unitholders" means those Persons who purchase Units pursuant to
this Prospectus.
"Adjusted Capital Account Deficit" means, with respect to each Partner in a
Series, the deficit balance in his Capital Account as of the end of the relevant
fiscal period of the Series, after giving effect to the following adjustments:
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(a) Increasing such Capital Account by any amounts such Person is
obligated to restore under the standards set by Section 1.704-1(b)(2)(ii)(c)
of the Regulations (or is deemed obligated to restore under Section
1.704-2(g)(1) and (i)(5) of the Regulations); and
(b) Decreasing such Capital Account by the items described in Section
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6)
of the Regulations.
"Adjusted Capital Contribution" means, for each fiscal period, the
Unitholders' Capital Contribution reduced by all distributions of noninvested
funds and distributions of Sale or Refinancing Proceeds made to the Unitholders
through the end of such period.
"Affiliate" or "Affiliated Person" means, when used with reference to a
specified Person: (i) any Person who, directly or indirectly, controls or is
controlled by or is under common control with the specified Person; (ii) any
Person who is an officer or director of, or partner in, or serves in a similar
capacity with respect to, the specified Person or of which the specified Person
is an officer, director or partner, or with respect to which the specified
Person serves in a similar capacity; (iii) any Person who, directly or
indirectly, is the beneficial owner of, or controls, 10% or more of any class of
equity securities of, or otherwise has a 10% or more beneficial interest in, the
specified Person; or (iv) any Person of which the specified Person is, directly
or indirectly, the owner of, or in control of, 10% or more of any class of
equity securities, or in which the specified Person has a 10% or more beneficial
interest.
"Agreement" means a Series' Agreement of Limited Partnership, as originally
executed and as amended or restated from time to time.
"Apartment Complex" or "Property" means a multi-family residential rental
complex owned or under development or rehabilitation by a Local Limited
Partnership.
"Asset Based Fee" means compensation to the Sponsor computed in accordance
with Section IV.J. of the NASAA Guidelines. No Asset Based Fee shall be payable
to the Sponsor.
"Asset Management Fee" means the annual fee payable to the Fund Manager or
an Affiliate of the Fund Manager for services in connection with the
administration of the affairs of the Series.
"C Corporation" has the meaning given it under "Who Should Invest;
Limitations on Use of Credits and Losses."
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"CHTC" means WNC California Housing Tax Credits, L.P.
"CHTCII" means WNC California Housing Tax Credits II, L.P.
"CHTCIII" means WNC California Housing Tax Credits III, L.P.
"CHTCIV Series 4" means WNC California Housing Tax Credits IV, L.P., Series
4.
"CHTCIV Series 5" means WNC California Housing Tax Credits IV, L.P., Series
5.
"CTCAC" means the California Tax Credit Allocation Committee.
"Capital Account" means, with respect to any Partner in a Series, the
Capital Account maintained for such Partner in such Series in accordance with
the following provisions: (i) to each Partner's Capital Account there shall be
credited such Partner's Capital Contribution and such Partner's distributive
share of Profits for Tax Purposes and (ii) to each Partner's Capital Account
there shall be debited the amount of cash and the net fair market value of
property distributed to such Partner pursuant to any provision of the
Partnership Agreement and such Partner's distributive share of Losses for Tax
Purposes. In the event any interest in a Series is transferred in accordance
with the terms of the Partnership Agreement, the transferee shall succeed to the
Capital Account of the transferror to the extent it relates to the transferred
interest. Subject to Section 4.4.1 of the Partnership Agreement, Capital
Accounts shall be maintained in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv).
"Capital Contribution" means the total amount of cash contributed to a
Series determined without inclusion of any interest or late charges paid on the
Promissory Notes and without reduction for any discounts for Designated
Investors and Discount Investors (prior to the deduction of any Syndication
Expenses) by all the Partners or any class of Partners or any one Partner, as
the case may be (or the predecessor holders of the Interests of such Partners or
Partner), reduced, in the case of the Unitholders by the amount of any
noninvested funds returned to them.
"Cash Available for Distribution" means, with respect to any period, Cash
Flow less any amounts set aside from Cash Flow for the restoration or creation
of Reserves.
"Cash Flow" means, with respect to any period, (i) all cash funds provided
to a Series from Local Limited Partnership operations (exclusive of any proceeds
derived from the sale, disposition, financing or refinancing of Apartment
Complexes, or other Sale or Refinancing transactions) plus (ii) all cash funds
from
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Series operations (including any interest from Promissory Notes), without
deduction for depreciation, but after deducting cash funds used to pay all other
expenses, Debt Service and capital expenditures.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"Competitive" when applied to a fee, commission (other than a real estate or
brokerage commission) or other payment for goods supplied or services rendered,
means a payment equal to the amount customarily charged by Persons not
Affiliated with the payee for such goods or services in the geographic area in
which such goods are supplied or services rendered.
"Competitive Real Estate Commission" means a real estate or brokerage
commission paid for the purchase or sale of Property which is reasonable,
customary and competitive in light of the size, type and location of the
Property.
"Consent" means either (i) the approval given by vote at a meeting called
and held in accordance with the provisions of the Partnership Agreement, or (ii)
a prior written approval required or permitted to be given pursuant to the
Partnership Agreement.
"Counsel" means Derenthal & Dannhauser.
"Credit Authority" means, for any state, the amount of Low Income Housing
Credits which may be allocated by such state in a given year pursuant to Code
Section 42(h).
"Dealer-Manager" means WNC Capital Corporation.
"Dealer-Manager Fee" means the fee payable to the Dealer-Manager for its
services as Dealer-Manager pursuant to Section 5.6.2 of the Partnership
Agreement.
"Debt Service" means all payments required to be made in connection with any
loan to the Series or any loan secured by a lien on any of the Apartment
Complexes.
"Deemed Liquidation Distribution" means, with respect to the Unitholders of
a Series, as a class, and the Fund Manager the amount that would be distributed
to them as of the end of each fiscal year of the Series if the Series were
dissolved and liquidated and (i) the assets of the Series (other than
installment obligations where Section 4.7.1 of the Partnership Agreement
applies) were sold for cash equal to their Federal adjusted tax basis (or their
book value, where Section 4.4.2 of the Partnership Agreement applies); (ii) the
liabilities of the Series were paid; and (iii)
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the remaining cash of the Series were distributed to such class of Partners in
accordance with Section 4.2.1 of the Partnership Agreement (and not Section
4.2.2 of the Partnership Agreement). For the purposes of this definition, (a)
the Capital Accounts of the Partners shall not be adjusted for their shares of
any Partnership Minimum Gain that would be recognized as a result of a deemed
sale of Properties or Local Limited Partnership Interests; and (b) installment
obligations shall be treated in the manner provided in Section 4.7 of the
Partnership Agreement.
"Designated Investor" shall have the meaning specified in the Prospectus
under "Terms of the Offering and Plan of Distribution."
"Discount Investor" means any Additional Unitholder (other than a Designated
Investor) who has paid or agreed to pay less than $1,000 per Unit subscribed for
by him on account of reduced selling commissions, reduced Dealer-Manager Fees
and/or reduced Acquisition Fees attributable to his Units, as specified in the
Prospectus under "Terms of the Offering and Plan of Distribution."
"Economic Risk of Loss" means the extent to which a Partner or Related
Person bears the economic risk of loss for a Series liability as determined
under Treasury Regulation Section 1.752-2.
"Escrow Agent" means National Bank of Southern California, Newport Beach,
California, or any other escrow agent chosen by the Fund Manager to hold funds
from investors pending their admission to a Series.
"Event of Withdrawal" with respect to a Series means the occurrence of any
of the following events as to the Fund Manager: (i) its withdrawal from the
Series pursuant to Section 15662 of the Act; (ii) its removal in accordance with
the Partnership Agreement; (iii) it (a) makes an assignment for the benefit of
creditors, (b) files a voluntary petition in bankruptcy, (c) is adjudged a
bankrupt or insolvent, or has entered against it an order for relief in any
bankruptcy or insolvency proceeding, (d) files a petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, (e) files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against it in any proceeding of this nature, or
(f) seeks, consents to or acquiesces in the appointment of a trustee, receiver
or liquidator of itself or of all or any substantial part of its properties;
(iv) the lapse of 120 days after the commencement of any proceeding against it
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, if during
such period the proceeding has not been dismissed, or the lapse of 90 days after
the appointment, without its consent or acquiescence, of a trustee, receiver or
liquidator of itself or of all or any substantial part of its properties, if
during such period the appointment is not vacated or stayed, or if within 90
days after the
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expiration of any such stay, the appointment is not vacated; (v) in the case of
a Fund Manager who is a natural person, (a) his death, or (b) the entry by a
court of competent jurisdiction adjudicating him incompetent to manage his
person or his property; (vi) in the case of a Fund Manager who is acting as a
general partner by virtue of being a trustee of a trust, the termination of the
trust (but not merely the substitution of a new trustee); (vii) in the case of a
Fund Manager which is a separate partnership, the dissolution and commencement
of winding up of the separate partnership; (viii) in the case of a Fund Manager
which is a corporation, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; or (ix) in the
case of a Fund Manager which is an estate, the distribution by the fiduciary of
the estate's entire interest in the Series. Notwithstanding the foregoing, an
Event of Withdrawal shall not be deemed to have occurred as to a Fund Manager
under the preceding clause (iv) until 120 days shall have elapsed after
Notification has been given to the Unitholders in the Series of the event which,
with or without lapse of time, would constitute an event contemplated by such
clause.
"Extended Low Income Housing Commitment" means, for any Apartment Complex,
the agreement between the Local Limited Partnership and the housing credit
agency of the state in which the Apartment Complex is located which specifies
the Low Income Use Period for such Apartment Complex.
"Extended Use Period" means, for any Apartment Complex, the period beginning
at the conclusion of the Initial Compliance Period and ending on the later of
the date specified in the Extended Low Income Housing Commitment with respect to
such Apartment Complex or the date which is 15 years after the end of the
Initial Compliance Period.
"Front-End Fees" means fees and expenses paid by any party for any services
rendered during the organizational and acquisition phases of a Series, including
Organizational and Offering Expenses, Acquisition Fees, Acquisition Expenses,
interest on deferred fees and expenses and any other similar fees, however
designated. Front-End Fees which are to be paid pursuant to the Partnership
Agreement from installment payments on the Promissory Notes shall be paid pro
rata as the installment payments are received by the Series.
"Fund" means, collectively, WNC Housing Tax Credit Fund VI, L.P., Series 5,
and WNC Housing Tax Credit Fund VI, L.P., Series 6.
"Fund Manager" means WNC & Associates, Inc., or any Person or Persons who,
at the time of reference thereto, has been admitted as a successor to such Fund
Manager or as an additional Fund Manager, in each such Person's capacity as a
general partner. Restrictions placed on the rights and powers of the "Fund
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Manager" throughout the Partnership Agreement also serve to restrict the rights
and powers of the Affiliates of the Fund Manager.
"Government Assistance" means any form of Federal, state or local government
assistance provided to Properties or their tenants or owners, including mortgage
insurance, rental assistance payments, permanent mortgage financing, low
interest mortgage loans, interest reduction payments and Tax Credits.
"Gross Proceeds" means the gross proceeds of the Offering, determined
without inclusion of any interest or late charges paid on the Promissory Notes
and without reduction for any discounts for Designated Investors and Discount
Investors.
"HOME" means the Home Investment Partnership program established under Title
11 of the Cranston-Gonzalez National Affordable Housing Act.
"HTCF" means WNC Housing Tax Credit Fund, L.P.
"HTCFII" means WNC Housing Tax Credit Fund II, L.P.
"HTCFIII" means WNC Housing Tax Credit Fund III, L.P.
"HTCFIV Series 1" means WNC Housing Tax Credit Fund IV, L.P., Series 1.
"HTCFIV Series 2" means WNC Housing Tax Credit Fund IV, L.P., Series 2.
"HTCFV Series 3" means WNC Housing Tax Credit Fund V, L.P., Series 3.
"HTCFV Series 4" means WNC Housing Tax Credit Fund V, L.P., Series 4.
"HUD" means the United States Department of Housing and Urban Development or
any successor thereto.
"Historic Tax Credit" means the tax credit allowable pursuant to Section 47
of the Code for rehabilitation expenditures incurred with respect to certain
qualified buildings.
"IRS" means the Internal Revenue Service.
"Independent Expert" means a Person with no material current or prior
business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Series, and who is qualified to perform such
work.
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"Initial Compliance Period" means, for any Apartment Complex, a 15-year
period beginning with the year in which a Low Income Housing Credit is first
taken with respect to such Apartment Complex.
"Initial Unitholder" means John B. Lester, Jr.
"Interest" means the entire ownership interest of a Partner in a Series at
any particular time, including the right of such Partner to any and all benefits
to which a Partner of such Series may be entitled as provided in the Partnership
Agreement, together with the obligations of such Partner to comply with all the
terms and provisions of the Partnership Agreement. Reference to a majority, or
specified percentage, in interest of the Unitholders of a Series means
Unitholders whose combined Capital Contribution represents over 50%, or such
specified percentage, respectively, of the Capital Contribution of all
Unitholders in such Series.
"Invested Assets" means the sum of a Series' Investment in Local Limited
Partnership Interests and the Series' allocable share of the amount of the
mortgage loans on, and other debts related to, the Apartment Complexes owned by
such Local Limited Partnerships.
"Investment Date" means, with respect to any Series, the date of the final
admission into the Series of Additional Unitholders who purchased Units during
such Series.
"Investment in Local Limited Partnership Interests" means the amount of
Capital Contributions used by a Series to acquire Local Limited Partnership
Interests (except that, if a portion of the Series' investment in a Local
Limited Partnership is used to fund working capital reserves of the Local
Limited Partnership, there shall be excluded from this calculation any amount
which is used to fund working capital reserves which is in excess of 5% of Gross
Proceeds) plus Reserves of the Series, except that Reserves in excess of 5% of
Gross Proceeds shall not be included, but excluding Front-End Fees.
Notwithstanding the preceding, the total amount of Capital Contributions used to
fund Partnership Reserves or working capital reserves of the Local Limited
Partnerships which shall be included in Investment in Local Limited Partnership
Interests shall not exceed 5% of Gross Proceeds.
"Investor Closing" means a closing at which purchasers of Units are admitted
to a Series as Additional Unitholders pursuant to Section 3.3 of the Partnership
Agreement.
"Limited Partner" means any Unitholder.
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"Local General Partners" (whether or not capitalized) means the Persons who
are from time to time general partners (or managers in the cases of limited
liability companies) of Local Limited Partnerships, except that where reference
is made to Local General Partners in respect of any guaranties or undertakings
provided to a Series in connection with its investment in a Local Limited
Partnership, such term shall mean such Local General Partners at the date of
such investment or such other Persons (including Affiliates of such Local
General Partners) as actually provide such guaranties and undertakings.
"Local Limited Partnership" means a limited partnership or a limited
liability company which owns or is developing or rehabilitating one or more
rental housing projects to be qualified under Section 42(g) and/or Section 47 of
the Code.
"Local Limited Partnership Agreement" means, with respect to a Local Limited
Partnership, its agreement of limited partnership, or, in the case of a limited
liability company, its operating agreement, in either case as originally
executed and as amended from time to time.
"Local Limited Partnership Interest" means the limited partnership interest
of a Series in a Local Limited Partnership.
"Low Income Housing Credit" means the tax credit allowable under Section 42
of the Code for a qualified low income housing project.
"Low Income Units" means, for any Apartment Complex, the residential units
in the Apartment Complex intended for occupancy by tenants who satisfy the
set-aside test of Code Section 42(g)(1) applicable to the Apartment Complex and
the rent restriction test of Code Section 42(g)(2).
"Low Income Use Period" means the Initial Compliance Period and any
Extended Use Period.
"Major Repairs and Rehabilitation" means the repair, rehabilitation or
reconstruction of a Property where the aggregate costs of the repair,
rehabilitation or reconstruction exceed 10% of the fair market value of the
Property at the time of such services.
"Mortgage" (whether capitalized or not) means any mortgage, deed of trust,
or similar security instrument and, where the sense of the Prospectus so
requires, the indebtedness secured thereby.
"NASAA Guidelines" means the Statement of Policy Regarding Real Estate
Programs adopted by the North American Securities Administrators Association,
Inc., as in effect on the date of the Partnership Agreement.
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"NASD" means the National Association of Securities Dealers, Inc.
"1986 Act" means the Tax Reform Act of 1986.
"1987 Act" means the Revenue Act of 1987.
"1988 Act" means the Technical and Miscellaneous Revenue Act of 1988.
"1989 Act" means the Omnibus Budget Reconciliation Act of 1989.
"1990 Act" means the Omnibus Budget Reconciliation Act of 1990.
"1993 Act" means the Omnibus Budget Reconciliation Act of 1993.
"Net Proceeds" means the Gross Proceeds less Organizational and Offering
Expenses.
"Nonaccountable Expense Reimbursement" means the payment to be made to the
Dealer-Manager or an Affiliate of the Dealer-Manager pursuant to Section 5.6.3
of the Partnership Agreement.
"Nonrecourse Deductions" has the meaning given it in Treasury Regulation
Section 1.704-2(b)(1).
"Nonrecourse Liability" means a Series liability with respect to which no
Partner of the Series or Related Person bears the Economic Risk of Loss.
"Note Capital Contribution" means that portion of a Unitholder's Capital
Contribution, if any, paid in accordance with his Promissory Note.
"Notification" means a writing, containing the information required by the
Partnership Agreement to be communicated to any Person, personally delivered to
such Person or sent by registered, certified or regular mail, postage prepaid,
to such Person at the last known address of such Person. The date of personal
delivery or the date of mailing thereof, as the case may be, shall be deemed the
date of giving the Notification.
"Offering" means, with respect to a Series, the offering and sale of its
Units pursuant to the Prospectus.
"Offering Commencement Date" means, with respect to the initial Series of
Units, the effective date of the registration statement filed with the
Securities and Exchange Commission with respect to the Units, and, with respect
to subsequent Series of Units, such later date as may be specified by the
Prospectus.
196
<PAGE>
"Operating Cash Expenses" means, with respect to any fiscal period, the
amount of cash disbursed by a Series in that period in the ordinary course of
business for the payment of its operating expenses, such as expenses for
management, utilities, repair and maintenance, insurance, investor
communications, legal, accounting, statistical and bookkeeping services, use of
computing or accounting equipment, travel and telephone expenses, salaries and
direct expenses of Series employees while engaged in Series business, and any
other operational and administrative expenses necessary for the prudent
operation of the Series. Without limiting the generality of the foregoing,
Operating Cash Expenses shall include the actual cost of goods, materials and
administrative services used for or by the Series, whether incurred by the Fund
Manager, an Affiliate of the Fund Manager or a non-Affiliated Person in
performing the foregoing functions. As used in the preceding sentence, actual
cost of goods and materials means the actual cost of goods and materials used
for or by the Series and obtained from entities not Affiliated with the Fund
Manager, and actual cost of administrative services means the pro rata cost of
personnel (as if such persons were employees of the Series) associated
therewith, but in no event to exceed the Competitive amount.
"Organizational and Offering Expenses" means all expenses incurred in
connection with the formation of a Series, the registration and qualification of
its Units under Federal and state securities laws and the Offering, including
selling commissions, the Dealer-Manager Fee, the Nonaccountable Expense
Reimbursement
and all advertising expenses.
"Partner" means any Fund Manager or Unitholder.
"Partner Nonrecourse Debt" has the meaning given it in Treasury Regulation
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" means the amount determined in
accordance with the principles of Treasury Regulation Section 1.704-2(i)(3).
"Partnership Agreement" means, with respect to a Series, its Agreement of
Limited Partnership as originally executed and as amended from time to time.
"Partnership Minimum Gain" means the amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Register" means the schedule listing the names and addresses of
all Unitholders of a Series together with the amounts of their respective
Capital Contributions which shall be maintained by the Fund Manager.
"Person" means any individual, partnership, corporation, trust or other
legal entity.
197
<PAGE>
"Prime Rate" means the prime or reference rate of interest from time to time
announced by National Bank of Southern California as being charged by it on
short-term unsecured loans to its most creditworthy customers.
"Prior Programs" has the meaning given to it under "Prior Performance
Summary."
"Profits" and "Losses" means, with respect to a Series, for each fiscal year
or other relevant period, an amount equal to the Series' taxable income or loss
for such year or period determined in accordance with Section 703(a) of the Code
(for this purpose all items of income, gain, loss or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments: (i) any income of the
Series that is exempt from Federal income tax and not otherwise taken into
account in computing Profits or Losses pursuant to this definition shall be
added to such taxable income or loss; (ii) any expenditures of the Series
described in Section 705(a)(2)(B) of the Code or treated as such pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this definition, shall be
subtracted from such taxable income or loss; (iii) any adjustment pursuant to
Section 743(b) of the Code shall be allocated solely to the Partner to whom such
adjustment relates and shall not be taken into account in computing Profits or
Losses; (iv) any gain or loss which would have been realized by the Series on
the sale of assets distributed in kind to Partners, determined with reference to
the fair market value and the adjusted tax basis of such property for Federal
income tax purposes immediately prior to such distribution, shall be added to or
subtracted from such taxable income or loss; (v) notwithstanding any other
provision of this definition, any items that are specially allocated pursuant to
Section 4.4.3 of the Partnership Agreement shall not be taken into account in
computing Profits or Losses; and (vi) if required, the adjustments specified in
Section 4.4.2 of the Partnership Agreement shall be taken into account.
"Profits and Losses for Tax Purposes" means all items of Profits and Losses
as well as any items that are specifically excluded from Profits and Losses by
clause (v) of the definition thereof.
"Promissory Note" means the full recourse promissory note evidencing the
deferred installments, if any, of the Capital Contribution required to be made
for a Unit.
"Property Management Fee" means a fee paid for day-to-day professional
property management services.
"Prospectus" means the prospectus contained in the registration statement
filed with the Securities and Exchange Commission with respect to the Units, in
the final
198
<PAGE>
form in which said prospectus is filed with said Commission and as thereafter
supplemented pursuant to Rule 424 under the Securities Act of 1933, as amended.
"Purchase Price" means the price paid upon the purchase or sale of a
particular Local Limited Partnership Interest or Apartment Complex, as the case
may be, including the amount of Acquisition Fees and all liens and mortgages on
the Apartment Complex, but excluding points and prepaid interest.
"RD" means the United States Department of Agriculture, Rural Development,
or any successor thereto.
"Registration Date" means the date on which an assignment of Units has been
recorded on the Partnership Register.
"Related Person" means a Person having a relationship with a Partner that is
described in Treasury Regulation Section 1.752-4(b).
"Reserves" means amounts set aside by a Series for working capital or other
obligations of the Series and contingencies related to the ownership of Local
Limited Partnership Interests.
"Return on Investment" means, with respect to any Series, an annual,
cumulative, but not compounded, "return" to the Unitholders of such Series as a
class on their Adjusted Capital Contributions commencing for each such
Unitholder on the last day of the calendar quarter during which the Unitholder's
Capital Contribution is received by the Series, calculated at the following
annual rates: (i) 12% through December 31, 2008, and (ii) 6% for the balance of
the Series' term.
"Roll-Up" means a transaction involving the acquisition, merger, conversion
or consolidation, either directly or indirectly, of a Series and the issuance of
securities of a Roll-Up Entity. Such term does not include:
(i) any transaction if the securities of the Series have been for at least
twelve months traded on a national securities exchange or through the National
Association of Securities Dealers, Inc. Automated Quotation National Market
System; or
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Series, if, as a consequence of the transaction,
there will be no significant adverse change in any of the following: (a) the
Unitholders' voting rights; (b) the term of existence of the Series; (c) the
terms of compensation of the Sponsor; or (d) the Series' investment objectives.
199
<PAGE>
"Roll-Up Entity" means the partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive after
the successful completion of a proposed Roll-Up transaction.
"S Corporation" has the meaning given it under "Who Should Invest;
Limitations on Use of Credits and Losses."
"SLP Affiliate" means an Affiliate of the Fund Manager in its capacity as a
special limited partner (or member in the case of limited liability companies)
of Local Limited Partnerships.
"Sale or Refinancing" means any Series or Local Limited Partnership
transaction not in the ordinary course of its business, including, without
limitation, sales, exchanges or other dispositions of Apartment Complexes, Local
Limited Partnership Interests and real or personal property of the Series, or
any borrowings or refinancings. Sale or Refinancing shall not include any
receipt of capital contributions by a Series or a Local Limited Partnership;
provided, however, that the receipt by a Series of a return of all or a portion
of its capital contribution to a Local Limited Partnership, however funded,
shall be treated as a Sale or Refinancing.
"Sale or Refinancing Proceeds" means all cash receipts of a Series arising
from a Sale or Refinancing less the following:
(i) the amount paid or to be paid in connection with or as an expense of
such Sale or Refinancing, and, with regard to damage recoveries or insurance or
condemnation proceeds, the amount paid or to be paid for repairs, replacements
or renewals resulting from damage to or partial condemnation of the affected
property;
(ii) the amount applied to the payment of the debts and obligations of the
Series; and
(iii) any Reserves funded with such proceeds.
"Series" means WNC Housing Tax Credit Fund VI, L.P., Series 5, and/or WNC
Housing Tax Credit Fund VI, L.P., Series 6.
"Soliciting Dealers" means the broker-dealers through whom the Units are
being offered and sold.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership, or any Person who will manage or
participate in the management of the Partnership, and any Affiliate of any such
Person, but does not include a Person whose only relation with the Partnership
is as that of an
200
<PAGE>
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. A Person may also be a "Sponsor" of the
Partnership by: (i) taking the initiative, directly or indirectly, in founding
or organizing the business or enterprise of the Partnership, either alone or in
conjunction with one or more Persons; (ii) receiving a material participation in
the Partnership in connection with the founding or organizing of the business of
the Partnership, in consideration of services or property, or both services or
property; (iii) having a substantial number of relationships and contacts with
the Partnership; (iv) possessing significant rights to control Partnership
properties (other than Local General Partners whose only association with the
Partnership is as such); (v) receiving fees for providing services to the
Partnership which are paid on a basis that is not customary in the industry; and
(vi) providing goods or services to the Partnership on a basis which was not
negotiated at arm's length with the Partnership.
"Subordinated Disposition Fee" means the fee payable by a Series to the Fund
Manager in connection with dispositions of Properties owned by Local Limited
Partnerships.
"Substitute Unitholder" means an assignee of a Unit in a Series who is
admitted to the Series as a limited partner.
"Syndicated Partnerships" has the meaning given it under "Management - WNC
& Associates, Inc."
"Syndication Expenses" means all expenditures classified as syndication
expenses pursuant to Treasury Regulation Section 1.709-2(b). Syndication
Expenses shall be taken into account by a Series under the Partnership Agreement
at the time they would be taken into account under the Series' method of
accounting if they were deductible expenses.
"Tax Credits" means any credit permitted under the Code against the Federal
income tax liability of any Partner as a result of activities or expenditures of
his Series or any Local Limited Partnership, including, without limitation, the
Low Income Housing Credit and the Historic Tax Credit.
"Temporary Investments" means United States Government securities,
securities issued or fully guaranteed by United States Government agencies,
certificates of deposit and time or demand deposits in, or repurchase agreements
constituting obligations of, commercial banks with deposits insured by the
Federal Deposit Insurance Corporation and other short-term, highly liquid
investments.
201
<PAGE>
"Treasury Regulation or Regulations" means the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Unit" means the Interest of a Unitholder attributable to a Capital
Contribution of $1,000 (determined without regard to any discounts for
Designated Investors and Discount Investors).
"Unitholder" means any Person who is a limited partner of a Series, whether
an Initial Unitholder, an Additional Unitholder or a Substitute Unitholder at
the time of reference thereto, in such Person's capacity as a limited partner of
the Series.
"Voluntary Withdrawal" by the Fund Manager means, with respect to a Series,
any withdrawal initiated by the Fund Manager and includes, but is not limited
to, the commencement of an action in bankruptcy by or against such Fund Manager
and excludes any withdrawal accomplished as the result of a settlement, whether
or not incorporated in a decree of a court or administrative agency, between a
withdrawing Fund Manager and one or more of any remaining Fund Managers, a
majority-in-interest of the Unitholders or any regulatory agency whether a
Federal or state agency or a self-regulatory agency, having jurisdiction over
the affairs of the Series.
wncnat6-7/01.pro
202
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
WNC Housing Tax Credit Fund VI, L.P., Series 5
Independent Auditors' Report.............................................FS-1
Balance Sheet, April 30, 1997............................................FS-2
Notes to Balance Sheet...................................................FS-3
WNC & Associates, Inc.
Independent Auditors' Report.............................................FS-6
Consolidated Balance Sheets, February 28, 1997 (Unaudited)
and August 31, 1996....................................................FS-7
Notes to Consolidated Balance Sheet......................................FS-8
FS-i
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
WNC Housing Tax Credit Fund VI, L.P., Series 5
We have audited the accompanying balance sheet of WNC Housing Tax Credit Fund
VI, L.P., Series 5 (a California limited partnership) (the "Partnership") (a
development-stage enterprise) as of April 30, 1997. The balance sheet is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the accompanying balance sheet referred to above, presents
fairly, in all material respects, the financial position of WNC Housing Tax
Credit Fund VI, L.P., Series 5 (a California limited partnership) (a
development-stage enterprise) as of April 30, 1997 in conformity with generally
accepted accounting principles.
CORBIN & WERTZ
Irvine, California
May 5, 1997
FS-1
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
(A Development-Stage Enterprise)
BALANCE SHEET
April 30, 1997
ASSETS
Cash $ 1,100
----------
$ 1,100
==========
LIABILITIES AND PARTNERS' CAPITAL
Commitments and contingencies (Note 2)
Partners' capital (Note 1):
General partner $ 100
Original limited partner 1,000
----------
Total partners' equity 1,100
$ 1,100
==========
nat6-6.497 See accompanying notes to balance sheet
FS-2
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO BALANCE SHEET
April 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WNC Housing Tax Credit Fund VI, L.P., Series 5 (the "Partnership") was formed
pursuant to the laws of California on March 3, 1997 and has not commenced
operations. The Partnership was formed to invest primarily in other limited
partnerships which will own and operate multi-family housing complexes that will
qualify for low income housing credits.
The general partner is WNC & Associates, Inc. (the "General Partner").
Wilfred N. Cooper, Sr., through the Cooper Revocable Trust, owns 70% of the
outstanding stock of WNC & Associates, Inc. John B. Lester, Jr. is the original
limited partner of the Partnership and owns, through the Lester Family Trust,
30% of the outstanding stock of WNC & Associates, Inc.
Allocations Under the Terms of the Partnership Agreement
The General Partner has a 1% interest in operating profits and losses, taxable
income and losses and cash available for distribution from the Partnership. The
limited partners will be allocated the remaining 99% of these items in
proportion to their respective investments.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership's Agreement of Limited Partnership) and the General Partner
has received a subordinated disposition fee (as described in Note 2 below), any
additional sale or refinancing proceeds will be distributed 90% to the limited
partners (in proportion to their respective investments) and 10% to the General
Partner.
Continued
FS-3
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO BALANCE SHEET - CONTINUED
April 30, 1997
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Partnership is offering up to 25,000 limited partnership units at $1,000 per
unit (the "Units"). The accompanying balance sheet does not include certain
Partnership legal, accounting, and other organization and offering costs paid
and to be paid by the General Partner and/or affiliates of the General Partner.
If the minimum offering amount of $1,400,000 is raised, the Partnership will be
required to reimburse the General Partner and/or its affiliates for such fees
out of the proceeds of the offering, up to certain maximum levels set forth
below. In the event the Partnership is unable to raise the minimum offering
amount, the General Partner will absorb all organization and offering costs.
The Units are being offered by WNC Capital Corporation, a wholly-owned
subsidiary of the General Partner.
If the minimum offering amount of $1,400,000 is raised, the Partnership will be
obligated to the General Partner or affiliates for certain acquisition,
management and other fees as set forth below:
Acquisition fees up to 7.0%, as defined, of the gross proceeds from the
sale of Units.
Reimbursement for organizational, offering, dealer-manager, selling and
acquisition expenses advanced by the General Partner or affiliates on
behalf of the Partnership. These reimbursements plus all other
organizational and offering expenses inclusive of sales commissions and
dealer-manager fees will not exceed 14.5% of the gross proceeds. No
amounts have been paid through April 30, 1997 to the General Partner or
affiliates. The estimated costs to be paid in the event the minimum
offering amount is raised are $203,000. Such amounts, except for
acquisition expenses estimated at $21,000, will be recorded as a
reduction to equity and recorded as liability.
An annual management fee equal to 0.2% of the invested assets (defined
by the Partnership's Agreement of Limited Partnership as the sum of the
Partnership's capital contributions to limited partnerships plus its
allocable percentage of the permanent financing of the limited
partnerships).
Continued FS-4
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO BALANCE SHEET - CONTINUED
April 30, 1997
NOTE 2 - COMMITMENTS AND CONTINGENCIES, continued
A subordinated disposition fee in an amount equal to 1% of the sales
price of real estate sold. Payment of this fee is subordinated to the
limited partners receiving distributions equal to their capital
contributions and their return on investment (as defined in the
Partnership's Agreement of Limited Partnership) and is payable only if
services are rendered in the sales effort.
NOTE 3 - INCOME TAXES
The Partnership will not incur a provision for income taxes since all income
taxes and losses will be allocated to the Partners for inclusion in their
respective returns.
FS-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WNC & Associates, Inc.
We have audited the consolidated balance sheet of WNC & Associates, Inc. and
subsidiary (the "Company") as of August 31, 1996. This consolidated balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of WNC & Associates,
Inc. and subsidiary as of August 31, 1996 in conformity with generally accepted
accounting principles.
CORBIN & WERTZ
Irvine, California
October 28, 1996
FS-6
<PAGE>
<TABLE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
ASSETS February 28, 1997 August 31, 1996
(Unaudited) (Audited)
<S> <C> <C>
Cash $ 608,809 $ 321,681
Fees receivable, net (Note 2) 652,371 665,547
Loans to property developers (Notes 3 and 6) 3,253,662 2,288,783
Offering costs advanced 36,246 139,989
Advances to partnerships 156,600 163,004
Income tax receivable 0 19,527
Property and equipment, net (Note 4) 261,161 236,887
Other assets (Notes 5 and 9) 298,718 315,253
---------- ----------
$5,267,567 $4,150,671
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes payable to bank (Note 6) 1,393,100 $ 500,000
Accounts payable and accrued expenses 154,305 129,747
Deferred income taxes (Note 7) 286,545 183,772
Income taxes payable 30,597 0
Interest payable (Note 6) 58,000 35,000
Due to partnership 0 68,510
Accumulated losses of partnerships in excess of
investments 575,982 544,395
Capitalized lease obligations (Note 8) 69,320 90,173
---------- ----------
Total liabilities 2,567,849 1,551,597
========== ==========
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, none issued
Common stock, no par value, 1,000,000 shares
authorized, 104,750 issued and outstanding in
1995 and 1996 177,677 177,677
Retained earnings 2,522,041 2,421,397
---------- ----------
Total stockholders' equity 2,699,718 2,599,074
---------- ----------
$5,267,567 $4,150,671
========== ==========
See accompanying notes to consolidated balance sheets
FS-7
</TABLE>
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS
February 28, 1997(Unaudited) and August 31, 1996 (Audited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
WNC & Associates, Inc. (a California corporation) (the "Company"), acts as a
corporate general partner and syndicator of both public and private placement
real estate partnerships (the "Partnerships"), which invest in apartment
complexes throughout the United States, the majority of which are government
assisted apartment complexes that qualify for low income housing tax credits.
The Company is the general partner of various Partnerships which own government
assisted housing apartment complexes (either directly or indirectly through
other partnership interests). The majority of the Partnerships' apartment
complexes are subsidized through various United States governmental low-income
housing programs. The Company's interest in the profits and losses of each
Partnership, as general partner, varies between one-quarter and five percent.
Principles of Consolidation
- ---------------------------
The accompanying consolidated balance sheet includes the accounts of the Company
and its wholly owned subsidiary, WNC Capital Corporation. WNC Capital
Corporation was incorporated on February 23, 1994 and is registered with the
Securities and Exchange Commission as a broker/dealer in securities. WNC Capital
Corporation does not carry customers' accounts or hold securities for the
accounts of its customers. WNC Capital Corporation provides wholesaling services
to affiliates of the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Interim Financial Statements
- ----------------------------
The financial information presented as of February 28, 1997 is prepared in
conformity with generally accepted accounting principles and such principles are
applied on a basis consistent with those reflected in the Annual Report for the
year ended August 31, 1996. The financial information presented herein as of
February 28, 1997 has been prepared by management without audit by independent
certified public accountants who do not express an opinion thereon. The balance
sheet presented as of February 28, 1997 has been derived from, but does not
include all the disclosures contained in the audited balance sheet as of August
31, 1996. The information furnished as of February 28, 1997 includes all
adjustments (consisting of only normal recurring accruals), which are, in the
opinion of management, necessary for a fair presentation of financial position
as of the interim date.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities, as well as disclosure of
contingent assets and liabilities at the date of these consolidated balance
sheets. Actual results could materially differ from those estimates.
FS-8
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Fair Value of Financial Instruments
- -----------------------------------
The consolidated balance sheets contain financial instruments whereby the fair
market value of the financial instruments could be different than those recorded
on a historical basis in the accompanying consolidated balance sheets. The
Company's financial instruments consist of cash, fees receivable, loans to
property developers, offering costs advanced, advances to partnerships, note
payable to bank, accounts payable and due to partnership. Management believes
that the carrying amounts of the Company's financial instruments generally
approximate their fair market values at February 28, 1997 (unaudited) and August
31, 1996 (audited). In the case of certain financial instruments which are
non-interest bearing, it was not practical to determine fair market values due
to the lack of a market for such financial instruments.
Concentration of Credit Risk
- ----------------------------
The Company, at times, maintains cash balances at certain financial institutions
in excess of the federally insured amounts.
Risks and Uncertainties
- -----------------------
Net Capital Requirements
WNC Capital Corporation, as a broker/dealer, is required under provisions of
Rule 15c-1 of the Securities and Exchange Act of 1934, to maintain a ratio of
aggregate indebtedness to net capital, as defined, not to exceed 15 to 1. The
basic concept of the rule is liquidity, its objective being to require a broker
or dealer have, at all times, sufficient liquid assets to cover its current
indebtedness. WNC Capital Corporation is also required to maintain a minimum net
capital of the greater of $5,000 or 2% of aggregate indebtedness, as defined. At
February 28, 1997 and August 31, 1996, WNC Capital Corporation had net capital
of $5,854 (unaudited) and $89,548 (audited), respectively, which are in excess
of the required minimum capital and a ratio of aggregate indebtedness to net
capital of .49 to 1 (unaudited) and .57 to 1 (audited), respectively.
Registration
WNC Capital Corporation must register with state departments which govern
compliance with securities laws in the states in which it does business. Various
regulatory requirements exist in each state with which WNC Capital Corporation
must comply. Because of the various compliance laws, there is a risk that one or
more regulatory authorities could determine that WNC Capital Corporation has not
complied with securities laws necessary for it to conduct business in a given
state. Regulatory actions, if ever taken, could have a material adverse effect
on WNC Capital Corporation's financial condition.
Fees Receivable
- ---------------
Fees receivable consist of syndication fees due from various Partnerships in
which the Company acts as general partner. Certain syndication fees are received
by the Company from the Partnerships as the limited partners make their capital
contributions to the Partnerships. Syndication fees that are scheduled to be
collected more than one year from the Company's year end are discounted to
reflect their present value.
FS-9
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Loans to Property Developers
- ----------------------------
Loans to property developers are comprised of amounts loaned or deposits made to
the general partners of limited partnerships in which the Partnerships have or
will have an equity interest. All such loans receivable are secured by the
respective general partners interest in the limited partnerships. In the event a
property is not acquired, deposits may not be refunded to the Company.
Accordingly, such amounts are written off in the period determined by management
that a property will not be acquired and the deposit will not be refunded. The
Compan's historical losses related to its loans to property developers have
been minimal.
Offering Costs Advanced
- -----------------------
Offering costs advanced represent funds that the Company advances to the
Partnerships for certain costs and expenses to produce the offering materials
and to qualify the Partnership interests for sale under the various state or
federal securities laws. Such advances are repaid to the Company out of the
Partnerships' initial capital proceeds and may be subject to limitations as
defined in the individual partnership agreements.
Organization Costs
- ------------------
Organization costs consist principally of legal and regulatory fees incurred to
incorporate WNC Capital Corporation and obtain the necessary approvals to
commence operations. These costs are being amortized over a five year period on
a straight-line basis and are included in other assets in the accompanying
consolidated balance sheets. Accumulated amortization at February 28, 1997 and
August 31, 1996 was $8,387 (unaudited) and $7,400 (audited), respectively.
Property and Equipment
- ----------------------
Property and equipment and improvements which extend the economic life of assets
are recorded at cost and are depreciated using the straight-line method over the
estimated useful life of the related asset, generally from three to five years.
Leasehold improvements and capitalized leases are amortized over the shorter of
the life of the lease or estimated useful life of the related asset.
Investments in Partnerships
- ---------------------------
The Company records its investment in the Partnerships using the equity method,
which recognizes the Company's proportionate share of income or loss as an
increase or decrease in the investment in the Partnership. As the Company acts
as the General Partner, losses in excess of the Company's investment are
recorded as Accumulated Losses of Partnerships in Excess of Investments.
FS-10
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes
- ------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting For Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that includes the
enactment date.
NOTE 2 - FEES RECEIVABLE
Aggregate annual future minimum collections as of February 28, 1997
unaudited) and August 31, 1996 (audited) are as follows:
FS-11
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 2 - FEES RECEIVABLE, continued
February 28, 1997 August 31, 1996
(Unaudited) (Audited)
1997 $536,595 $555,655
1998 150,000 150,000
-------- --------
Total 686,595 705,655
Less: Discounts recorded on fees receivable
at an effective rate ranging from 8%
to 9.5% (34,224) (40,108)
-------- --------
Present value of future minimum fees
receivable $652,371 $665,547
======== ========
At February 28, 1997 (unaudited), fees receivable from four Partnerships
represented 29%, 19%, 12% and 12%, respectively, of total fees receivable. At
August 31, 1996 (audited), fees receivable from four Partnerships represented
24%, 17%, 13% and 11%, respectively, of total fees receivable
NOTE 3 - LOANS TO PROPERTY DEVELOPERS
Loans to property developers consist of the following:
February 28, 1997 August 31, 1996
(Unaudited) (Audited)
Notes receivable due on demand,
non-interest bearing $1,483,161 $777,386
Notes receivable due on demand with interest
at the Compan's borrowing rate 46,659 46,659
Notes receivable with interest at the Company's
borrowing rate. The 1996 amount is due May
1997 (audited). The 1997 amount is due at
various dates from May 1997 to September
1997 (unaudited) 962,196 400,000
Notes receivable past due, generally with interest
at the Company's borrowing rate 761,646 1,064,738
--------- ----------
$3,253,662 $2,288,783
========== ==========
The Company's borrowing rate at February 28, 1997 and August 31, 1996 was 9.75%
(unaudited) and 10.75% (audited), respectively.
The Company has loans to three property developers at February 28, 1997
(unaudited) which represent 31%, 14% and 13% respectively, of total loans to
property developers. The Company has loans to three property developers at
August 31, 1996 (audited) which represent 29%, 27% and 12%, respectively, of
total loans to property developers.
FS-12
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
February 28, 1997 August 31, 1996
(Unaudited) (Audited)
Furniture, fixtures and computer software $ 363,341 $ 318,067
Automobiles 23,388 23,388
Leasehold improvements 36,321 36,321
Equipment subject to capital leases (see Note 8) 157,046 157,046
--------- --------
580,096 534,822
Less accumulated depreciation and amortization (318,935) (297,935)
--------- ---------
$ 261,161 $ 236,887
========= =========
NOTE 5 - OTHER ASSETS
Other assets consist of the following:
February 28, 1997 August 31, 1996
(Unaudited) (Audited)
Real estate joint venture costs $181,674 $169,109
Due from stockholders (Note 9) 81,206 86,000
Prepaid insurance 0 28,000
Deposits, advances and other 28,076 24,747
Organization costs 7,762 7,397
$298,718 $315,253
NOTE 6 - NOTES PAYABLE
On October 15, 1996, the Company renewed its line-of-credit with a bank.
The renewed line-of-credit allows for borrowings of up to $3,600,000 at the
bank's index rate plus 1.5% (10.25% (audited) at August 31, 1996). Interest is
payable monthly. The line-of-credit is secured by assignment of the Company's
interests in Partnership properties to be acquired for which amounts are
borrowed and is personally guaranteed by the majority stockholder of the
Company. The line-of-credit matured January 15, 1997 and requires the Company to
maintain a certain debt to net worth ratio level and profitable operations for
future years.
Unaudited - On January 15, 1997, the Company established a line-of-credit
with a bank which allows for borrowings of up to $1,500,000 at the bank's index
rate plus 1.5% (9.75% at February 28, 1997). This line of credit was used to
repay the amount outstanding on the $3,600,000 line of credit. Interest is
payable monthly. The line of credit is also personally guaranteed by the
majority stockholder of the Company and matures April 15, 1997.
FS-13
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 7 - INCOME TAXES
The deferred tax liability of $286,545 (unaudited) and $183,772 (audited)
as of February 28, 1997 and August 31, 1996, respectively, represents primarily
the tax effect of the temporary difference between syndication fees recognized
on the accrual basis for financial statement purposes and on the cash basis for
tax return purposes.
NOTE 8- COMMITMENTS AND CONTINGENCIES
Leases
The Company lease office space, automobiles and furniture under operating
leases and certain equipment under capital leases. Aggregate monthly capital
lease payments amount to $3,631 (audited) as of August 31, 1996. The leases are
non--cancelable and require future minimum lease payments as of August 31, 1996
(audited) as follows:
Capitalized Operating
Leases Leases
Fiscal year:
1997 $43,571 $109,548
1998 43,571 96,857
1999 17,940 92,412
2000 1,494 15,402
______ ______
Total minimum lease payments $106,576 $314,219
========
Less amounts representing interest at rates
ranging from 9.5% to 12.5% (16,403)
________
Present value of future minimum capitalized
lease obligations $90,173
=======
Guarantees
The Company is a guarantor of certain bank loans made to the
Partnerships. The aggregate amounts outstanding on these notes was $50,000
(unaudited) and $50,000 (audited) as of February 28, 1997 and August 31, 1996,
respectively. These loans will be repaid by the Partnerships as the limited
partners make their capital contributions to the respective Partnerships.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company entered into an equity participation agreement with a key
officer of the Company and his spouse. This agreement provided for an investment
of $80,000 by the Company to acquire a 50% interest in certain property, which
was later converted into rental property, owned by the key officer and his
spouse. Pursuant to terms of this agreement, all income and losses arising from
the operations of the rental property, including the allocation of income and
losses upon a sale or refinance shall be allocated 50% to the Company and 50% to
the key officer and his spouse. During fiscal 1995, the investment was written
down to $65,000 to reflect current market conditions.
FS-14
<PAGE>
WNC & ASSOCIATES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEETS - CONTINUED
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
NOTE 9 - RELATED PARTY TRANSACTIONS, continued
In April, 1993, the Company's majority stockholder, who is an officer,
borrowed $55,000. This note bears interest at 7.5% per annum. The note's
maturity date was extended along with accrued interest to March 31, 1997. The
note, together with accrued interest, is included in other assets in the
accompanying consolidated balance sheets.
During 1994, an officer and stockholder of the Company borrowed $25,000.
This note bears interest at 7.5% per annum. The note's maturity date was
extended along with accrued interest to March 31, 1997. The note, together with
accrued interest, is included in other assets in the accompanying consolidated
balance sheets.
FS-15
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The tables set forth below present financial information with respect
to programs which were sponsored by the Sponsor. Each of these programs is
considered to have investment objectives similar to those of the Fund in that
they each own interests in local limited partnerships which own properties
generating low income housing credits. None of these tables are covered by the
reports of independent public accountants set forth in this document.
For additional information as to the investment objectives and policies
of such prior programs see "Prior Performance Summary." Additional information
concerning prior performance is included in Part II of the Registration
Statement of the Fund and for the public programs in the Form 10-K annual
reports. Copies of these 10-K Forms are available to any investor upon request
to the Sponsor. Any such request should be directed to 3158 Redhill Avenue,
Suite 120, Costa Mesa, California 92626.
The purpose of the tables is to provide information on the prior
performance of these partnerships so as to permit a prospective purchaser of the
Units to evaluate the experience of the Sponsor in sponsoring such limited
partnerships. The tables consist of:
Table I Experience in Raising and Investing Funds
Table II Compensation to Sponsor
Table III Operating Results of Prior Programs
Tables IV and V have been omitted since none of the prior programs
which were sponsored by the Sponsor have sold their properties or completed
operations.
Definitions
The following terms used in the prior performance tables have the following
meanings:
A-1
<PAGE>
"Acquisition Cost" includes all costs related to the acquisition of partnership
interests, including equity contributions, acquisition and selection fees
payable to the general partners and other fees and expenses incident to the
acquisition of partnership interests.
"Capital Contributions" represents the contributions by investors in the
prior partnerships.
"GAAP" means generally accepted accounting principles.
"Months to Invest 90% of Amount Available for Investment" means the length of
time, in months, from the offering date to the date of the closing of properties
which, in the aggregate, represented the investment commitment of 90% of the
amount available for investment.
"Percent leverage" means mortgage financing divided by total acquisition costs.
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE FOLLOWING TABLES. INVESTORS WILL NOT HAVE ANY
INTEREST IN ANY OF THE PARTNERSHIPS DESCRIBED IN THE TABLES OR IN ANY OF THE
PROPERTIES OWNED BY THE LOCAL LIMITED PARTNERSHIPS IN WHICH THOSE PARTNERSHIPS
HAVE INVESTED AS A RESULT OF THE ACQUISITION OF UNITS.
A-2
<PAGE>
TABLE I
TABLE I provides information regarding the raising and investing of funds by
partnerships sponsored by the Sponsor which raised funds during the three-year
period ended December 31, 1996. The table presents the aggregate dollar amount
of the offering, the percentage of dollars raised which were used to pay
offering costs, establish reserves and acquire investments, as well as
information regarding percent of leverage and the timing for both raising and
investing funds. The information concerns investor capital contributions as the
sole source of funds for investment and excludes the nominal capital
contributions by the general partners.
A-3
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND
INVESTING FUNDS (January 1,
1994 - December 31, 1996)
CHTC III % HTCF IV-1 %
<S> <C> <C>
Dollar amount offered $30,000,000 $10,000,000
=========== ===========
Dollar amount raised 18,000,000 100.0 10,000,000 100.0
Less offering expenses:
Selling commissions &
discounts 1,440,000 8.0 750,000 7.5
paid to non-affiliates 909,000 5.0 686,300 6.9
Organizational expenses (a)
Reserves 855,000 4.8 280,600 2.8
------- --- ------- ---
Percent invested as of
close of offering 14,796,000 82.2 8,283,100 82.8
Acquisition costs:
Prepaid items and fees
related to purchase of
property 104,000 0.6 34,100 0.3
Cash down payments (b) 13,072,000 72.6 7,449,000 74.5
Acquisition fees 1,620,000 9.0 800,000 8.0
Other ------ -.- ------ -.-
---------- --- ---------- ---
Total acquisition cost 14,796,000 82.2 8,283,100 82.8
Percentage leverage (mortgage
financing divided by total
acquisition cost) 64% 77%
Date offering began 2/17/93 10/20/93
Length of offering (months) 17 9
Months to invest 90% of
amount available for
investment (measured from
beginning of offering) 17 9
- -------------------------------
<FN>
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly or
indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
</FN>
</TABLE>
A-4
UNAUDITED
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND
INVESTING FUNDS (January 1,
1994 - December 31, 1996)
HTCF IV-2 CHTC IV-4
% %
<S> <C> <C>
Dollar amount offered $20,000,000 $25,000,000
=========== ===========
Dollar amount raised 15,241,000 100.0 11,099,000 100.0
Less offering expenses:
Selling commissions &
discounts 1,000,500 6.6 554,000 4.9
paid to non-affiliates (c) 969,900 6.4 827,000 7.5
Organizational expenses (a)
Reserves 241,600 1.7 387,000 3.5
------- --- ------- ---
Percent invested as of
close of offering 13,029,000 85.3 9,331,000 84.1
Acquisition costs:
Prepaid items and fees
related to purchase of
property 136,000 0.9 80,000 0.7
Cash down payments (b) 11,835,000 77.5 8,590,000 77.4
Acquisition fees 1,058,000 6.9 661,000 6.0
Other ------ -.- ------ -.-
----------- --- ----------- ---
Total acquisition cost 13,029,000 85.3 9,331,000 84.1
Percentage leverage (mortgage
financing divided by total
acquisition cost) 66% 60%
Date offering began 9/94 9/94
Length of offering (months) 13 12
Months to invest 90% of
amount available for
investment (measured from
beginning of offering) 17 15
- -------------------------------
<FN>
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly or
indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
(c) Selling commissions were first paid to an affiliated broker-dealer
which reallowed all selling commissions to non-affiliates.
</FN>
</TABLE>
A-5
UNAUDITED
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND
INVESTING FUNDS (January 1,
1994 - December 31, 1996)
HTCF V-3 % HTCF V-4 (d)(e) % CHTC IV-5 (d) %
<S> <C> <C> <C>
Dollar amount offered $25,000,000 $25,000,000 25,000,000
=========== =========== ==========
Dollar amount raised 17,559,000 100.0 8,386,800 100.0 6,253,000 100.0
Less offering expenses:
Selling commissions &
discounts 1,058,700 6.0 612,500 7.3 296,000 4.7
paid to non-affiliates (c) 1,062,900 6.1 490,800 5.9 475,000 7.6
Organizational expenses (a)
Reserves 349,000 2.0 550,700 6.6 1,462,500 23.4
------- --- ------- --- --------- ----
Percent invested as of
close of offering 15,088,400 85.9 6,732,800 80.2 4,019,500 64.3
Acquisition costs:
Prepaid items and fees
related to purchase of
property 80,000 0.5 60,000 0.7 8,000 0.1
Cash down payments (b) 14,000,000 79.7 6,090,100 72.6 3,689,500 59.1
Acquisition fees 1,008,400 5.7 582,700 6.9 322,000 5.1
Other ------ -.- ---- -.- ----- -.-
----------- --- -------- --- ----- ---
Total acquisition cost 15,088,400 85.9 6,732,800 80.2 4,019,500 64.3
Percentage leverage (mortgage
financing divided by total
acquisition cost) 70% 56% 49%
Date offering began 7/95 7/96 11/95
Length of offering (months) 11 (e) 7
Months to invest 90% of
amount available for
investment (measured from 21 (d) (d)
beginning of offering)
- -------------------------------
<FN>
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly or
indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
(c) Selling commissions were first paid to an affiliated broker-dealer
which reallowed all selling commissions to non-affiliates.
(d) Not all properties have been identified.
(e) The offering was continuing as of December 31, 1996.
</FN>
</TABLE>
A-6
UNAUDITED
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND
INVESTING FUNDS (January 1,
1994 - December 31, 1996)
P R I V A T E O F F E R I N G S
Two One
Partnerships Partnership
Organized in Organized in
1994 % 1995 %
<S> <C> <C>
Dollar amount offered $13,177,000 $15,000,000
=========== ===========
Dollar amount raised 13,177,000 100.0 15,000,000 100.0
Less offering expenses:
Selling commissions & discounts
paid to non-affiliates (c) 475,866 3.6 337,500 2.2
Organizational expenses (a) 354,314 2.7 337,500 2.2
Reserves 391,800 3.0 591,000 4.0
------- --- ------- ---
Percent invested as of
close of offering 11,955,020 90.7 13,734,000 91.6
Acquisition costs:
Prepaid items and fees
related to purchase of
property ------ -.- 150,000 1.0
Cash down payments (b) 11,141,539 84.5 12,984,000 86.6
Acquisition fees 655,000 5.0 600,000 4.0
Other 158,481 1.2 ----- -.-
------- --- ---------- ---
Total acquisition cost 11,955,020 90.7 13,734,000 91.6
Percent leverage (mortgage
financing divided by total
acquisition cost) 72% 60%
Date offering began Various 3/95
Length of offering (months) 3 7
Months to invest 90% of
amount available for
investment (measured from
beginning of offering) 3 11
- ------------------------------
<FN>
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly or
indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
(c) Selling commissions were first paid to an affiliated broker-dealer
which reallowed all selling commissions to non-affiliates
</FN>
</TABLE>
A-7
UNAUDITED
<PAGE>
TABLE II
TABLE II presents information concerning the cumulative compensation paid to the
Sponsor for the period from January 1, 1994 to December 31, 1996 with respect to
programs presented in TABLE I and on an aggregate basis with respect to all
other programs which have been sponsored by the Sponsor. None of the programs
presented in TABLE II have been liquidated, nor have there been any sales or
refinancing of any of the programs' investments.
A-8
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1994 - December 31, 1996)
HTCF V-3 HTCF V-4 (a) CHTC IV-5
<S> <C> <C> <C>
Date offering commenced 7/95 7/96 11/95
Dollar amount raised $17,559,000 $8,386,800 $6,253,000
Amount paid to sponsor from
proceeds of offering: (b)
Underwriting fees 0 0 0
Acquisition fees 1,008,400 582,700 322,000
Syndication fee 0 0 0
Other (c) 0 106,000 43,000
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor 561 4,010 53,439
Amount paid to sponsor from
operations: 0 0 0
Property management fees 0 0 0
Partnership management fees 0 0 0
Reimbursements 0 0 0
Leasing commissions
Dollar amount of property sales and
refinancing before deducting
payments
to sponsor: 0 0 0
Cash 0 0 0
Notes
Amount paid to sponsor from property sales and refinancing:
Real estate commissions 0 0 0
Incentive fee 0 0 0
Other 0 0 0
- ------------------------------------
<FN>
(a) The offering was continuing as of December 31, 1996.
(b) Represents amounts paid to sponsor which were not reallowed to
non-affiliates.
(c) Represents amounts retained by the sponsor and not reallowed to
non-affiliates.
</FN>
</TABLE>
A-9
UNAUDITED
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1994 - December 31, 1996)
HTCF IV-1 HTCF IV-2 CHTC IV-4
<S> <C> <C> <C>
Date offering commenced 10/93 9/94 9/94
Dollar amount raised $10,000,000 $15,241,000 $11,099,000
Amount paid to sponsor from
proceeds of offering: (a)
Underwriting fees 0 0 0
Acquisition fees 800,000 1,058,000 661,000
Syndication fee 0 0 0
Other (b) 0 0 126,000
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor 119,631 199,830 168,490
Amount paid to sponsor from
operations: 0 0 0
Property management fees 15,000 101,800 45,000
Partnership management fees 0 0 0
Reimbursements 0 0 0
Leasing commissions
Dollar amount of property sales and
refinancing before deducting
payments
to sponsor: 0 0 0
Cash 0 0 0
Notes
Amount paid to sponsor from property sales and refinancing:
Real estate commissions 0 0 0
Incentive fee 0 0 0
Other 0 0 0
- ------------------------------------
<FN>
(a) Represents amounts paid to sponsor which were not reallowed to
non-affiliates
(b) Represents amounts retained by the sponsor and not reallowed to
non-affiliates.
</FN>
</TABLE>
A-10
UNAUDITED
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1994 - December 31, 1996)
CHTC III Other Public
Programs (a)
<S> <C>
Date offering commenced 2/93 Various
Dollar amount raised $18,000,000 $23,221,500
Amount paid to sponsor from
proceeds of offering: (c)
Underwriting fees 0 0
Acquisition fees 868,500 283,746
Syndication fee 0 0
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor 269,058 9,383
Amount paid to sponsor from
operations: 0 0
Property management fees 200,000 270,065
Partnership management fees (b) 0 0
Reimbursements 0 0
Leasing commissions
Dollar amount of property sales and
refinancing before deducting
payments
to sponsor: 0 0
Cash 0 0
Notes
Amount paid to sponsor from property sales and refinancing:
Real estate commissions 0 0
Incentive fee 0 0
Other 0 0
- ------------------------------------
<FN>
(a) Includes six public programs.
(b) Partnership management fees were paid from partnership reserves in the
instances where amounts paid to sponsor from operations exceed dollar amount of
cash generated from operations.
(c) Represents amounts paid to sponsor which were not reallowed to
non-affiliates
</FN>
</TABLE>
A-11
UNAUDITED
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1994 - December 31, 1996)
----------------------------------------P R I V A T E O F F E R I N G S---------------------
Two One All
Partnerships Partnership Other
Organized in Organized in Private
1994 1995 Partnerships (a)
<S> <C> <C>
Date offering commenced Various 3/95 1993 & prior
Dollar amount raised $13,177,000 $15,000,000 N/A
Amount paid to sponsor from
proceeds of offering: (c)
Underwriting fees 0 0 N/A
Acquisition fees 655,000 600,000 N/A
Syndication fee 0 0 N/A
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor (217,838) 470,148 N/A
Amount paid to sponsor from operations:
Property management fees 0 0 0
Partnership management fees (b) 15,000 0 282,100
Reimbursements 0 0 0
Leasing commissions 0 0 0
Dollar amount of property sales and refinancing
before deducting payments to
sponsor:
Cash 0 0 0
Notes 0 0 0
Amount paid to sponsor from property sales and refinancing:
Real estate commissions 0 0 0
Incentive fee 0 0 0
Other 0 0 0
- ------------------------------------
<FN>
(a) Includes 43 private programs sponsored since January 1984.
(b) Partnership management fees were paid from partnership reserves in the
instances where amounts paid to sponsor from operations exceed dollar amount of
cash generated from operations.
(c) Represents amounts paid to sponsor which were not reallowed to
non-affiliates
</FN>
</TABLE>
A-12
UNAUDITED
<PAGE>
TABLE III
TABLE III presents the operating results for all partnerships sponsored by the
Sponsor which closed during the five years ended December 31, 1996. The prior
partnerships are structured as investment partnerships acquiring interests in
operating partnerships. The investment partnerships account for such investments
using the equity method of accounting which recognizes each of such
partnership's pro rata share of the operating partnership's total income or
loss. Revenues generated by the investment partnerships consist substantially of
interest on short-term investments. This interest income generally decreases
after the initial two years of operations as funds available for investment
decrease. This decrease in funds arises from the investment partnership's
payments of capital contributions due.
For the prior public partnerships presented and WNC Institutional and WNC
Institutional II, which report on a GAAP basis, "Cash generated (or used) from
operations" is per the program's Statement of Cash Flows. The remaining prior
private programs maintain their books and records on the tax basis of accounting
and not on the basis of generally accepted accounting principles (GAAP), and
"Cash generated (or used) from operations" for such programs is per their
respective books and records. The significant difference is that depreciation
expense on a tax basis as compared to a GAAP basis is greater in the early years
of operations.
Other information included in the table includes data on cash generated from
operations and tax and cash distribution information per $1,000 invested,
including Tax Credit allocations.
A-13
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
------------------------------------------- HTCF II ----------------------------------------\
1992 1993 1994 1995 1996
------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Gross revenue $ 23,054 $ 11,193 $ 9,287 11,368 10,157
Less:
Operating expenses 145,784 154,060 157,875 161,151 212,809
Interest 0 0 0 0 0
Depreciation and amortization 23,584 22,079 23,905 23,266 21,352
Equity in losses in local partnerships 551,431 634,893 544,630 602,163 568,488
-------- -------- --------- ------- -------
Net income (loss) - GAAP basis (697,745) (799,839) (717,123) (777,212) (792,492)
Taxable loss from operations (824,186) (888,131) (818,566) (858,138) (841,068)
Cash generated (used) from operations 6,481 (8,894) 40,620 (5,443) (41,630)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 6,481 (8,894) 40,620 (5,443) (41,630)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (116) (125) (116) (121) ( 119)
From gain on sale 0 0 0 0 0
Federal tax credits 121 138 146 145 145
California tax credits 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms) remaining
invested in program properties at end of
year (original total acquisition costs of
properties retained divided by total
original acquisition costs of all
properties) 100 100 100 100 100
- --------------------------------
</TABLE>
A-14
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/--------------------------------------------------- CHTC II -------------------------\
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Gross revenue $ 72,092 $ 133,580 $ 61,226 $ 52,399 $ 24,231
Less:
Operating expenses 105,481 158,082 355,671 251,425 234,202
Interest 2,157 0 0 0 0
Depreciation and amortization 32,961 52,480 47,565 54,836 54,836
Equity in losses in local partnerships 731,542 1,081,114 1,194,095 1,579,652 1,128,793
--------- --------- --------- --------- ---------
Net income (loss) - GAAP basis (800,049) (1,158,096) (1,536,105) (1,833,514) (1,393,600)
Taxable loss from operations (794,969) (1,208,709) (1,425,376) (2,079,433) (1,851,598)
Cash generated (used) from operations 3,637 (221,444) 42,033 (68,921) (46,174)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 3,637 (221,444) 42,033 (68,921) (46,174)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (a)(75) (68) (85) (116) (103)
From gain on sale 0 0 0 0 0
Federal tax credits (a)52 74 85 107 116
California tax credits (a)129 104 109 99 37
Cash distributions to investors (b)44 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition
costs of properties retained
divided by total original
acquisition costs of all
properties 100 100 100 100 100
--------------------------------
<FN>
(a) Tax losses and tax credits allocated to an investor in 1992 (second
year of operations) is dependent upon an investor's entry date. Amount shown is
that allocated to initial investors.
(b) This amount was distributed from CHTCII's reserves to investors who
purchased their units prior to January 1, 1991.
</FN>
</TABLE>
A-15
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/---------------------------------- HTCF III ------------------------------\
1992(a) 1993 1994 1995 1996
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross revenue $ 45,236 $ 137,116 $ 87,521 $ 57,741 $ 16,756
Less:
Operating expenses 13,036 120,054 313,134 314,320 394,781
Interest 679 0 0 0 0
Depreciation and amortization 3,394 24,478 45,724 47,176 47,176
Equity in losses in local
partnerships 68,933 779,251 1,323,487 1,312,540 1,406,638
-------- --------- ---------- --------- ---------
Net income (loss) - GAAP basis (40,806) (786,667) (1,594,824) (1,616,295) (1,831,839)
Taxable loss from operations (36,895) (850,051) (1,594,118) (1,715,667) (1,820,369)
Cash generated (used) from operations 53,333 (393,615) (38,224) (16,170) (73,931)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 53,333 (393,615) (38,224) (16,170) (73,931)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(9) (b)(77) (105) (113) (120)
From gain on sale 0 0 0 0 0
Federal tax credits (b)4 (b)68 119 152 157
California tax credits 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year (original
total acquisition costs of
properties retained divided by
total original acquisition costs
of all properties) 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two
years is dependent upon an investor's entry date. Amount shown is that allocated
to initial investors.
</FN>
</TABLE>
A-16
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/----------------------------CHTC III--------------------------\
1993(a) 1994 1995 1996
------- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenue $ 22,885 $ 156,271 $ 145,959 $ 74,947
Less:
Operating expenses 7,204 86,306 193,916 214,737
Interest 0 0 0 0
Depreciation and amortization 0 41,757 57,466 57,933
Equity in losses in local partnerships 33,260 352,511 1,155,114 (1,132,216)
-------- --------- --------- -----------
Net income (loss) - GAAP basis (17,579) (324,303) (1,260,537) (1,329,939)
Taxable loss from operations (30,475) (388,247) (1,279,818) (1,523,381)
Cash generated (used) from operations (9,831) (225,005) 437,400 (143,337)
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Less: Cash distributions to investors 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (9,831) (225,005) 437,400 (143,337)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(6) (b)(28) (70) (84)
From gain on sale 0 0 0 0
Federal tax credits (b)6 (b)32 95 112
California tax credits 0 (b)48 85 85
Cash distributions to investors 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided
by total original acquisition
costs of all properties) 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two
years is dependent upon an investor's entry date. Amount shown is that allocated
to initial investors.
</FN>
</TABLE>
A-17
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/---------HTCF IV-1----------\ /----------HTCT VI-2-----------\
1994(a) 1995 1996 1994(a) 1995 1996
------ ------- ------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $85,261 $66,645 $25,046 $ 3,475 $179,927 $161,610
Less:
Operating expenses 47,149 53,536 19,099 27,269 57,965 60,777
Interest 0 0 0 0 39,148 5,350
Depreciation and amortization 20,797 30,926 29,440 1,638 26,208 40,109
Equity in losses in local partnerships 413,316 574,538 392,400 240,698 628,521 628,631
-------- ------- ------- ------- ------- -------
Net income (loss)- GAAP basis (396,001) (592,355) (415,893) (266,130) (571,915) (573,257)
Taxable loss from operations (417,185) (874,044) (982,635) (228,979) (702,048) (641,050)
Cash generated (used) from operations 46,649 19,058 (4,393) (25,518) 62,653 60,895
Cash generated from sales 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 46,649 19,058 (4,393) (25,518) 62,653 60,895
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(59) (87) (97) (c)(82) (c)(58) (41)
From gain on sale 0 0 0 0 0 0
Federal tax credits (b)32 101 136 (c)21 (c)70 105
California tax credits 0 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition
costs of properties retained
divided by total original
acquisition costs of all
properties) 100 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first year
is dependent upon an investor's entry date. Amount shown is that allocated to
initial investors.
(c) Tax losses and tax credits allocated to an investor in the first two
years is dependent upon an investor's entry date. Amount shown is that allocated
to initial investors.
</FN>
</TABLE>
A-18
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/------------------------CHTC IV-4--------\
1994(a) 1995 1996
------- ---- ----
<S> <C> <C> <C>
Gross revenue $ 1,613 $ 160,888 $ 147,254
Less:
Operating expenses 13,399 41,325 51,488
Interest 0 79,853 0
Depreciation and amortization 0 16,056 24,865
Equity in losses in local partnerships (2,212) 100,224 528,288
------- --------- -------
Net income (loss) - GAAP basis (9,574) (76,570) (457,387)
Taxable loss from operations (11,786) (60,108) (566,147)
Cash generated (used) from operations 1,602 26,322 95,766
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Less: Cash distributions to investors 0 0 0
Cash generated (deficiency) after cash
distributions and special items 1,602 26,322 95,766
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(12) (b)(9) (49)
From gain on sale 0 0 0
Federal tax credits 0 (b)18 64
California tax credits 0 (b)53 70
Cash distributions to investors 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided
by total acquisition costs of all
properties) 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two years
is dependent upon an investor's entry date. Amount shown is that allocated to
initial investors.
</FN>
</TABLE>
A-19
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/---------HTCF V-3---------\ /---HTCF V-4----\ /---CHTC IV-5-------\
1995(a) 1996 1996 (a) 1996 (a)
------- ------ -------- --------
<S> <C> <C> <C> <C>
Gross revenue $ 3,487 $ 209,940 $ 15,529 $ 54,573
Less:
Operating expenses 12,379 59,816 30,183 1,393
Interest 0 0 0 0
Depreciation and amortization 454 23,436 2,851 7,753
Equity in losses in local partnerships 343 185,071 29,329 0
------ ------- ------ ----
Net income (loss) - GAAP basis 9,689 (58,383) (46,834) 45,427
Taxable (income) loss from operations 2,522 (128,969) (23,166) 45,427
Cash generated (used) from operations 3,402 34,885 4,010 53,439
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Less: Cash distributions to investors 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 3,402 34,885 4,010 53,439
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)2 (b)(26) (b) (5) (b)7
From gain on sale 0 0 0 0
Federal tax credits (b)3 (b)62 (b)14 0
California tax credits 0 0 0 0
Cash distributions to investors (c)5 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided by
total original acquisition costs of all
properties) 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax income (losses) and tax credits allocated to an investor in the
first two years is dependent upon an investor's entry date. Amount shown is
that allocated to initial investors.
(c) This amount was distributed in 1995 by the general partner.
</FN>
</TABLE>
A-20
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
FOUR PRIVATE
/-----OFFERINGS CLOSED DURING 1992----\
1992(a) 1993 1994 1995 1996
------- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Gross revenue $ 179,081 $394,031 $261,322 $219,584 $110,625
Less:
Operating expenses 9,951 12,208 9,958 15,822 20,825
Interest 38,574 40,265 20,139 13,392 0
Depreciation and amortization 0 1,346 2,619 3,518 9,006
Equity in losses in local partnerships 535,833 967,507 1,098,116 1,129,379 1,097,925
------- ------- --------- --------- ---------
Net income (loss) - Tax basis (405,277) (627,295) (869,510) (942,527) (1,017,491)
Cash generated (used) from operations (31,736) (28,897) (6,385) 1,999 89,440
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (31,736) (28,897) (6,385) 1,999 89,440
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(47) (73) (110) (114) ( 123)
From gain on sale 0 0 0 0 0
Federal tax credits 63 122 134 136 136
California tax credits 104 92 92 49 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided by
total acquistions costs of
all properties) 100 100 100 100 100
- --------------------------------
<FN>
(a) Partial year of operations.
(b) Tax loss and tax credits allocated to an investor in the first year is
dependent upon an investor's entry date. Amount shown is that allocated to
initial investors.
</FN>
</TABLE>
A-21
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
FOUR PRIVATE TWO PRIVATE
---OFFERINGS CLOSED DURING 1993--- ---OFFERINGS CLOSED DURING 1994---
1993(a) 1994 1995 1996 1994(a) 1995 1996
------- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenue $130,878 $332,016 $242,791 $147,841 $ 7,619 $ 112,058 $ 67,700
Less:
Operating expenses 2,834 16,958 10,944 23,613 111,523 36,529 54,699
Interest 6,111 14,094 14,427 0 0 0 0
Depreciation and amortization 13,808 12,262 15,457 13,863 1,305 12,906 37,940
Equity in losses in local partnerships 435,734 959,693 878,965 805,025 129,352 861,238 1,285,203
------- ------- ------- ------- ------- ------- ---------
Net income (loss) - Tax basis (327,609) (670,691) (677,002) (694,660) (234,561) (798,615) (1,310,142)
Cash generated (used) from operations 121,645 302,422 6,094 124,228 (39,826) (61,055) 13,001
Cash generated from sales 0 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 121,645 302,422 6,094 124,228 (39,826) (61,055) 13,001
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(48) (113) (112) ( 114) (b)(76) (101) (158)
From gain on sale 0 0 0 0 0 0
Federal tax credits 49 101 126 130 31 90 126
California tax credits 46 46 46 27 0 0 0
Cash distributions to investors 0 0 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs of
properties retained divided by total
original acquisition costs of all
properties) 100 100 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax loss and tax credits allocated to an investor in the first year is
dependent upon an investor's entry date. Amount shown is that allocated to
initial investors.
</FN>
</TABLE>
A-22
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
ONE PRIVATE
---OFFERING CLOSED DURING 1995---
1995 (a) 1996
<S> <C> <C>
Gross revenue $ 58,335 $ 138,052
Less:
Operating expenses 10,488 232,666
Interest 0 0
Depreciation and amortization 6,099 22,965
Equity in losses in local partnerships 188,245 599,407
_______ _______
Net income (loss) - GAAP basis (146,497) (416,838)
Taxable loss from operations (146,497) (716,986)
Cash generated (used) from operations 47,847 (118,000)
Cash generated from sales 0 0
Cash generated from refinancing 0 0
Less: Cash distributions to investors 0 0
Cash generated (deficiency) after cash
distributiond and special items 47,847 (118,000)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(10) (48)
From gain on sale 0 0
Federal tax credits (b)7 59
California tax credits 0 0
Cash distributions to investors 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs of
properties retained divided by
total original acquisition costs
of all properties) 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax loss and tax credits allocated to an investor in the first year is
dependent upon an investor's entry date. Amount shown is that allocated to
initial investors.
</FN>
</TABLE>
A-23
UNAUDITED
<PAGE>
EXHIBIT B
WNC HOUSING TAX CREDIT FUND VI
AGREEMENT OF LIMITED PARTNERSHIP
Table of Contents
Page
ARTICLE 1 DEFINITIONS................................................... B-4
ARTICLE 2 FORMATION; NAME; PLACE OF BUSINESS;
PURPOSE AND TERM.......................................B-18
Section 2.1 Formation of Partnership............................B-18
Section 2.2 Name................................................B-18
Section 2.3 Place of Business...................................B-18
Section 2.4 Purpose.............................................B-18
Section 2.5 Agent for Service of Process........................B-19
Section 2.6 Term................................................B-19
ARTICLE 3 PARTNERS AND CAPITAL...........................................B-19
Section 3.1 General Partner.....................................B-19
Section 3.2 Initial Limited Partner.............................B-19
Section 3.3 Additional Limited Partners;
Terms of Offering....................B-20
Section 3.4 Payment or Return of
Additional Limited Partners' Capital.B-21
Section 3.5 Liability of Limited Partners.......................B-24
Section 3.6 Miscellaneous.......................................B-24
ARTICLE 4 DISTRIBUTIONS OF CASH; ALLOCATIONS OF
PROFITS AND LOSSES.....................................B-25
Section 4.1 Distributions of Cash Available for Distribution . B-25
Section 4.2 Distributions of Sale or Refinancing Proceeds.......B-25
Section 4.3 Profits and Losses..................................B-26
Section 4.4 Certain Provisions Related to Partnership
Allocations and Distributions.........B-28
Section 4.5 Allocation of Tax Credits............................B-33
B-1
wncnat6-6/05.lpa
<PAGE>
Section 4.6 Determinations of Allocations and Distributions
Within Classes of Partners............B-34
Section 4.7 Installment Obligations..............................B-35
ARTICLE 5 RIGHTS, POWERS AND DUTIES OF
GENERAL PARTNER.........................................B-36
Section 5.1 Management of the Partnership........................B-36
Section 5.2 General Authority of General Partner.................B-37
Section 5.3 Authority of General Partner and its
Affiliates to Deal with Partnership...B-42
Section 5.4 Restrictions on Authority of General Partner.........B-46
Section 5.5 Duties and Obligations of General Partner............B-49
Section 5.6 Compensation of Sponsor..............................B-51
Section 5.7 Other Business of Partners...........................B-53
Section 5.8 Limitation on Liability of
Sponsor; Indemnification............................B-53
ARTICLE 6 ADMISSION OF SUCCESSOR AND ADDITIONAL
GENERAL PARTNERS; WITHDRAWAL OF
GENERAL PARTNER.........................................B-55
Section 6.1 Admission of Successor or Additional
General Partners .....................B-55
Section 6.2 Restrictions on Transfer of
General Partner's Interest............B-56
Section 6.3 Consent of Limited Partners to
Admission of Successor or
Additional General Partners...........B-56
Section 6.4 Event of Withdrawal of a General Partner.............B-56
Section 6.5 Interest and Liability of a Withdrawn
General Partner ..................... B-57
Section 6.6 Valuation and Sale of Interest of
Former General Partner................B-57
ARTICLE 7 TRANSFERABILITY OF UNITS........................................B-58
Section 7.1 Right to Transfer Units..............................B-58
Section 7.2 Restrictions on Transfers............................B-58
Section 7.3 Assignees and Assignment Procedure...................B-60
Section 7.4 Substitute Limited Partners..........................B-63
B-2
wncnat6-6/05.lpa
<PAGE>
ARTICLE 8 DISSOLUTION AND WINDING-UP OF
THE PARTNERSHIP.........................................B-63
Section 8.1 Events Causing Dissolution...........................B-63
Section 8.2 Liquidation..........................................B-64
ARTICLE 9 BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX ELECTIONS, ETC......................................B-65
Section 9.1 Books and Records....................................B-65
Section 9.2 Accounting and Fiscal Year...........................B-66
Section 9.3 Bank Accounts and Temporary Investments..............B-66
Section 9.4 Reports..............................................B-66
Section 9.5 Depreciation and Other Tax Elections.................B-68
Section 9.6 Designation of Tax Matters Partner...................B-68
ARTICLE 10 MEETINGS AND VOTING RIGHTS
OF LIMITED PARTNERS............................B-69
Section 10.1 Meetings and Actions Without Meetings...............B-69
Section 10.2 Voting Rights of Limited Partners...................B-69
Section 10.3 Limitations on Roll-Ups; Dissenters' Rights.........B-70
ARTICLE 11 SPECIAL POWER OF ATTORNEY......................................B-71
ARTICLE 12 AMENDMENTS.....................................................B-73
Section 12.1 Adoption of Amendments..............................B-73
Section 12.2 Filing of Required Documents........................B-74
Section 12.3 Required Change of Partnership Name.................B-74
ARTICLE 13 MISCELLANEOUS PROVISIONS.......................................B-74
Section 13.1 Security Interest and Right of Set-Off..............B-74
Section 13.2 Notices.............................................B-75
Section 13.3 Execution...........................................B-75
Section 13.4 Binding Effect......................................B-75
Section 13.5 Applicable Law......................................B-76
Section 13.6 Counterparts........................................B-76
Section 13.7 Separability of Provisions..........................B-76
Section 13.8 Captions............................................B-76
Section 13.9 Mandatory Arbitration...............................B-76
Section 13.10 Partnerships Treated as Separate...................B-77
B-3
wncnat6-6/05.lpa
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP dated as of March 3, 1997 among WNC &
Associates, Inc., as General Partner, John B. Lester, Jr. as Initial Limited
Partner and those Persons who shall hereafter be admitted to the Partnership as
Additional Limited Partners, who hereby agree as follows:
ARTICLE 1
DEFINITIONS
The following terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article 1. The singular
shall include the plural and the masculine gender shall include the feminine and
neuter genders, and vice versa, as the context requires.
"Accountants" means Corbin & Wertz, Irvine, California, or such other firm
of independent public accountants as from time to time shall be engaged for the
Partnership by the General Partner.
"Acquisition Expenses" means expenses, including, but not limited to, legal
fees and expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on property not acquired, accounting fees and
expenses, title insurance and miscellaneous expenses related to selection and
acquisition by the Partnership of Local Limited Partnership Interests and the
selection and acquisition of Apartment Complexes by the Local Limited
Partnerships, whether or not acquired.
"Acquisition Fees" means the total of all fees and commissions paid by any
party in connection with the selection or purchase by the Partnership of any
Local Limited Partnership Interest, and the purchase, development or
construction of an Apartment Complex by a Local Limited Partnership, whether
designated as a real estate commission, acquisition fee, finders' fee, selection
fee, Development Fee, Construction Fee, nonrecurring management fee, consulting
fee or any fee of a similar nature however designated, with the exception of
Development Fees and Construction Fees paid to Persons not affiliated with the
Sponsor in connection with the actual development and construction of an
Apartment Complex. As used herein, a "Development Fee" shall be a fee for the
packaging of an Apartment Complex, including negotiating and approving plans,
and undertaking to assist in obtaining zoning and necessary variances, necessary
financing and Tax Credits for the Apartment Complex, either initially or at a
later date, and a "Construction Fee" shall be a fee or other remuneration for
acting as general contractor and/or construction manager to construct
improvements, supervise and coordinate projects or provide Major Repairs or
Rehabilitation for an Apartment Complex.
B-4
wncnat6-6/05.lpa
<PAGE>
"Act" means the California Revised Limited Partnership Act (Corp. Code
Section 15611, et seq.), as now in effect and as the same may be amended from
time to time hereafter.
"Additional Limited Partners" means those Persons admitted to the
Partnership pursuant to Section 3.3 hereof.
"Adjusted Capital Account Deficit" means, with respect to each Partner, the
deficit balance in his Capital Account as of the end of the relevant fiscal
period of the Partnership, after giving effect to the following adjustments:
(a) Increasing such Capital Account by any amounts such Person is
obligated to restore under the standards set by Section
1.704-1(b)(2)(ii)(c) of the Regulations (or is deemed obligated to restore
under Section 1.704-2(g)(1) and (i)(5) of the Regulations); and
(b) Decreasing such Capital Account by the items described in
Section 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
"Adjusted Capital Contribution" means, for each fiscal period, the Limited
Partners' Capital Contribution reduced by all distributions of noninvested funds
pursuant to Section 3.4.2 hereof and distributions of Sale or Refinancing
Proceeds made to the Limited Partners through the end of such period.
"Affiliate" or "Affiliated Person" means, when used with reference to a
specified Person: (i) any Person who, directly or indirectly, controls or is
controlled by or is under common control with the specified Person; (ii) any
Person who is an officer or director of, or partner in, or serves in a similar
capacity with respect to, the specified Person or of which the specified Person
is an officer, director or partner, or with respect to which the specified
Person serves in a similar capacity; (iii) any Person who, directly or
indirectly, is the beneficial owner of, or controls, 10% or more of any class of
equity securities of, or otherwise has a 10% or more beneficial interest in, the
specified Person; or (iv) any Person of which the specified Person is, directly
or indirectly, the owner of, or in control of, 10% or more of any class of
equity securities, or in which the specified Person has a 10% or more beneficial
interest.
"Agreement" means this Agreement of Limited Partnership, as originally
executed and as amended or restated from time to time. Words such as "herein,"
"hereinafter," "hereof," "hereto," "hereby" and "hereunder," when used with
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reference to this Agreement, refer to this Agreement as a whole, unless the
context otherwise requires.
"Apartment Complex" or "Property" means a multi-family residential rental
complex owned or under development or rehabilitation by a Local Limited
Partnership.
"Asset Based Fee" means compensation to the Sponsor computed in accordance
with Section IV.J. of the NASAA Guidelines. No Asset Based Fee shall be payable
to the Sponsor.
"Asset Management Fee" means the annual fee payable to the General Partner
or an Affiliate of the General Partner pursuant to Section 5.6.6.
"Capital Account" means, with respect to any Partner, the Capital Account
maintained for such Partner in accordance with the following provisions: (i) to
each Partner's Capital Account there shall be credited such Partner's Capital
Contribution and such Partner's distributive share of Profits for Tax Purposes
and (ii) to each Partner's Capital Account there shall be debited the amount of
cash and the net fair market value of property distributed to such Partner
pursuant to any provision of this Agreement and such Partner's distributive
share of Losses for Tax Purposes. In the event any interest in the Partnership
is transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferror to the extent it relates
to the transferred interest. Subject to Section 4.4.1, Capital Accounts shall be
maintained in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv).
"Capital Contribution" means the total amount of cash contributed to the
Partnership (excluding any cash contributed by the General Partner pursuant to
the last sentence of Section 3.3.3 hereof) determined without inclusion of any
interest or late charges paid on the Promissory Notes and without reduction for
any discounts for Designated Investors and Discount Investors (prior to the
deduction of any Syndication Expenses) by all the Partners or any class of
Partners or any one Partner, as the case may be (or the predecessor holders of
the Interests of such Partners or Partner), reduced, in the case of the Limited
Partners, by the amount of any funds returned to them pursuant to Section 3.4.2.
"Cash Available for Distribution" means, with respect to any period, Cash
Flow less any amounts set aside from Cash Flow for the restoration or creation
of Reserves.
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"Cash Flow" means, with respect to any period, (i) all cash funds provided
to the Partnership from Local Limited Partnership operations (exclusive of any
proceeds derived from the sale, disposition, financing or refinancing of
Apartment Complexes, or other Sale or Refinancing transactions) plus (ii) all
cash funds from Partnership operations (including any interest from Promissory
Notes), without deduction for depreciation, but after deducting cash funds used
to pay all other expenses, Debt Service and capital expenditures.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"Competitive" when applied to a fee, commission (other than a real estate
or brokerage commission) or other payment for goods supplied or services
rendered, means a payment equal to the amount customarily charged by Persons not
Affiliated with the payee for such goods or services in the geographic area in
which such goods are supplied or services rendered.
"Competitive Real Estate Commission" means a real estate or brokerage
commission paid for the purchase or sale of Property which is reasonable,
customary and competitive in light of the size, type and location of the
Property.
"Consent" means either (i) the approval given by vote at a meeting called
and held in accordance with the provisions of Section 10.1, or (ii) a prior
written approval required or permitted to be given pursuant to this Agreement.
"Dealer-Manager" means WNC Capital Corporation.
"Dealer-Manager Fee" means the fee payable to the Dealer-Manager pursuant
to Section 5.6.2.
"Debt Service" means all payments required to be made in connection with
any loan to the Partnership or any loan secured by a lien on any of the
Apartment Complexes.
"Deemed Liquidation Distribution" means, with respect to the Limited
Partners, as a class, and the General Partner the amount that would be
distributed to them as of the end of each fiscal year of the Partnership if the
Partnership were dissolved and liquidated and (i) the assets of the Partnership
(other than Installment Obligations, as defined in Section 4.7.1) were sold for
cash equal to their Federal adjusted tax basis (or their Book Value, where
Section 4.4.2 applies); (ii) the liabilities of the Partnership were paid; and
(iii) the remaining cash of the Partnership were distributed to such class of
Partners in accordance with Section
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4.2.1 (and not Section 4.2.2). For the purposes of this definition, (a) the
Capital Accounts of the Partners shall not be adjusted for their shares of any
Partnership Minimum Gain that would be recognized as a result of a deemed sale
of Properties or Local Limited Partnership Interests; and (b) Installment
Obligations shall be treated in the manner provided in Section 4.7.
"Designated Investor" shall have the meaning specified in the Prospectus
under "Terms of the Offering and Plan of Distribution."
"Discount Investor" means any Additional Limited Partner (other than a
Designated Investor) who has paid or agreed to pay less than $1,000 per Unit
subscribed for by him on account of reduced selling commissions, reduced Dealer-
Manager Fees and/or reduced Acquisition Fees attributable to his Units, as
specified in the Prospectus under "Terms of the Offering and Plan of
Distribution."
"Economic Risk of Loss" means the extent to which a Partner or Related
Person bears the economic risk of loss for a Partnership liability as determined
under Treasury Regulation Section 1.752-2.
"Escrow Agent" means National Bank of Southern California, Newport Beach,
California, or any other escrow agent chosen by the General Partner to hold
funds from investors pending their admission to the Partnership.
"Event of Withdrawal" means the occurrence of any of the following events
as to a General Partner: (i) its withdrawal from the Partnership pursuant to
Section 15662 of the Act; (ii) its removal in accordance with this Agreement;
(iii) it (a) makes an assignment for the benefit of creditors, (b) files a
voluntary petition in bankruptcy, (c) is adjudged a bankrupt or insolvent, or
has entered against it an order for relief in any bankruptcy or insolvency
proceeding, (d) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, (e) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding of this nature, or (f) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of itself or of all or any substantial part of its properties; (iv)
the lapse of 120 days after the commencement of any proceeding against it
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, if during
such period the proceeding has not been dismissed, or the lapse of 90 days after
the appointment, without its consent or acquiescence, of a trustee, receiver or
liquidator of itself or of all or any substantial part of its properties, if
during such period the appointment is not vacated or stayed, or if within 90
days after the expiration of any such stay,
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the appointment is not vacated; (v) in the case of a General Partner who is a
natural person, (a) his death, or (b) the entry by a court of competent
jurisdiction adjudicating him incompetent to manage his person or his property;
(vi) in the case of a General Partner who is acting as a general partner by
virtue of being a trustee of a trust, the termination of the trust (but not
merely the substitution of a new trustee); (vii) in the case of a General
Partner which is a separate partnership, the dissolution and commencement of
winding up of the separate partnership; (viii) in the case of a General Partner
which is a corporation, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; or (ix) in the
case of a General Partner which is an estate, the distribution by the fiduciary
of the estate's entire interest in the Partnership. Notwithstanding the
foregoing, an Event of Withdrawal shall not be deemed to have occurred as to a
General Partner under the preceding clause (iv) until 120 days shall have
elapsed after Notification has been given to the Limited Partners of the event
which, with or without lapse of time, would constitute an event contemplated by
such clause.
"Front-End Fees" means fees and expenses paid by any party for any services
rendered during the organizational and acquisition phases of the Partnership,
including Organizational and Offering Expenses, Acquisition Fees, Acquisition
Expenses, interest on deferred fees and expenses and any other similar fees,
however designated. Front-End Fees which are to be paid pursuant to this
Agreement from installment payments on the Promissory Notes shall be paid pro
rata as the installment payments are received by the Partnership.
"General Partner" means WNC & Associates, Inc., or any Person or Persons
who, at the time of reference thereto, has been admitted as a successor to any
such General Partner or as an additional General Partner, in each such Person's
capacity as a general partner. Restrictions placed on the rights and powers of
the "General Partner" throughout this Agreement also serve to restrict the
rights and powers of the Affiliates of the General Partner.
"Government Assistance" means any form of Federal, state or local
government assistance provided to Properties or their tenants or owners,
including mortgage insurance, rental assistance payments, permanent mortgage
financing, low interest mortgage loans, interest reduction payments and Tax
Credits.
"Gross Proceeds" means the gross proceeds of the Offering, determined
without inclusion of any interest or late charges paid on the Promissory Notes
and without reduction for any discounts for Designated Investors and Discount
Investors.
"HUD" means the United States Department of Housing and Urban Development
or any successor thereto.
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"Historic Tax Credit" means the tax credit allowable pursuant to Section 47
of the Code for rehabilitation expenditures incurred with respect to certain
qualified buildings.
"Independent Expert" means a Person with no material current or prior
business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership, and who is qualified to perform such
work.
"Initial Limited Partner" means John B. Lester, Jr.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement. Reference to a majority, or specified
percentage, in interest of the Limited Partners means, Limited Partners whose
combined Capital Contribution represents over 50%, or such specified percentage,
respectively, of the Capital Contribution of all Limited Partners.
"Invested Assets" means the sum of the Partnership's Investment in Local
Limited Partnership Interests and the Partnership's allocable share of the
amount of the mortgage loans on, and other debts related to, the Apartment
Complexes owned by such Local Limited Partnerships.
"Investment Date" means the date of the final admission into the
Partnership of Additional Limited Partners who purchased Units.
"Investment in Local Limited Partnership Interests" means the amount of
Capital Contributions used by the Partnership to acquire Local Limited
Partnership Interests (except that, if a portion of the Partnership's investment
in a Local Limited Partnership is used to fund working capital reserves of the
Local Limited Partnership, there shall be excluded from this calculation any
amount which is used to fund working capital reserves which is in excess of 5%
of Gross Proceeds) plus Reserves of the Partnership, except that Reserves in
excess of 5% of Gross Proceeds shall not be included, but excluding Front-End
Fees. Notwithstanding the preceding, the total amount of Capital Contributions
used to fund Partnership Reserves or working capital reserves of the Local
Limited Partnerships which shall be included in Investment in Local Limited
Partnership Interests shall not exceed 5% of Gross Proceeds.
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"Investor Closing" means a closing at which purchasers of Units are
admitted as Additional Limited Partners pursuant to Section 3.3 hereof.
"Limited Partner" means any Person who is a Limited Partner, whether an
Initial Limited Partner, an Additional Limited Partner or a Substitute Limited
Partner at the time of reference thereto, in such Person's capacity as a Limited
Partner of the Partnership.
"Local General Partners" (whether or not capitalized) means the Persons who
are from time to time general partners (or managers in the cases of limited
liability companies) of Local Limited Partnerships, except that where reference
is made to Local General Partners in respect of any guaranties or undertakings
provided to the Partnership in connection with its investment in a Local Limited
Partnership, such term shall mean such Local General Partners at the date of
such investment or such other Persons (including Affiliates of such Local
General Partners) as actually provide such guaranties and undertakings.
"Local Limited Partnership" means a limited partnership or a limited
liability company which owns or is developing or rehabilitating one or more
rental housing projects to be qualified under Section 42(g) and/or Section 47 of
the Code.
"Local Limited Partnership Interest" means the limited partnership interest
of the Partnership in a Local Limited Partnership.
"Low Income Housing Credit" means the tax credit allowable under Section 42
of the Code for a qualified low income housing project.
"Major Repairs and Rehabilitation" means the repair, rehabilitation or
reconstruction of a Property where the aggregate costs of the repair,
rehabilitation or reconstruction exceed 10% of the fair market value of the
Property at the time of such services.
"Mortgage" (whether capitalized or not) means any mortgage, deed of trust,
or similar security instrument and, where the sense of this Agreement so
requires, the indebtedness secured thereby.
"NASAA Guidelines" means the Statement of Policy Regarding Real Estate
Programs adopted by the North American Securities Administrators Association,
Inc., as in effect on the date of this Agreement.
"Net Proceeds" means the Gross Proceeds less Organizational and Offering
Expenses.
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"Nonaccountable Expense Reimbursement" means the payment to be made to the
Dealer-Manager pursuant to Section 5.6.3.
"Nonrecourse Deductions" has the meaning given it in Treasury Regulation
Section 1.704-2(b)(1).
"Nonrecourse Liability" means a Partnership liability with respect to which
no Partner or Related Person bears the Economic Risk of Loss.
"Note Capital Contribution" means that portion of a Limited Partner's
Capital Contribution, if any, paid in accordance with his Promissory Note.
"Notification" means a writing, containing the information required by this
Agreement to be communicated to any Person, personally delivered to such Person
or sent by registered, certified or regular mail, postage prepaid, to such
Person at the last known address of such Person. The date of personal delivery
or the date of mailing thereof, as the case may be, shall be deemed the date of
giving the Notification.
"Offering" means, with respect to the Partnership, the offering and sale of
its Units pursuant to the Prospectus.
"Offering Commencement Date" means, with respect to the Offering, the
effective date of the registration statement or post-effective amendment thereto
filed with the Securities and Exchange Commission which authorizes the
commencement of such Offering.
"Operating Cash Expenses" means, with respect to any fiscal period, the
amount of cash disbursed by the Partnership in that period in the ordinary
course of business for the payment of its operating expenses, such as expenses
for management, utilities, repair and maintenance, insurance, investor
communications, legal, accounting, statistical and bookkeeping services, use of
computing or accounting equipment, travel and telephone expenses, salaries and
direct expenses of Partnership employees while engaged in Partnership business,
and any other operational and administrative expenses necessary for the prudent
operation of the Partnership. Without limiting the generality of the foregoing,
Operating Cash Expenses shall include the actual cost of goods, materials and
administrative services used for or by the Partnership, whether incurred by the
General Partner, an Affiliate of the General Partner or a non-Affiliated Person
in performing the foregoing functions. As used in the preceding sentence, actual
cost of goods and materials means the actual cost of goods and materials used
for or by the Partnership and obtained from entities not Affiliated with the
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General Partner, and actual cost of administrative services means the pro
rata cost of personnel (as if such persons were employees of the Partnership)
associated therewith, but in no event to exceed the Competitive amount.
"Organizational and Offering Expenses" means all expenses incurred in
connection with the formation of the Partnership, the registration and
qualification of the Units under Federal and state securities laws and the
Offering, including selling commissions, the Dealer-Manager Fee, the
Nonaccountable Expense Reimbursement and all advertising expenses.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt" has the meaning given it in Treasury Regulation
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" means the amount determined in
accordance with the principles of Treasury Regulation Section 1.704-2(i)(3).
"Partnership" means the partnership formed under the terms of this
Agreement.
"Partnership Minimum Gain" means the amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Register" means the schedule listing the names and addresses
of all Limited Partners together with the amounts of their respective Capital
Contributions which shall be maintained by the General Partner in accordance
with Section 3.3.
"Person" means any individual, partnership, corporation, trust or other
legal entity.
"Prime Rate" means the prime or reference rate of interest from time to
time announced by National Bank of Southern California as being charged by it on
short-term unsecured loans to its most creditworthy customers.
"Profits" and "Losses" means, for each fiscal year or other relevant
period, an amount equal to the Partnership's taxable income or loss for such
year or period determined in accordance with Section 703(a) of the Code (for
this purpose all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments: (i) any income of the
Partnership that is exempt from Federal income tax and not otherwise taken into
account in computing Profits or
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Losses pursuant to this definition shall be added to such taxable income or
loss; (ii) any expenditures of the Partnership described in Section 705(a)(2)(B)
of the Code or treated as such pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits
or Losses pursuant to this definition, shall be subtracted from such taxable
income or loss; (iii) any adjustment pursuant to Section 743(b) of the Code
shall be allocated solely to the Partner to whom such adjustment relates and
shall not be taken into account in computing Profits or Losses; (iv) any gain or
loss which would have been realized by the Partnership on the sale of assets
distributed in kind to Partners, determined with reference to the fair market
value and the adjusted tax basis of such property for Federal income tax
purposes immediately prior to such distribution, shall be added to or subtracted
from such taxable income or loss; (v) notwithstanding any other provision of
this definition, any items that are specially allocated pursuant to Section
4.4.3 shall not be taken into account in computing Profits or Losses; and (vi)
if required, the adjustments specified in Section 4.4.2 shall be taken into
account.
"Profits and Losses for Tax Purposes" means all items of Profits and Losses
as well as any items that are specifically excluded from Profits and Losses by
clause (v) of the definition thereof.
"Promissory Note" means the full recourse promissory note evidencing the
deferred installments, if any, of the Capital Contribution required to be made
for a Unit.
"Property Management Fee" means a fee paid for day-to-day professional
property management services in connection with the Properties.
"Prospectus" means the prospectus contained in the registration statement
filed with the Securities and Exchange Commission with respect to the Units, in
the final form in which said prospectus is filed with said Commission and as
thereafter supplemented pursuant to Rule 424 under the Securities Act of 1933,
as amended.
"Purchase Price" means the price paid upon the purchase or sale of a
particular Local Limited Partnership Interest or Apartment Complex, as the case
may be, including the amount of Acquisition Fees and all liens and mortgages on
the Apartment Complex, but excluding points and prepaid interest.
"RD" means the United States Department of Agriculture, Rural Development,
or any successor thereto.
"Registration Date" has the meaning given it in Section 7.3.2.
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"Related Person" means a Person having a relationship with a Partner that
is described in Treasury Regulation Section 1.752-4(b).
"Reserves" means amounts set aside by the Partnership for working capital
or other obligations of the Partnership and contingencies related to the
ownership of Local Limited Partnership Interests.
"Return on Investment" means an annual, cumulative, but not compounded,
"return" to the Limited Partners as a class on their Adjusted Capital
Contributions commencing for each Limited Partner on the last day of the
calendar quarter during which the Limited Partner's Capital Contribution is
received by the Partnership, calculated at the following annual rates: (i) 12%
through December 31, 2008, and (ii) 6% for the balance of the Partnership's
term.
"Roll-Up" means a transaction involving the acquisition, merger, conversion
or consolidation, either directly or indirectly, of the Partnership and the
issuance of securities of a Roll-Up Entity. Such term does not include:
(i) any transaction if the securities of the Partnership have been for
at least twelve months traded on a national securities exchange or through the
National Association of Securities Dealers, Inc. Automated Quotation National
Market System; or
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Partnership, if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following: (a) the Limited Partners' voting rights; (b) the term of existence of
the Partnership; (c) the terms of compensation of the Sponsor; or (d) the
Partnership's investment objectives.
"Roll-Up Entity" means the partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive after
the successful completion of a proposed Roll-Up transaction.
"SLP Affiliate" means an Affiliate of the Fund Manager in its capacity as a
limited partner (or member in the case of limited liability companies) of Local
Limited Partnerships.
"Sale or Refinancing" means any Partnership or Local Limited Partnership
transaction not in the ordinary course of its business, including, without
limitation, sales, exchanges or other dispositions of Apartment Complexes, Local
Limited Partnership Interests and real or personal property of the Partnership,
or any borrowings or refinancings. Sale or Refinancing shall not include any
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receipt of capital contributions by the Partnership or a Local Limited
Partnership; provided, however, that the receipt by the Partnership of a return
of all or a portion of its capital contribution to a Local Limited Partnership,
however funded, shall be treated as a Sale or Refinancing.
"Sale or Refinancing Proceeds" means all cash receipts of the Partnership
arising from a Sale or Refinancing less the following:
(i) the amount paid or to be paid in connection with or as an expense of
such Sale or Refinancing, and, with regard to damage recoveries or insurance or
condemnation proceeds, the amount paid or to be paid for repairs, replacements
or renewals resulting from damage to or partial condemnation of the affected
property;
(ii) the amount applied to the payment of the debts and obligations of the
Partnership; and
(iii) any Reserves funded with such proceeds.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership, or any Person who will manage or
participate in the management of the Partnership, and any Affiliate of any such
Person, but does not include a Person whose only relation with the Partnership
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. A Person may
also be a "Sponsor" of the Partnership by: (i) taking the initiative, directly
or indirectly, in founding or organizing the business or enterprise of the
Partnership, either alone or in conjunction with one or more Persons; (ii)
receiving a material participation in the Partnership in connection with the
founding or organizing of the business of the Partnership, in consideration of
services or property, or both services or property; (iii) having a substantial
number of relationships and contacts with the Partnership; (iv) possessing
significant rights to control Partnership properties (other than Local General
Partners whose only association with the Partnership is as such); (v) receiving
fees for providing services to the Partnership which are paid on a basis that is
not customary in the industry; and (vi) providing goods or services to the
Partnership on a basis which was not negotiated at arm's length with the
Partnership.
"Subordinated Disposition Fee" means the fee payable to the General Partner
in connection with dispositions of Properties owned by Local Limited
Partnerships pursuant to Section 5.6.7.
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"Substitute Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to the provisions of Section 7.3 and 7.4 hereof.
"Syndication Expenses" means all expenditures classified as syndication
expenses pursuant to Treasury Regulation Section 1.709-2(b). Syndication
Expenses shall be taken into account under this Agreement at the time they would
be taken into account under the Partnership's method of accounting if they were
deductible expenses.
"Tax Credits" means any credit permitted under the Code against the Federal
income tax liability of any Partner as a result of activities or expenditures of
the Partnership or any Local Limited Partnership, including, without limitation,
Low Income Housing Credits and Historic Tax Credits.
"Temporary Investments" means United States Government securities,
securities issued or fully guaranteed by United States Government agencies,
certificates of deposit and time or demand deposits in, or repurchase agreements
constituting obligations of, commercial banks with deposits insured by the
Federal Deposit Insurance Corporation and other short-term, highly liquid
investments.
"Treasury Regulation or Regulations" means the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Unit" means the Interest of a Limited Partner attributable to a Capital
Contribution of $1,000 (determined without regard to any discounts for
Designated Investors and Discount Investors).
"Voluntary Withdrawal" by a General Partner means any withdrawal initiated
by the General Partner and includes, but is not limited to, the commencement of
an action in bankruptcy by or against such General Partner, and excludes any
withdrawal accomplished as the result of a settlement, whether or not
incorporated in a decree of a court or administrative agency, between a
withdrawing General Partner and one or more of any remaining General Partners, a
majority-in-interest of the Limited Partners or any regulatory agency whether a
Federal or state agency or a self-regulatory agency, having jurisdiction over
the affairs of the Partnership.
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ARTICLE 2
FORMATION; NAME; PLACE OF BUSINESS; PURPOSE AND TERM
2.1. Formation of Partnership
The parties hereto hereby form the Partnership on the terms and conditions
set forth herein and pursuant to the provisions of the Act.
2.2. Name
The name of the Partnership shall be "WNC Housing Tax Credit Fund VI, L.P.,
Series 5," "WNC Housing Tax Credit Fund VI, L.P., Series 6," "WNC Housing Tax
Credit Fund VI, L.P., Series 7," or "WNC Housing Tax Credit Fund VI, L.P.,
Series 8," as the case may be. The General Partner, in its sole discretion, may
change the name of the Partnership at any time and from time to time provided
that Notification thereof is given to the Limited Partners within 30 days of the
effective date thereof.
2.3. Place of Business
The Partnership shall continuously maintain an office in the State of
California which shall constitute its principal office and place of business and
at which the records required by Section 15615 of the Act and by Section 9.1 of
this Agreement shall be maintained. Such office shall initially be located at
3158 Redhill Avenue, Suite 120, Costa Mesa, California 92626, but may be changed
from time to time by the General Partner provided that Notification thereof is
given to the Limited Partners within 30 days of the effective date thereof.
The Partnership may maintain additional offices and places of business in
other locations selected by the General Partner.
2.4. Purpose
The purpose and character of the business of the Partnership shall be to
acquire, hold, sell, dispose of and otherwise invest in Local Limited
Partnership Interests and to engage in any other activities related or
incidental thereto. The investment objectives of the Partnership, in order of
importance, shall be to:
(i) provide current tax benefits, primarily in the form of Tax Credits
which Limited Partners may use to offset Federal income tax liabilities;
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(ii) preserve and protect the Partnership's capital; and
(iii) provide cash distributions from Sale or Refinancing transactions.
2.5. Agent for Service of Process
The Partnership shall continuously maintain an agent for service of process
on the Partnership at the Partnership's principal office in the State of
California. Such agent shall initially be David N. Shafer, Esq.
2.6. Term
The term of the Partnership shall commence on the date of the filing of its
Certificate of Limited Partnership with the office of the Secretary of State of
the State of California and shall continue in full force and effect until
December 31, 2052, or until the termination and winding up of the Partnership
prior to that time pursuant to the provisions of Article 8.
ARTICLE 3
PARTNERS AND CAPITAL
3.1. General Partner
The business address of the General Partner is 3158 Redhill Avenue, Suite
120, Costa Mesa, California 92626. The General Partner has made a Capital
Contribution to the Partnership of $100. The General Partner shall have no
personal liability for the repayment of the Capital Contribution of any Limited
Partner nor any other obligation to make Capital Contributions, loans or
advances to the Partnership.
3.2. Initial Limited Partner
The business address of the Initial Limited Partner is 3158 Redhill Avenue,
Suite 120, Costa Mesa, California 92626. The Initial Limited Partner has made a
Capital Contribution to the Partnership of $1,000. The Initial Limited Partner,
as such, shall not be required to make any additional Capital Contribution to
the Partnership.
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3.3. Additional Limited Partners; Terms of Offering
3.3.1. The Partnership intends to make a public Offering of not more than
25,000 additional Units and shall admit as Limited Partners the Persons whose
subscriptions for such Units are accepted by the General Partner (who may refuse
to accept any subscription for any reason). The names and the residence,
business or mailing addresses of the Additional Limited Partners and their
Capital Contributions shall be set forth in the Partnership Register.
3.3.2. The Capital Contribution required of each Additional Limited Partner
shall be not less than $5,000 and may be such greater integral multiple of
$1,000 (in each case determined without regard to any discounts for Designated
Investors and Discount Investors) as such Additional Limited Partner and the
General Partner shall agree upon. Notwithstanding the preceding, employees of
the General Partner and its Affiliates and/or investors in real estate
syndications previously sponsored by the Fund Manager may make a minimum Capital
Contribution of $2,000. Except with respect to subscribers who qualify for, and
elect to utilize, the installment payment procedure provided for in Section
3.4.1 below for the payment of up to one-half their Capital Contributions, all
of such required Capital Contribution shall be paid in cash at the time of
subscription for the Units.
All subscribers whose subscriptions are acceptable to the General Partner
shall be admitted to the Partnership as Additional Limited Partners on or before
the last day of the calendar month during which such subscriptions were
accepted.
3.3.3. All cash and Promissory Notes received from subscribers for Units
shall be received by the Partnership in trust and deposited in an escrow account
with the Escrow Agent. Subscriptions for Units shall be accepted or rejected by
the General Partner within 30 days after their receipt by the Partnership. Upon
receipt and deposit into escrow of Capital Contributions in the amount of at
least $1,400,000, the Escrow Agent shall release to the Partnership such Capital
Contributions and the Promissory Notes evidencing any Note Capital
Contributions, and the subscribers for such Units shall be admitted to the
Partnership as Additional Limited Partners within 15 days after the date of such
release. Thereafter, subscribers whose subscriptions are acceptable to the
General Partner shall be admitted to the Partnership as Additional Limited
Partners on or before the last day of the calendar month during which such
subscriptions were accepted. All cash and Promissory Notes deposited by
subscribers whose subscriptions are rejected by the General Partner shall be
returned to such subscribers within 10 business days after such rejection. If
the Escrow Agent does not receive Capital Contributions in the amount of at
least $1,400,000 within one year from the Offering Commencement Date, it shall
within 30 days thereafter return all cash and Promissory Notes
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deposited by subscribers for Units. Any interest earned on subscription funds in
the hands of the Escrow Agent received by the Escrow Agent from any subscriber
for Units shall be paid to such subscriber promptly after the release of such
subscription proceeds by the Escrow Agent to the Partnership or to such
subscriber, as the case may be. The General Partner, in its sole discretion,
may, but is not obligated to, increase the total interest earned by the
subscribers on funds held by the Escrow Agent. If so, the amount of the increase
in interest will be identified in the Prospectus. Any funds necessary to pay
such additional amount shall be contributed to the Partnership by the General
Partner.
3.3.4. The Offering shall be terminated not later than two years from the
Offering Commencement Date, and may be terminated earlier at the election of the
General Partner.
3.3.5. To accomplish the purpose of this Section 3.3, the General Partner
is hereby authorized to do all things necessary to admit such Additional Limited
Partners, including, but not limited to, registering the Units under the
Securities Act of 1933, as amended, qualifying the Units for sale with state
securities regulatory agencies or perfecting exemptions from qualification, and
entering into underwriting or agency arrangements for the Offering upon such
terms and conditions as the General Partner may deem advisable.
3.4. Payment or Return of Additional Limited Partners' Capital
3.4.1. (a) Each Limited Partner who subscribes for 10 or more Units may
elect to contribute only $500 in cash for each Unit which such Partner acquires,
provided that he also shall make a Note Capital Contribution in the amount of
$500 for each such Unit. The Note Capital Contribution of each such Limited
Partner shall be evidenced by a Promissory Note delivered upon subscription for
the Units. Each Promissory Note shall be payable in one installment of principal
on (i) January 31, 1999, if the maker subscribes for his Units between the date
hereof and June 30, 1998, (ii) June 30, 1999, if the maker subscribes for his
Units between July 1, 1998 and December 31, 1998, or (iii) the later of the date
of subscription or January 31, 2000, if the maker subscribes for his Units after
December 31, 1998. Each Promissory Note shall bear interest on the unpaid
balance at a rate equal to the one-year Treasury Bill rate, such rate to be
determined quarterly. Interest will be payable in arrears on the principal
payment date.
(b) Each Limited Partner who elects to pay for his Units in the
manner described in Section 3.4.1.(a) (an "Installment Contributor Limited
Partner") hereby grants to the Partnership a security interest in the Limited
Partner's Units to secure all of the Limited Partner's obligations under the
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Promissory Note, any modifications, renewals or extensions of the
Promissory Note and all of the Limited Partner's other obligations under this
Section 3.4.1.
(c) If an Installment Contributor Limited Partner defaults under
his Promissory Note or under any modifications, renewals or extensions thereof,
at the option of the Partnership, the entire unpaid principal balance of his
Promissory Note shall be immediately due and payable, the Promissory Note shall
continue to bear interest at the rate set forth in Section 3.4.1(a), a late
charge shall be imposed in an amount equal to 5% of any delinquent payment and
the Partnership shall be entitled to retain and, in any event, set off against
the amount owed to the Partnership by the defaulting Limited Partner, all
distributions attributable to the Units of the defaulting Limited Partner. In
addition, the Partnership may pursue any remedy available (including those
available under the provisions of the Uniform Commercial Code) or in equity to
collect, enforce and satisfy the obligations of the defaulting Limited Partner,
including the filing of a suit to obtain a judgment against the defaulting
Limited Partner.
The defaulting Limited Partner shall pay to the Partnership all costs
incurred by the Partnership in enforcing the Promissory Note, including but not
limited to costs of obtaining money damages and attorneys' fees. Each
Installment Contributor Limited Partner acknowledges that the Partnership may
pledge his Promissory Note as collateral security for Partnership debt. In the
event of a default under the Promissory Note, the Partnership or any other
holder of the Promissory Note, as applicable, may foreclose upon the defaulting
Limited Partner's interest in the Partnership and sell the Units in a
commercially reasonable manner to non-defaulting Limited Partners or to other
qualified investors on terms approved by the Partnership or any holder of the
Promissory Note. It is acknowledged by each Installment Contributor Limited
Partner that the purchase of the Units is a suitable investment only for Persons
meeting certain suitability standards and that it will be difficult for the
Partnership to find a suitable purchaser of the Units and to make adequate
disclosure of all of the then existing risks of the investment to prospective
purchasers. The General Partner and its Affiliates may (but are not obligated
to) purchase any such Units, but only if such Units have first been offered to
the non-defaulting Limited Partners. If Units are offered to non-defaulting
Limited Partners, they will be sold on a first-come, first-sold basis in
increments of whole Units only.
Each Installment Contributor Limited Partner agrees that in the event of a
default under his Promissory Note and a foreclosure and sale of his Units by the
Partnership or any holder of his Promissory Note, as applicable, the purchaser
of the Units in such a sale may be substituted as a Limited Partner in place of
the defaulting Limited Partner without any further consent being required from
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the defaulting Limited Partner, and specifically authorizes the General
Partner to execute on his behalf any amendment to the Partnership Agreement or
other documentation necessary to effect the substitution. Units acquired by the
Partnership through a foreclosure sale or otherwise may be reissued by the
Partnership.
Each Promissory Note shall (i) be made with full recourse to the maker;
(ii) not be a negotiable instrument; (iii) be assignable only subject to the
defenses of the maker; (iv) be subject to venue for collection in the
jurisdiction in which the Installment Contributor Limited Partner resides; (v)
not be sold by the Partnership prior to maturity; (vi) provide that a default in
a payment due shall not occur until 30 days after its due date; provided, that
until 30 days after default and notice thereof and intent to foreclose has been
given to the defaulting Limited Partner, such Limited Partner shall have the
right to cure such default with interest due thereon without suffering any
reduction in Interest in the Partnership and the Partnership may not commence
proceedings to enforce its security interest in the defaulting Limited Partner's
Units; (vii) not contain any provision authorizing a confession of judgment; and
(viii) be prepayable at any time in whole (but not in part) without penalty.
Subject to the foregoing, the Partnership may pledge and grant security
interests in Promissory Notes as security for any Partnership obligation.
3.4.2. In the event that any portion of the amount available for Investment
in Local Limited Partnership Interests is not so invested within the later of
(i) 24 months after the Offering Commencement Date, or (ii) 12 months after
termination of the Offering, such uninvested portion (except for Reserves) shall
be distributed to the Limited Partners who invested in the Partnership as a
return of capital. In addition, in order to refund to the Limited Partners the
amount of Front-End Fees attributable to such returned capital, the General
Partner shall contribute to the Partnership and the Partnership shall distribute
pro rata to the Limited Partners the amount by which the quotient of (x) the
amount of uninvested capital distributed pursuant to the foregoing sentence,
divided by (y) the percentage of the Capital Contributions which remain after
payment of all Front-End Fees, exceeds the uninvested capital so distributed.
Any funds (i) with respect to the investment of which the Partnership has
executed a written agreement in principle, commitment letter, letter of intent
or understanding, option agreement or other similar understanding or contract,
or (ii) which the Partnership has set aside or temporarily invested for Reserves
or to fund capital contributions to any Local Limited Partnerships as of the
later of (i) the date 24 months after the Offering Commencement Date or (ii) the
date 12 months after termination of the Offering will be deemed invested on that
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date and will not subsequently be returned to the Limited Partners even if
investment of such funds is not consummated or the contingent payments are not
made.
3.5. Liability of Limited Partners
3.5.1. A Limited Partner shall be liable only to make his Capital
Contribution, including his Note Capital Contribution, and shall not be liable
for the debts, liabilities, contracts or any other obligations of the
Partnership.
3.5.2. A Limited Partner may be obligated to return a distribution of cash
or other property received by him from the Partnership to the extent that,
immediately after giving effect to the distribution, all liabilities of the
Partnership, other than liabilities to Limited Partners on account of their
Interests in the Partnership and liabilities as to which recourse of the
creditors is limited to specified property of the Partnership, exceed the fair
value of the Partnership's assets, provided that the fair value of any Property
that is subject to a liability as to which recourse of creditors is so limited
shall be included in the Partnership's assets only to the extent that the fair
value of the Property exceeds the liability.
3.6. Miscellaneous
3.6.1. No Partner shall be paid interest on any Capital Contribution.
3.6.2. No Partner shall have the right to withdraw prior to the dissolution
and winding up of the Partnership or to receive any return of his Capital
Contribution except as specifically provided in Article 4 and Sections 3.4.2 and
8.2. No Capital Contribution may be returned in the form of property other than
cash, except as specifically provided in Section 8.2.
3.6.3. After its issuance by the Partnership, no Unit shall be subject to
Assessment. For these purposes, the term "Assessment" means additional amounts
of capital which may be mandatorily required of or paid at the option of a
Limited Partner beyond his subscription commitment. The term "Assessment" does
not mean a Limited Partner's Note Capital Contribution.
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ARTICLE 4
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS AND LOSSES
4.1. Distributions of Cash Available for Distribution
Any Cash Available for Distribution at the end of any fiscal year shall be
distributed, within 120 days after the end of such fiscal year, 99% to the
Limited Partners and 1% to the General Partner.
4.2. Distributions of Sale or Refinancing Proceeds
4.2.1. Subject to other provisions of this Section 4.2, all Sale or
Refinancing Proceeds, to the extent not used to acquire Local Limited
Partnership Interests as permitted by Section 5.4.1(x), shall be distributed in
the following amounts and order of priority:
(i) First, to the Limited Partners until they have received (a) their
Adjusted Capital Contributions, plus (b) their Return on Investment minus (i)
any cash distributed by the Partnership to the Limited Partners pursuant to
Section 4.1 or this Section 4.2.1(i)(b) on or before the close of the year in
which the distribution of Sale or Refinancing Proceeds occurs, and (ii) an
amount equal to the Tax Credits allocated to the Limited Partners on or before
the close of such year (reduced by any recapture thereof arising other than as a
result of the disposition of a Unit by a Limited Partner);
(ii) Second, to the General Partner in an amount equal to (a) its Capital
Contribution minus (b) any amounts previously distributed to it from Sale or
Refinancing Proceeds; and
(iii) Third (after payment of any accrued but unpaid Subordinated
Disposition Fee), the balance 90% to the Limited Partners and 10% to the General
Partner.
4.2.2. Upon termination and winding up of the Partnership, after payment
of, or adequate provision for, the debts and obligations of the Partnership, and
the funding of any Reserves deemed reasonable by the General Partner, the
remaining assets of the Partnership shall be distributed to all Partners with
positive Capital Accounts in the ratio of their respective positive Capital
Accounts to the sum of all such positive Capital Accounts. For purposes of the
preceding sentence, the Capital Account of each Partner shall be determined
after all adjustments in accordance with this Article 4 resulting from
Partnership operations and from all Sales or Refinancings. If any assets of the
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Partnership are to be conveyed to a liquidating trust for the Partners
under Section 8.2.2, then prior thereto the Capital Account of each Partner
shall be credited or charged in accordance with this Article 4 with the amount
of Profits and Losses for Tax Purposes that would have been credited or charged
to reflect the distribution of such assets as though the adjusted basis of such
assets to the Partnership were equal to the fair market value of such assets, as
determined under Section 8.2.2.
4.2.3. Notwithstanding any other provision of this Agreement to the
contrary, the interest of the General Partner and of its Affiliates in cash to
be distributed by the Partnership or by any Local Limited Partnership from Cash
Available for Distribution, from Sale or Refinancing Proceeds, or from similar
sources in the case of a Local Limited Partnership, will not exceed, in the case
of Cash Available for Distribution, 10% of total Cash Available for Distribution
and, in the case of Sale or Refinancing Proceeds, after the payment to Limited
Partners of an amount equal to 100% of their Capital Contributions and their
Return on Investment, 15% of remaining Sale or Refinancing Proceeds.
Furthermore, the interest of the General Partner and its Affiliates as Local
General Partners and/or as the SLP Affiliate in operating cash flow of all Local
Limited Partnerships, plus the Asset Management Fee payable pursuant to Section
5.6.6, will not in any year exceed an amount equal to 0.5% of that portion of
Invested Assets in Local Limited Partnerships which are attributable to
apartment units receiving Government Assistance.
4.3. Profits and Losses
After taking into account all special allocations of income or gain and
Profits and Losses for Tax Purposes and otherwise adjusting the Partners'
Capital Accounts in accordance with the applicable provisions of Section 4.4,
any remaining Profits and Losses shall be allocated among the Partners in
accordance with this Section 4.3, subject to Section 4.7.
4.3.1. Unless Section 4.3.3 applies, if there is an aggregate Loss
remaining, such remaining aggregate Loss shall be allocated:
(i) First, to the extent of the positive Capital Account balances of the
Partners, in such manner and amount as is necessary to cause such balances, as
so adjusted, to be in the ratio of 99% to the Limited Partners and 1% to the
General Partner until such balances are reduced to zero;
(ii) Second, to the extent of the excess of Partnership Minimum Gain over
the aggregate negative Capital Account balances of the Partners with such
balances, to the General Partner and the Limited Partners in such manner and
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amount as is necessary to cause their negative Capital Account balances, as
so adjusted, to be in the ratio of 99% to the Limited Partners and 1% to the
General Partner; and
(iii) Third, to the General Partner.
4.3.2. Unless Section 4.3.3 applies, if there is an aggregate Profit
remaining, such remaining aggregate Profit shall be allocated:
(i) First, in the event that the Limited Partners have an aggregate
positive Capital Account balance and the General Partner has a negative Capital
Account balance or vice versa, to the class of Partners with and to the extent
of such negative balances;
(ii) Second, to the extent of the aggregate negative Capital Account
balances of the Partners, to the Limited Partners and the General Partner in
such manner and amount as is necessary to cause the negative Capital Account
balances of such Partners, as so adjusted, to be in the ratio of 99% to the
Limited Partners and 1% to the General Partner; and
(iii) Third, to the Limited Partners to the extent that their positive
Capital Account balances are less than their Adjusted Capital Contributions.
4.3.3. Notwithstanding any provision of this Section 4.3 to the contrary,
to the extent of (i) any aggregate Profit remaining after the allocations
provided in Section 4.3.2.(iii), or (ii) the lesser of the Partnership's
remaining aggregate Losses and the excess of the positive Capital Account
balances of the Limited Partners over their Adjusted Capital Contributions, any
such Profits or Losses shall be allocated among the Limited Partners and the
General Partner in such manner and amount as is necessary to cause the positive
Capital Account balances of the Partners to be equal to such Partners' Deemed
Liquidation Distribution.
4.3.4. Whenever in this Section 4.3 a reference is made to the Limited
Partners, such reference shall be deemed to be a reference to the Limited
Partners as a class.
4.3.5. Profits and Losses for Tax Purposes and the amount of any
expenditure giving rise to a Tax Credit shall be determined and allocated with
respect to each fiscal year of the Partnership as of, and within 75 days after,
the end of such year.
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4.4. Certain Provisions Related to Partnership Allocations and
Distributions
4.4.1.(i) The provisions of this Agreement related to the maintenance of
Capital Accounts, the allocation of Profits and Losses for Tax Purposes and Tax
Credits and the distribution of cash and property to the Partners are intended
to comply with the requirements of Treasury Regulation Section 1.704-1(b) by
causing the amount of such Profits and Losses for Tax Purposes to be allocated
among the Partners' Capital Accounts so that the amount in their Capital
Accounts as of the end of each fiscal year of the Partnership is equal to the
Partners' Deemed Liquidation Distributions. Where there would be no Deemed
Liquidation Distribution to the Partners, such provisions are intended to comply
with the above-referenced Treasury Regulations by (a) limiting the maximum
negative balance in the Capital Accounts of the Limited Partners, as a class, to
an amount not in excess of their aggregate share (determined in accordance with
Treasury Regulation Section 1.704- 2(g)) of Partnership Minimum Gain, (b)
allocating the Partnership's aggregate Nonrecourse Deductions to cause the
negative Capital Account balances of the Limited Partners, as a class, and the
General Partner to be in the ratio of 99% to the Limited Partners and 1% to the
General Partner, and (c) allocating to the Partners an amount of gross income or
gain of the Partnership to the extent necessary to cause the Partnership to
comply with clauses (a) and (b) of this sentence at the end of each fiscal year
of the Partnership. In addition, such provisions are intended to cause the
amount distributable to each Partner in an actual distribution pursuant to
Section 4.2.2 to equal the amount that would be distributable to each Partner if
Section 4.2.1 rather than Section 4.2.2 applied to such distribution.
(ii) If the Partnership is advised at any time by its Accountants or
counsel that the allocations of Profits and Losses for Tax Purposes and/or Tax
Credits are unlikely to be respected for Federal income tax purposes or that an
actual distribution to the Partners in accordance with Section 4.2.2 would not
result in each Partner receiving the amount that he would have received if
Section 4.2.1 rather than Section 4.2.2 applied to such distribution, the
General Partner is authorized and empowered, without any Consent of Limited
Partners, to amend this Agreement (other than Sections 4.1 and 4.2 hereof) to
cure such defect consistent with the principles of Section 4.4.1(i).
4.4.2. The Partners acknowledge that under certain circumstances specified
in the Treasury Regulations, the allocations of taxable income or loss and any
item thereof may not be respected for Federal income tax purposes, unless the
assets of the Partnership are revalued to reflect their fair market value and
the Capital Accounts of the Partners are properly adjusted to reflect the
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difference between this fair market value (referred to herein as the "Book
Value") and the Partnership's tax basis in such assets (or, in the case of a
prior revaluation, the Partnership's prior Book Value). The circumstances in
which such revaluation may be required include, without limitation, the
contribution of property (other than cash) to the Partnership by a Partner and
certain distributions of property by the Partnership to a Partner, as well as
any deemed distribution and contribution in accordance with Treasury Regulation
Section 1.708-1(b)(1)(iv). This Agreement does not permit or provide for the
contribution of property (other than cash) to the Partnership and does not
provide for the distribution of property (other than cash) to the Partners,
except for distributions to a liquidating trust for the Partners under Section
8.2.2. However, in the event that the Treasury Regulations are determined to
require such a revaluation, the Capital Accounts of the Partners shall be
properly adjusted to reflect such revaluation and the effect of such
contribution or distribution on liabilities that the recipient assumes or to
which the revalued property is subject. Any allocation of Profits and Losses for
Tax Purposes and any adjustment to the Partners' Capital Accounts required by
the Treasury Regulations as a result of such required revaluation, including,
without limitation, any adjustments required by Section 704(c) of the Code,
shall be made in accordance with the principles of Section 4.4.1(i).
4.4.3.(i) In the event any Limited Partners unexpectedly receive any
adjustments, allocations, or distributions described in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(4)-(ii)(d)(6), items of Partnership income and gain
(consisting of a pro rata portion of each item of the Partnership's income,
including gross income, and gain for such year) shall be specially allocated to
such Partners in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit created by
such adjustments, allocations, or distributions as quickly as possible.
(ii) In the event the adjusted tax basis of any investment tax credit
property that has been placed in service by the Partnership is increased
pursuant to Section 50(c)(2) of the Code, such increase shall be allocated among
the Partners (as an item in the nature of income or gain) in the same
proportions as the investment tax credit that is recaptured with respect to such
Property is shared among the Partners.
(iii) The Capital Account of each Limited Partner shall be reduced by a
charge equal to the amount of the selling commission paid by the Partnership to
the soliciting dealers that is properly allocable to the Units held by such
Limited Partner. Notwithstanding any provision of this Agreement to the
contrary, the Partnership shall be deemed to have distributed to each Limited
Partner, and the Capital Account of each Limited Partner shall be reduced by a
charge equal to, the excess of a 7% selling commission over the amount charged
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such Limited Partner's Capital Account as a selling commission in
accordance with the preceding sentence (the "Discount"). Any deemed distribution
pursuant to this Section 4.4.3(iii) shall not be deemed a return of a Partner's
Capital Contribution, but rather shall be deemed to be a compromise within the
meaning of Section 15636(c) of the Act, and no Partner shall be obligated to pay
any such amount to or for the benefit of the Partnership or any creditor of the
Partnership. With respect to each Designated Investor and each Discount
Investor: (a) the Capital Contribution of such Investor shall be deemed to be
equal to $1,000 for each Unit purchased; (b) the amount of the selling
commission paid by the Partnership that is properly allocable to the Units held
by such Investor shall be deemed to be the reduced selling commission; and (c)
such Investor shall not receive an actual distribution but shall be deemed to
have received a distribution pursuant to this Section 4.4.3(iii) equal to the
Discount. All other Syndication Expenses for any fiscal year or other period
shall be specially allocated to the Limited Partners in proportion to their
Units, provided that if additional Limited Partners are admitted to the
Partnership pursuant to Section 3.3 hereof on different dates, all of such other
Syndication Expenses shall be divided among the Partners who own Units from time
to time so that, to the extent possible, the cumulative amount of such other
Syndication Expenses allocated with respect to each Unit at any time is the same
amount. In the event the General Partner shall determine that such result is not
likely to be achieved through future allocations of such other Syndication
Expenses, the General Partner may allocate a portion of Profits and Losses for
Tax Purposes so as to achieve the same effect on the Capital Accounts of the
Limited Partners subject to the principles of Section 4.4.1.
(iv) Any reduction in the adjusted tax basis (or cost) of Partnership
property pursuant to Section 50(c)(1) of the Code shall be allocated among the
Partners (as an item in the nature of expenses or losses) in the same
proportions as the basis (or cost) of such property is allocated pursuant to
Treasury Regulation Section 1.46- 3(f)(2)(i).
(v) (a) Except as otherwise provided in Treasury Regulation Section 1.704-
2(f), if there is a net decrease in Partnership Minimum Gain during a fiscal
year of the Partnership, each Partner shall be allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in
proportion to, and to the extent of, an amount equal to the portion of such
Partner's share of the net decrease in Partnership Minimum Gain during such
year.
(b) Except as otherwise provided in Treasury Regulation Section
1.704- 2(h), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
during a fiscal year of the Partnership determined in accordance with the
principles of Section 1.704-2(i) of the Regulations, each Partner who had a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such year
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shall be allocated items of Partnership income and gain for such year (and,
if necessary, subsequent years) in proportion to, and to the extent of, an
amount equal to the portion of such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain during such year that is allocable (in
accordance with the principles set forth in Treasury Regulation Section
1.704-2(i)) to the disposition of Partnership property subject to the related
Partner Nonrecourse Debt.
(c) For the purposes of this Section 4.4.3(v), the date of any Sale
or Refinancing shall be treated as the end of a fiscal year of the Partnership.
The character and origin of any income or gain allocated in accordance with this
Section 4.4.3(v) shall be determined in accordance with Treasury Regulation
Section 1.704-2(j).
(vi) The allocations set forth in Sections 4.4.2 and 4.4.3 hereof, other
than this Section 4.4.3(vi) and Section 4.4.3(vii) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of Treasury
Regulations. It is the intent of the Partners that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss or
deduction pursuant to this Section 4.4.3(vi). Therefore, notwithstanding any
other provision of this Article 4 (other than the Regulatory Allocations), the
General Partner shall make such offsetting special allocations of Partnership
income, gain, loss or deductions in whatever amount it determines appropriate so
that, after such offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not part of the
Partnership Agreement and all Partnership items were allocated pursuant to the
provisions of this Article 4 other than the Regulatory Allocations. In
exercising its discretion under this Section 4.4.3(vi), the General Partner
shall take into account future Regulatory Allocations under Section 4.4.3(v)(a)
and (b) that, although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 4.4.3(viii) and (ix).
(vii) In any fiscal year in which Section 4.3.1(i) or (ii) applies to the
allocation of Losses or Section 4.3.2(ii) applies to the allocation of Profits,
the General Partner shall be specially allocated an amount of income, including
gross income, or gain from such fiscal year to the extent necessary to cause the
Capital Accounts of the Limited Partners and the General Partner to be in the
ratios stated in whichever of such sections is applicable.
(viii) Notwithstanding Section 4.3.1, any deduction attributable to Partner
Nonrecourse Debt shall be allocated to the Partners that bear the Economic Risk
of Loss for the Partner Nonrecourse Debt.
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(ix) Except as otherwise expressly provided herein, Nonrecourse Deductions
shall be allocated 99% to the Limited Partners and 1% to the General Partner.
4.4.4. For the purpose of making any allocation of Profit and Loss for Tax
Purposes, the Capital Account of each Partner shall first be deemed to have been
reduced by the amount of any distribution that, at the end of the fiscal year of
the Partnership with respect to which such allocation is to be made, was
reasonably anticipated to be made to such Partner pursuant to Section 4.1 or
Section 4.2.1, except to the extent that, in compliance with Treasury Regulation
Section 1.704- 1(b)(2)(ii)(d)(6), the General Partner reasonably anticipates
that the Partnership will subsequently have offsetting income or gains.
4.4.5. To the extent that any amount of gain from the sale or other
disposition of a Property is treated as gain subject to the provisions of
Section 1245 or 1250 of the Code (other than as a result of the application of
Section 291 of the Code), such gain shall be allocated between the Limited
Partners, as a class, and the General Partner in the manner and amount necessary
to offset the amount of depreciation previously allocated to them that is being
recaptured as a result of such sale or other disposition (including any amount
so treated as a result of the application of Section 50(c) of the Code);
provided, however, that nothing in this Section 4.4.5 shall alter the aggregate
amount of Profits and Losses for Tax Purposes allocable to any Partner pursuant
to this Article 4, and the character of other items included in such Profits and
Losses for Tax Purposes for the relevant period shall be appropriately adjusted
to give effect to this provision.
4.4.6. All amounts withheld pursuant to the Code or any provision of any
state or local tax law with respect to any distribution to, or allocable share
of, the Partners shall be treated as amounts distributed to the Partners
pursuant to this Article 4 for all purposes under this Agreement. The General
Partner may allocate any such amounts among the Limited Partners in any manner
that is in accordance with applicable law.
4.4.7. Where relevant in determining the allocation of Profits and Losses
for Tax Purposes among the Partners, including the character of any amount so
allocated, such Profits and Losses arising other than from a Sale or Refinancing
shall be allocated among the Partners before the allocation of such Profits and
Losses from a Sale or Refinancing, and where more than one Sale or Refinancing
occurs during the fiscal year, Profits and Losses for Tax Purposes from such
transactions shall be allocated among the Partners in chronological order.
4.4.8. To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the General Partner shall endeavor to treat Partnership
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distributions as having been made from the proceeds of a Nonrecourse
Liability or a Partner Nonrecourse Debt only to the extent that such
distributions would cause or increase an Adjusted Capital Account Deficit for
any Limited Partner.
4.4.9 Any interest income recognized by the Partnership in connection with
payments to the Partnership pursuant to a Promissory Note shall be allocated to
the Limited Partner which delivered such Promissory Note to the Partnership (or
his successor in interest).
4.5. Allocation of Tax Credits
4.5.1. Except as provided in Section 4.5.2, in accordance with Treasury
Regulation Section 1.704-1(b)(4)(ii), all expenditures giving rise to the
allowance of any Tax Credits shall be allocated among the Partners in the manner
in which the deductions arising from such expenditures are allocated among the
Partners for the relevant taxable year, it being the intention of the Partners
that such expenditures, including, without limitation, expenditures giving rise
to the allowance of Low Income Housing Credits, be allocated 99% to the Limited
Partners, as a class, and 1% to the General Partner.
4.5.2. For purposes of the investment tax credit, including the Historic
Tax Credit, each Partner shall be allocated a share of the Partnership's basis
in the property qualifying for the investment tax credit. Each Partner's share
of such basis shall be determined in accordance with the ratio in which the
Partners are allocated Profits of the Partnership (other than Profits from a
Sale or Refinancing) for the year during which the property is placed in
service. If the Partnership realizes no Profits during such year, then such
share of such basis shall be determined in accordance with the ratio in which
the next dollar of such Profits would have been allocated if such Profits had
been realized.
4.5.3. Any recapture of any Tax Credits shall be allocated between the
Limited Partners, as a class, and the General Partner in the same manner in
which they shared the Tax Credits.
4.5.4. Notwithstanding Section 4.5.3, in the case of any recapture of any
Tax Credits resulting from the sale, exchange, transfer or assignment of any
Units, the Limited Partners holding such Units prior to the sale, exchange,
transfer or assignment shall indemnify the Partnership and the Partners not
transferring their Units for the consequences of such recapture in the
proportion in which such transferred Units shared the Tax Credits.
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4.6. Determinations of Allocations and Distributions
Within Classes of Partners
4.6.1. All Cash Available for Distribution and Sale or Refinancing Proceeds
distributable to the Limited Partners as a class, and all Profits and Losses for
Tax Purposes and Tax Credits (including each item of income, gain, loss,
deduction or credit included therein, except as provided in Section 4.4)
allocable to the Limited Partners as a class, shall be distributed or allocated,
as the case may be, to each Limited Partner entitled to a distribution or
allocation, in the ratio which the number of Units held by each Limited Partner
bears to the total number of Units held by all Limited Partners entitled to the
distribution or allocation.
4.6.2. Except a provided in Sections 3.3.3, 4.6.3, 4.6.4, and 4.6.5, all
Profits and Losses for Tax Purposes not arising from a Sale or Refinancing and
all Tax Credits allocable to the Limited Partners as a class, shall be
allocated, and all Cash Available for Distribution distributable to the Limited
Partners as a class shall be distributed, to the Persons recognized (in
accordance with Section 7.3.3 in the case of a transfer of Units) as the holders
of Units for this purpose as of the last day of the fiscal period for which the
allocation or distribution is to be made.
4.6.3. Subject to Section 4.6.5, all Profits and Losses for Tax Purposes
not arising from a Sale or Refinancing and all Tax Credits for a fiscal year
allocable to any Unit which is transferred during the year shall be divided and
allocated between the transferee and the transferror based upon the number of
quarterly periods that each was recognized (in accordance with Section 7.3.3) as
the holder of the Unit for this purpose, without regard to whether Partnership
operations during particular quarterly periods of such fiscal year produced
profits or losses or cash distributions.
4.6.4. All Profits and Losses for Tax Purposes arising from a Sale or
Refinancing allocable to the Limited Partners as a class shall be allocated, and
all Sale or Refinancing Proceeds distributable to the Limited Partners as a
class shall be distributed, to the Persons recognized (in accordance with
Section 7.3.3 in the case of a transfer of Units) as the holders of Units for
this purpose as of the date of the Sale or Refinancing, except as provided in
the following sentence. All Profits and Losses for Tax Purposes which are
attributable to, and all Sale or Refinancing Proceeds which represent, Sale or
Refinancing Proceeds not received by the Partnership as cash upon a sale but
later received by the Partnership as a result of an Installment Sale (as defined
in Section 4.7) or other deferred payment arrangement and distributable or
allocable to the Limited Partners as a class in accordance with Section 4.7,
shall be allocated or distributed, as the case may be, to the Persons recognized
as the holders of Units for this purpose as of the date the deferred Sale or
Refinancing Proceeds are received by the Partnership (or, in the
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case of a transfer of such Unit that is treated, under Section 7.3.3, as
occurring after the date of such Installment Sale or other deferred payment
arrangement, to the transferee of such Unit).
4.6.5. In the event that there is more than one Investor Closing, all Cash
Available for Distribution and Profits and Losses for Tax Purposes not arising
from a Sale or Refinancing, distributable or allocable, as the case may be, to
the Limited Partners as a class for the period commencing with the first day of
the month of the Investor Closing and ending on the last day of the month of the
Investor Closing will be distributed or allocated, as the case may be, on a
monthly basis in accordance with Section 4.6.1 solely to the Limited Partners
admitted to the Partnership as of or prior to the Investor Closing date which
occurs during such month.
4.7. Installment Obligations
4.7.1. If as a result of the sale by a Local Limited Partnership of its
Property or of a sale by the Partnership of a Local Limited Partnership Interest
which results in the receipt of an installment obligation, including, without
limitation, a purchase money mortgage or a purchase contract prescribing one or
more payments following closing of the sale (an "Installment Obligation") as
part of the purchase price (an "Installment Sale"), after payment of, or
adequate provision for, the currently payable debts and obligations of the
Partnership and any Reserves deemed appropriate by the General Partner, the
aggregate of the cash, if any, received and the principal and interest payments
to be made under the Installment Obligation shall be distributed following
actual receipt of such payments by the Partnership between the General Partner
and the Limited Partners as a class in accordance with their Distribution
Percentages in such sales proceeds. The "Distribution Percentages" of the
General Partner and the Limited Partners as a class with respect to an
Installment Obligation shall equal the percentage of the total distributions
that they would have been entitled to receive under the provisions of Section
4.2, if the Partnership had received the amount of cash actually received from
such Installment Sale plus cash equal to the present value of such Installment
Obligation at the closing of the related Installment Sale. The present value of
an Installment Obligation shall be determined with respect to the total payments
of principal and interest to be made under the Installment Obligation (without
regard to any rights of prepayment or prepayment premiums), by applying a
discount rate equal to the current yield, on the date of the Installment Sale,
on a United States Treasury obligation, selected by the General Partner, having
a stated maturity comparable to the ultimate stated maturity date of such
Installment Obligation.
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4.7.2. Notwithstanding the provisions of Section 4.3, any Profits and
Losses for Tax Purposes resulting from an Installment Sale (including, without
limitation, any amount of income or gain attributable to the relevant
Installment Obligation as a result of (i) the application of Section 453C of the
Code or (ii) the disposition thereof by the Partnership or Local Limited
Partnership, but excluding any interest income to which Section 4.7.3 applies)
shall be allocated between the General Partner and the Limited Partners as a
class in accordance with their Allocation Percentages in such Profits and Losses
for Tax Purposes. The Allocation Percentages of the General Partner and the
Limited Partners as a class shall equal the percentage of the total Profits and
Losses for Tax Purposes deemed recognized by the Partnership in accordance with
this sentence that would have been properly allocable to the General Partner and
the Limited Partners as a class under the provisions of Section 4.3 if the
Partnership had received the amount of cash actually received from such
Installment Sale plus cash equal to the present value of the Installment
Obligation at the closing of the Installment Sale, as determined under Section
4.7.1.
4.7.3. Any interest income on an Installment Obligation shall be allocated,
when and if accrued by the Partnership, between the General Partner and the
Limited Partners as a class in accordance with their Distribution Percentages in
such Installment Obligation.
4.7.4. For purposes of calculating each Partner's share of Profits and
Losses for Tax Purposes and Tax Credits, the Partnership will be deemed to have
distributed to the General Partner and the Limited Partners as a class their
respective Distribution Percentages, on the date of the closing of an
Installment Sale, of the present value of the Installment Obligation, as
determined under Section 4.7.1. Any amounts deemed to have been distributed to
the Limited Partners as a class will reduce Adjusted Capital Contributions and
Capital Accounts as of the date of the Installment Sale, and the actual receipt
by the Partners of any proceeds from an Installment Sale shall not further
reduce Adjusted Capital Contributions and Capital Accounts.
ARTICLE 5
RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
5.1. Management of the Partnership
5.1.1. Subject to the Consent of the Limited Partners (or of a specified
percentage thereof) where required by this Agreement, the General Partner shall
have the exclusive right and authority to manage and control the business of the
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Partnership and is hereby authorized to take any action and to do anything it
deems necessary to achieve the purposes of the Partnership in accordance with
the provisions of this Agreement and applicable law.
5.1.2. The General Partner shall, except as otherwise provided in this
Agreement, have all rights and powers and shall be subject to all the
restrictions and liabilities of a partner in a partnership without limited
partners.
5.1.3. No Limited Partner (except one who may also be a General Partner,
and then only in its capacity as a General Partner) shall participate in or have
any control over the Partnership business or have any authority or right to act
for or bind the Partnership.
5.2. General Authority of General Partner
5.2.1. Subject to Sections 5.2.2, 5.3 and 5.4, the General Partner for, and
in the name and on behalf of, the Partnership is hereby authorized, without
limitation:
(i) to acquire, hold, encumber, sell, dispose of and otherwise deal with
Local Limited Partnership Interests, at such price and upon such terms as it
deems to be in the best interests of the Partnership, including exercise of the
Partnership's voting and other rights and powers as a limited partner in the
Local Limited Partnerships;
(ii) to acquire by purchase, lease, exchange or otherwise, any other real
or personal property;
(iii) to borrow money and issue evidences of indebtedness, and to secure
the same by pledge or other lien on any Local Limited Partnership Interests or
other assets of the Partnership;
(iv) to employ agents, employees, managers, accountants, attorneys,
consultants and other Persons necessary or appropriate to carry out the business
and operations of the Partnership, and to pay fees, expenses, salaries, wages
and other compensation to such Persons;
(v) to pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and upon
such evidence as it may deem sufficient, any obligation, suit, liability, cause
of action or claim, including taxes, either in favor of or against the
Partnership;
(vi) to cause the Partnership to make or revoke any of the elections
referred to in the Code;
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(vii) to offer and sell Units in the Partnership to the public directly or
through any licensed Person and to employ personnel, agents and dealers for such
purpose;
(viii) to establish and maintain Reserves for such purposes and in such
amounts as it deems appropriate from time to time, it being understood and
agreed that, after the termination of the Offering, the General Partner shall
establish initial Reserves out of Capital Contributions, in the manner
contemplated by the Prospectus, in an amount equal to not less than 3% of such
Capital Contributions;
(ix) to invest the Net Proceeds in Temporary Investments prior to
investment in Local Limited Partnership Interests;
(x) to engage in any kind of activity necessary to, or in connection with,
or incidental to the accomplishment of the purposes of the Partnership;
(xi) to withhold income taxes as required by, and to otherwise comply with
and take actions necessary as a result of, provisions of the Code (or comparable
provisions of law in any state or other jurisdiction in which the Partnership
does business) requiring withholding; and
(xii) in the absolute discretion of the General Partner, at any time after
conclusion of the Offering, to repurchase any Units upon the request of the
holder thereof on terms mutually agreeable to the Partnership and such holder if
the repurchase does not impair the capital or the operations of the Partnership.
Neither the Partnership nor the General Partner shall, at any time, have any
obligation whatsoever to repurchase any Units.
5.2.2. Notwithstanding any provision in this Agreement to the contrary, it
is understood and agreed that in selecting Local Limited Partnership Interests
for investment by the Partnership the General Partner shall be bound by the
following investment policies which may not be changed, altered or amended,
except as provided in Section 10.2:
(i) the Partnership shall make investments only in Local Limited
Partnerships which own completed Apartment Complexes or are in the process of
developing new Apartment Complexes or rehabilitating Apartment Complexes which
shall be eligible, in the opinion of counsel, (a) for the Low Income Housing
Credit, and/or (b) the Historic Tax Credit;
(ii) the Partnership shall not acquire any Local Limited Partnership
Interest unless the Partnership has received, with respect to the Apartment
Complex of such Local Limited Partnership, either (i) an appraisal prepared by a
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competent, independent appraiser or (ii) RD Forms 1924-13 (estimate and
certificate of actual cost) and 1930-7 (statement of budget, income and expense)
or HUD project cost and budget analysis on Form 2264, or a comparable form of
any successor of RD or HUD or of a state or other governmental agency, including
any applicable Tax Credit allocation agency, setting forth estimates with
respect to construction and mortgage financing costs and initial rental income
and operating expenses, which in either case shall be maintained in the
Partnership's records for at least five years, and shall be available for
inspection and duplication by any Partner;
(iii) no part of the Partnership's investment in a Local Limited
Partnership (other than a Local Limited Partnership which owns a completed
Apartment Complex at the time of the Partnership's initial investment therein)
shall be made prior to receipt of a commitment for the construction loan, and no
more than 75% of the Partnership's investment in such a Local Limited
Partnership shall be made prior to receipt of a commitment for the permanent
loan;
(iv) the agreements with respect to each Local Limited Partnership (other
than a Local Limited Partnership which owns a completed Apartment Complex at the
date of the Partnership's initial investment therein) must contain provisions
whereby the completion of construction of the Apartment Complex at the price
contracted is secured by an adequate completion bond or other satisfactory
arrangements. For the purposes of this Section 5.2.2(iv), other satisfactory
arrangements include, but are not limited to, the following:
(a) a written guarantee of completion by the Local General Partner
supported by financial statements demonstrating sufficient net worth or
adequately collateralized by other real or personal properties or other Persons'
guarantees; or
(b) a retention of a reasonable portion of the purchase
consideration as a potential offset to such purchase consideration in the event
the Local General Partner does not perform in accordance with such agreement;
(v) the Partnership shall not invest in any Local Limited Partnership
unless an experienced real estate developer has agreed in writing for a minimum
term acceptable to the General Partner to supervise management of the Property
or to serve as its managing Local General Partner or Property manager;
(vi) the Partnership shall invest only in Local Limited Partnerships which
restrict the payment of real estate commissions by any Person to any Person upon
resale of an Apartment Complex to a maximum of the lesser of (a) the Competitive
Real Estate Commission or (b) 6% of the sales price of the Apartment Complex
(including the amount of the commission paid);
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(vii) the Partnership shall invest only in Local Limited Partnerships as
follows:
(a) if the Local General Partner of the Local Limited Partnership
is a Sponsor, the partnership agreement of the Local Limited Partnership must
include provisions (1) complying with Section IX.F. of the NASAA Guidelines, (2)
acknowledging privity between the Local General Partner and the Limited
Partners, (3) providing that the compensation payable to the Sponsor in the
aggregate from both the Partnership and the Local Limited Partnership shall not
exceed the amounts permitted under Section IV. of the NASAA Guidelines, (4)
providing that the Local Limited Partnership have as its limited partners only
publicly registered partnerships, except that special limited partners not
affiliated with the Sponsor shall be permitted if the interests taken by the
special limited partners result in no diminution in the control exercisable by
the other limited partners of the Local Limited Partnership, and (5) providing
that the Partnership's investment in the Local Limited Partnership shall not be
structured through more than a two-tier arrangement;
(b) if the Local General Partner of the Local Limited Partnership
is not a Sponsor, the partnership agreement of the Local Limited Partnership
must include provisions granting to the limited partners therein rights and
obligations with respect to such Local Limited Partnership similar to those
granted to the Limited Partners with respect to the Partnership in Sections
3.3.3 (respecting admissions), 3.6.3, 5.2.1(xii), 5.4.1(ix), 5.4.1(x), 5.4.2,
5.5.4, 5.5.6, 6.1, 7.1, 7.3.2, 7.4, 9.1, 9.4, 10.1, 10.2, 12.1.2 and 13.9
hereof;
(viii) the Partnership shall invest in Local Limited Partnerships jointly
with other limited partnerships (including limited partnerships which are
controlled by or otherwise affiliated with the General Partner) (the Partnership
and any other limited partnership being referred to hereinafter as a "Program")
only if each of the following conditions is satisfied:
(a) the two Programs have substantially identical investment
objectives;
(b) there are no duplicate property management or other fees;
(c) the compensation to the sponsor of each Program is substantially
identical in each Program;
(d) each Program will have a right of first refusal if the other
Program wishes to sell its Local Limited Partnership Interest;
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(e) the investment of each Program is on substantially the same
terms and conditions;
(f) if the other Program is controlled by or otherwise affiliated
with the General Partner, the other Program must be publicly registered under
the Securities Act of 1933; and
(g) if the other Program is not controlled by or otherwise affiliated
with the General Partner, the Partnership must acquire a Controlling Interest in
the joint venture. For this purpose the phrase "Controlling Interest" means
possessing the power to direct or cause the direction of the activities and
policies of the joint venture, whether through ownership of securities, by
contract, by the exercise of a power of veto over its activities and policies
other than in the ordinary course of business, or otherwise;
(ix) the Partnership shall commit a percentage of the Limited Partners'
Capital Contributions to Investment in Local Limited Partnership Interests which
is at least equal to the greater of (a) 80% of the Capital Contributions reduced
by 0.1625% for each 1% of the aggregate indebtedness secured or to be secured by
all liens and mortgages encumbering Properties owned by Local Limited
Partnerships or (b) 70% of the Capital Contributions. For purposes of this
calculation, the percentage of "aggregate indebtedness secured or to be secured
by all liens and mortgages encumbering Properties owned by Local Limited
Partnerships" is the percentage resulting when the Partnership's share of such
aggregate indebtedness is divided by the Partnership's share of the aggregate of
the Purchase Prices of all Properties held by Local Limited Partnerships,
excluding Front-End Fees. If the total amount of Front-End Fees must be reduced
in order to enable the Partnership to satisfy the foregoing restrictions, the
General Partner shall, and shall cause its Affiliates or other Persons to,
reimburse the Partnership for the amount of Front-End Fees received by them as
necessary to enable the Partnership to meet this investment requirement; and
(x) the Partnership may invest in Local Limited Partnerships owning
existing Apartment Complexes which have experienced cash flow or operational
difficulties, including mortgage delinquencies, provided that the following are
satisfied with respect to any such investment: (a) a satisfactory workout
arrangement is in place, (b) the General Partner has determined that the risk
associated with the investment is not significantly greater than the risk
associated with an investment in a newly-constructed Apartment Complex, and (c)
not more than 10% of Investment in Local Limited Partnership Interests is
invested in such Local Limited Partnerships. For purposes of this Section
5.2.2(x), an Apartment Complex which has been subject to substantial
rehabilitation shall not be considered to be an existing property.
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5.2.3. With respect to each of its obligations, powers and responsibilities
under this Agreement, the General Partner is authorized to execute and deliver,
for and on behalf of the Partnership, such notes and other evidences of
indebtedness, contracts, agreements, assignments, deeds, leases, loan
agreements, mortgages and other security instruments and agreements as it deems
proper, all on such terms and conditions as it deems proper.
5.2.4. Any Person dealing with the Partnership or the General Partner may
rely upon a certificate signed by the General Partner as to:
(i) the identity of the General Partner or any Limited Partner;
(ii) the Persons who are authorized to execute and deliver any instrument
or document of or on behalf of the Partnership;
(iii) the existence or non-existence of any fact or facts which constitute
a condition precedent to acts by the General Partner or in any other manner are
germane to the affairs of the Partnership; or
(iv) any act or failure to act by the Partnership or as to any other matter
whatsoever involving the Partnership or any Partner.
5.3. Authority of General Partner and its Affiliates to Deal with
Partnership
5.3.1. Without limitation upon the other powers set forth herein, the
General Partner is expressly authorized for, in the name of, and on behalf of,
the Partnership to:
(i) subject to the limitations set forth herein, pay to the General Partner
or any of its Affiliates designated by them the compensation provided for in
Section 5.6 hereof;
(ii) borrow funds from the General Partner or any of its Affiliates;
provided, however, that such borrowings may only be made on a short-term basis
(not to exceed one year) and provided further that the Partnership may not pay
in connection therewith (a) interest or other financing charges or fees in
excess of the amounts which would be charged by unrelated lending institutions
on comparable loans for the same purpose in the same locality (and in no event
may interest on such borrowings exceed 2% per annum above the Prime Rate) or (b)
any prepayment charge or penalty;
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(iii) in connection with the organization of the Partnership and the
Offering, the Partnership shall pay, or reimburse the General Partner or its
Affiliates for advances made to cover, Organizational and Offering Expenses,
including salaries and direct expenses of employees of the General Partner and
its Affiliates directly engaged in the organization and Offering of the
Partnership to the extent such salaries and expenses are allocable thereto;
provided that the General Partner or its Affiliates shall pay all Organizational
and Offering Expenses (with the exception of retail selling commissions equal to
7% of the Capital Contributions, the Dealer-Manager Fee, and the Nonaccountable
Expense Reimbursement) in excess of 3% of the Capital Contributions. However, if
and to the extent Acquisition Expenses are less than the maximum permitted
amount, as set forth in Section 5.3.1(iv), the difference between the actual
Acquisition Expenses and the maximum permitted amount of Acquisition Expenses
will reduce the General Partner's obligation to pay such Organizational and
Offering Expenses, provided, however, that in any event the General Partner
shall pay all such Organizational and Offering Expenses which exceed 4.5% of the
Capital Contributions. In addition, the General Partner shall pay any
Organizational and Offering Expenses (including retail selling commissions equal
to 7% of the Capital Contributions, the Dealer-Manager Fee, and the
Nonaccountable Expense Reimbursement) in excess of 14.5% of the Capital
Contributions;
(iv) in connection with the acquisition by the Partnership of investments
in Local Limited Partnerships, the Partnership shall pay, or reimburse the
General Partner or its Affiliates for advances made to cover, Acquisition
Expenses, provided that the General Partner shall pay any Acquisition Expenses
in excess of 1.5% of Capital Contributions;
(v) deal with, or otherwise engage in business with, or provide services to
and receive compensation therefor from, any Person who has provided any services
to, lent money to, sold property to, or purchased property from, the General
Partner or any of its Affiliates;
(vi) require in any or all Partnership contracts that the General Partner
shall not have any personal liability thereon but that the Person contracting
with the Partnership shall look solely to the Partnership and its assets for
satisfaction; however, if any additional cost is imposed upon the Partnership as
a result of such a requirement, such additional cost shall be paid by the
General Partner from its own funds, without recourse to the funds of the
Partnership;
(vii) subject to the provisions of Section 5.2.2(vii) hereof, exercise the
right to cause an Affiliate of the General Partner to become a Local General
Partner, including the sole Local General Partner, of a Local Limited
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Partnership (a) upon request by a lender that such action be taken, (b) in
the event of the bankruptcy, death, dissolution, withdrawal, removal or
adjudication of incompetence of a Local General Partner, or (c) in the event of
a material default by a Local General Partner or any of its Affiliates on any
obligations of such Local General Partner or Affiliate to the Local Limited
Partnership or to the Partnership or upon a material default by the Local
Limited Partnership under its mortgage loan or upon the occurrence of certain
other events; and
(viii) exercise the right to cause the SLP Affiliate to become a special
limited partner of each Local Limited Partnership upon the terms and for the
interest in the Local Limited Partnership described in the Prospectus.
5.3.2. Other than as specifically authorized in this Section 5.3, the
General Partner is prohibited from entering into any agreements, contracts or
arrangements on behalf of the Partnership with the General Partner or any
Affiliate of the General Partner. Such prohibition shall include, without
limitation, the following:
(i) the Partnership shall not purchase any Local Limited Partnership
Interest or Apartment Complex from the Sponsor unless such purchase is pursuant
to the right of first refusal required by Section 5.2.2(viii) hereof or unless
such Person purchased the Local Limited Partnership Interest or the Apartment
Complex which is the principal asset of the Local Limited Partnership in its
name in order to facilitate the acquisition of such Local Limited Partnership
Interest or Apartment Complex by the Partnership; provided, however, that in the
event of such an acquisition from the Sponsor (a) the purchase price paid by the
Partnership may not (except to the extent of any reimbursement by the
Partnership of carrying costs) exceed the cost of such Local Limited Partnership
Interest or Apartment Complex to the seller; (b) no compensation or other
benefit from the transaction may accrue to the Sponsor except as otherwise
permitted by this Agreement; (c) the seller has not held the Local Limited
Partnership Interest or Apartment Complex for a period in excess of twelve
months prior to commencement of the Offering; (d) there is no difference in
interest terms of the loans secured by the Local Limited Partnership Interest or
Apartment Complex at the time acquired by the Sponsor and the time acquired by
the Partnership; (e) all income and expense which accrues to the Sponsor as a
result of the ownership of such Local Limited Partnership Interest or Apartment
Complex shall be treated as belonging to the Partnership; (f) the cost of the
Local Limited Partnership Interest or Apartment Complex may not exceed the funds
reasonably anticipated to be available to the Partnership to purchase such
asset; and (g) the seller is not a Program in which the General Partner has an
interest. For this purpose, the term "Program" shall mean a limited or general
partnership, joint venture, unincorporated association or similar organization
other than a corporation formed and operated for the primary purpose of
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investment in and the operation of or gain from an interest in real
property including such entities formed to make or invest in mortgage loans;
(ii) neither the General Partner nor any of its Affiliates shall enter into
an agreement or contract with a Local Limited Partnership for the development of
any Apartment Complex or the construction of improvements with respect to any
Apartment Complex;
(iii) neither the General Partner nor any of its Affiliates shall receive
directly or indirectly a commission or fee in connection with the reinvestment
of the proceeds of the sale, exchange or refinancing of any Local Limited
Partnership Interest or any Apartment Complex;
(iv) neither the General Partner nor any of its Affiliates shall provide
insurance brokerage services in connection with obtaining any insurance policy
covering any Apartment Complex;
(v) neither the General Partner nor any of its Affiliates shall be given an
exclusive right to sell or exclusive employment to sell any Local Limited
Partnership Interest for the Partnership or any Apartment Complex for any Local
Limited Partnership;
(vi) except as provided in Section 5.3.1(viii) hereof, neither the
Partnership nor any Local Limited Partnership shall sell any Local Limited
Partnership Interest or Apartment Complex to, or lend any funds to, the General
Partner or any of its Affiliates; and
(vii) no rebates or give-ups may be received by the General Partner or any
of its Affiliates, nor may the General Partner or any of its Affiliates
participate in any reciprocal business arrangement which would have the effect
of circumventing any of the provisions of this Agreement.
5.3.3. All of the Partnership's expenses shall be billed directly to and
paid by the Partnership to the extent practicable. Reimbursements to the General
Partner or any of its Affiliates by the Partnership shall be allowed only for
the Partnership's Organizational and Offering Expenses, Acquisition Expenses and
Operating Cash Expenses and only subject to the limitations on the reimbursement
of such expenses
set forth herein.
5.3.4. Reimbursement to the General Partner or any of its Affiliates of
Operating Cash Expenses pursuant to Section 5.3.3 hereof shall be subject to the
following:
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(i) No such reimbursement shall be permitted for services for which the
General Partner or any of its Affiliates is entitled to compensation by way of a
separate fee; and
(ii) No such reimbursement shall be made for (a) rent or depreciation,
utilities, capital equipment or other such administrative items, and (b)
salaries, fringe benefits, travel expenses and other administrative items
incurred or allocated to any "controlling person" of the General Partner or any
Affiliate of the General Partner. For the purposes of this Section 5.3.4(ii),
"controlling person" includes, but is not limited to, any Person, however
titled, who performs functions for the General Partner or any Affiliate of the
General Partner similar to those of: (1) chairman or member of the board of
directors; (2) executive management, such as president, vice president or senior
vice president, corporate secretary or treasurer; (3) senior management, such as
the vice president of an operating division who reports directly to executive
management; or (4) those holding 5% or more equity interest in the General
Partner or any Affiliate of the General Partner or a person having the power to
direct or cause the direction of the General Partner or any Affiliate of the
General Partner, whether through the ownership of voting securities, by contract
or otherwise.
5.4. Restrictions on Authority of General Partner
5.4.1. The General Partner shall not:
(i) do any act in contravention of this Agreement;
(ii) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(iii) possess Partnership property, or assign the Partnership's rights in
specific Partnership property, for other than a Partnership purpose;
(iv) admit a Person as a General Partner, except as provided in this
Agreement;
(v) admit a Person as a Limited Partner, except as provided in this
Agreement;
(vi) directly or indirectly pay or award any commissions or other
compensation to any Person engaged by a potential investor in the Partnership
for investment advice as an inducement to such adviser to advise the purchase of
Units, but this clause shall not prohibit the payment of the selling commissions
and other underwriting compensation contemplated herein or in the Prospectus to
a registered broker-dealer or other properly-licensed Person for selling Units;
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(vii) cause the Partnership to lend any funds to any Person (other than in
connection with Temporary Investments), except that the General Partner may
cause the Partnership to make loans to or to post letters of credit for Local
Limited Partnerships in which the Partnership is expected to own a Local Limited
Partnership Interest, provided that in the case of any such loan (a) the loan is
made prior to the date that the Partnership makes its initial capital
contribution to the Local Limited Partnership, (b) the total amount of all such
loans does not exceed 50% of the Limited Partners' Capital Contribution
committed to the investment in such Local Limited Partnership, and (c) such
borrowings may only be made on a short-term basis (not to exceed one year) and
must, unless earlier repaid, be repaid from the Partnership's initial capital
contribution to the Local Limited Partnership at the time such initial capital
contribution is made;
(viii) cause the Partnership to acquire unimproved or nonincome producing
property (but this clause shall not restrict the rights of the Partnership to
invest in Local Limited Partnerships owning Apartment Complexes under
construction or rehabilitation or Apartment Complexes as to which construction
or rehabilitation has not commenced but with respect to which closing of the
construction loan has occurred or the Apartment Complex site has been acquired
and a construction loan commitment has been obtained);
(ix) cause the Partnership to utilize Cash Available for Distribution to
acquire Local Limited Partnership Interests;
(x) cause the Partnership to reinvest Sale or Refinancing Proceeds unless a
sufficient portion thereof is distributed to the Limited Partners to enable each
Limited Partner, assuming that he is in a combined Federal, state and local
marginal income tax bracket of 30%, to pay the Federal, state and local income
tax liability arising from the Sale or Refinancing which generated such
proceeds, and in any event Sale or Refinancing Proceeds shall not be reinvested
following the second anniversary of the first day of the calendar quarter in
which the Investment Date occurs, except to the extent of any Reserves retained
therefrom;
(xi) cause the Partnership to acquire any Local Limited Partnership
Interest in exchange for Units;
(xii) change the Partnership's purposes from those set forth in Section
2.4;
(xiii) facilitate or recognize the trading of Units on an established
securities market or on a secondary market, if, in the opinion of counsel, such
action would result in the Partnership being classified as a publicly traded
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partnership under Section 7704 of the Code and such classification would
have material adverse tax consequences for the Limited Partners;
(xiv) cause the Partnership to invest in Local Limited Partnerships under
circumstances where duplicate fees for the same service may be payable by the
Partnership and/or the particular Local Limited Partnership;
(xv) except as set forth below in this subsection, following the
termination of the offering of Units, cause the total amount of indebtedness
incurred by the Partnership to at any time exceed the sum of 85% of the
aggregate purchase price of all Apartment Complexes which have not been
refinanced, and 85% of the aggregate fair market value of all Apartment
Complexes which have been refinanced, as determined by the lender as of the date
of refinancing. Notwithstanding the preceding, with respect to all indebtedness
insured or guaranteed by the full faith and credit of the United States
government, a state or local government, or an agency or instrumentality of any
of them, and with respect to all indebtedness provided by any such Person, the
total amount of indebtedness incurred by the Partnership shall at no time exceed
the sum of 100% of the aggregate purchase price of all Apartment Complexes which
have not been refinanced, and 100% of the aggregate fair market value of all
Apartment Complexes which have been refinanced, as determined by the lender as
of the date of refinancing. For purposes of this subsection only, the term
"indebtedness" shall include the principal of any loan together with any
interest that may be deferred pursuant to the terms of the loan agreement which
exceeds 5% per annum of the principal balance of such indebtedness (excluding
contingent participations in income and/or appreciation in the value of the
Apartment Complexes), and shall exclude any indebtedness incurred by the
Partnership for necessary working capital reserves;
(xvi) cause the Partnership to invest in a Local Limited Partnership under
circumstances where the General Partner or any of its Affiliates would receive
compensation for administrative services performed on behalf of the Local
Limited Partnership;
(xvii) cause the Partnership to pay aggregate Acquisition Fees to all
Persons in an amount which exceeds the lesser of (a) the Competitive rate or (b)
18% of the Gross Proceeds. The foregoing limitation shall be complied with at
any given time and on an ongoing basis;
(xviii) cause the Partnership to invest in junior trust deeds or other
similar obligations, except for junior trust deeds which arise from the sale of
Properties; or
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(xix) cause the Partnership to invest in general partner interests of
limited partnerships or, except as provided in Section 5.2.2(viii), cause the
Partnership to invest in general partnerships or joint ventures.
5.4.2. Without the Consent of a majority-in-interest of the Limited
Partners, the General Partner may not:
(i) sell at one time all or substantially all the assets of the
Partnership, except in connection with the liquidation and winding up of the
Partnership's business upon its dissolution;
(ii) cause the merger or other reorganization of the Partnership; or
(iii) elect to dissolve the Partnership.
5.4.3. The General Partner shall not sell, assign or otherwise transfer the
Promissory Notes at a discount; provided that this restriction shall not
prohibit the General Partner from pledging or otherwise granting a security
interest in the Promissory Notes as security for any Partnership obligation.
5.5. Duties and Obligations of General Partner
5.5.1. The General Partner shall take such actions as may be necessary or
appropriate to form, qualify and continue the Partnership as a limited
partnership under the laws of the State of California and in order to form or
qualify the Partnership under the laws of any other jurisdiction in which the
Partnership is doing business or in which such formation or qualification is
necessary to protect the limited liability of the Limited Partners or in order
to continue in effect such formation or qualification. In this connection the
General Partner shall cause a Certificate of Limited Partnership to be filed on
behalf of the Partnership in the office of the California Secretary of State,
and shall cause an amendment to the Certificate to be filed in such office, and
in each other public office in which the Certificate was previously filed,
within 30 days after the happening of any of the following events:
(i) A change in the name of the Partnership;
(ii) A change in the address of the Partnership office;
(iii) A change in the name or address of the Partnership's agent for
service of process;
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(iv) The withdrawal of a General Partner;
(v) The admission of a General Partner; or
(vi) The discovery by a General Partner of any false or erroneous material
statement contained in the Certificate.
5.5.2. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership.
5.5.3. The General Partner shall use its best efforts to assure that the
Partnership shall not be deemed an investment company as such term is defined in
the Investment Company Act of 1940 and shall use its best efforts to obtain from
the Securities and Exchange Commission an order exempting the Partnership from
the provisions of the Investment Company Act of 1940. The General Partner is
expressly authorized to prepare, execute and file with the Securities and
Exchange Commission an application pursuant to Section 6(c) of the Investment
Company Act of 1940 for an exemption from all the provisions of such Act,
together with such other documents, and to do such other acts and things, as may
be necessary or convenient in seeking such an exemption. In the event that delay
is encountered in obtaining such order, the General Partner is authorized to
rely upon an opinion of counsel to the effect that the Partnership is exempt
from the provisions of the Investment Company Act of 1940 until such time as
such order is obtained, if ever.
5.5.4. The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in its immediate possession or control. The General Partner shall not employ, or
permit another to employ, such funds or assets in any manner except for the
exclusive benefit of the Partnership.
5.5.5. The funds of the Partnership shall not be commingled with the funds
of any other Person.
5.5.6. The General Partner shall not contract away the fiduciary duty owed
at common law to the Limited Partners.
5.5.7. The General Partner is authorized, in its discretion, to cause the
Partnership to acquire policies of limited partnership liability insurance,
insuring the Partners and their Affiliates against liabilities in connection
with the business of the Partnership and insuring the Partnership against
liabilities with respect to any
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indemnification it is legally required or permitted to provide Partners and
their Affiliates; subject to the provisions of Section 5.8.3 hereof.
5.6. Compensation of Sponsor
5.6.1. The Sponsor shall not receive any salary, fees, profits,
distributions or allocations from the Partnership or any Local Limited
Partnership in which the Partnership invests except as expressly allowed by this
Agreement.
5.6.2. The Dealer-Manager shall be entitled to receive from the Partnership
retail selling commissions and the Dealer-Manager Fee in respect of the sale of
Units, all as set forth in the Prospectus.
5.6.3. In connection with the Offering of the Units, the Dealer-Manager
shall receive from the Partnership a Nonaccountable Expense Reimbursement in an
amount equal to 1% of the Capital Contributions.
5.6.4. For services actually rendered or to be rendered, directly or
indirectly, by the Sponsor in connection with acquiring Local Limited
Partnership Interests (including services performed for the Partnership in
connection with Local Limited Partnership Interests which are the subject of
review, evaluation and, ultimately, rejection as potential acquisitions for the
Partnership), which services may include selecting, evaluating, structuring,
negotiating and closing the Partnership's investments in Local Limited
Partnership Interests, the Partnership and/or the Local Limited Partnerships
shall pay to the Sponsor an amount equal to 7% of the Capital Contributions,
provided that the amount payable may be reduced by the General Partner in its
sole discretion. Such Acquisition Fee shall be payable at the time Gross
Proceeds are received. Notwithstanding the amount of Sponsor Acquisition Fees
set forth herein, the total amount thereof shall be reduced in connection with
the purchase of Units by Discount Investors, as described in the Prospectus
under "Terms of the Offering and Plan of Distribution." The amount of such
reduction shall be treated as a distribution to a Discount Investor but shall
not be deemed a return of the Discount Investor's Capital Contribution; rather,
the reduction amount shall be deemed to be a compromise within the meaning of
Section 15636(c) of the Act, and no Discount Investor shall be obligated to pay
any such amount to or for the benefit of the Partnership or any creditor of the
Partnership. Except as set forth in this Section 5.6.4, no Acquisition Fees
shall be paid to the Sponsor.
5.6.5. For any property management services actually rendered by the
General Partner or its Affiliates respecting the Properties owned by Local
Limited Partnerships, the General Partner or any such Affiliate may receive
Property Management Fees from the Local Limited Partnerships. Included in any
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such Property Management Fee shall be bookkeeping services and fees paid to
nonAffiliated Persons for property management services. The maximum Property
Management Fees paid to the General Partner or any of its Affiliates (including
all leasing and releasing fees and bonuses and other payments for leasing
related services, paid to any Person) shall be the lesser of 5% of the gross
revenues from the Property or a Competitive amount.
5.6.6. For services rendered by the General Partner or an Affiliate of the
General Partner in connection with the administration of the affairs of the
Partnership, the General Partner or any such Affiliate shall receive from the
Partnership an annual Asset Management Fee in an amount not to exceed 0.2% of
that portion of Invested Assets in Local Limited Partnerships which are
attributable to apartment units receiving Government Assistance. The Asset
Management Fee shall be payable with respect to the previous calendar quarter on
the first day of each calendar quarter during the year, provided that the Asset
Management Fee shall only accrue and be payable as follows: the total Asset
Management Fee shall be allocated among the Apartment Complexes in proportion to
the amount of the Partnership's capital contribution to each Local Limited
Partnership, and the portion of the Asset Management Fee so attributable to any
Apartment Complex shall only accrue and be payable commencing with the date on
which such Apartment Complex commences operations. Accrued but unpaid Asset
Management Fees for any year shall be deferred without interest and shall be
payable in subsequent years from any funds available to the Partnership after
payment of all other costs and expenses of the Partnership, including any
Reserves then determined by the General Partner to no longer be necessary to be
retained by the Partnership, or from the proceeds of a Sale or Refinancing.
5.6.7. For services rendered by the General Partner or an Affiliate of the
General Partner in connection with the sale of any Property owned by a Local
Limited Partnership, the General Partner shall receive from the Partnership a
Subordinated Disposition Fee in an amount equal to 1% of the sales price of such
Property if the General Partner or its Affiliate provides a substantial amount
of services in the sales effort. This fee shall be payable only after the
distributions in Section 4.2.1(i) and (ii) have been made, and may accrue if
there are insufficient Sale or Refinancing Proceeds payable to the Partnership
upon any such sale. This fee is subject to the limitations imposed by Section
5.2.2(vi).
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5.7. Other Business of Partners
5.7.1. The General Partner shall devote to the affairs of the Partnership
such time as may be necessary for the proper performance of its duties
hereunder, but neither the General Partner, its officers and directors, nor any
successors to such parties shall be expected to devote their full time to the
performance of such duties.
5.7.2. Any Partner or any of his Affiliates may engage independently or
with others in other business ventures of every nature and description,
including, without limitation, the rendering of advice or services to other
investors and the making or management of other investments, including
investments in real properties receiving Government Assistance. Neither the
Partnership nor any Partner shall have any rights by virtue of this Agreement or
the partnership relationship created hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom, provided that nothing
in this Section 5.7.2 shall relieve the General Partner of its general fiduciary
obligation to the Partnership.
5.7.3. The Sponsor may be presented with an investment opportunity which
could be availed of by the Partnership and one or more other entities which the
Sponsor or one of its Affiliates manages. The decision as to the particular
entity which shall make the investment shall 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. If a particular investment is determined to be
suitable for more than one entity, priority generally shall be given to the
entity having uninvested funds for the longest period of time; except that an
entity which was formed to invest primarily in apartment complexes eligible for
state low income housing credits as well as the Low Income Housing Credit shall
be given priority over the Partnership and other entities which are not seeking
to provide such state tax credits with respect to any investment which is
eligible for such state tax credits.
5.8. Limitation on Liability of Sponsor; Indemnification
5.8.1. No Sponsor shall have any liability to the Partnership or to any
Partner for any loss suffered by the Partnership which arises out of any action
or inaction of the Sponsor if the Sponsor, in good faith, determined that such
course of conduct was in the best interest of the Partnership, the Sponsor was
acting on behalf of, or performing services for, the Partnership, and such
course of conduct did not constitute negligence or misconduct of the Sponsor.
Each Sponsor shall be indemnified by the Partnership against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
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sustained by it when acting on behalf of, or performing services for, the
Partnership, provided that the same were not the result of negligence or
misconduct on the part of such Sponsor and were the result of a course of
conduct which the Sponsor, in good faith, determined was in the best interest of
the Partnership. Any indemnity under this Section 5.8 shall be provided out of
and to the extent of Partnership assets only, and no Limited Partner shall have
any personal liability on account thereof.
5.8.2. Notwithstanding anything to the contrary contained in Section 5.8.1,
the Sponsor (which term, for the purposes of this Section 5.8.2, shall include
Affiliates of the Sponsor only if such Affiliates are performing services on
behalf of the Partnership) and any Person acting as a broker-dealer shall not be
indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of Federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee, or (ii) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee, or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made, provided that in the case of this clause (iii) the court has been advised
of the positions of the Securities and Exchange Commission, the California
Commissioner of Corporations, the Missouri Securities Division and any other
state securities regulatory authority in which Units of the Partnership were
offered and sold as to indemnification for violations of securities laws;
provided that the court need only be advised of and consider the positions of
the securities regulatory authorities of those states (i) which are specifically
set forth in this Section 5.8.2 and (ii) in which plaintiffs claim they were
sold Units.
5.8.3. The Partnership shall not pay for any insurance covering liability
of any party as to which such party is hereby prohibited from being indemnified;
provided, however, that nothing contained herein shall preclude the Partnership
from purchasing and paying for such types of insurance, including extended
coverage liability and casualty and workers' compensation, as would be customary
for any Person owning comparable assets and engaged in a similar business, or
from naming any Sponsor as additional insured parties thereunder, provided that
such addition does not add to the premiums payable by the Partnership.
5.8.4. The Partnership may advance funds to each Sponsor for legal expenses
and other costs incurred by it in connection with any legal action brought
against it, provided that each of the following is satisfied: (i) the legal
action relates to acts or omissions with respect to the performance of duties or
services on behalf of the Partnership; (ii) the legal action is initiated by a
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third party who is not a Limited Partner, or the legal action is initiated
by a Limited Partner and a court of competent jurisdiction specifically approves
the advancement of funds; and (iii) the Sponsor receiving the funds undertakes
to repay the funds to the Partnership in the event it is not entitled to
indemnification at the conclusion of such legal action.
ARTICLE 6
ADMISSION OF SUCCESSOR AND ADDITIONAL
GENERAL PARTNERS; WITHDRAWAL OF GENERAL PARTNER
6.1. Admission of Successor or Additional General Partners
6.1.1. With the Consent of all other General Partners, if any, and the
Consent of at least a majority-in-interest of the Limited Partners, any General
Partner may at any time designate one or more Persons to be its successor or to
be an additional General Partner, with such Interest in the Partnership as such
General Partner and the successor or additional General Partner agree upon,
provided that the Interests of the other Partners shall not be affected thereby.
6.1.2. If at any time any material reduction shall occur in the net worth
of the General Partner, the General Partner shall consult with legal counsel
and, if such counsel is of the opinion that such reduction might adversely
affect the treatment of the Partnership as such for Federal income tax purposes,
the General Partner shall use its best efforts either (i) to admit as General
Partners one or more Persons having a net worth sufficient to offset such
reduction, the additional General Partner or General Partners to have whatever
participation in the General Partner's Interests the General Partner and the
additional General Partners agree upon, provided that the additional General
Partners have no authority to manage or control the Partnership, there is no
change in the identity of the Persons who have authority to manage or control
the Partnership, and the admission of the additional General Partners does not
materially affect the Interests of the Limited Partners; or (ii) if necessary in
the opinion of legal counsel, to obtain additional capitalization sufficient to
satisfy any then existing requirements of the Internal Revenue Service for a
ruling that an entity, whether or not a corporation, has sufficient net worth so
that a limited partnership of which it is a general partner has the
characteristic of unlimited liability.
6.1.3. Except in connection with a transfer to a successor or additional
General Partner pursuant to Section 6.1.1. or 6.1.2., the General Partner shall
have no right to retire or withdraw voluntarily from the Partnership or to sell,
transfer, or assign all or any portion of its Interest, except that it may
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substitute in its stead as General Partner any entity which has, by merger,
consolidation or otherwise, acquired substantially all of its assets or stock
and continued its business.
6.1.4. Any Voluntary Withdrawal by the General Partner from the Partnership
or any sale, transfer or assignment by the General Partner of its Interest shall
be effective only upon the admission in accordance with this Section 6.1 and
Section 13.3 of a successor or additional General Partner, as the case may be.
6.1.5. No assignee or transferee of all or any part of the Interest of the
General Partner shall have any right to become a General Partner except as
provided in this Article 6.
6.2. Restrictions on Transfer of General Partner's Interest
Notwithstanding anything to the contrary in this Article 6, the assignment
or transfer of the General Partner's Interest shall at all times be subject to
the same restrictions applicable to an assignment or transfer of Units set forth
in Sections 7.2.1 and 7.2.2.
6.3. Consent of Limited Partners to Admission of Successor or
Additional General Partners
Each of the Limited Partners, by the execution of this Agreement, Consents
for all purposes of the Act to the admission of any Person as a successor or
additional General Partner for which the express Consent of a
majority-in-interest of the Limited Partners has been obtained at the time
pursuant to Section 6.1. Upon receipt of such a Consent to such admission from a
majority-in-interest of the Limited Partners, then, subject to the provisions of
Section 6.2, the admission shall, without any further Consent or approval of the
Limited Partners, be an act of all the Limited Partners.
6.4. Event of Withdrawal of a General Partner
If, at the time of an Event of Withdrawal of a General Partner, such
General Partner was not the sole General Partner, the remaining General Partner
or General Partners shall immediately: (i) give Notification to the Limited
Partners of such event; and (ii) make any amendments to this Agreement and
execute and file for recordation any amended Certificates or other instruments
necessary to reflect the termination of the Interest of the General Partner as
to which such event has occurred and such General Partner's having ceased to be
a General Partner.
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6.5. Interest and Liability of a Withdrawn General Partner
6.5.1. Upon an Event of Withdrawal as to a General Partner, such General
Partner shall immediately cease to be a General Partner, and its Interest shall
be subject to purchase in accordance with Section 6.6; provided, however, that
such a termination shall not affect any rights of such General Partner which
arose prior to such event (including rights to amounts then accrued and owing to
such General Partner), or the value, if any, at the time of such event of the
Interest of such General Partner.
6.5.2. Any General Partner who voluntarily or involuntarily for any reason
(including bankruptcy, death, dissolution or adjudication of incompetence)
withdraws from the Partnership or sells, transfers or assigns its Interest shall
be and shall remain liable for all obligations and liabilities incurred by the
Partnership prior to the time the withdrawal, sale, transfer or assignment
becomes effective, but it shall be free of any obligation or liability incurred
on account of the activities of the Partnership after that time.
6.6. Valuation and Sale of Interest of Former General Partner
6.6.1. If the business of the Partnership is continued after the Event of
Withdrawal of a General Partner, or if, following such event, the Partnership is
reconstituted, in each case as contemplated by Section 8.1, the Partnership
shall purchase such General Partner's Interest for a price equal to the then
present fair market value thereof. Such fair market value shall be determined by
agreement of the former General Partner and the Partnership, or, if they cannot
agree, by arbitration in accordance with the current rules of the American
Arbitration Association. The expense of arbitration will be shared equally
between such former General Partner and the Partnership.
6.6.2. Promptly after determination of the fair market value of a former
General Partner's Interest pursuant to Section 6.6.1, the Partnership shall
deliver to such former General Partner a promissory note of the Partnership for
such fair market value payable in no less than five equal consecutive annual
installments commencing on the first anniversary of the date of such note. Such
promissory note shall bear simple interest at the rate per annum which is at all
times equal to the Prime Rate, but not to exceed the maximum rate permitted by
law, payable on the last day of each calendar quarter while such note is
outstanding; provided, however, that if such note is delivered following an
Event of Withdrawal of a General Partner which is a Voluntary Withdrawal on its
part then (i) such note shall neither be secured nor bear interest and (ii) the
principal payable to the withdrawing General Partner shall be limited in amount
and date of payment to distributions which such
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withdrawing General Partner would have received under this Agreement had it not
withdrawn. Within 120 days after the determination of the fair market value of
the former General Partner's Interest, the Partnership may, with the Consent of
all remaining General Partners and the Consent of a majority-in-interest of the
Limited Partners, sell such Interest to one or more Persons, who may be
Affiliates of the remaining General Partner or General Partners, and admit such
Persons to the Partnership as substitute General Partners; provided, however,
that the purchase price to be paid to the Partnership for the Interest of the
former General Partner shall not be less than its fair market value as
determined by the procedure set forth in Section 6.6.1. above. Such substitute
General Partner or Partners may pay said purchase price in installments in the
manner set forth above in this Section 6.6.2.
ARTICLE 7
TRANSFERABILITY OF UNITS
7.1. Right to Transfer Units
Subject to the requirements of this Article 7, a Limited Partner may assign
his Units by a written instrument of assignment, the terms of which shall
conform to the provisions of this Agreement.
7.2. Restrictions on Transfers
7.2.1. No sale, exchange, transfer or assignment of any Units may be made
if, in the opinion of counsel to the Partnership, such sale, exchange, transfer
or assignment would:
(i) when added to the total of all other Units sold or exchanged within a
period of 12 consecutive months prior thereto, result in the Partnership being
considered to have terminated within the meaning of Section 708 of the Code;
provided, that any deferred sales or exchanges shall be made (in chronological
order to the extent practicable) as of the first day of a fiscal quarter after
the end of any such 12-month period, subject to the provisions of this Article
7;
(ii) cause the Partnership to become a publicly-traded partnership for
Federal income tax purposes;
(iii) cause the Partnership to cease to qualify under Section 42(j)(5)(B)
or
Section 47 of the Code;
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(iv) result in the Partnership or any other Partner being required to
recapture any Tax Credits unless the holder of such Units indemnifies the
Partnership and its Partners for such recapture; or
(v) result in the Partnership being treated as an association taxable as a
corporation for Federal income tax purposes.
7.2.2. No sale, exchange, transfer or assignment of any Unit shall be made
to any Person exempt from Federal income tax under Section 501 of the Code, to
any Person defined in Section 168(h)(2) of the Code, to any Individual
Retirement Account as defined in Section 408(a) of the Code, to any Keogh Plan,
to any nonresident alien, or to any foreign Person.
7.2.3. Any transfer of a Unit to a Person who makes a market in securities
shall be void ab initio unless such Person shall certify to the General Partner
that it has acquired such Unit solely for investment purposes and not for the
purpose of resale.
7.2.4. No purported sale, exchange, transfer or assignment by a transferror
of a Unit shall be permitted unless the transferror shall have represented that
such transfer:
(i) was effected through a broker-dealer or matching agent whose procedures
with respect to the transfer of Units have been approved by the General Partner
as not being incident to trading on an established securities market or a
secondary market and not through any other broker-dealer or matching agent; or
(ii) otherwise was not effected through an established securities market or
through a broker-dealer or matching agent which makes a market in Units or which
provides a readily available, regular and ongoing opportunity to the holders of
Units to sell or exchange their Units through a public means of obtaining or
providing information of offers to buy, sell or exchange Units.
7.2.5. All Units shall be subject to, and all documents of assignment and
transfer evidencing such Units shall bear, the following legend condition:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
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Such restriction shall be noted in the appropriate records of the
Partnership, and no transfer of any interest in the Partnership shall be made
except in compliance with the terms of such legend condition.
7.2.6. No sale, exchange, transfer or assignment of any Unit shall be made
to any Person who does not satisfy the investor suitability standards imposed by
the Partnership in connection with the public Offering of the Units or such more
restrictive standards, if any, as may be required under applicable state
securities laws.
7.2.7. No purported sale, exchange, assignment or transfer by a Limited
Partner of any Unit after which any transferror or transferee would hold any
fraction of a Unit, will be permitted or recognized (except for transfers by
gift, inheritance, bequest or family dissolution, or transfers to Affiliates of
the transferror).
7.2.8. The General Partner (i) shall be entitled to make any reasonable
inquiry of the Limited Partners and prospective Limited Partners in connection
with the provisions of this Section 7.2, and (ii) may, in its sole discretion,
on behalf of the Partnership, impose any restrictions on transfers of Units or
any other additional procedures or requirements which it deems appropriate in
order to prevent the Partnership from being treated for tax purposes as an
association or as a publicly-traded partnership, or to give effect to the intent
of this Section 7.2, and shall be permitted, in order to give effect to any such
restriction, procedures or requirements, to amend this Agreement without the
Consent of the Limited Partners. The General Partner shall give Notification to
all Limited Partners in the event that sales, exchanges, transfers or
assignments have generally been suspended.
7.2.9. The General Partner will review from time to time the limitations
and restrictions on the sale, exchange, transfer or assignment of Units and will
eliminate or modify such limitations or restrictions to make them less
restrictive if the Partnership shall have received an opinion of counsel that
such elimination or modification may be made without material adverse tax
consequences to the Partners.
7.3. Assignees and Assignment Procedure
7.3.1. If a Limited Partner who is an individual dies or a court of
competent jurisdiction adjudges him to be incompetent to manage his person or
his property, such Limited Partner's executor, administrator, guardian,
conservator or other legal representative may exercise all of such Limited
Partner's rights for the purposes of settling his estate or administering his
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property, including any power under this Agreement to join with a proposed
assignee in satisfying conditions precedent to the assignment of his Interest to
such assignee and to such assignee becoming a Substitute Limited Partner. If a
Limited Partner which is not an individual is dissolved or terminated, the
powers of that Limited Partner may be exercised by its legal representative or
successor. Notwithstanding the foregoing, the Partnership shall not be under any
duty to recognize the authority of any such executor, administrator, guardian,
conservator or other legal representative or successor's rights unless and until
the Partnership shall have received such evidence of the authority of such party
as counsel for the Partnership may request. The death, dissolution, adjudication
of incompetence or bankruptcy of a Limited Partner shall not dissolve the
Partnership.
7.3.2. In order to give effect to the restrictions on transfer of Units
contained in this Article 7, a purported or proposed assignment of a Unit shall
not take effect for any purpose until it has been registered on the Partnership
Register (the date of such registration being called the "Registration Date").
The General Partner shall not be under any duty to cause any assignment to be so
registered until (i) the assigning Limited Partner and/or the proposed assignee,
as applicable, shall have delivered to the Partnership a duly executed and
acknowledged counterpart of the instrument of assignment, signed by both the
assignor and the assignee, evidencing written acceptance by the assignee of all
the terms and provisions of this Agreement and representing that the assignment
was made in accordance with all applicable laws and regulations (including
investment suitability requirements); (ii) the Partnership shall have received a
fee in an amount established by it from time to time sufficient to reimburse it
for all its actual costs in connection with such assignment, including, but not
by way of limitation, any advice of counsel contemplated by this Agreement in
connection with such assignment, and, if the Partnership has made an election
under Section 754 of the Code, any incremental accounting fees resulting from
compliance with Section 754 in connection with such assignment; provided,
however, that the amount of such fee shall in no event exceed the lower of the
Partnership's actual costs in connection with the transfer or $100; (iii) the
Partnership shall have received such evidence of the authority of the parties to
such assignment as counsel for the Partnership may request; (iv) if a Promissory
Note of the transferror has not been paid in full, the Partnership shall have
received a written statement signed by the assignee or transferee which
acknowledges the material terms of the Promissory Note, including the payment
due date, the status of payments, the Partnership's security interest in the
Units, the terms of default, the consequences thereof, and the terms for curing
the default; and (v) the Partnership shall have received such further evidence
of compliance of such assignment with the terms and conditions of this Agreement
and the Prospectus as the Partnership may reasonably request, including, but not
by way of limitation, instruments complying with Section 13.3 and any required
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consent to such assignment of the Commissioner of Corporations of the State
of California. The General Partner shall cause such an assignment, upon
compliance with the foregoing conditions and the conditions of Section 7.2, to
be registered on the Partnership Register not later than the last day of the
calendar month following satisfaction of such conditions.
7.3.3. Except as otherwise provided in this Section 7.3.3, if an assignment
of a Unit is registered on the Partnership Register as provided in Section
7.3.2, the assignee of such Unit shall: (i) for the purposes of Sections 4.6.2
and 4.6.3, be recognized as a holder of the Unit as of the first day of the
fiscal quarter following the fiscal quarter in which the Registration Date
occurs; and (ii) for the purposes of Section 4.6.4, be recognized as a holder of
the Unit as of the date specified by the parties in the instrument of assignment
provided for in Section 7.3.2, or if no date is specified therein, the first day
of the fiscal quarter following the fiscal quarter in which the Registration
Date occurs.
7.3.4. The rights of an assignee of a Unit who does not become a Substitute
Limited Partner shall be limited to the right to receive his share of Cash
Available for Distribution, Sale or Refinancing Proceeds, Profits and Losses for
Tax Purposes and Tax Credits, as determined under Article 4. Any assignee of all
or any of the Units of a Limited Partner who does not become a Substitute
Limited Partner and desires to make a further assignment of any of such Units
shall be subject to all the provisions of this Article 7 to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of his
Units.
7.3.5. Upon receipt of documents purporting to create or release a pledge
or other security interest in a Limited Partner's Interest, the General Partner
shall promptly cause such transaction to be registered on the Partnership
Register. Any purported or proposed pledge of, or other security interest in,
any Limited Partner's Interest shall not take effect for any purpose or be
deemed perfected unless and until the same has been registered on the
Partnership Register and shall be subject to any existing pledge and security
interest granted to the Partnership pursuant to Section 13.1. The Partnership
may charge a fee in an amount established by it from time to time sufficient to
reimburse it for all its actual costs in connection with such pledge, including
but not by way of limitation, any advice of counsel in connection with such
pledge, and no pledge shall be effective until such fee is paid.
7.3.6. The General Partner shall provide to each Limited Partner and
registered pledgee, if any, from time to time the transaction statements
required to be provided to such respective parties by the California Commercial
Code.
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7.4. Substitute Limited Partners
Subject to the Consent of the General Partner, which Consent may only be
withheld for the purpose of preserving the Partnership's tax status or to avoid
adverse legal consequences to the Partnership, the assignee of any Units duly
transferred to him pursuant to this Section 7 shall be admitted to the
Partnership as a Substitute Limited Partner upon satisfaction of the conditions
contained in Section 13.3. The Partnership Register shall be amended not less
often than quarterly to recognize the admission of Substitute Limited Partners.
ARTICLE 8
DISSOLUTION AND WINDING-UP OF THE PARTNERSHIP
8.1. Events Causing Dissolution
8.1.1. The Partnership shall dissolve and its affairs shall be wound up
upon the happening of any of the following events: (i) an Event of Withdrawal
shall occur as to a General Partner; (ii) the sale or other disposition of all
the Local Limited Partnership Interests and other assets of the Partnership;
(iii) the election by the General Partner pursuant to Section 5.4.2, or the vote
by the Limited Partners pursuant to Section 10.2.1(ii), to dissolve the
Partnership; or (iv) the expiration of the term of the Partnership specified in
Section 2.6.
8.1.2. Notwithstanding the foregoing, the Partnership shall not be
terminated, liquidated or wound up upon the occurrence of an event specified in
clause 8.1.1(i) above if (a) a remaining General Partner, if any, elects within
120 days after such an event to continue the business of the Partnership, or,
(b) if there is no remaining General Partner, a majority-in-interest of the
Limited Partners agree in writing to continue the business of the Partnership
and, within six months after the last remaining General Partner has ceased to be
a General Partner, to admit one or more General Partners.
8.1.3. Dissolution of the Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the Partnership shall
not terminate until the Partnership's Certificate of Limited Partnership shall
have been canceled and the assets of the Partnership shall have been distributed
as provided in Section 8.2. Notwithstanding the dissolution of the Partnership,
until the termination of the Partnership the business and affairs of the
Partnership shall continue to be governed by this Agreement.
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8.2. Liquidation
8.2.1. Upon dissolution of the Partnership, unless the business of the
Partnership is continued pursuant to Section 8.1, the General Partner shall
liquidate the assets of the Partnership and apply and distribute the proceeds
thereof as contemplated by this Section 8.2. After payment of liabilities owing
to creditors of the Partnership, the General Partner shall set aside as a
Reserve such amount as it deems reasonably necessary for any contingent
liabilities or obligations of the Partnership. Said Reserve may be paid over by
the General Partner to a bank, to be held in Temporary Investments for the
purpose of paying any such contingent liabilities or obligations and, at the
expiration of such period as the General Partner may deem advisable, the amount
in such Reserve shall be distributed to the Partners in accordance with Section
4.2.2.
8.2.2. Notwithstanding the foregoing, in the event the General Partner
determines that an immediate sale of part or all of the Partnership assets would
cause undue loss to the Partners, the General Partner, in order to avoid any
such loss may, after having given Notification to all the Limited Partners, to
the extent not then prohibited by applicable law, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Partnership except those necessary to satisfy the Partnership's debts and
obligations, or convey the remaining assets of the Partnership to a liquidating
trust for the benefit of the Partners. In such event, the trustee will be a bank
authorized to accept such trusts, having deposits insured by the Federal Deposit
Insurance Corporation and having a combined capital and surplus of not less than
$50,000,000; such trustee will liquidate such assets in an orderly manner and
distribute the proceeds of such liquidation, net of costs associated therewith,
to the Partners in accordance with Section 4.2. The fair market value of any
assets conveyed to such liquidating trust shall be determined, promptly after
such conveyance, by an independent appraiser to be selected by random number
from a list of three qualified appraisers obtained by the General Partner from
the American Institute of Real Estate Appraisers.
8.2.3. The General Partner shall cause the business of the Partnership to
be wound up and cause the cancellation of the Partnership's Certificate of
Limited Partnership following the liquidation and distribution of all the
Partnership's assets.
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ARTICLE 9
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS, ETC.
9.1. Books and Records
(a) The General Partner shall cause the Partnership to keep and maintain
full and complete books and records which shall include each of the following:
(i) a current list (updated at least quarterly) of the full name
and last known business or residence address and business telephone of each
Partner set forth in alphabetical order together with the Capital
Contribution and the share in Profits and Losses of each Partner (the
"Participant List");
(ii) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, together with executed copies of any
powers of attorney pursuant to which any certificate has been executed;
(iii) copies of the Partnership's Federal, state and local income
tax information returns and reports, if any, for the six most recent
taxable years;
(iv) copies of the original of this Agreement and all amendments
thereto;
(v) financial statements of the Partnership for the six most recent
fiscal years; and
(vi) the Partnership's books and records for at least the current
and past three fiscal years.
(b) Upon the request of a Limited Partner, the General Partner shall within
10 days of the receipt of the request mail to the Limited Partner copies of the
Participant List (which shall be on white paper in a readily readable form of no
less than 10-point type), and the information set forth in Section 9.1(a)(ii) or
(iv) above and of the provisions of the Act described in Section 10.1.2 of this
Agreement. A reasonable charge for copy work may be charged by the Partnership.
Each Limited Partner shall have the right upon request and during normal
business hours to inspect and copy any of the foregoing records at his own
expense, and, upon request, to obtain from the General Partner copies of the
Partnership's Federal, state and local income tax or information returns,
promptly after such returns become available.
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(c) If the Sponsor neglects or refuses to exhibit, produce or mail a copy
of the Participant List as requested, the Sponsor shall be liable to any Limited
Partner requesting the list for costs, including attorneys' fees, incurred by
the Limited Partner for compelling the production of the Participant List, and
for actual damages suffered by the Limited Partner by reason of such refusal or
neglect. It shall be a defense that the actual purpose and reason for the
requests for inspection or for a copy of the information is to secure the list
of Limited Partners or other information for the purpose of selling such list or
information or copies thereof, or of using the same for a commercial purpose
other than in the interest of the requesting Person as a Limited Partner
relative to the affairs of the Partnership. The Sponsor may require the Limited
Partner requesting the Participant List to represent that the list is not
requested for a commercial purpose unrelated to the Limited Partner's interest
in the Partnership. The remedies provided hereunder to Limited Partners
requesting copies of the Participant List are in addition to, and shall not in
any way limit, other remedies available to Limited Partners under Federal law,
or the laws of any state.
9.2. Accounting and Fiscal Year
The books of the Partnership shall be kept on the accounting method
selected by the General Partner. The fiscal year of the Partnership shall end on
December 31 in each year, or on such other date as the General Partner
determines.
9.3. Bank Accounts and Temporary Investments
The bank accounts of the Partnership shall be maintained in banking
institutions determined by the General Partner, and withdrawals shall be made
only in the regular course of Partnership business on signatures determined by
the General Partner. All deposits and other funds not needed in the operation of
the business or not yet invested may be invested in Temporary Investments.
9.4. Reports
9.4.1. Within 60 days after the end of each of the first three quarters of
each fiscal year of the Partnership, the General Partner shall send to each
Person who was a Limited Partner at any time during such quarter one or more
reports which, taken together, provide the following information (which need not
be audited): (i) a balance sheet as at the end of such quarter; (ii) a statement
of operations for such quarter; (iii) a statement of cash flows for such
quarter; (iv) a statement setting forth the amount of all fees and other
compensation and distributions and reimbursed expenses paid by the Partnership
for the quarter to the General Partner or any Affiliate of the General Partner;
(v) a report of the significant activities of the Partnership during the
quarter; and (vi) until the Limited Partners' Capital
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Contributions (except for any amounts utilized to pay Organizational and
Offering Expenses, Acquisition Fees, Acquisition Expenses or Operating Cash
Expenses, or any amounts set aside for Reserves) are fully invested, a special
report of Local Limited Partnership Interests acquired during the quarter,
describing the terms of such investments. If the Partnership acquires a Local
Limited Partnership Interest during the last quarter of any fiscal year, a
report containing the information described in the preceding clause (vi) shall
be sent on or before the date of transmission of the report for such year
required by Section 9.4.3. Until all Promissory Notes have been paid in full,
each quarterly report shall reflect any defaults in the payment of the
Promissory Notes, actions taken by the Partnership in response to any defaults,
and a discussion and analysis of the impact thereof on capital requirements of
the Partnership.
9.4.2. Within 75 days after the end of each calendar year, the General
Partner shall provide to each Person who was a Limited Partner at any time
during the fiscal year ending during that calendar year all tax information
necessary for the preparation of his Federal and state income tax returns and
other tax returns with regard to jurisdictions in which the Partnership or a
Local Limited Partnership is formed or qualified or owns Properties.
9.4.3. Within 120 days after the end of each fiscal year of the
Partnership, the General Partner shall send to each Person who was a Limited
Partner at any time during such fiscal year: (i) a balance sheet as of the end
of such fiscal year and statements of operations, partners' equity and cash
flows for such fiscal year prepared in accordance with generally accepted
accounting principles and accompanied by an auditor's report containing an
opinion of the Accountants; (ii) a report (which need not be audited) setting
forth any distributions made to Persons who were Limited Partners at any time
during the fiscal year, separately identifying distributions from (a) Cash Flow
from Local Limited Partnership or Partnership operations during the fiscal year,
(b) Cash Flow from Local Limited Partnership or Partnership operations during a
prior fiscal year which had been held as Reserves, (c) Sale or Refinancing
Proceeds, and (d) amounts previously set aside as Reserves from Gross Proceeds;
(iii) a report of the significant activities of the Partnership during the year;
(iv) a special report setting forth the amount of all fees and other
compensation and distributions and reimbursed expenses paid by the Partnership
and the Local Limited Partnerships for the fiscal year to the General Partner or
any Affiliate of the General Partner and the services performed in consideration
therefor, which report shall be verified by the Accountants, with the method of
verification to include, at a minimum, a review of the time records of
individual employees, the costs of whose services were reimbursed, and a review
of the specific nature of the work performed by each such employee, all in
accordance with generally accepted auditing standards and, accordingly,
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including such tests of the accounting records and such other auditing
procedures as the Accountants consider appropriate in the circumstances. The
additional costs of such special report shall be itemized by the Accountants
among all programs sponsored by the General Partner and its Affiliates on a
program-by-program basis and may be reimbursed to the General Partner or its
Affiliates to the extent that such reimbursement, when added to the cost for
administrative services rendered, does not exceed the Competitive rate for such
services. Until all Promissory Notes have been paid in full, such annual report
shall reflect any defaults in the payment of the Promissory Notes, actions taken
by the Partnership in response to any defaults, and a discussion and analysis of
the impact thereof on capital requirements of the Partnership.
9.5. Depreciation and Other Tax Elections
The Partnership may elect to use with respect to depreciable assets of the
Partnership any depreciation method which is permitted by the Code and
appropriate in the opinion of the General Partner. All other Federal income tax
elections required or permitted to be made for or by the Partnership shall be
made by the General Partner after consulting with the Accountants. The General
Partner may, but shall not be under any duty to, cause the Partnership to make
an election under Section 754 of the Code (or any successor provision thereto).
9.6. Designation of Tax Matters Partner
The General Partner is hereby designated as the "Tax Matters Partner" of
the Partnership under Section 6231(a)(7) of the Code and, in connection
therewith and in addition to all powers given thereunto, shall have all other
powers needed to fully perform as the Tax Matters Partner, including, without
limitation, the power to retain all attorneys and accountants of its choice, the
right to settle any audits without the consent of the Limited Partners and the
right to challenge any final partnership administrative adjustment in a court
action. The designation made in this Section is hereby expressly consented to by
each Limited Partner as an express condition to becoming a Limited Partner.
Expenses of any administrative proceedings undertaken by the Tax Matters Partner
will be paid for out of Partnership assets. Each Limited Partner who elects to
participate in the proceedings will be responsible for any expenses incurred by
him in connection with his participation, and the cost of any resulting audits
or adjustments of a Limited Partner's tax return will be borne solely by the
affected Limited Partner. The General Partner is hereby designated as the
"notice partner" under Section 6231(a)(8) of the Code to receive any notice
provided by the Internal Revenue Service to the Limited Partners as a group in
accordance with Section 6223(b)(2) of the Code.
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ARTICLE 10
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
10.1. Meetings and Actions Without Meetings
10.1.1. Meetings of the Limited Partners for any purpose may be called by
the General Partner at any time, and shall be called by the General Partner upon
receipt of a request in writing, containing a proposal for the holding of such a
meeting, signed by 10% or more in interest of the Limited Partners and stating
the purpose of the meeting. In addition, the General Partner may, and, upon
receipt of a proposal in writing signed by the holders of 10% or more in
interest of the Limited Partners shall, submit any matter (upon which the
Limited Partners are entitled to act) to the Limited Partners for a vote by
written Consent without a meeting.
10.1.2. All meetings and actions of the Limited Partners shall be governed
in all respects, including matters relating to notice, quorum, adjournment,
proxies, record dates and actions without a meeting, by the provisions of
Section 15637 of the Act, as said Section 15637 shall be amended from time to
time. Notwithstanding the foregoing, upon receipt of a written request for a
Partnership meeting from one or more Limited Partners either in person or by
certified mail stating the purpose(s) of the meeting, the General Partner shall
provide all Limited Partners, within 10 days after receipt of said request,
written notice (either in person or by certified mail) of the meeting and the
purpose of such meeting to be held on a date not less than 15 days nor more than
60 days after receipt of said request, at a time and place convenient to the
Limited Partners.
10.2. Voting Rights of Limited Partners
10.2.1. The holders of a majority of the outstanding Units may, without the
concurrence of the General Partner:
(i) amend this Agreement, subject to the provisions of Section 12.1 hereof;
(ii) dissolve the Partnership;
(iii) remove the General Partner and elect a replacement General Partner;
(iv) approve or disapprove the sale of all or substantially all of the
assets of the Partnership in a single transaction other than in connection with
the liquidation of the Partnership; or
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(v) if the Partnership invests in a Local Limited Partnership of which the
Local General Partner is a Sponsor, direct the General Partner (acting on behalf
of the Partnership) to take any action permitted to be taken by the Partnership
pursuant to the partnership agreement of the Local Limited Partnership.
10.2.2. Notwithstanding any provision of the Act to the contrary, the
Limited Partners shall only have the right to vote on the matters set forth in
Paragraph 10.2.1. of this Agreement.
10.2.3. In any vote of the Limited Partners, each Limited Partner shall be
entitled to cast one vote for each Unit which he owns as of the designated
record date. Notwithstanding any other provision of this Agreement, any Units
held by the Sponsor will not be entitled to vote, and will not be considered to
be "outstanding" Units for purposes of any vote, upon matters which involve a
conflict between the interests of such Sponsor and the Partnership, including,
but not limited to, any vote on the proposed removal of the General Partner or
regarding any transaction between the Partnership and the Sponsor.
10.3. Limitations on Roll-Ups; Dissenters' Rights
10.3.1. In connection with a proposed Roll-Up, an appraisal of all
Partnership assets shall be obtained from a competent, Independent Expert. If
the appraisal will be included in a prospectus used to offer the securities of a
Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange
Commission and the states as an exhibit to the registration statement for the
offering. Accordingly, an issuer using the appraisal shall be subject to
liability for violation of Section 11 of the Securities Act of 1933 and
comparable provisions under state laws for any material misrepresentations or
material omissions in the appraisal. Partnership assets shall be appraised on a
consistent basis. The appraisal shall be based on an evaluation of all relevant
information, and shall indicate the value of the Partnership's assets as of a
date immediately prior to the announcement of the proposed Roll-Up. The
appraisal shall assume an orderly liquidation of Partnership assets over a
12-month period. The terms of the engagement of the Independent Expert shall
clearly state that the engagement is for the benefit of the Partnership and its
Limited Partners. A summary of the independent appraisal, indicating all
material assumptions underlying the appraisal, shall be included in a report to
the Limited Partners in connection with a proposed Roll-Up.
10.3.2. In connection with a proposed Roll-Up, the Person sponsoring the
Roll- Up shall offer to Limited Partners who vote "no" on the proposal the
choice of:
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(i) accepting the securities of the Roll-Up Entity offered in the proposed
Roll-Up; or
(ii) one of the following: (a) remaining as Limited Partners in the
Partnership, and preserving their interests therein on the same terms and
conditions as existed previously; or (b) receiving cash in an amount equal to
the Limited Partners' pro-rata share of the appraised value of the net assets of
the Partnership.
10.3.3. The Partnership shall not participate in any proposed Roll-Up which
would result in Limited Partners having democracy rights which are less than
those provided for under this Agreement. If the Roll-Up Entity is a corporation,
the voting rights of Limited Partners shall correspond to the voting rights
provided for in this Agreement to the greatest extent possible.
10.3.4. The Partnership shall not participate in any proposed Roll-Up which
includes provisions which would operate to materially impede or frustrate the
accumulation of shares by any purchaser of the securities of the Roll-Up Entity
(except to the minimum extent necessary to preserve the tax status of the
Roll-Up Entity). The Partnership shall not participate in any proposed Roll-Up
which would limit the ability of a Limited Partner to exercise the voting rights
of the securities of the Roll-Up Entity on the basis of the number of Units held
by that Limited Partner.
10.3.5. The Partnership shall not participate in any proposed Roll-Up in
which Limited Partners' rights of access to the records of the Roll-Up Entity
will be less than those provided for under this Agreement.
10.3.6. The Partnership shall not participate in any proposed Roll-Up in
which any of the costs of the transaction would be borne by the Partnership if
the Roll-Up is not approved by the Limited Partners.
10.3.7. In addition to those set forth above, Limited Partners who dissent
with respect to a proposed Roll-Up will have the rights provided under Sections
15679.1 through 15679.14 of the Act.
ARTICLE 11
SPECIAL POWER OF ATTORNEY
Each Limited Partner, including each Additional Limited Partner and
Substitute Limited Partner, by the execution of this Agreement, irrevocably
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constitutes and appoints the General Partner, with full power of
substitution in the premises, his true and lawful attorney-in-fact with full
power and authority in his name, place and stead to execute, acknowledge,
deliver, swear to, file and record at the appropriate public offices any
documents necessary or appropriate to carry out the provisions of this
Agreement, including, but not limited to:
(i) all certificates and other instruments (including counterparts of this
Agreement), and any amendment thereof, which the General Partner deems
appropriate in order to form, qualify or continue the Partnership as a limited
partnership (or a partnership in which the Limited Partners will have limited
liability comparable to that provided by the Act) in the State of California and
in the jurisdictions in which the Partnership may conduct business or in which
formation, qualification or continuation is, in the opinion of the General
Partner, necessary or desirable to protect the limited liability of the Limited
Partners;
(ii) all amendments to this Agreement adopted in accordance with its terms,
and all instruments which the General Partner deems appropriate to reflect a
change or modification of the Partnership in accordance with the terms of this
Agreement;
(iii) all financing statements, continuation statements or other documents
and amendments thereto which the General Partner deems appropriate to perfect or
continue the perfection of the Partnership's security interest in his Units
provided for in Section 13.1, and, if the Limited Partner is an Installment
Contributor Limited Partner, Section 3.4.1(b), of this Agreement, and all
instruments relating to the admission of any Additional or Substitute Limited
Partner, including any amendment to this Agreement which substitutes as a
Limited Partner the purchaser at a foreclosure sale of Units previously given as
security by a defaulting Limited Partner for his Promissory Note; and
(iv) all conveyances and other instruments which the General Partner deems
appropriate to implement the provisions of this Agreement or to reflect the
dissolution and winding up of the Partnership in accordance with the terms of
this Agreement.
The appointment by each of the Limited Partners of the General Partner as
his attorney-in-fact shall be deemed to be a power coupled with an interest, in
recognition of the fact that each of the Partners under this Agreement will be
relying upon the power of the General Partner to act as contemplated by this
Agreement in any filing and other action by it on behalf of the Partnership, and
shall survive and shall not be affected by the subsequent bankruptcy, death,
adjudication of incompetence or insanity, disability, incapacity or dissolution
of any Person hereby giving the power nor by the transfer or assignment of all
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<PAGE>
or any part of the Units of any such Person; provided, however, that in the
event of the transfer by a Limited Partner of all of his Units, the foregoing
power of attorney of a transferror Limited Partner shall survive the transfer
only until the transferee is admitted to the Partnership as a Substitute Limited
Partner and all required documents and instruments are duly executed, filed and
recorded to effect the substitution.
ARTICLE 12
AMENDMENTS
12.1. Adoption of Amendments
12.1.1. In addition to the amendments authorized herein, amendments may be
made to this Agreement from time to time by a majority-in-interest of the
Limited Partners, without the Consent of the General Partner; provided that no
such amendment shall (a) in any manner allow the Limited Partners to take any
action which would constitute their participation in the control of the
Partnership's business within the meaning of Section 15632 of the Act, or
otherwise cause the loss of their limited liability, nor (b) without the Consent
of the General Partner, alter the rights, power, duties or compensation of the
General Partner or any of its Affiliates or its (or any of its Affiliates')
interest in Profits and Losses for Tax Purposes, Tax Credits, Cash Available for
Distribution or Sale or Refinancing Proceeds or alter any of the provisions of
Sections 3.6.2 or 6.6 or this Section 12.1.1.
12.1.2. In addition to the amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time by the General
Partner, without the Consent of any of the Limited Partners: (i) to add to the
representations, duties or obligations of the General Partner or surrender any
right or power granted to the General Partner herein, for the benefit of the
Limited Partners; (ii) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Agreement which will not be inconsistent with the provisions of this
Agreement; and (iii) to delete or add any provision of this Agreement required
to be deleted or added by the staff of the Securities and Exchange Commission or
other Federal agency or by a state "Blue Sky" commissioner or similar official
and deemed by the Commission, agency, commissioner or official to be for the
benefit or protection of the Limited Partners.
No amendment shall be adopted pursuant to this Section 12.1.2 (except under
the preceding clause (iii)) unless its adoption: (i) is for the benefit of or
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not adverse to the interests of the Limited Partners; (ii) is consistent
with Section 5.1 hereof; (iii) does not affect the distribution of Cash
Available for Distribution or Sale or Refinancing Proceeds or the allocation of
Profits and Losses for Tax Purposes or of Tax Credits among the Partners or
between the Limited Partners as a class and the General Partner; and (iv) does
not, in the opinion of counsel for the Partnership, affect the limited liability
of the Limited Partners under the Act or the status of the Partnership as a
partnership for Federal income tax purposes.
In addition to the amendments otherwise authorized herein, notwithstanding
the preceding paragraph, amendments may be made to this Agreement without the
Consent of any Limited Partner with respect to the provisions of Article 4 of
this Agreement in accordance with Section 4.4.1 and/or Section 4.4.2.
12.2. Filing of Required Documents
In making any amendments, there shall be prepared and filed for recordation
by the General Partner all documents and certificates required to be prepared
and filed under the Act and under the laws of any other jurisdictions under the
laws of which the Partnership is then formed or qualified.
12.3. Required Change of Partnership Name
If at any time there is no General Partner which is an Affiliate of WNC &
Associates, Inc., a California corporation (or any successor thereto), the
Partnership shall forthwith change its name in such a manner as not to include
the initials "WNC." All parties to this Agreement recognize that damages at law
may be an inadequate remedy for breach of the foregoing covenant, and consent
that the same may be enforced by specific performance, injunction or equitable
remedy as well as in an action at law.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1. Security Interest and Right of Set-Off
As security for any withholding tax or other liability or obligation to
which the Partnership may be subject as a result of any act or status of any
Limited Partner, or to which the Partnership becomes subject with respect to the
Interest of any Limited Partner, the Partnership shall have (and each Limited
Partner hereby grants to the Partnership) a security interest in all Cash
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Available for Distribution and Sale or Refinancing Proceeds distributable
to the Limited Partner to the extent of the amount of the withholding tax or
other liability or obligation.
13.2. Notices
Except as otherwise specifically provided herein, all notices, demands or
other communications hereunder shall be in writing and shall be deemed to have
been given, if given in any manner specified in the definition of "Notification"
herein, when dispatched, and shall be sent to the respective addresses referred
to in such definition.
13.3. Execution
Each Limited Partner, including any Additional Limited Partner and
Substitute Limited Partner, additional General Partner and successor General
Partner, shall become a Partner in the Partnership by signing counterpart
signature pages to this Agreement or a power of attorney to the General Partner
therefor, and any other instrument or instruments deemed necessary by the
General Partner. By so signing, each Limited Partner, including any Additional
Limited Partner and Substitute Limited Partner, additional General Partner or
successor General Partner, as the case may be, shall be deemed to have adopted,
and to have agreed to be bound by, all the provisions of this Agreement. A
Person may be admitted as an Additional Limited Partner and shall become bound
by this Agreement (i) if such Person (or a representative authorized by such
Person orally, in writing or by other action such as payment for his Units)
executes this Agreement or any other writing, including without limitation, the
Investor Form included with the Prospectus, evidencing the intent of such Person
to become an Additional Limited Partner or (ii) without such execution, if such
Person (or a representative authorized by such Person orally, in writing or by
other action such as payment for his Units) complies with the conditions for
becoming an Additional Limited Partner as set forth in this Agreement and
requests (orally, in writing or by other action such as payment for his Units)
that the Partnership Register reflect such admission.
13.4. Binding Effect
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of, the heirs, executors, administrators, personal
representatives, successors and assigns of the respective parties hereto.
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13.5. Applicable Law
This Agreement shall be construed and enforced in accordance with the laws
of the State of California; provided, however, that the provisions of this
Section 13.5 shall not govern causes of action based on alleged violations of
Federal or state (other than the State of California) securities laws.
13.6. Counterparts
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
13.7. Separability of Provisions
Each provision of this Agreement shall be considered separable, and if for
any reason any provision or provisions hereof are determined to be invalid and
contrary to any existing or future law, no such invalidity shall impair the
operation or affect those portions of this Agreement which are valid.
13.8. Captions
Section titles and the table of contents are for convenience of reference
only and shall not control or limit the meaning of this Agreement as set forth
in the text hereof.
13.9. Mandatory Arbitration
Except as provided in Article 6 hereof, mandatory arbitration shall not be
required in connection with any dispute between a Limited Partner and the
Sponsor or the Partnership. Nothing contained in this Section 13.9 shall apply
to pre-existing contracts between Limited Partners and their broker-dealers.
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13.10. Partnerships Treated as Separate
This Partnership Agreement shall apply to each Partnership separately, and
each Partnership shall file its own Certificate of Limited Partnership.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
General Partner:
WNC & Associates, Inc.,
General Partner
By: /s/ John B. Lester, Jr.
John B. Lester, Jr.,
President
Initial Limited Partner:
/s/ John B. Lester, Jr.
John B. Lester, Jr.
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EXHIBIT C
INVESTOR FORM
WNC Housing Tax Credit Fund VI, L.P., Series __
Amount of Investment
______________ x $1,000 _________________
# Units Total Dollar Amount
Minimum Investments: $5,000 ($2,000 for previous WNC investors);
Additional increments: $1,000
____ New Account
____ Addition to Existing Fund VI Current Series Account
____ Initial Here if the investor is paying for his Units with a check for the
total subscription amount.
____ Initial Here if the investor elects to use the installment payment. In such
case he shall make a check for one-half of the total subscription amount (i.e.,
the number of Units subscribed above x $500) and pay the remaining half
with interest pursuant to the terms of the Promissory Note on the reverse side
hereof, which must be executed by the investor. An investor is eligible to use
this installment payment method only if he is subscribing for at least 10 Units
($10,000).
Make Check Payable To: National Bank of Southern California
WNC/HTCF VI
Submit To: National Bank of Southern California
4100 Newport Place, Suite 100
Newport Beach, CA 92660
Attention: WNC Escrow Manager
INVESTOR INFORMATION
Investor ____ Dr. ____ Mr. ____ Mrs. ____ Ms. Social Security Number
- -------------------------------------------------------------------------------
Investor ____ Dr. ____ Mr. ____ Mrs. ____ Ms. Social Security Number
- -------------------------------------------------------------------------------
Entity Name Taxpayer Identification Number
- ------------------------------------- ------------------------------
Occupation Income
- ------------------------------------- ------------------------------
Mailing Address Residence Address
(if different from mailing address)
- ------------------------------------- -----------------------------------
City City
- ------------------------------------- -----------------------------------
State Zip State Zip
- ------------------------------------- -----------------------------------
Daytime Phone Daytime Phone
CONTINUED ON OTHER SIDE
<PAGE>
INVESTOR FORM (CONTINUED)
LEGAL FORM OF OWNERSHIP
____ Individual ____ Community Property ____ Joint Tenants with Rights of
Survivorship ____ Tenants in Common ____ Partnership (Copy of partnership
agreement must be sent with this form.)
____ Corporate (Certified corporate resolution must be sent with this form.)
____ Revocable Trust (Trustee(s) is required to sign below. Copy of trust
instrument must be sent with this form.)
____ Custodian for: _______________________________________________
Under Uniform Gift to Minors Act of the State of ________________. The Units
are being purchased in the State of _____________________.
(Complete if different from the state of residence.)
____ Other (Specify.)
____ Check here if the investor is not a citizen of the United States.
____ Check here if the investor is subject to backup withholding pursuant to
Section 3406(a)(1)(C) of the Internal Revenue Code.
Investor Signature
Execution of the Investor Form below constitutes the undersigned's subscription
for the number of Units indicated above and his acceptance and agreement to
perform the terms and conditions of the Agreement of Limited Partnership
included as Exhibit B to the Prospectus of WNC Housing Tax Credit Fund VI, dated
June 23, 1997.
Signature of First Investor Date
- ----------------------------------- ---------------------------
Signature of Second Investor Date
- ----------------------------------- ---------------------------
In order to induce the General Partner to accept this subscription, investor
represents by initialing in the space provided that investor has received a copy
of the final Prospectus. ____________
(Initial Here)
Broker/Dealer Information
The undersigned represents that he has complied with the requirements of the
Conduct Rules of the NASD with respect to the subscriber whose name appears on
the above Investor Form and hereby certifies that he has reasonable grounds
to believe on the basis of information obtained from the investor concerning his
objectives, financial situation and needs and any other information known
to the undersigned that the investment in the Units is suitable for the
investor, and, in addition, has informed the investor as to the lack of
liquidity and marketability of the Units. The undersigned warrants that a
Prospectus was delivered to the subscriber not less than five days prior to
submission of this subscription to the Series.
- ----------------------------------- ---------------------------
Account Executive Broker/Dealer Firm
- -------------------------------------------------------------------------------
Branch Office Address ____ Please check if new address
- -------------------------------------------------------------------------------
City State Zip Phone
- ------------------------------------ ------------------------
Account Executive's Signature and/or Branch Manager Date
C-1
<PAGE>
PROMISSORY NOTE
$500 PER UNIT
FOR VALUE RECEIVED, the undersigned ("Maker"), promises, jointly and severally
if more than one, to pay to the order of WNC Housing Tax Credit Fund VI, L.P.,
Series __, a California limited partnership ("Payee"), at the office of Payee,
3158 Redhill Avenue, Suite 120, Costa Mesa, California 92626-3416, or at such
other location as Payee may from time to time designate, the principal sum of
FIVE HUNDRED DOLLARS ($500), multiplied by the number of Units set forth in his
Investor Form, together with interest on the unpaid principal balance from the
date of the Maker's admission as a limited partner of the Payee until paid at
the rate of ____% per annum. Said principal sum shall be payable in one
installment as follows: (i) January 31, 1999, if Maker subscribes on or
before June 30, 1988, (ii) June 30, 1999, if Maker subscribes between July 1,
1998 and December 31, 1998, or (iii) the later of the date of subscription or
January 31, 2000, if Maker subscribes after December 31, 1998. Interest accrued
to the principal installment payment date shall also be due and payable on such
date.
This Promissory Note is delivered pursuant to the terms of the Agreement of
Limited Partnership of Payee, and shall be governed by the following provisions:
1. This Promissory Note shall be paid in lawful money of the United States.
2. The occurrence of any of the following shall constitute an "Event of
Default":
(a) Default in the payment of any amount payable hereunder when due,
which default in payment is not cured within 30 days after such due
date ("Payment Default"); or default in the performance of any other
obligation of Maker under this Promissory Note;
(b) A materially false or misleading omission or representation,
statement, certificate, warranty or other assertion in the Investor
Form or any other document executed by the Maker in connection with the
purchase of Units of limited partnership interest in Payee;
(c) The filing by, or against, the Maker of any proceeding under
the Federal Bankruptcy Code;
(d) An assignment for the benefit of creditors made by the Maker; or
(e) The appointment of, or application for, a receiver or trustee by
any party for all or any part of the assets of the Maker.
3. Upon the occurrence of an Event of Default, then at the option of Payee, the
entire unpaid balance of principal on this Promissory Note, together with
accrued interest and any other amounts due hereunder, shall be immediately due
and payable.
4. In the event that any amount payable under this Promissory Note is not paid
when due, a late charge in the amount of 5% of the late amount shall be due and
payable in addition to the interest provided herein.
5. If this Promissory Note is not paid when due or if an Event of Default
occurs, Maker promises to pay all costs of collection, including, but not
limited to, reasonable attorneys' fees incurred by Payee on account of such
collection whether or not suit is filed hereon.
6. In the event this Promissory Note is not paid when due or if an Event of
Default occurs, Payee may set off all amounts owed to Payee under this
Promissory Note against all distributions to which Maker is entitled relating to
Maker's Units of limited partnership interest in Payee.
7. In the event of a Payment Default, Maker shall be given a notice by Payee of
the Payment Default and the Payee's intent to foreclose on its security interest
given by Maker to secure the payment of this Promissory Note. For a period of 30
days after such notice (the "Cure Period"), Maker shall be entitled to cure such
Payment Default by paying the delinquent principal payment, with interest as
provided in this Promissory Note, to the Payee. Prior to the expiration of the
Cure Period, the Payee shall not be entitled to commence to foreclose its
security interest in the Maker's Units of limited partnership interest in Payee
and Maker's interest in Payee shall not be subject to any reduction as a result
of such Payment Default. However, Payee may withhold any distributions otherwise
payable or issuable to Maker pending the cure of the Payment Default prior to
the expiration of the Cure Period. Any reduction in Maker's interest in Payee
effective upon the expiration of the Cure Period will relate back and shall
apply to and affect any withheld distributions. Upon expiration of the Cure
Period Payee may commence to foreclose and foreclose its security interest in
the Maker's Units of limited partnership interest in Payee.
<PAGE>
8. This Promissory Note is made with full recourse to Maker, is by its terms not
a negotiable instrument, is assignable only subject to the defenses Maker may
have, is subject to venue for collection in the state in which Maker resides and
may not be sold by Payee prior to its maturity. Subject to the foregoing, Payee
may pledge and grant security interests in this Promissory Note as security for
any obligation of Payee.
9. This Promissory Note shall be governed by, and construed in accordance with,
the laws of the State of California.
10. Reference in this Promissory Note to "Payee" shall mean the original Payee
hereunder so long as the Payee shall be the holder of this Promissory Note and
thereafter shall mean any subsequent holder of the Promissory Note.
11. Time is of the essence of each obligation of Maker hereunder.
12. No delay or omission on the part of the Payee in exercising any rights
hereunder or under the Agreement of Limited Partnership of Payee or any other
instrument given to secure this Promissory Note shall operate as a waiver of
such rights or any other right hereunder or under said instruments.
13. This Promissory Note may be prepaid in full at any time without premium or
penalty; provided, however, that no partial prepayments shall be permitted.
14. Maker waives presentment, demand for payment, notice of dishonor, notice of
protest, protest and all other notices or demands in connection with the
delivery, acceptance, performance, default, endorsement or guaranty of this
instrument, except as provided in paragraph 7 above.
This note is executed as of _______, 199__.
---------------------------
Maker
---------------------------
Maker
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<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representations must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
state to any person to whom it is unlawful to make such offer. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Fund since the respective dates at which information is given
herein, or the date hereof. However, if any material change occurs while this
Prospectus is required by law to be delivered, this Prospectus will be amended
or supplemented accordingly.
TABLE OF CONTENTS
Page
Summary of the Offering.................................................... 10
Risk Factors............................................................... 23
Who Should Invest; Limitations on Use of Credits and Losses................ 41
Estimated Use of Proceeds.................................................. 47
Management Compensation.................................................... 52
Conflicts of Interest...................................................... 59
Fiduciary Responsibility................................................... 64
Investment Objectives and Policies......................................... 66
The Low Income Housing Credit.............................................. 84
Other Government Assistance Programs....................................... 100
Management................................................................. 106
Prior Performance Summary.................................................. 114
Federal Income Tax Considerations.......................................... 121
State and Local Tax Considerations......................................... 164
Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions.... 165
Summary of Certain Provisions of the Partnership Agreement................. 170
Transferability of Units................................................... 174
Reports.................................................................... 176
Terms of the Offering and Plan of Distribution............................. 177
Sales Material............................................................. 184
Management's Discussion and Analysis of Financial Condition................ 184
Legal Matters.............................................................. 186
Experts.................................................................... 186
Further Information........................................................ 186
Glossary................................................................... 187
Financial Statements....................................................... FS-i
Exhibit A - Prior Performance Tables....................................... A-1
Exhibit B - Partnership Agreement.......................................... B-1
Exhibit C - Investor Form.................................................. C-1
For a period of 90 days after the effective date of this Prospectus,
all dealers effecting transactions in the registered securities, whether or not
participating in the distribution, may be required to deliver a Prospectus. This
obligation is in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P.,
SERIES 6
Supplement Dated November 18, 1998
To Prospectus Dated June 23, 1997
This Supplement is part of, and should be read in conjunction with, the
Prospectus of WNC Housing Tax Credit Fund VI, L.P., Series 6 ("Series 6") dated
June 23, 1997 (the "Prospectus"). This Supplement supersedes all previous
supplements. Capitalized terms used but not defined in this Supplement have the
meanings given to them in the Prospectus.
TABLE OF CONTENTS
Page
Termination of Series 5 Offering.............................................2
Status of Series 6 Offering..................................................2
Investment Objectives and Policies ..........................................2
Local Limited Partnership Investments........................................3
Federal Income Tax Considerations............................................7
Profits, Losses and Tax Credits..............................................8
Management ..................................................................9
Experts......................................................................9
Prior Performance Summary....................................................9
Financial Statements......................................................FS-1
Prior Performance Tables...................................................A-1
First Amendment to Partnership Agreement...................................B-1
As indicated in the chart which follows, the information presented
herein either adds to or supersedes similar information included in the
Prospectus, or constitutes information which has no corresponding information in
the Prospectus.
Supplement Presentation Relationship to Prospectus Presentation
Termination of Series 5 Offering New Information
Status of Series 6 Offering New Information
Investment Objectives and Policies Supersedes a portion of "Investment
Objectives and Policies"
Local Limited Partnership Investments New Information
Federal Income Tax Considerations Adds to or supersedes a portion of
"Federal Income Tax Considerations"
Profits, Losses and Tax Credits Supersedes a portion of "Profits and
Losses for Tax Purposes, Tax Credits
and Cash Distributions"
Management Adds to "Management"
Experts Adds to "Experts"
Prior Performance Summary Adds to "Prior Performance Summary"
Financial Statements Adds to "Financial Statements"
Prior Performance Tables Adds to "Prior Performance Tables"
First Amendment to Partnership Agreement Adds to "Partnership Agreement"
1
<PAGE>
TERMINATION OF SERIES 5 OFFERING
As of July 9, 1998 the Fund terminated the offering of Units in Series
5.
STATUS OF SERIES 6 OFFERING
The Fund is now offering a maximum of 25,000 Units in Series 6 on the
terms set forth herein and in the Prospectus. As of the date hereof, Series 6
has received and accepted subscriptions in the amount of $4,289,000 (4,289
Units), of which $180,000 currently is represented by Promissory Notes. Series 6
and Series 5 have been organized as separate limited partnerships under
California law and investors in Series 6 will have no rights or interests in the
properties acquired by Series 5.
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objective of Series 6 is to provide Low Income
Housing Credits to its investors in an amount of from $1,000 to $1,200 per Unit.
See "Investment Objectives and Policies - Principal Investment Objectives" in
the Prospectus. There can be no assurance that this objective will be satisfied.
See "Summary of the Offering - Risk Factors" and "Risk Factors" in the
Prospectus. In this regard, the Partnership Agreement utilizes a defined term to
determine whether the Fund Manager can receive distributions from the sale of
Apartment Complexes. The defined term is "Return on Investment." As set forth in
the Prospectus, investors should note that the use of the term "Return on
Investment" is not intended to suggest that this return will be provided to
investors. It means only that if proceeds from the sale of Apartment Complexes
are available after payment of all current and accrued fees and expenses, they
will be distributed to investors before distributions to the Fund Manager. For
purposes of Series 6 the term "Return on Investment" will mean 11% of
"unreturned capital" (i.e., the capital contribution originally paid for a Unit,
less distributions of Sale or Refinancing Proceeds) each year through 2008, and
6% of unreturned capital thereafter. See "Summary of the Offering - Profits and
Losses for Tax Purposes, Tax Credits and Cash Distributions," "Summary of the
Offering - Management Compensation," "Profits and Losses for Tax Purposes, Tax
Credits and Cash Distributions" and "Management Compensation" in the Prospectus,
and "First Amendment to Partnership Agreement" included herein as Exhibit B.
NOT TO BE USED IN ARIZONA, MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI, NEBRASKA,
PENNSYLVANIA, TENNESSEE OR TEXAS
2
<PAGE>
TERMINATION OF SERIES 5 OFFERING
As of July 9, 1998 the Fund terminated the offering of Units in Series
5.
STATUS OF SERIES 6 OFFERING
The Fund is now offering a maximum of 25,000 Units in Series 6 on the
terms set forth herein and in the Prospectus. As of the date hereof, Series 6
has received and accepted subscriptions in the amount of $4,289,000 (4,289
Units), of which $180,000 currently is represented by Promissory Notes. Series 6
and Series 5 have been organized as separate limited partnerships under
California law and investors in Series 6 will have no rights or interests in the
properties acquired by Series 5.
INVESTMENT OBJECTIVES AND POLICIES
The Partnership Agreement utilizes a defined term to determine whether
the Fund Manager can receive distributions from the sale of Apartment Complexes.
The defined term is "Return on Investment." As set forth in the Prospectus,
investors should note that the use of the term "Return on Investment" is not
intended to suggest that this return will be provided to investors. It means
only that if proceeds from the sale of Apartment Complexes are available after
payment of all current and accrued fees and expenses, they will be distributed
to investors before distributions to the Fund Manager. For purposes of Series 6
the term "Return on Investment" will mean 11% of "unreturned capital" (i.e., the
capital contribution originally paid for a Unit, less distributions of Sale or
Refinancing Proceeds) each year through 2008, and 6% of unreturned capital
thereafter. See "Summary of the Offering - Profits and Losses for Tax Purposes,
Tax Credits and Cash Distributions," "Summary of the Offering - Management
Compensation," "Profits and Losses for Tax Purposes, Tax Credits and Cash
Distributions" and "Management Compensation" in the Prospectus, and "First
Amendment to Partnership Agreement" included herein as Exhibit B.
TO BE USED ONLY IN ARIZONA, MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI,
NEBRASKA, PENNSYLVANIA, TENNESSEE OR TEXAS
2b
<PAGE>
LOCAL LIMITED PARTNERSHIP INVESTMENTS
Included herein is a discussion of five Local Limited Partnership
Interests acquired or identified for acquisition by Series 6. The seven
Apartment Complexes owned by these Local Limited Partnerships are located in
four states and are being developed and constructed by four different
development teams. Each of the Apartment Complexes has received a reservation of
Low Income Housing Credits. While the Fund Manager believes that Series 6 is
reasonably likely to retain or acquire an interest in each of these Local
Limited Partnerships, Series 6 may not do so as a result of the failure by a
Local Limited Partnership to satisfy one or more conditions precedent to the
payment of each installment payment, the inability of Series 6 to raise
additional capital necessary to complete the purchase of the Local Limited
Partnership Interests identified herein, the purchase of Local Limited
Partnership Interests other than those identified herein, or other factors.
Moreover, the terms of any acquisition may differ from those as described.
Accordingly, investors should not rely on the ability of Series 6 to acquire an
investment in all these Local Limited Partnerships on the indicated terms in
deciding whether to invest in Series 6.
Series 6 has acquired a Local Limited Partnership Interest in Trenton
Village Apts., L.P., a Missouri limited partnership ("TRENTON"); and United
Development Co., L.P. - 97.0, a Tennessee limited partnership ("UNITED 97.0").
Series 6 expects to acquire a Local Limited Partnership Interest in Ottawa I,
L.P., an Illinois limited partnership ("OTTAWA"); Preservation Partners I, L.P.,
an Illinois limited partnership ("PRESERVATION"); and West Mobile County
Housing, Ltd., an Alabama limited partnership ("WEST MOBILE").
OTTAWA owns the Highland Apartments in Oglesby, Illinois; PRESERVATION
owns the Autumn Ridge I Apartments in Pontiac, Illinois ("PRESERVATION AUTUMN"),
the Pontiac "A" Apartments in Pontiac, Illinois ("PRESERVATION PONTIAC"), and
the Shumway Apartments in Taylorville, Illinois ("PRESERVATION SHUMWAY");
TRENTON owns the Trenton Village Apartments in Trenton, Missouri; UNITED 97.0
owns the Sixty Homes for Memphis (single-family houses) in Memphis, Tennessee;
and WEST MOBILE owns the Peppertree Apartments in Theodore, Alabama.
The following tables contain information concerning the Properties and
the Local Limited Partnerships identified herein:
3
<PAGE>
<TABLE>
ACTUAL OR LOCAL
ESTIMATED ESTIMATED PERMANENT LIMITED
PROPERTY CONSTRUC- DEVELOP- MORTGAGE PARTNERSHIP'S YEAR
LOCAL NAME AND TION MENT COST NUMBER OF BASIC LOAN ANTICIPATED CREDITS TO
LIMITED NUMBER LOCATION COMPLETION (INCLUDING APARTMENT MONTHLY PRINCIPAL TAX CREDITS BE FIRST
PARTNERSHIP OF BUILDINGS OF PROPERTY DATE LAND COST) UNITS RENTS AMOUNT (1) AVAILABLE
- ------------- ------------- ------------ ------------- ------------- ------------ ---------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTTAWA Highland Oglesby June 1999 $1,722,549 16 1BR $230-372 $1,192,241 $592,540 1999
Apartments (La Salle units $275-445 RD (3)
County), 15 2BR
8 Buildings Illinois units
(2)
- ------------- ------------- ------------ ------------- ------------- ------------ ---------- ------------- ------------- ----------
PRESERVATION Autumn Pontiac June 1999 $750,379 8 1BR units $229-376 $631,000 $$244,630 1999
(AUTUMN) Ridge I (Livingston 8 2BR units $271-449 RD (3)
Apartments County),
Illinois
2 Buildings
(2)
(PONTIAC) Pontiac "A" Pontiac June 1999 $740,262 10 1BR $221-368 $564,000 $244,290 1999
Apartments (Livingston units $273-451 RD (3)
County), 10 2BR
5 Buildings Illinois units
(2)
(SHUMWAY) Shumway Taylorville June 1999 $775,319 13 1BR $208-345 $623,100 $268,140 1999
Apartments (Christian units $425 RD (3)
County), 11 2BR
5 Buildings Illinois units
(2)
- ------------ ------------- ------------ ------------- ------------- ------------ ---------- ------------- ------------- ----------
TRENTON Trenton Trenton October $2,075,016 24 2BR $280 $730,000 $1,507,270 2000
Village (Grundy 1999 units $335 MHDC (4)
Apartments County), 8 3BR units
Missouri
8 Buildings
- ------------- ------------- ------------ ------------- ------------- ------------ ---------- ------------- ------------- ----------
UNITED 97.0 Sixty Homes Memphis June 1999 $3,960,750 60 4BR $476-517 $1,311,517 $4,106,840 1999
for Memphis (Shelby homes STB (6)
County),
60 Homes Tennessee
(5)
- ------------- ------------- ------------ ------------- ------------- ------------ ---------- ------------- ------------- ----------
WEST Peppertree Theodore October $3,257,375 8 1BR units $247 $577,890 $2,727,150 2000
MOBILE Apartments (Mobile 1999 33 2BR $295 CB (7)
County), units $331
6 Buildings Alabama 14 3BR $791,000
units AHFA (8)
<FN>
(1) Low Income Housing Credits are available over a 10-year period. For the year
in which the credit first becomes available, Series 6 will receive only that
percentage of the annual credit which corresponds to the number of months during
which Series 6 was a limited partner of the Local Limited Partnership, and
during which the Properties were completed and in service. See the discussion
under "The Low Income Housing Credit" in the Prospectus.
(2) Rehabilitation property.
(3) Rural Development ("RD") will provide the mortgage loan for a term of 40
years at a market rate of interest prior to reduction thereof by a mortgage
interest subsidy to an annual rate of 1%. Principal and interest will be payable
monthly, based on a 40-year amortization schedule.
(4) Missouri Housing Development Commission ("MHDC") will provide the mortgage
loan for a term of 40 years at an annual interest rate of 1%. Principal and
interest will be payable monthly, based on a 40-year amortization schedule.
(5) Property designed for senior citizens and families. The Property consists of
60 single-family homes, interspersed throughout Memphis.
4
<PAGE>
(6) South Trust Bank, National Association ("STB") will provide the mortgage
loan for a term of 15 years at an annual interest rate of 3.5% in excess of the
average of the U.S. Treasury Instruments of fifteen-year maturity at
commencement of the mortgage loan. Principal and interest will be payable
monthly, based on a 30-year amortization schedule. Outstanding principal will be
due upon maturity.
(7) Colonial Bank ("CB") will provide the first mortgage loan for a term of 20
years at an annual interest rate of 9.5%. Principal and interest will be payable
monthly, based on a 20-year amortization schedule.
(8) Alabama Housing Finance Authority ("AHFA"), using HOME funds, will provide
the second mortgage loan for a term of 20 years at an annual interest rate of
0.5%. Principal and interest will be payable monthly, based on a 20-year
amortization schedule.
</FN>
</TABLE>
Oglesby (OTTAWA): Oglesby (population 3,600) is in La Salle County,
Illinois, on U. S. Highway 51, approximately 100 miles southwest of Chicago. The
major employers for Oglesby residents are Lone Star Industries, Badge-A-Minit,
Ltd., and Patten Tractor & Equipment.
Pontiac (PRESERVATION AUTUMN & PRESERVATION PONTIAC): Pontiac (population
12,300) is the county seat of Livingston County, Illinois, and is located on
Interstate Highway 55, approximately 40 miles northeast of Bloomington. The
major employers for Pontiac residents are Caterpillar Inc. (engine components),
Pontiac Correctional Facility, R. R. Donnelley & Sons, Inc. (financial printer),
Interlake, Inc. (storage racks and systems) and OSF Saint James Hosptial.
Taylorville (PRESERVATION SHUMWAY): Taylorville (population 11,000) is the
county seat of Christian County, Illinois, and is located at the intersection of
State Highways 48 and 29, approximately 20 miles southeast of Springfield. The
major employers for Taylorville residents are St. Vincent Memorial Hospital,
Taylorville Correctional Center and Taylorville CUSUD #3 (school district).
Trenton (TRENTON): Trenton (population 6,000) is the county seat of Grundy
County, Missouri, and is located at the intersection of U.S. Highway 65 and
State Highway 6, approximately 100 miles northeast of Kansas City. The major
employers for Trenton residents are Nestles, USA (processed foods), Modine
Manufacturing (radiators), and Wright Memorial (hospital).
Memphis (UNITED 97.0): Memphis (population 599,000) is in Shelby County, in the
southwest corner of Tennessee, at the intersection of Interstate Highways 40 and
55. The major employers for Memphis residents are Federal Express Corporation,
the U.S. Government, and the Memphis City Board of Education.
Theodore (WEST MOBILE): Theodore (population 6,500) is in Mobile County, in
southern Alabama near the Gulf of Mexico, near the intersection of Interstate
Highway 10 and U.S. Highway 90, approximately 20 miles southwest of Mobile. The
major employers for Theodore residents are Mobile County School System,
University of South Alabama, and University of South Alabama Medical Facilities.
5
<PAGE>
<TABLE>
LOCAL ESTIMATED
GENERAL SHARING RATIOS: ACQUISITION
LOCAL LOCAL PARTNER(S) SHARING ALLOCATIONS (4) AND FEES PAYABLE
LIMITED GENERAL PROPERTY DEVELOPMENT RATIOS: SALE OR REFINANCING SERIES 6's CAPITAL TO FUND
PARTNERSHIP PARTNER(S) MANAGER (1) FEE (2) CASH FLOW (3) PROCEEDS (5) CONTRIBUTION (6) MANAGER
- ---------------- ------------ ------------ ------------- --------------- -------------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTTAWA Michael Professional $261,150 WNC: $750 99.98/.01/.01 $402,887 $37,400
K. Moore Property LGP: 70% of 40/60
(7) Management, the balance
Inc. (7) The balance:
50/50
- ---------------- ------------ ------------ ------------- --------------- -------------------- ------------------- ---------------
PRESERVATION Michael Professional $103,044 WNC: $750 99.98/.01/.01 $166,332 $15,400
(AUTUMN) K. Moore Property LGP: 70% of 40/60
(7) Management, the balance
Inc. (7) The balance:
50/50
Affordable
Housing
Development
Fund,
Inc.
(8)
(PONTIAC) $133,104 $166,101 $15,400
(SHUMWAY) $106,776 $182,317 $16,900
- ---------------- ------------ ------------ ------------- --------------- -------------------- ------------------- ---------------
TRENTON MBL Invesco $245,610 WNC: Greater 98.98/.01/.01/1(11) $1,024,738 $95,000
Development,Properties, of 40/60
Co. (9) Inc. (10) 15% or $500
LGP: 70% of
the balance
The balance:
15/85
- ---------------- ------------ ------------ ------------- --------------- -------------------- ------------------- ---------------
UNITED 97.0 Harold E. Buehler $200,000 WNC: Greater 99.98/.01/.01 $2,812,622 $260,800
Buehler, Enterprises, of 20/80
Sr. Inc. (13) 15% or $5,000
and Jo LGP: $25,000
Ellen plus 70% of
Buehler the balance
(12) The balance:
20/80
- ---------------- ------------ ------------ ------------- --------------- -------------------- ------------------- ---------------
WEST Thomas H. Apartment $408,500 WNC: Greater 98.99/.01/1.0 $1,963,548 $182,100
MOBILE Cooksey Services of 20% or 40/60
(14) and $3,000
Management, LGP: 70% of
Inc. (15) the balance
The balance:
50/50
<FN>
(1) Each Local General Partner is authorized to employ either itself or one of
its Affiliates, or a third party, as property manager for leasing and management
of the Properties. Although, in some instances, the maximum annual management
fee payable to the property manager is determined pursuant to lender
regulations, in most cases the fee is equal to a market rate.
(2) Each Local Limited Partnership will pay its Local General Partner(s) or an
Affiliate of its Local General Partner(s) a development fee in the amount set
forth, for services incident to the development and construction of the
Properties, which services include: negotiating the financing commitments for
the Properties; securing necessary approvals and permits for the development and
construction of the Properties; and obtaining allocations of Low Income Housing
Credits. This payment will be made in installments after receipt of each
installment of the capital contributions made by Series 6.
(3) Reflects the amount of the net cash flow from operations (i.e., the excess
of revenues over expenses, including the property manager's fee), if any, to be
distributed to Series 6 ("WNC") and the Local General Partner(s) ("LGP") of the
Local Limited Partnership for each year of operations. Generally, to the extent
that the specific dollar amounts which are to be paid to WNC are not paid
annually, they will accrue and be paid from sale or refinancing proceeds as an
obligation of the Local Limited Partnership.
(4) Subject to certain special allocations, reflects the respective percentage
interests in profits, losses and Low Income Housing Credits of (a) except in the
case of TRENTON (i) Series 6, (ii) WNC Housing, L.P., an Affiliate of the
Sponsor which is the special limited partner, and (iii) the Local General
Partner(s); and (b) in the case of TRENTON (i) Series 6, (ii) WNC Housing, L.P.,
(iii) D. Kim Lingle, the original limited partner and president of the Local
General Partner, and (iv) the Local General Partner.
(5) Reflects the percentage interests of (i) Series 6 and (ii) the Local General
Partner(s), in any net cash proceeds from sale or refinancing of the Properties,
6
<PAGE>
after payment of the mortgage loan and other Local Limited Partnership
obligations (see, e.g., note 3), and, except in the case of UNITED 97.0, the
following, in the order set forth: the capital contributions of Series 6; the
capital contribution of the special limited partner; and the capital
contribution of the Local General Partner(s) (and, in the case of TRENTON, the
original limited partner).
(6) Series 6 will make its capital contributions to the Local Limited
Partnership in stages, with each contribution due when certain conditions
regarding construction or operations of the Properties have been fulfilled. See
"Investment Policies" and "Terms of the Local Limited Partnership Agreements"
under "Investment Objectives and Policies" in the Prospectus.
(7) Michael K. Moore is the president of Professional Property Management, Inc.
("PPM"). The corporation was formed to develop, acquire and manage apartment
complexes receiving Government Assistance. PPM currently manages more than 100
low-income apartment complexes, 50 of which are receiving Low Income Housing
Credits. Mr. Moore, age 36, has represented to Series 6 that, as of September 1,
1998, he had a net worth in excess of $1,000,000.
(8) Affordable Housing Development Fund, Inc. is a non-profit corporation
created in 1997 to preserve and develop affordable housing in Midwestern
communities. Currently, Affordable Housing Development Fund, Inc. is involved in
the development of three affordable housing properties.
(9) D. Kim Lingle is the president and owner of MBL Development, Co., which has
the primary goal of developing and constructing affordable housing. Mr. Lingle
has a background in banking and development. MBL Development, Co. has
represented to Series 6 that, as of March 31, 1998, its total shareholder's
equity was in excess of $1,000,000. Construction completion and operating
deficit guarantees are being provided by Mr. Lingle. Mr. Lingle, age 41, has
represented to Series 6 that, as of June 30, 1997, he had a net worth in excess
of $1,000,000.
(10) Invesco Properties, Inc. was formed in May 1998 by D. Kim Lingle.
Currently, Invesco Properties, Inc. manages seven properties consisting of 250
units in Missouri and Iowa, all of which are Tax Credit properties.
(11) TRENTON is expected to generate Missouri Tax Credits in the amount of
approximately $580,000, all of which will be allocated to the original limited
partner.
(12) Harold E. Buehler, Sr. and Jo Ellen Buehler, both age 49, have
represented to Series 6 that, as of March 15, 1998, they had a net worth in
excess of $6,000,000.
(13) Buehler Enterprises, Inc. is a Tennessee corporation which was formed
in 1984 by Harold E. Buehler, Sr. Buehler Enterprises, Inc. currently manages
approximately 200 units consisting primarily of single-family homes and duplexes
in Memphis.
(14) Thomas H. Cooksey has been involved in real estate development and
apartment management since 1980 and, currently, is the general partner of
partnerships that own apartment complexes located in 65 towns, principally in
Alabama. Mr. Cooksey, age 57, has represented to Series 6 that, as of June 1998,
he had a net worth in excess of $10,000,000.
(15) Apartment Services and Management Co. was formed in 1986. Thomas H.
Cooksey is president and owner of 50% of the corporation. Apartment Services and
Management Co. manages in excess of 2,700 apartment units, more than 1,750 of
which are Tax Credit units.
</FN>
</TABLE>
FEDERAL INCOME TAX CONSIDERATIONS
Tax Legislation
On August 5, 1997, President Clinton signed into law the Taxpayer
Relief Act of 1997 (the "1997 Act"). The 1997 Act includes many provisions, only
a few of which are directly applicable to an investment in Series 6. The
provisions of the 1997 Act that are material to an investment in Series 6 are
summarized below.
7
<PAGE>
Tax Rates. The 1997 Act includes provisions that reduce the tax imposed
on most net capital gains (i.e., the excess of net long-term capital gains over
short-term capital losses). See "Federal Income Tax Considerations - Other
Important Tax Considerations - Tax Rates" in the Prospectus. These provisions
utilize a two-tier approach to taxation of net capital gains.
In the first tier, the maximum tax rate on net capital gains for
individuals is reduced from 28% to 20%; the rate for individuals who would pay a
15% tax on net capital gains is reduced to 10%. Effective July 29, 1997, these
new rates apply to assets held for more than 18 months. Assets held for more
than 12 but less than 18 months may qualify for the maximum tax rate of 28%.
In the second tier, which is effective for any taxable year beginning
after December 31, 2000, the 20% rate is reduced to 18% for assets held more
than five years; the 10% rate is reduced to 8% for assets held more than five
years whenever acquired.
These preferential rates do not apply to collectibles (e.g., fine art
and jewelry), certain qualified small business stock, and certain gains on the
sale of depreciable real property. In the case of a sale of depreciable real
property, the taxation scheme is as follows: (i) the excess of accelerated
depreciation over straight-line depreciation is taxed at ordinary income rates
(there will be no such excess in the case of the sale of an Apartment Complex),
(ii) the balance of the depreciation is taxed at a top rate of 25%, and (iii)
the balance of the gain is subject to the net capital gains rates described in
the preceding paragraphs.
The rates described above generally apply for purposes of both the
regular tax and the alternative minimum tax.
Alternative Minimum Tax. The corporate alternative minimum tax (see
"Federal Income Tax Considerations - Other Important Tax Considerations -
Alternative Minimum Tax" in the Prospectus) is repealed for small business
corporations for taxable years ending after December 31, 1997. A corporation is
a small business corporation in 1998 if its average gross receipts for the prior
three years was less than $5,000,000. A corporation that meets the $5,000,000
test initially will be treated as a small business corporation in future years
if its average gross receipts does not exceed $7,500,000.
Another amendment made by the 1997 Act will reduce the impact of the
alternative minimum tax. For assets placed in service after December 31, 1998,
depreciation lives for regular tax purposes will also be used for alternative
minimum tax purposes. See "Federal Income Tax Considerations - Other Important
Tax Considerations - Alternative Minimum Tax" in the Prospectus.
General Business Tax Credit Limitations. As set forth in the
Prospectus, the ability of taxpayers to use Tax Credits is subject to an annual
limitation on the allowance of aggregate general business tax credits (which
includes Tax Credits). See "Federal Income Tax Considerations - General Business
Tax Credit Limitations" in the Prospectus. Effective for business tax credits
arising in taxable years beginning after December 31, 1997, business tax credits
limited by this rule are first carried back one year and then forward 20 years.
Under prior law, such credits were first carried back three years and then
forward 15 years.
Tax Shelter Registration Number
The taxpayer identification number and tax shelter registration number
of Series 6 are 33-0761578 and 97241000054, respectively. See "Federal Income
Tax Considerations - Tax Shelter Registration" in the Prospectus.
PROFITS, LOSSES AND TAX CREDITS
Pursuant to the power granted to it in Section 12.1.2 of the
Partnership Agreement, the General Partner has amended the Partnership Agreement
to provide that all items of Profits for Tax Purposes, Losses for Tax Purposes
and Tax Credits which, under the Partnership Agreement would have been allocated
99% to the Unitholders and 1% to the General Partner, will instead be allocated
99.9% to the Unitholders and 0.1% to the General Partner. See "First Amendment
to Partnership Agreement" included herein as Exhibit B.
8
<PAGE>
MANAGEMENT
WNC Management, Inc.
WNC Management, Inc., a California corporation which is wholly-owned by WNC
& Associates, Inc., was organized in 1997 to manage certain of the properties
invested in by partnerships sponsored by WNC & Associates, Inc. (including,
possibly, Series 5 and Series 6). The officers and directors of WNC Management,
Inc. are as follows: Thomas J. Riha (Chief Executive Officer/Director), David N.
Shafer (Secretary/Director), Theodore M. Paul (Chief Financial
Officer/Director), and Wilfred N. Cooper, Jr. (Director).
EXPERTS
The balance sheet of WNC Housing Tax Credit Fund VI, L.P., Series 6 as
of April 10, 1998 and the consolidated balance sheet of WNC & Associates, Inc.
as of August 31, 1998 which are included in this Supplement and in the
Registration Statement have been audited by Corbin & Wertz, independent
certified public accountants, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement and are included in reliance
upon such reports given upon the authority of said firm as experts in accounting
and auditing.
PRIOR PERFORMANCE SUMMARY
The Sponsor directly and through its Affiliates has had significant
prior experience in the syndication and management of real estate programs. From
its formation through June 30, 1998, the Sponsor and its Affiliates have raised
equity from more than 13,000 investors to acquire interests in more than 540
properties located in 38 states and one territory, and representing more than
$884,000,000 in aggregate acquisition costs. The information which follows
contains discussions as of June 30, 1998 of all of the prior real estate
investment programs sponsored the Sponsor and its Affiliates.
In addition to the Syndicated Partnerships for which the Sponsor has
performed syndication and related services for third parties as discussed under
"Management" in the Prospectus, as of June 30, 1998 the Sponsor and its
Affiliates had sponsored a total of 15 public and 49 non-public real estate
programs (excluding Series 6). As of June 30, 1998, these 64 programs had raised
an aggregate of approximately $330,000,000 from more than 13,000 investors, and
had invested in a total of 482 apartment properties at an aggregate acquisition
cost of approximately $813,603,000 in the following jurisdictions:
9
<PAGE>
Alabama (16) Montana (1)
Arizona (9) Nebraska (8)
Arkansas (17) Nevada (1)
California (105) New Mexico (16)
Florida (8) North Carolina (31)
Georgia (6) Ohio (4)
Idaho (2) Oklahoma (12)
Illinois (16) Oregon (5)
Indiana (4) Pennsylvania (2)
Iowa (9) South Carolina (14)
Kansas (3) South Dakota (1)
Kentucky (2) Tennessee (25)
Louisiana (15) Texas (89)
Maryland (2) U. S. Virgin Islands (1)
Michigan (3) Virginia (5)
Minnesota (1) Washington (1)
Mississippi (11) West Virginia (1)
Missouri (17) Wisconsin (18)
Wyoming (1)
Of these 64 programs, 13 public and 35 private real estate programs
commenced their offerings during the period beginning January 1, 1987 (the
"Prior Programs"). See "Public Programs Sponsored" and "Private Programs
Sponsored" below. The Prior Programs were organized to invest in apartment
complexes (by acquiring limited partnership interests in other limited
partnerships which owned the apartment complexes) benefitting from Low Income
Housing Credits and, in most instances, one or more other forms of Government
Assistance. See "Government Assistance Programs." As will be the case with
respect to the Apartment Complexes in which the Partnership will invest,
management and operational control of the properties in which the Prior Programs
have invested is exercised by the general partners of the local limited
partnerships.
Public Programs Sponsored
The 13 public Prior Programs are WNC Housing Tax Credit Fund, L.P.
("HTCF"); WNC California Housing Tax Credits, L.P. ("CHTC"); WNC Housing Tax
Credit Fund II, L.P. ("HTCFII"); WNC California Housing Tax Credits II, L.P.
("CHTCII"); WNC Housing Tax Credit Fund III, L.P. ("HTCFIII"); WNC California
Housing Tax Credits III, L.P. ("CHTCIII"); WNC Housing Tax Credit Fund IV, L.P.,
Series 1 ("HTCFIV-1"); WNC Housing Tax Credit Fund IV, L.P., Series 2
("HTCFIV-2"); WNC California Housing Tax Credits IV, L.P., Series 4
("CHTCIV-4"); WNC California Housing Tax Credits IV, L.P., Series 5
("CHTCIV-5"); WNC Housing Tax Credit Fund V, L.P., Series 3 ("HTCFV-3"); WNC
Housing Tax Credit Fund V, L.P., Series 4 ("HTCFV-4"); and WNC Housing Tax
Credit Fund VI, L.P., Series 5 ("HTCFVI-5"). Except for HTCFVI-5 (which
completed its offering on July 9, 1998), each of the public Prior Programs had
completed its offering as of June 30, 1998.
Through June 30, 1998, the 13 public Prior Programs had raised an
aggregate of approximately $176,600,000 in capital contributions from an
aggregate of approximately 10,600 investors and invested in a total of 226
apartment properties located in the following jurisdictions:
10
<PAGE>
Alabama (14) Mississippi (7)
Arizona (4) Missouri (6)
Arkansas (8) Nebraska (7)
California (49) New Mexico (8)
Florida (2) North Carolina (16)
Georgia (2) Ohio (4)
Idaho (1) Oklahoma (4)
Illinois (8) Oregon (3)
Indiana (4) South Carolina (1)
Iowa (7) South Dakota (1)
Kansas (2) Tennessee (6)
Kentucky (1) Texas (41)
Louisiana (3) Virginia (4)
Maryland (1) Wisconsin (11)
Michigan (1)
The aggregate mortgage debt encumbering the properties was
approximately $274,063,000 and the aggregate acquisition cost of the properties
was approximately $392,751,000. At the times of the Prior Programs' investments
therein 78 of the properties were existing apartment complexes and 148 were
under development or construction by the local partnerships which own them.
All of the public Prior Programs have as their principal investment
objective providing Federal Low Income Housing Credits to their investors, and
CHTC, CHTCII, CHTCIII, CHTCIV-4 and CHTCIV-5 have the additional objective of
providing California Low Income Housing Credits.
Certain information with regard to the public Prior Programs is set
forth in the tables which follow:
11
<PAGE>
<TABLE>
Federal Credit Programs
Federal
Offering Partnership Credits Received Per $10,000 Investment Credit Years
Commencement Name Total 1997 1996 1995 1994 1993 1992 1991 1990 1989 Remaining(1)
- ------------ ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 HTCF $11,580 $1,410 $1,410 $1,410 $1,410 $1,410 $1,410 $1,400 $1,640 $80 4
1990 HTCFII 10,460 1,450 1,450 1,450 1,460 1,380 1,210 1,300 760 -- 6
1992 HTCFIII 6,570 1,570 1,570 1,520 1,190 680 40 -- -- -- 8
1993 HTCFIV-1 4,120 1,430 1,360 1,010 320 -- -- -- -- -- 9
1994 HTCFIV-2 3,090 1,130 1,050 700 210 -- -- -- -- -- 9
1995 HTCFV-3 1,490 840 620 30 -- -- -- -- -- -- 10
1996 HTCFV-4 330 190 140 -- -- -- -- -- -- -- 11(2)
1997 HTCFVI-5 -- -- -- -- -- -- -- -- -- -- 12
Federal and California Credit Programs
Federal
Offering Partnership Credits Received Per $10,000 Investment Credit Years
Commencement Name Total 1997 1996 1995 1994 1993 1992 1991 1990 1989 Remaining(1)
- ------------ ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------------
1989 CHTC $14,650 $ 990 $ 990 $ 990 $1,180 $1,720 $2,360 $2,590 $2,270 $1,560 4
1991 CHTCII 11,210 1,440 1,530 2,060 1,940 1,780 1,810 650 -- -- 3(2)
1993 CHTCIII 6,420 1,790 1,970 1,800 800 60 -- -- -- -- 9
1994 CHTCIV-4 3,810 1,760 1,340 710 -- -- -- -- -- -- 9
1995 CHTCIV-5 980 980 -- -- -- -- -- -- -- -- 10
- -----------------
<FN>
(1) As of December 31, 1997.
(2) These Prior Programs will generate a small amount of Tax Credits for four
years beyond the stated number of years due to increases in qualified basis.
</FN>
</TABLE>
12
<PAGE>
Private Programs Sponsored
As of June 30, 1998, the 35 private Prior Programs involved an
aggregate of approximately $145,169,000 in commitments for capital contributions
payable in installments from an aggregate of approximately 1,520 investors.
These private Prior Programs invested in a total of 212 apartment properties
located in the following jurisdictions:
Alabama (2) Missouri (8)
Arizona (4) Montana (1)
Arkansas (9) Nebraska (1)
California (44) Nevada (1)
Florida (6) New Mexico (7)
Georgia (3) North Carolina (13)
Idaho (1) Oklahoma (5)
Illinois (7) Oregon (2)
Iowa (2) Pennsylvania (2)
Kentucky (1) South Carolina (7)
Louisiana (9) Tennessee (18)
Maryland (1) Texas (42)
Michigan (1) Virginia (1)
Minnesota (1) Washington (1)
Mississippi (4) Wisconsin (7)
Wyoming (1)
The aggregate mortgage debt encumbering the properties was
approximately $251,405,000 and the aggregate acquisition cost of the properties
was approximately $361,700,000.
All of the 35 private Prior Programs have as their principal investment
objective providing Federal Low Income Housing Credits to their investors, and
13 of the 35 programs have the additional objective of providing California Low
Income Housing Credits.
In addition to the 35 private Prior Programs discussed above (each of
which had completed its offering as of June 30, 1998), the Sponsor has sponsored
WNC Institutional Tax Credit Fund VI, L.P., which sold all of its units of
limited partnership interest after June 30, 1998.
Certain additional information with regard to the 35 private Prior
Programs formed to provide Low Income Housing Credits is set forth in the tables
which follow:
13
<PAGE>
<TABLE>
Federal Credit Programs
Federal
Credit
Offering Years
Commence- Partnership Credits Received Per $10,000 Investments(1) Remaining
ment Name Totals 1997 1996 1995 1994 1993 1992 1991 1990(3) 1989 1988 1987 (2)
- -------- ---- ------ ---- ---- ---- ---- ---- ---- ---- ------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 Pepper Tree (4) 15,000 $1,350 $1,470 1,470 $1,470 $1,470 $1,470 $1,470 $2,370 $1,530 $ 900 $ 30 1
1987 East Bay 14,320 380 1,360 1,350 1,360 1,360 1,360 1,360 1,670 1,700 1,400 1,020 0
1987 Sequoia Manor 14,830 1,390 1,370 1,370 1,370 1,370 1,350 1,380 2,220 1,460 1,340 210 1
1987 Bayou 13,890 1,000 1,290 1,290 1,290 1,290 1,290 1,290 2,110 1,400 1,330 310 0
1987 Laurel Hill 13,950 1,180 1,320 1,320 1,320 1,320 1,320 1,300 2,090 1,320 1,230 230 1(5)
1988 Ridgetop 13,700 1,390 1,390 1,390 1,390 1,390 1,390 1,390 2,250 1,500 220 -- 1(6)
1989 Alta Mesa 11,730 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,950 540 -- -- 3
1990 WNC-90 10,050 1,400 1,400 1,400 1,400 1,400 1,400 1,400 250 -- -- -- 3
1991 Shelter Resource
XIX 9,360 1,440 1,440 1,440 1,440 1,440 1,440 720 -- -- -- -- 4
1991 WNC Tax Credits
XX 9,700 1,460 1,460 1,460 1,460 1,460 1,460 940 -- -- -- -- 4
1991 WNC Tax Credits
XXI 7,880 1,360 1,360 1,360 1,360 1,360 1,030 50 -- -- -- -- 5
1992 WNC Tax Credits
XXII 8,140 1,410 1,410 1,410 1,410 1,410 1,090 -- -- -- -- -- 5
1992 WNC Tax Credits
XXIII 7,840 1,400 1,400 1,400 1,400 1,370 870 -- -- -- -- -- 5
1992 WNC Tax Credits
XXV 6,440 1,380 1,380 1,380 1,280 870 150 -- -- -- -- -- 7
1993 WNC Tax Credits
XXVI 6,150 1,330 1,330 1,330 1,320 840 -- -- -- -- -- -- 6
1993 WNC Tax Credits
XXVIII 4,650 1,300 1,300 1,300 640 110 -- -- -- -- -- -- 7
1993 WNC Tax Credits
XXIX 4,530 1,310 1,290 1,110 790 30 -- -- -- -- -- -- 8
1994 WNC Tax Credits
XXX 3,560 1,230 1,220 1,000 110 -- -- -- -- -- -- -- 8
1994 ITC I 4,390 1,530 1,670 780 410 -- -- -- -- -- -- -- 9
1995 ITC II 1,950 1,290 590 70 -- -- -- -- -- -- -- -- 10
1996 ITCIII 380 380 -- -- -- -- -- -- -- -- -- -- 12
1997 ITCV 20 20 -- -- -- -- -- -- -- -- -- -- 12
Federal and California Credit Programs
Offering Federal
Commence- Partnership Credits Received Per $10,000 Investment(1) Credit Years
ment Name Totals 1997 1996 1995 1994 1993 1992 1991 1990(3) 1989 1988 1987 Remaining(2)
- -------- ---- ------ ---- ---- ---- ---- ---- ---- ---- ------- ---- ---- ---- ------------
1987 Beech Villa $18,610 $ 860 $1,360 $1,360 $1,350 $1,350 $1,350 $1,350 $2,670 $3,210 $3,210 $540 0
1988 Elmwood Villa 18,020 990 990 990 990 990 1,330 2,610 4,010 3,460 1,660 -- 2
1988 Poplar Villa 17,620 970 970 970 970 970 970 2,280 3,420 3,410 2,690 -- 0
1988 Olive Tree 17,460 970 970 970 970 970 970 1,620 3,990 3,310 2,720 -- 1
1988 Pine Rock 16,470 940 940 940 940 880 1,220 3,280 3,810 3,240 280 -- 2
1988 Mesa Verde 16,060 1,030 1,020 1,030 1,030 1,030 1,870 1,690 3,610 2,760 990 -- 2
1988 Sunfield 15,650 1,340 1,340 1,340 1,340 1,340 1,340 1,650 3,090 2,080 790 -- 2
1988 Foxglove 13,240 1,360 1,360 1,360 1,360 1,550 2,020 2,020 1,920 290 -- -- 3
1989 Elliot Place 15,360 1,200 1,200 1,200 1,200 1,200 1,670 2,460 3,200 2,030 -- -- 3
1990 Wheatridge 12,000 1,120 1,120 1,120 1,120 1,480 2,240 2,230 1,570 -- -- -- 4
1992 WNC Tax Credits
XXIV 9,850 1,260 1,260 1,740 2,180 2,180 1,230 -- -- -- -- -- 5
1993 WNC Tax Credits
XXVII 7,360 1,290 1,560 1,750 1,740 1,020 -- -- -- -- -- -- 7
1997 CTC 210 210 -- -- -- -- -- -- -- -- -- -- 12
<FN>
(1) Represents the return received by investors utilizing deferred payment
purchase plans. In many instances the respective returns to cash investors were
higher than those listed above inasmuch as the use of
deferred payment purchase notes entailed the payment of interest.
(2) As of December 31, 1997.
(3) In 1990 certain partnerships were permitted to, and did, elect to utilize
150% of the Federal Low Income Housing Credit otherwise allowable for 1990.
(4) Pepper Tree originally offered Federal Tax Credits only. After the
investors were admitted to the Prior Program, the Local
General Partners obtained California Low Income Housing Credits as well,
which are not reflected in this chart.
(5) These Prior Programs will generate a small amount of Tax Credits for five
years beyond the stated number of years due to increases in qualified basis.
(6) These Prior Programs will generate a small amount of Tax Credits for four
years beyond the stated number of years due to increases in qualified basis.
</FN>
</TABLE>
14
<PAGE>
Additional Information
In a prior private program sponsored in 1981, WNC & Associates, Inc.
became successor managing general partner in 1989 after the original managing
general partner had misappropriated partnership accounts. Thereafter, using the
proceeds from an RD loan, the property was substantially rehabilitated and
continues to be owned and operated by the prior program. In a private program
sponsored in 1996, a Local General Partner was removed by the Sponsor in 1997
after construction defects were discovered and the Local General Partner
declared bankruptcy. The prior program purchased the bridge loan at its face
value upon maturity thereof and construction was completed using other funds
loaned by the Sponsor and the prior program. Thereafter, the prior program sold
the Local Limited Partnership Interest. In a public program sponsored in 1993, a
Local General Partner was removed by the Sponsor in 1997 after the Local General
Partner violated provisions of the Local Limited Partnership Agreement. The
remaining Local General Partner, which was an agency of the county in which the
property is located, has been replaced by an experienced non-profit agency. In
1997 five properties owned by four prior private programs and developed by the
same Local General Partner were the subject of notices of adjustment wherein the
IRS claims that development fees to the Local General Partner were not properly
includable in the depreciable basis of the respective properties. Each of the
Local Limited Partnerships and the prior private programs has filed a petition
for readjustment before the United States Tax Court. Also in 1997, the Local
General Partner of three Local Limited Partnerships which were invested in by a
prior private program sponsored in 1984 transferred the properties of the Local
Limited Partnerships to the same transferee without seeking the approval of the
prior program. The transfers were made in consideration of relief of
indebtedness owed by the Local General Partner. Each of the Local Limited
Partnerships has brought an action to have the transfer set aside and to remove
the Local General Partner. As the properties are located in three states, three
lawsuits have been commenced.
Additional information with regard to certain of the Prior Programs is
set forth in Tables I, II, III, IV and V which comprise Exhibit A to this
Supplement. Reference also is made to Table VI included in the Registration
Statement which describes in greater detail the properties in which these Prior
Programs have invested.
There will be made available to any prospective investor upon request
and without charge, a copy of Table VI and upon request, for a reasonable fee,
copies of the most recent report on Form 10-K filed by any of the public Prior
Programs with the Securities and Exchange Commission.
15
<PAGE>
FINANCIAL STATEMENTS
INDEX
Page
WNC Housing Tax Credit Fund VI, L.P., Series 6
Independent Auditors' Report..............................................FS-2
Balance Sheet, April 10, 1998 ............................................FS-3
Notes to Balance Sheet....................................................FS-4
Balance Sheet, September 30, 1998 (Unaudited).............................FS-6
Statement of Operations For the Period August 20, 1998 (date operations
commenced) to September 30, 1998 (Unaudited) ......................FS-7
Statement of Partners' Equity For the Period August 20, 1998 (date operations
commenced) to September 30, 1998 (Unaudited) ......................FS-8
Statement of Cash Flows For the Period August 20, 1998 (date operations
commenced) to September 30, 1998 (Unaudited) ......................FS-9
Notes to Financial Statements............................................FS-11
Proforma Balance Sheet, June 30, 1998 (Unaudited)........................FS-15
Notes to Proforma Balance Sheet, June 30, 1998...........................FS-16
WNC & Associates, Inc.
Independent Auditors' Report.............................................FS-18
Consolidated Balance Sheet, August 31, 1998..............................FS-19
Notes to Consolidated Balance Sheet......................................FS-20
wncnat6-e1/fs1.wpd FS-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
WNC Housing Tax Credit Fund VI, L.P., Series 6
We have audited the accompanying balance sheet of WNC Housing Tax Credit Fund
VI, L.P., Series 6 (a California limited partnership) (a development-stage
enterprise) (the "Partnership") as of April 10, 1998. The balance sheet is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the accompanying balance sheet referred to above presents
fairly, in all material respects, the financial position of WNC Housing Tax
Credit Fund VI, L.P., Series 6 (a California limited partnership) (a
development-stage enterprise) as of April 10, 1998 in conformity with generally
accepted accounting principles.
CORBIN & WERTZ
Irvine, California
April 16, 1998
FS-2
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Enterprise)
BALANCE SHEET
April 10, 1998
ASSETS
Cash $ 1,000
Due from general partner (Note 3) 100
----------------
$ 1,100
================
LIABILITIES AND PARTNERS' CAPITAL
Commitments and contingencies (Note 2)
Partners' capital (Note 1):
General partner $ 100
Original limited partner 1,000
----------------
Total partners' capital 1,100
$ 1,100
================
See accompanying notes to balance sheet
FS-3
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO BALANCE SHEET
April 10, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WNC Housing Tax Credit Fund VI, L.P., Series 6 (the "Partnership") was formed
pursuant to the laws of California on March 3, 1997 and has not commenced
operations. The Partnership was formed to invest primarily in other limited
partnerships which will own and operate multi-family housing complexes that will
qualify for low income housing credits.
The general partner is WNC & Associates, Inc. (the "General Partner").
Wilfred N. Cooper, Sr., through the Cooper Revocable Trust, owns just less than
70% of the outstanding stock of WNC & Associates, Inc. John B. Lester, Jr. is
the original limited partner of the Partnership and owns, through the Lester
Family Trust, just less than 30% of the outstanding stock of WNC & Associates,
Inc. (see Note 2 below).
Allocations Under the Terms of the Partnership Agreement
The General Partner has a 0.1% interest in operating profits and losses, taxable
income and losses and cash available for distribution from the Partnership. The
limited partners will be allocated the remaining 99.9% of these items in
proportion to their respective investments.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership's Agreement of Limited Partnership) and the General Partner
has received a subordinated disposition fee (as described in Note 2 below), any
additional sale or refinancing proceeds will be distributed 90% to the limited
partners (in proportion to their respective investments) and 10% to the General
Partner.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Partnership is offering up to 25,000 limited partnership units at $1,000 per
unit (the "Units"). The accompanying balance sheet does not include certain
Partnership legal, accounting, and other organization and offering costs paid
and to be paid by the General Partner and/or affiliates of the General Partner.
If the minimum offering amount of $1,400,000 is raised, the Partnership will be
required to reimburse the General Partner and/or its affiliates for such fees
out of the proceeds of the offering, up to certain maximum levels set forth
below. In the event the Partnership is unable to raise the minimum offering
amount, the General Partner will absorb all organization and offering costs.
FS-4
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO BALANCE SHEET - CONTINUED
April 10, 1998
NOTE 2 - COMMITMENTS AND CONTINGENCIES, continued
The reader of this financial statement should refer to the WNC Housing Tax
Credit Fund VI, L.P., Series 5 and Series 6 prospectus dated June 23, 1997, as
supplemented, for a more thorough description of the Partnership, and the terms
and provisions thereunder.
The Units are being offered by WNC Capital Corporation, a wholly-owned
subsidiary of the General Partner.
If the minimum offering amount of $1,400,000 is raised, the Partnership will be
obligated to the General Partner or affiliates for certain acquisition,
management and other fees as set forth below:
Acquisition fees up to 7.0%, as defined, of the gross proceeds from the
sale of Units.
Reimbursement for organizational, offering, dealer-manager, selling and
acquisition expenses advanced by the General Partner or affiliates on
behalf of the Partnership. These reimbursements plus all other
organizational and offering expenses inclusive of sales commissions and
dealer-manager fees will not exceed 14.5% of the gross proceeds.
An annual management fee equal to 0.2% of the invested assets (defined
by the Partnership's Agreement of Limited Partnership as the sum of the
Partnership's capital contributions to limited partnerships plus its
allocable percentage of the permanent financing of the limited
partnerships).
A subordinated disposition fee in an amount equal to 1% of the sales
price of real estate sold. Payment of this fee is subordinated to the
limited partners receiving distributions equal to their capital
contributions and their return on investment (as defined in the
Partnership's Agreement of Limited Partnership) and is payable only if
services are rendered in the sales effort.
NOTE 3 - DUE FROM GENERAL PARTNER
The general partner's capital contribution was collected prior to the issuance
of this financial statement. Accordingly, such has been reflected as a
receivable on the accompanying balance sheet as of April 10, 1998.
NOTE 4 - INCOME TAXES
The Partnership will not incur a provision for income taxes since all income
taxes and losses will be allocated to the Partners for inclusion in their
respective returns.
FS-5
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Partnership)
BALANCE SHEET
September 30, 1998
ASSETS
Cash and cash equivalents $ 1,290,449
Subscriptions receivable - Note 4 278,000
Investment in limited
partnerships - Note 2 4,068,755
Other assets 955
-----------
$ 5,638,159
=========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Payable to limited partnerships $ 3,069,164
Accrued fees and expenses due to
general partner and affiliates - Note 3 43,830
---------
3,112,994
Partners' equity (deficit):
General partner (3,885)
Original limited partner 1,000
Limited partners (25,000 units
authorized, 3,030 units issued
and outstanding) 2,528,050
---------
Total partners' equity 2,525,165
---------
$ 5,638,159
=========
UNAUDITED
See Accompanying Notes to Financial Statements
FS-6
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Partnership)
STATEMENT OF OPERATIONS
For the Period August 20, 1998 (date operations commenced) to September 30, 1998
Interest income $ 1,808
-----
Operating expenses:
Amortization 472
Other expense 3,300
-----
3,772
-----
Net loss $ (1,964)
=======
Net loss allocated to:
General partner $ (20)
====
Limited partners $ (1,944)
=======
Net loss per weighted limited partner
unit (1,583) $ (1.23)
=======
UNAUDITED
See Accompanying Notes to Financial Statements
FS-7
<PAGE>
<TABLE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Partnership)
STATEMENT OF PARTNERS' EQUITY
For the Period August 20, 1998 (date operations commenced) to September 30, 1998
Original
General Limited Limited
Partner Partner Partner Total
----------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Capital contributions $ 100 $ 1,000 $ 3,030,000 $ 3,031,100
Offering expenses (3,965) (392,506) (396,471)
Capital issued for notes
receivable (107,500) (107,500)
Net loss (20) - (1,944) (1,964)
---- ------- ------------- -------------
Equity (deficit),
September 30, 1998 $ (3,885) $ 1,000 $ 2,528,050 $ 2,525,165
========== ========= =========== ============
UNAUDITED
See Accompanying Notes to Financial Statements
FS-8
</TABLE>
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Partnership)
STATEMENT OF CASH FLOWS
For the Period August 20, 1998 (date operations commenced) to September 30, 1998
Cash flows used by operating activities:
Net loss $ (1,964)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 472
Change in other assets (955)
_______
Net cash used in operating activities (2,447)
-------
Cash flows used by investing activities:
Investment in limited partners (768,196)
Acquisition fees and costs (264,640)
----------
Net cash used in investing activities (1,032,836)
----------
Cash flows provided by financing activities:
Capital contributions 2,644,500
Offering expenses (319,868)
----------
Net cash provided by financing activities 2,324,632
---------
Net increase in cash and cash equivalents 1,289,349
Cash and cash equivalents, beginning of period 1,100
---------
Cash and cash equivalent, end of period $ 1,290,449
=========
UNAUDITED
See Accompanying Notes to Financial Statements
FS-9
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 6
(A California Limited Partnership)
(A Development-Stage Partnership)
STATEMENT OF CASH FLOWS (CONTINUED)
For the Period August 20, 1998 (date operations commenced) to September 30, 1998
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
During the period August 20, 1998 (date operations commenced) to September 30,
1998 the Partnership incurred, but did not pay, $43,830 of payables to
affiliates for acquisitions costs, and fees and offering expenses (see Note 3).
During the period August 20, 1998 (date operations commenced) to September 30,
1998 the Partnership incurred, but did not pay, $3,069,164 of payables to
limited partnerships in connection with the acquisition of limited partnership
interests.
During the period August 20, 1998 (date operations commenced) to September 30,
1998, $278,000 of capital contributions were recorded as subscriptions
receivable.
UNAUDITED
See Accompanying Notes to Financial Statements
FS-10
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 6
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 1998
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WNC Housing Tax Credit Fund, VI, L.P., Series 6 (the "Partnership") was formed
under the California Revised Limited Partnership Act on March 3, 1997 and
commenced operations on August 20, 1998. The Partnership was formed to invest
primarily in other limited partnerships which will own and operate multi-family
housing complexes that will qualify for low income housing credits.
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual financial statements. The
Partnership commenced operations August 20, 1998; consequently, there is no
Annual Report for prior years.
In the opinion of the management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1998 and the results of operations and changes in cash flows for the period
August 20, 1998 (date operations commenced) to September 30, 1998. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim period presented are
not necessarily indicative of the results for the entire year.
The general partner of the Partnership is WNC & Associates, Inc. (the
"General Partner"). Wilfred N. Cooper, Sr., through the Cooper Revocable Trust,
owns just less than 70% of the outstanding stock of WNC & Associates, Inc. John
B. Lester, Jr. is the original limited partner of the Partnership and owns,
through the Lester Family Trust, just less than 30% of the outstanding stock of
WNC & Associates, Inc.
Allocations Under the Terms of the Partnership Agreement
The General Partner has a 0.1% interest in operating profits and losses, taxable
income and loss and cash available for distribution from the Partnership. The
limited partners will be allocated the remaining 99.9% of these items in
proportion to the number of their respective units of limited partnership
interest in the Partnership ("Units").
After the limited partners have received sale or refinancing proceeds equal to
their capital contributions and their return on investment (as defined in the
Partnership's Agreement of Limited Partnership) and the General Partner has
received a subordinated disposition fee (as described in Note 3 below) any
additional sale or refinancing proceeds will be distributed 90% to the limited
partners (in proportion to the number of their respective Units) and 10% to the
General Partner.
FS-11
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 6
(A California Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Method of Accounting For Investment in Limited Partnerships
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of each limited partnership's results of operations and
for any distributions received. Costs incurred by the Partnership in acquiring
the investments in limited partnerships are capitalized as part of the
investment.
Losses from the limited partnerships will not be recognized to the extent that
the individual investment balance would be adjusted below zero.
Cash and Cash Equivalents
The Partnership considers all bank certificates of deposit with a maturity of
less than three months to be cash equivalents.
Offering Expenses
Offering expenses consist of underwriting commissions, legal fees, printing,
filing and recordation fees, and other costs incurred with selling Units. The
General Partner is obligated to pay all offering and organization costs in
excess of 14.5% (including sales commissions) of the total offering proceeds.
Offering expenses are reflected as a reduction of partners' capital.
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
The following is a summary of the investment in limited partnerships and
reconciliation to the limited partnership accounts as of September 30, 1998:
Capital contributed to
limited partnerships $ 768,196
Capital contributions payable to
limited partnerships s 3,069,164
Acquisition fees and costs 231,867
Amortization of capitalized
acquisition costs (472)
________
Investment balance,
end of period $ 4,068,755
============
FS-12
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 6
(A California Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
NOTE 3- RELATED PARTY TRANSACTIONS
Under the terms of its Agreement of Limited Partnership, the Partnership is
obligated to the General Partner or its affiliates for the following items:
Acquisition fees up to 7% of the gross proceeds from the sale of Units.
Acquisition fees of $204,575 were incurred during the period August 20,
1998 (date operations commenced) to September 30, 1998.
An annual management fee not exceed .2% of the Partnership's invested
assets (defined by the Partnership's Agreement of Limited Partnership as
the Partnership's capital contributions to limited partnerships plus its
allocable percentage of the permanent financing of the limited
partnerships). The Partnership has incurred no such fees during the period
August 20, 1998 (date operations commenced) to September 30, 1998.
A subordinated disposition fee in an amount equal to 1% of the sales
price of real estate sold. Payment of this fee is subordinated to the
limited partners receiving a return on investment (as defined in the
Partnership's Agreement of Limited Partnership) and is payable only if
services are rendered in the sales effort.
Accrued fees and advances due to affiliates of the General Partner included in
the accompanying balance sheet consists of the following at September 30, 1998:
Acquisition fees $(38,772)
Advances made for acquisition costs, organizational,
offering and selling expenses 82,602
------
Total accrued fees and advances $ 43,830
=========
FS-13
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 6
(A California Limited Partnership)
(A Development-Stage Enterprise)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
NOTE 4 - SUBSCRIPTION AND INVESTOR NOTES RECEIVABLE
During the period August 20, 1998 (date operations commenced) to September 30,
1998, the Partnership accepted $107,500 in promissory notes from limited
partners. Limited partners who subscribe for ten or more Units may elect to pay
50% of the purchase price therefor in cash upon subscription and the remaining
50% by the delivery of a promissory note bearing fixed interest at the rate of
5.10% per annum. Interest rates are established quarterly. Principal and
interest are due (i) January 31, 1999 if the investor subscribes on or before
June 30, 1998, (ii) June 30, 1999 if the investor subscribes between July 1,
1998 and December 31, 1998 or (iii) January 31, 2000 if the investor subscribes
after December 31, 1998. This amount is presented as a reduction in partners'
equity.
Subscriptions receivable of $278,000 has been received subsequent to
September 30, 1998 and accordingly have been classified as an asset.
NOTE 5 - INCOME TAXES
The Partnership will not make a provision for income taxes since all income and
losses will be allocated to the Partners for inclusion in their respective
returns.
FS-14
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 6
(A California Limited Partnership)
(A Development-Stage Partnership)
PROFORMA BALANCE SHEET
September 30, 1998
ASSETS
Historical Proforma Proforma
Balance Adjustments Balance
Cash and cash equivalents $ 1,290,449 $ 867,740
176,000
(70,630) $ 2,263,559
Subscriptions receivable 278,000 (176,000) 102,000
Investment in limited partnerships 4,068,755 2,881,185
70,630 7,020,570
Other assets 955 955
--------- ---------- -----------
$ 5,638,159 $ 3,748,925 $ 9,387,084
========= ========== =========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Payables to limited partnerships $ 3,069,164 $ 2,881,185 $ 5,950,349
Accrued fees and expenses due to
general partner and affiliates 43,830 - 43,830
------ ------------ ------
3,112,994 2,881,185 5,994,179
--------- ------------ ---------
PARTNERS'EQUITY (DEFICIT)
General partner (3,885) (1,413) (5,298)
Original limited partner 1,000 - 1,000
Limited partners 2,528,050 869,153 3,397,203
--------- ------- ---------
Total partners' equity 2,525,165 867,740 3,392,905
--------- ------- ---------
$ 5,638,159 $ 3,748,925 $ 9,387,084
========= ========== =========
- Unaudited -
See Accompanying Notes to Proforma Balance Sheet
FS-15
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Partnership)
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The information contained in the following notes to the proforma financial
statements is condensed from that which appears in the financial statements.
Accordingly, these proforma financial statements should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the WNC Housing Tax Credit Fund VI, L.P., Series 6 financial statements dated
September 30, 1998. WNC Housing Tax Credit Fund VI, L.P., Series 6 is referred
to in these notes as the "Partnership."
NOTE 2 - INTRODUCTION TO PROFORMA ADJUSTMENTS
As of September 30, 1998, the the Partnership had acquired a limited
partnership interest in two limited partnerships: Trenton Village Apts., L.P.
(TRENTON); and United Development Co., L.P. - 97.0 (UNITED 97.0). Subsequent to
September 30, 1998, the Partnership is negotiating to acquire the limited
partnership interests in three other partnerships that own five apartment
complexes: Ottawa I, L.P. (OTTAWA); Preservation Partners I, L.P.
(PRESERVATION); and West Mobile County Housing, Ltd. (WEST MOBILE). PRESERVATION
owns the Autumn Ridge I Apartments (PRESERVATION AUTUMN), the Pontiac "A"
Apartments (PRESERVATION PONTIAC) and the Shumway Apartments (PRESERVATION
SHUMWAY). These investments commit the Partnership to capital contributions as
follows:
OTTAWA $ 402,887
PRESERVATION AUTUMN 166,332
PRESERVATION PONTIAC 166,101
PRESERVATION SHUMWAY 182,317
WEST MOBILE 1,963,548
---------
$2,881,185
In accordance with Article 11, Proforma Financial Information of Regulation S-X
of the Securities and Exchange Commission, the accompanying proforma balance
sheet was computed assuming that the limited partnerships discussed above were
acquired at the end of the period presented. The first adjustment to cash and
the adjustment to partners' equity of $867,740 reflects the net
FS-16
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
(A California Limited Partnership)
(A Development-Stage Partnership)
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS
NOTE 2 - INTRODUCTION TO PROFORMA ADJUSTMENTS (Continued)
proceeds from October 1 to November 12, 1998 from issuance of 1,009 units of
limited partners'capital ($1,009,000 less commissions and offering costs of
$141,260.) The second adjustment to cash and the adjustment to subscriptions
receivable of $176,000 reflects the collection of subscriptions receivable from
the above subscriptions. The adjustment to investment in limited partnerships
and notes payable to limited partnerships of $2,881,185 reflects the
Partnership's acquisition of the three limited partnership interests as if the
Partnership's date of acquisition was September 30,1998. The second adjustment
to investment in limited partnerships and the third adjustment to cash of
$70,063 reflects the acquisition fee from the proceeds raised from October 1,
1998 to November 12, 1998.
The three limited partnerships (five apartment complexes) were under
construction or rehabilitation during the period presented and had no operations
which should be reported. The Partnership will use the equity method of
accounting to account for its investments in these local limited partnerships.
FS-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WNC & Associates, Inc.
We have audited the consolidated balance sheet of WNC & Associates, Inc. and
subsidiaries (the "Company") as of August 31, 1998. This consolidated balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of WNC & Associates,
Inc. and subsidiaries as of August 31, 1998 in conformity with generally
accepted accounting principles.
CORBIN & WERTZ
Irvine, California
October 28, 1998
FS-18
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As Of August 31, 1998
ASSETS
Cash $ 398,233
Fees receivable 2,350,122
Loans to property developers 544,108
Offering costs advanced 54,698
Due from partnerships 2,220,896
Advances to partnerships 383,420
Deferred income taxes 548,399
Property and equipment, net 359,720
Other assets 326,072
----------------
$ 7,185,668
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to bank $ 1,400,000
Accounts payable and accrued expenses 227,471
Income tax payable 252,733
Interest payable 12,351
Due to partnerships 115,007
Deferred revenue 596,058
Accumulated losses of partnerships in excess
of investments 738,169
Deferred income taxes 532,648
Capitalized lease obligations 50,642
----------------
Total liabilities 3,925,079
----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, no shares issued -
Common stock, no par value, 1,000,000 shares
authorized, 104,750 issued and outstanding 177,677
Due from officers and stockholders (132,000)
Retained earnings 3,214,912
----------------
Total stockholders' equity 3,260,589
----------------
$ 7,185,668
================
See accompanying notes to consolidated financial statements
FS-19
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
As Of August 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WNC & Associates, Inc. (a California corporation) (the "Company"), acts as a
corporate general partner and syndicator of both public and private placement
real estate partnerships (the "Partnerships"), which invest in apartment
complexes throughout the United States, the majority of which are government
assisted apartment complexes that qualify for low income housing tax credits.
The Company is the general partner of various limited partnerships which own
government assisted housing apartment complexes (either directly or indirectly
through other partnership interests). The majority of the Partnerships'
apartment complexes are subsidized through various United States governmental
low-income housing programs. The Company's interest in the profits and losses of
each Partnership, as general partner, varies between one-quarter and five
percent.
Principles of Consolidation
The accompanying consolidated balance sheet includes the accounts of the Company
and its wholly owned subsidiaries, WNC Capital Corporation and WNC Management,
Inc. All significant intercompany accounts and transactions have been eliminated
in consolidation.
WNC Capital Corporation was incorporated in California on February 23, 1994 and
is registered with the Securities and Exchange Commission as a broker/dealer in
securities. WNC Capital Corporation does not carry customers' accounts or hold
securities for the accounts of its customers. WNC Capital Corporation provides
wholesaling services to affiliates of the Company. WNC Management, Inc. was
incorporated in California on April 28, 1997 and is in the business of providing
property management services to government assisted apartment complexes. WNC
Management, Inc. provides management services to affiliates of the Company.
Use of Estimates
The preparation of the consolidated balance sheet in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities, as well
as disclosure of contingent assets and liabilities at the date of the
consolidated balance sheet. Actual results could materially differ from those
estimates.
FS-20
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Fair Value of Financial Instruments
The consolidated balance sheet contains financial instruments whereby the fair
market value of the financial instruments could be different than those recorded
on a historical basis in the accompanying consolidated balance sheet. The
Company's financial instruments consist of cash, fees receivable, loans to
property developers, offering costs advanced, due from and advances to
Partnerships, due to bank, accounts payable and accrued expenses, and due to
Partnerships. Management believes that the carrying amounts of the Company's
financial instruments generally approximate their fair market values at August
31, 1998. In the case of certain financial instruments which are non-interest
bearing, it was not practical to determine fair values due to the lack of a
market for such financial instruments.
Concentration of Credit Risk
The Company, at times, maintains cash balances at certain financial institutions
in excess of the federally insured amounts.
Risks and Uncertainties
Net Capital Requirements
WNC Capital Corporation, as a broker-dealer, is required under provisions of
Rule 15c-1 of the Securities and Exchange Act of 1934 to maintain a ratio of
aggregate indebtedness to net capital, as defined, not to exceed 15 to 1. The
basic concept of the rule is liquidity, its objective being to require a broker
or dealer to have, at all times, sufficient liquid assets to cover its current
indebtedness. WNC Capital Corporation is also required to maintain a minimum net
capital of $5,000 or 6-2/3% of aggregate indebtedness, as defined, whichever is
greater. At August 31, 1998, WNC Capital Corporation had net capital of $21,269
which is $9,136 in excess of the required minimum capital and a ratio of
aggregate indebtedness to net capital of 8.56 to 1.
Registration
WNC Capital Corporation must register with state departments which govern
compliance with securities laws in which it does business. Various regulatory
requirements exist in each state with which WNC Capital Corporation must comply.
Because of the various compliance laws, there is a risk that one or more
regulatory authorities could determine that WNC Capital Corporation has not
complied with securities laws necessary for it to conduct business in a given
state. Regulatory actions, if ever taken, could have a material adverse effect
on WNC Capital Corporation's financial condition.
FS-21
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Year 2000
Certain computerized systems use only two digits to record the year in date
fields. Such systems may not be able to accurately process dates ending in the
year 2000 and after. The effects of this issue will vary from system to system
and may adversely affect an entity's operations as well as its ability to
prepare financial statements. The Company has begun the process of upgrading its
hardware and software in order to obtain year 2000 compliance in 1999.
Fees Receivable
Fees receivable consist primarily of syndication fees due from various
Partnerships in which the Company acts as general partner. Syndication fees are
received by the Company from the Partnerships as the limited partners make their
capital contributions to the Partnerships (see Note 2).
Fees receivable also include property management fees earned and uncollected,
and a receivable relating to the sale of the Company's interest in certain low
income housing tax credits (see Note 2).
Loans to Property Developers
Loans to property developers are comprised of amounts loaned to, or deposits
made on behalf of, the general partners of limited partnerships in which the
Partnerships have or will have an equity interest. All such loans receivable are
secured by the respective general partners interest in the limited partnerships.
In the event a property is not acquired, deposits may not be refunded to the
Company. Accordingly, such amounts are written off in the period determined by
management that a property will not be acquired and the deposit will not be
refunded.
Offering Costs Advanced
Offering costs advanced represent amounts that the Company advances to the
Partnerships for certain costs and expenses to produce the offering materials
and to qualify the partnership interests for sale under the various state or
federal securities laws. Such advances are repaid to the Company out of the
Partnerships' initial capital proceeds, and may be subject to limitations, as
defined, in the individual partnership agreements.
FS-22
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Due From Partnerships
Due from Partnerships consists primarily of amounts advanced to Partnerships
which invest in apartment complexes. Such amounts are invested by the
Partnerships in apartment complexes as capital contributions pursuant to
partnership agreements. Such amounts are non-interest bearing and are due upon
the Partnerships collection of proceeds from sales of Partnership units (see
Note 4).
Property and Equipment
Property and equipment and improvements which extend the economic life of assets
are recorded at cost and are depreciated using the straight-line method over the
estimated useful life of the related asset, generally from three to five years.
Leasehold improvements and capitalized leases are amortized over the shorter of
the life of the lease or estimated useful life of the related asset.
Investments in Partnerships
The Company records its investment in the Partnerships using the equity method,
which recognizes the Company's proportionate share of income or loss as an
increase or decrease in the investment in the Partnership. As the Company acts
as the General Partner, for those Partnerships where recourse losses have
occurred in excess of the Company's investment, amounts are recorded as
accumulated losses of Partnerships in excess of investments.
Revenue Recognition
Syndication fees, which represent fees for selecting, evaluating, structuring,
negotiating and closing Partnership investments in apartment complexes, are
recognized as income ratably as the Partnerships invest in apartment complexes
under the provisions of Statement of Position 92-1 "Accounting for Real Estate
Syndication Income." Syndication fees which are collectible, pursuant to the
terms of the partnership agreements, which have not been recognized as fee
income are deferred. Syndication fees from certain private partnerships which
were scheduled to be collected more than one year from the Company's year end
were discounted to reflect their present value.
Commission revenue earned and related expenses associated with the operations of
WNC Capital Corporation are recorded when the related services are performed.
FS-23
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Management fees, which represent an annual fee for providing administrative and
management services for Partnerships and their investments, are recognized as
earned and to the extent that such fees are deemed to be collectible, generally
on a cash basis. Management fees, which represent WNC Management, Inc.'s
property management services, are recorded when earned.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting For Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized as income in the period that
includes the enactment date (see Note 8).
NOTE 2 - FEES RECEIVABLE
Fees receivable from two public Partnerships totaled $1,245,917 as of August 31,
1998 and are collectible in fiscal 1999. At August 31, 1998, fees receivable
from one of these Partnerships represented 49% of total fees receivable.
As of August 31, 1998, fees receivable also includes $1,097,555 of fees due from
a Partnership from the sale of tax credits related to the Company's general
partnership interests in certain limited partnerships.
NOTE 3 - LOANS TO PROPERTY DEVELOPERS
Loans to property developers consist of the following as of August 31, 1998:
Notes receivable due April 1999, bearing interest at
the Company's borrowing rate (8.75% at August 31, 1998),
secured by the borrowers interest in the properties to be
constructed for which amounts are borrowed. $ 95,100
FS-24
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 3 - LOANS TO PROPERTY DEVELOPERS, continued
Note receivable due and collected September 1998,
bearing interest at the Company's borrowing rate
(8.75% at August 31, 1998), secured by the
borrowers interest in the properties to be constructed
for which amounts are borrowed. 95,000
Notes receivable past due, generally bearing interest
at the Company's borrowing rate secured by the
borrowers interest in the properties to be
constructed for which amounts are borrowed,
net of reserves approximating $699,000. 354,008
---------
$ 544,108
==================
The Company has a past due loan to a property developer at August 31, 1998
which represents 51% of total loans to property developers.
NOTE 4 - DUE FROM PARTNERSHIPS
Due from Partnerships includes amounts advanced to Partnerships which invest in
apartment complexes, as discussed in Note 1. Such amounts due from Partnerships
totaled $2,169,315 as of August 31, 1998. As of August 31, 1998, the Company had
amounts due from two Partnerships which represented 67% and 18%, respectively,
of the total due from Partnerships.
Through August 31, 1998 , the Company loaned an aggregate $1,678,151 to a
Partnership which invested the funds into a property in Mississippi (the
"Property"). The additional lending of $642,642 during fiscal 1998 was to
complete the repair of structural defects identified by the Company during
fiscal 1997. The Property was completed during 1998, and was sold to an
affiliated Partnership. During 1998, the Company received $700,000 as partial
repayment on the loan. Management estimates an additional $279,000 will be
repaid during fiscal 1999, in connection with a re-finance of the Property.
Management determined that the aforementioned loan was impaired by $699,151, of
which $199,151 was reserved for during the year ended August 31, 1998.
In connection with the partial repayment from the new general partner, as
discussed above, the Company was required to establish an escrow account for
outstanding mechanics liens totaling $265,682. Such has been included in the due
from Partnerships as of August 31, 1998. Management has determined the estimated
possible legal expenses related to the settlement of outstanding mechanics liens
to be $140,000. Accordingly, such was reserved for during the year ended August
31, 1998 (see Note 9).
FS-25
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 4 - DUE FROM PARTNERSHIPS, continued
Due from partnerships also include commissions due to WNC Capital Corp of
$32,300 and various expense reimbursements due to WNC Management Co. of $19,281
at August 31, 1998.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of August 31, 1998:
Furniture, fixtures and computer software $ 516,617
Leasehold improvements 38,803
Equipment under capital leases (see Note 9) 219,017
------------------
774,437
Less: accumulated depreciation and amortization (414,717)
___________________
$ 359,720
==================
NOTE 6 - OTHER ASSETS
Other assets as of August 31, 1998 consist of the following:
Real estate joint venture costs $ 106,991
Deposit on purchase of general partner interests 200,000
Deposits, advances and other 19,081
------------------
$ 326,072
==================
The Company assesses the recoverability of other assets by determining whether
the assets balance can be recovered from its projected undiscounted future cash
flows. The amount of impairment, if any, is measured based on fair value and
charged to operations in the period in which the impairment is determined by
management. Management has determined that the recoverability of real estate
joint venture costs and deposit on purchase of general partner interests as of
August 31, 1998 to be impaired by $85,236 and $50,000, respectively.
Accordingly, such amounts were reserved for during the year ended August 31,
1998.
FS-26
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 7 - NOTES PAYABLE
The Company has two lines-of-credit with a bank. One line-of-credit allows for
borrowings of up to $1,500,000 at the bank's index rate plus 0.25% (8.75% at
August 31, 1998) and is unsecured. There was $1,400,000 of borrowings under this
arrangement as of August 31, 1998. The other line-of-credit allows for
borrowings of up to $2,500,000 at the bank's index rate plus 0.25% (8.75% at
August 31, 1998) and is secured by assignment of the Company's interest in
Partnership properties to be acquired for which amounts are borrowed. There were
no amounts outstanding under this arrangement as of August 31, 1998. Both lines
of credit are personally guaranteed by the majority stockholder of the Company
and mature April 15, 1999. Both lines of credit require the Company to satisfy
certain financial covenants and ratios. As of August 31, 1998, the Company
complied with all such covenants and ratios.
NOTE 8 - INCOME TAXES
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities as of August 31, 1998 are as follows:
Deferred tax assets:
Deferred revenue $ 132,436
Write-down of investments 41,215
Reserve for estimated legal costs 59,976
Alternative minimum tax credits 223,956
Low-income housing tax credits 86,773
State taxes 4,043
------------------
548,399
Less valuation allowance -
$ 548,399
==================
Deferred tax liabilities:
Installment sale accounting with respect
to sale of tax credits $ (470,193)
Partnership's taxable income (61,645)
Other (810)
------------------
$ (532,648)
==================
FS-27
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 8 - INCOME TAXES, continued
As of August 31, 1998, the Company has alternative minimum tax credits available
to offset future tax liabilities for Federal and state purposes of approximately
$171,000 and $53,000, respectively.
As of August 31, 1998, the Company has low-income housing tax credits available
to offset future tax liabilities for Federal and state purposes of approximately
$81,000 and $6,000, respectively, expiring through August 31, 2013.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space, automobiles and furniture under operating
leases expiring through February 2002,and certain equipment under capital leases
expiring through January 2002. Aggregate monthly capital lease payments amount
to $3,631 as of August 31, 1998. The leases are noncancellable and require
future minimum lease payments as follows:
Years Ending Capitalized Operating Leases
August 31, Leases
-------------------- ----------------- ----------------
1999 $ 30,504 $ 163,095
2000 14,059 71,961
2001 12,564 34,972
2002 5,235 14,707
--------------- ------------------
Total minimum lease payments 62,362 $ 284,735
==================
Less: amounts representing interest
at rates ranging from 9.3% to 12.5% (11,720)
---------------
Present value of future minimum
capitalized lease obligations $ 50,642
===============
FS-28
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 9 - COMMITMENTS AND CONTINGENCIES, continued
Guarantees
The Company is a guarantor of certain bank loans made to the Partnerships. There
were no amounts outstanding on such loans as of August 31, 1998. These loans are
repaid by the Partnerships as the limited partners make their capital
contributions to the respective Partnerships.
Litigation
The Company serves as a limited and general partner to a certain limited
partnership. The Company loaned to the limited partnership aggregate $1,678,151
for development of the property. The developed property incurred significant
cost overruns due to defects in construction. As a result of such defects, the
Company removed and replaced the local general partner. In this capacity,
construction was completed by the Company (see Note 4). The limited partnership
has filed suit against the architects and contractors. There have been various
claims and counterclaims filed against the limited partnership and certain liens
placed on the property. The ultimate outcome of the aforementioned actions is
unknown at this time. The Company has reserved an aggregate $839,151 of its due
from Partnerships which includes the estimated outcome of various claims filed.
Management of the Company does not believe that the additional effect on the
consolidated balance sheet upon the ultimate disposition of the aforementioned
actions will be material.
Equity Participation Agreement
The Company has an equity participation agreement with a key officer of the
Company and his spouse. This agreement provided for an investment of $80,000 by
the Company to acquire a 50% interest in certain property, which was later
converted into real property for rental purposes, owned by the key officer and
his spouse. Pursuant to terms of this agreement, all income and losses arising
from the operations of the rental property, including the allocation of income
and losses upon a sale or refinance shall be allocated 50% to the Company and
50% to the key officer and his spouse.
FS-29
<PAGE>
WNC & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
As Of August 31, 1998
NOTE 9 - COMMITMENTS AND CONTINGENCIES, continued
Due From Officers and Stockholders
In April, 1993, an officer and the Company's majority stockholder borrowed
$55,000. This note bears interest at 7.5% per annum. The maturity date of the
note has been extended annually along with accrued interest to March 31, 1999.
The note, together with accrued interest, is included in stockholders' equity in
the accompanying consolidated balance sheet. During 1998, this officer borrowed
an additional $40,000 under the same terms as the original note.
During 1994, an officer and stockholder of the Company borrowed $25,000. This
note bears interest at 7.5% per annum. The maturity date of the note has been
extended annually along with accrued interest to March 31, 1999. The note,
together with accrued interest, is included in stockholders' equity in the
accompanying consolidated balance sheet.
FS-30
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The tables set forth below present financial information with respect
to programs which were sponsored by the Sponsor. Each of these programs is
considered to have investment objectives similar to those of the Fund in that
they each own interests in local limited partnerships which own properties
generating low income housing credits or, in the case of Shelter Resource Fund,
benefiting from some other form of Government Assistance. However, the principal
investment objective of Shelter Resource Fund was to provide income tax losses
which its investors could use to offset income from other sources. None of these
tables is covered by the reports of independent public accountants set forth in
this document.
For additional information as to the investment objectives and policies
of such prior programs see "Prior Performance Summary." Additional information
concerning prior performance is included in Part II of the Registration
Statement of the Fund and in the Form 10-K annual reports for the public
programs which file such reports. Copies of these 10-K Forms are available to
any investor upon request to the Sponsor. Any such request should be directed to
3158 Redhill Avenue, Suite 120, Costa Mesa, California 92626.
The purpose of the tables is to provide information on the prior
performance of these partnerships so as to permit a prospective purchaser of the
Units to evaluate the experience of the Sponsor in sponsoring such limited
partnerships. The tables consist of:
Table I Experience in Raising and Investing Funds
Table II Compensation to Sponsor
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Definitions
The following terms used in the prior performance tables have the following
meanings:
A-1
<PAGE>
"Acquisition Cost" includes all costs related to the acquisition of partnership
interests, including equity contributions, acquisition and selection fees
payable to the general partners and other fees and expenses incident to the
acquisition of partnership interests.
"Capital Contributions" represents the contributions by investors in the prior
partnerships.
"GAAP" means generally accepted accounting principles.
"Months to Invest 90% of Amount Available for Investment" means the length of
time, in months, from the offering date to the date of the closing of properties
which, in the aggregate, represented the investment commitment of 90% of the
amount available for investment.
"Percent leverage" means mortgage financing divided by total acquisition costs.
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE FOLLOWING TABLES. INVESTORS WILL NOT HAVE ANY
INTEREST IN ANY OF THE PARTNERSHIPS DESCRIBED IN THE TABLES OR IN ANY OF THE
PROPERTIES OWNED BY THE LOCAL LIMITED PARTNERSHIPS IN WHICH THOSE PARTNERSHIPS
HAVE INVESTED AS A RESULT OF THE ACQUISITION OF UNITS.
A-2
<PAGE>
TABLE I
TABLE I provides information regarding the raising and investing of funds by
partnerships sponsored by the Sponsor which raised funds during the three-year
and six-month period ended June 30, 1998. The table presents the aggregate
dollar amount of the offering, the percentage of dollars raised which were used
to pay offering costs, establish reserves and acquire investments, as well as
information regarding percent of leverage and the timing for both raising and
investing funds. The information concerns investor capital contributions as the
sole source of funds for investment and excludes the nominal capital
contributions by the general partners.
A-3
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(January 1, 1995 - June 30, 1998)
HTCF IV-2 % CHTC IV-4 % HTCF V-3 %
<S> <C> <C> <C>
Dollar amount offered $20,000,000 $25,000,000 $25,000.000
=============== =========== ==========
Dollar amount raised 15,241,000 100.0 11,099,000 100.0 17,559,000 100.0
Less offering expenses:
Selling commissions & discounts
paid to non-affiliates (c) 1,000,500 6.6 554,000 4.9 1,058,700 6.0
Organizational expenses (a) 969,900 6.4 827,000 7.5 1,062,900 6.1
Reserves 241,600 1.7 387,000 3.5 349,000 2.0
------- --- ---- ------- --- ----------- ---
Percent invested as of
close of offering 13,029,000 85.3 9,331,000 84.1 15,088,400 85.9
Acquisition costs:
Prepaid items and fees
related to purchase of
property 136,000 0.9 80,000 0.7 80,000 0.5
Cash down payments (b) 11,835,000 77.5 8,590,000 77.4 14,000000 79.7
Acquisition fees 1,058,000 6.9 661,000 6.0 1,008,400 5.7
Other ----- -.- ----- -.- ----- -.-
--------- --- --------- ---- ---------- ---
Total acquisition cost 13,029,000 85.3 9,331,000 84.1 15,088,400 85.9
Percentage leverage (mortgage
financing divided by total
acquisition cost)
66% 60% 70%
Date offering began 9/94 9/94 7/95
Length of offering (months) 13 12 11
Months to invest 90% of
amount available for
investment (measured from
beginning of offering) 17 15 21
- -------------------------------
<FN>
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly
or indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
(c) Selling commissions were first paid to an affiliated broker-dealer
which reallowed all selling commissions to non-affiliates.
</FN>
</TABLE>
A-4
UNAUDITED
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(January 1, 1995 - June 30, 1998)
HTCFV-4 (d) % CHTC IV-5(d) % HTCF VI-5 %
(d)(e)
<S> <C> <C> <C>
Dollar amount offered $25,000,000 $25,000,000 $25,000,000
=========== =========== ===========
Dollar amount raised 21,920,450 100.0 6,253,000 100.0 24,638,000 100.0
Less offering expenses:
Selling commissions & discounts
paid to non-affiliates (c) 1,579,000 7.2 296,000 4.7 1,725,000 7.0
Organizational expenses (a) 1,348,000 6.1 475,000 7.6 884,000 3.6
Reserves 1,485,450 6.8 1,462,500 23.4 12,894,000 52.3
--------- --- --------- ---- ---------- ----
Percent invested as of
close of offering 17,508,000 79.9 4,019,500 64.3 9,135,000 37.1
Acquisition costs:
Prepaid items and fees
related to purchase of
property 129,000 0.6 8,000 0.1 134,000 0.5
Cash down payments (b) 15,807,000 72.1 3,689,500 59.1 7,347,000 29.9
Acquisition fees 1,572,000 7.2 322,000 5.1 1,654,000 6.7
Other ----- -.- ----- -.- ---- -.-
--------- ---- --------- ---- --------- ----
Total acquisition cost 17,508,000 79.9 4,019,500 64.3 9,135,000 37.1
Percentage leverage (mortgage
financing divided by total
acquisition cost) 49%
54%
Date offering began 7/96 11/95 6/97
Length of offering (months) 13 7 (e)
Months to invest 90% of
amount available for
investment (measured from 12 22 (e)
beginning of offering)
- -------------------------------
<FN>
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly
or indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
(c) Selling commissions were first paid to an affiliated broker-dealer
which reallowed all selling commissions to non-affiliates.
(d) Not all properties have been identified as of June 30, 1998. Therefore
uninvested amounts are included in reserves.
(e) The offering was continuing as of June 30, 1998.
</FN>
</TABLE>
A-5
UNAUDITED
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(January 1, 1995 - June 30, 1998)
P R I V A T E O F F E R I N G S
One Three
Partnership Partnerships
Organized in Organized in
1995 % 1997(d) %
Dollar amount offered $15,000,000 $67,000,000
=========== ===========
Dollar amount raised 15,000,000 100.0 66,859,000 100.0
Less offering expenses:
Selling commissions &
discounts paid to 337,500 2.2 1,517,000 2.3
non-affiliates (c)
Organizational expenses (a) 337,500 2.2 1,488,000 2.2
Reserves 591,000 4.0 1,707,000 2.5
------- --- --------- ---
Percent invested as of
close of offering 13,734,000 91.6 62,147,000 93.0
Acquisition costs:
Prepaid items and fees
related to purchase of
property 150,000 1.0
Cash down payments (b) 12,984,000 86.6 58,599,000 87.7
Acquisition fees 600,000 4.0 2,742,000 4.1
Other ----- -.- 806,000 1.2
---------- --- ------- ---
Total acquisition cost 13,734,000 91.6 62,147,000 93.0
Percent leverage (mortgage
financing divided by total
acquisition cost) 60% 55%
Date offering began 3/95 Various
Length of offering (months) 7 Various
Months to invest 90% of
amount available for
investment (measured from
beginning of offering) 11 Various
- ------------------------------
(a) Consists of estimated legal, accounting, printing and other
organization and offering expenses paid by the partnership directly
or indirectly through the sponsor.
(b) Represents the capital contributions of the partnership paid or the
required payments to be paid to the local limited partnerships.
(c) Selling commissions were first paid to an affiliated broker-dealer
which reallowed all selling commissions to non-affiliates.
(d) Not all properties have been identified as of June 30, 1998.
A-6
UNAUDITED
<PAGE>
TABLE II
TABLE II presents information concerning the cumulative compensation paid to the
Sponsor for the period from January 1, 1995 to June 30, 1998 with respect to
programs presented in TABLE I and on an aggregate basis with respect to all
other programs which have been sponsored by the Sponsor.
A-7
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1995 - June 30, 1998)
HTCF V-3 HTCF V-4 CHTC IV-5 HTCF VI-5
(b)
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Date offering commenced 7/95 7/96 11/95 6/97
Dollar amount raised $17,559,000 $21,920,450 $6,253,000 $24,638,000
Amount paid to sponsor from
proceeds of offering: (a)
Underwriting fees 0 0 0 0
Acquisition fees 1,008,400 1,272,416 322,000 1,322,000
Syndication fee 0 0 0 0
Other 0 219,200 7,200 196,000
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor 280,865 197,032 143,124 88,991
Amount paid to sponsor from
operations: 0 0 0 0
Property management fees 110,000 30,000 10,000 0
Partnership management fees 0 0 0 0
Reimbursements 0 0 0 0
Leasing commissions
Dollar amount of property sales and
refinancing before deducting
payments
to sponsor: 0 0 0 0
Cash 0 0 0 0
Notes
Amount paid to sponsor from property sales and refinancing:
Real estate commissions 0 0 0 0
Incentive fee 0 0 0 0
Other 0 0 0 0
- ------------------------------------
<FN>
(a) Represents amounts paid to sponsor which were not reallowed to
non-affiliates.
(b) The offering was continuing as of June 30, 1998.
</FN>
</TABLE>
A-8
UNAUDITED
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1995 - June 30, 1998)
HTCF IV-2 CHTC IV-4 Other Public
Programs (b)
Date offering commenced 9/94 9/94 1994 and prior
Dollar amount raised 5,241,000 $11,099,000 N/A
Amount paid to sponsor from
proceeds of offering: (a)
Underwriting fees 0 0 0
Acquisition fees 1,058,000 661,000 0
Syndication fee 0 0 0
Other 0 12,800 0
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor 186,949 343,383 270,395
Amount paid to sponsor from
operations: 0 0 0
Property management fees 273,066 105,000 581,000
Partnership management fees (c) 0 0 0
Reimbursements 0 0 0
Leasing commissions
Dollar amount of property sales and
refinancing before deducting
payments
to sponsor: 0 0 51,407
Cash 0 0 0
Notes
Amount paid to sponsor from property sales and refinancing:
Real estate commissions 0 0 0
Incentive fee 0 0 0
Other 0 0 0
- ------------------------------------
(a) Represents amounts paid to sponsor which were not reallowed to
non-affiliates.
(b) Included 8 public programs.
(c) Partnership management fees were paid from partnership reserves in the
instances where amounts paid to sponsor from operations
exceed dollar amount of cash generated from operations.
A-9
UNAUDITED
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
(January 1, 1995 - June 30, 1998)
- ------------------------P R I V A T E O F F E R I N G S---------------------
One Three
Partnership Partnerships All Other
Organized in Organized in Private
1995 1997 Partnerships
(a)
-------- ---------- -----------
Date offering commenced 3/95 Various 1994 & prior
Dollar amount raised $15,000,000 $66,859,433 N/A
Amount paid to sponsor from
proceeds of offering: (c)
Underwriting fees 0 0 0
Acquisition fees 600,000 2,742,000 0
Syndication fee 0 0 0
Other 0 807,000 0
Dollar amount of cash generated
from (used in) operations before
deducting payments to sponsor 50,536 78,097 N/A
Amount paid to sponsor from operations:
Property management fees 0 0 0
Partnership management fees (b) 30,000 0 326,000
Reimbursements 0 0 0
Leasing commissions 0 0 0
Dollar amount of property sales and
refinancing before deducting payments to
sponsor:
Cash 0 0 0
Notes 0 0 0
Amount paid to sponsor from property sales
and refinancing:
Real estate commissions 0 0 0
Incentive fee 0 0 0
Other 0 0 0
- ------------------------------------
(a) Includes 45 private programs.
(b) Partnership management fees were paid from partnership reserves in the
instances where amounts paid to sponsor from operations
exceed dollar amount of cash generated from operations.
(c) Represents amounts paid to sponsor which were not reallowed to
non-affiliates
A-10
UNAUDITED
<PAGE>
TABLE III
TABLE III presents the operating results for all partnerships sponsored by the
Sponsor which closed during the five years and six months ended June 30, 1998.
The prior partnerships are structured as investment partnerships acquiring
interests in operating partnerships. The investment partnerships account for
such investments using the equity method of accounting which recognizes each of
such partnership's pro rata share of the operating partnership's total income or
loss. Revenues generated by the investment partnerships consist substantially of
interest on short-term investments. This interest income generally decreases
after the initial two years of operations as funds available for investment
decrease. This decrease in funds arises from the investment partnership's
payments of capital contributions due.
The prior public partnerships, one of the prior private partnerships closed in
1994 and all of the prior private partnerships closed in 1995 and 1997 report on
a GAAP basis and, accordingly, "Cash generated (or used) from operations" is per
each program's Statement of Cash Flows. The remaining prior private programs
maintain their books and records on the tax basis of accounting and not on a
GAAP basis, and "Cash generated (or used) from operations" for such programs is
per their respective books and records. The significant difference is that
depreciation expense on a tax basis as compared to a GAAP basis is greater in
the early years of operations.
Other information included in the table includes data on cash generated from
operations and tax and cash distribution information per $1,000 invested,
including Tax Credit allocations.
A-11
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/------------------------------- HTCF III -------------------------------------\
1992(a) 1993 1994 1995 1996 1997 1998(c)
------- ---- ----- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenue $ 45,236 $ 137,116 $ 87,521 $ 57,741 $16,756 $11,158 7,814
Less:
Operating expenses 13,036 120,054 313,134 314,320 394,781 320,565 170,804
Interest 679 0 0 0 0 0
Depreciation and amortization 3,394 24,478 45,724 47,176 47,176 47,248 23,624
Equity in losses in local partnerships 68,933 779,251 1,323,487 1,312,540 1,406,638 1,230,014 571,900
--------- --------- --------- --------- --------- --------- -------
Net income (loss) - GAAP basis (40,806) (786,667) (1,594,824) (1,616,295) (1,831,839) (1,586,669) (758,514)
Taxable income (loss) from (36,895) (850,051) (1,594,118) (1,715,667) (1,820,369) (1,877,413) (856,014)
operations
Cash generated (used)from operations 53,333 (393,615) (38,224) (16,170) (73,931) (135,974) (12,034)
Cash generated from sales 0 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0 0
Less: Cash distributions to 0 0 0 0 0 0 0
investors
Cash generated (deficiency) after
cash distributions and special items 53,333 (393,615) (38,224) (16,170) (73,931) (135,974) (12,034)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(9) (b)(77) (105) (113) (120) (124) (58)
From gain on sale 0 0 0 0 0 0 0
Federal tax credits (b)4 (b)68 119 152 157 157 N/A
California tax credits 0 0 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0 0 0
Amount (in percentage terms) remaining
invested in program properties at end of
year (original total acquisition costs of
properties retained divided by total
original acquisition costs of all
properties) 100 100 100 100 100 100 100
- --------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two
years are dependent upon an investor's entry date. Amount shown
is that allocated to initial investors.
(c) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-12
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/----------------------------------- CHTC III ---------------------------------\
1993(a) 1994 1995 1996 1997 1998(c)
------- ---- ---- ----- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $ 22,885 $ 156,271 $ 145,959 $ 74,947 $ 57,279 $ 17,101
Less:
Operating expenses 7,204 86,306 193,916 214,737 204,259 114,247
Interest 0 0 0 0 0 0
Depreciation and amortization 0 41,757 57,466 57,933 58,596 30,232
Equity in losses in local partnerships 33,260 352,511 1,155,114 1,132,216 1,028,617 490,000
----------- --------- --------- ---------- --------- -------
Net income (loss) - GAAP basis (17,579) (324,303) (1,260,537) (1,329,939) (1,234,193) (617,378)
Taxable income (loss)from ooperations (30,475) (388,247) (1,279,818) (1,523,381) (1,307,843) (661,178)
Cash generated (used) from operations (9,831) (225,005) 437,400 (143,337) (6,960) 127
Cash generated from sales 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0 900,000
Cash generated (deficiency) after
cash distributions and special items (9,831) (225,005) 437,400 (143,337) (6,960) (898,873)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(6) (b)(28) (70) (84) (72) (37)
From gain on sale 0 0 0 0 0 0
Federal tax credits (b)6 (b)32 95 112 113 N/A
California tax credits 0 (b)48 85 85 66 N/A
Cash distributions to investors
Source (on GAAP basis)
--Investment income 0 0 0 0 0 0
--Return of capital
Price adjusters 0 0 0 0 0 35
Balance of uninvested assets 0 0 0 0 0 15
Source (on cash basis)
--Sales 0 0 0 0 0 0
--Refinancing 0 0 0 0 0 0
--Operations 0 0 0 0 0 0
--Other
Price adjusters 0 0 0 0 0 35
Balance of uninvested assets 0 0 0 0 0 15
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs of
properties retained divided by
total original acquisitions costs
of all properties) 100 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two
years are dependent upon an investor's entry date. Amount shown is
that allocated to initial investors.
(c) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-13
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/-------------------------------------HTCF IV-1-------------------------------\
1994(a) 1995 1996(c) 1997(c) 1998(d)
------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 85,261 $ 66,645 $ 51,654 $26,663 14,259
Less:
Operating expenses 47,149 53,536 51,467 54,302 38,540
Interest 0 0 0 0 0
Depreciation and amortization 20,797 30,926 31,032 31,122 15,654
Equity in losses in local partnerships 413,316 727,986 837,908 776,599 360,800
--------- --------- --------- ------- -------
Net income (loss) - GAAP basis (396,001) (745,803) (868,753) (835,360) (400,735)
Taxable income (loss) from operations (417,185) (874,044) (982,635) (1,094,717) (484,316)
Cash generated (used) from operations 46,649 19,058 6,440 (57,639) 1,265
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after
cash distributions and special items 46,649 19,058 6,440 (57,639) 1,265
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(59) (87) (97) (108) (48)
From gain on sale 0 0 0 0 0
Federal tax credits (b)32 101 136 143 N/A
California tax credits 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs of
properties retained divided by
total original acquisition costs
of all properties) 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first
year are dependent upon an investor's entry date.
Amount shown is that allocated to initial investor.
(c) Based on unaudited information as final audit not yet completed.
(d) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-14
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/---------------------------------HTCT IV-2----------------------------------\
1994(a) 1995 1996 1997 1998 (c)
------ ----- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 3,475 $179,927 $ 161,610 $74,571 $30,146
Less:
Operating expenses 27,269 57,965 60,777 65,717 37,058
Interest 0 39,148 5,350 0 0
Depreciation and amortization 1,638 26,208 40,109 40,823 20,460
Equity in losses in local partnerships 240,698 628,521 628,631 737,115 353,000
---------- ---------- ----------- ------- -------
Net income (loss) - GAAP basis (266,130) (571,915) (573,257) (769,084) (380,372)
Taxable income (loss) from operations (228,979) (702,048) (641,050) (928,847) (440,372)
Cash generated (used)from operations (25,518) 62,653 60,895 52,765 10,636
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after
cash distributions and special items (25,518) 62,653 60,895 52,765 10,636
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(82) (b)(58) (41) (59) (28)
From gain on sale 0 0 0 0 0
Federal tax credits (b)21 (b)70 105 113 N/A
California tax credits 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided by
total original acquisition costs of
all properties) 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two
years are dependent upon an investor's entry date.
Amount shown is that allocated to initial investor.
(c) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-15
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/-------------------------------------CHTC IV-4--------------------------------\
1994(a) 1995 1996 1997 1998(c)
------- ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 1,613 $ 160,888 $ 147,254 $ 65,307 $25,883
Less:
Operating expenses 13,399 41,325 51,488 45,130 30,874
Interest 0 79,853 0 0 0
Depreciation and amortization 0 16,056 24,865 25,419 12,773
Equity in (income) losses in local
partnerships (2,212) 100,224 528,288 806,639 416,400
------- ------------ ------------ -------- -------
Net income (loss) - GAAP basis (9,574) (76,570) (457,387) (811,881) (434,164)
Taxable (income) loss from operations (11,786) (60,108) (566,147) (778,340) (418,351)
Cash generated (used) from operations 1,602 26,322 95,766 110,356 5,939
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after
cash distributions and special items 1,602 26,322 95,766 110,356 5,939
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(12) (b)(9) (49) (69) (36)
From gain on sale 0 0 0 0 0
Federal tax credits 0 (b)18 64 86 N/A
California tax credits 0 (b)53 70 90 N/A
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided by
total original acquisition costs
of all properties) 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax losses and tax credits allocated to an investor in the first two
years are dependent upon an investor's entry date. Amount shown is
that allocated to initial investors.
(c) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-16
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/------------------------------------HTCF V-3----------------------------------\
1995(a) 1996 1997 1998(d)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross revenue $ 3,487 $ 209,940 $ 121,703 $32,014
Less:
Operating expenses 12,379 69,130 66,884 45,000
Interest 0 0 0 0
Depreciation and amortization 454 23,436 34,605 17,748
Equity in losses in local partnerships 343 185,071 789,697 368,000
----- --------- ------- -------
Net income (loss) - GAAP basis 9,689 (67,697) (769,483) (398,734)
Taxable income (loss) from operations 2,522 (128,969) (1,060,301) (549,431)
Cash generated (used) from operations 3,402 34,885 102,215 30,373
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Less: Cash distributions to investors 0 0 0 0
Cash generated (deficiency) after
cash distributions and special items 3,402 34,885 102,215 30,373
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)2 (b)(26) (58) (31)
From gain on sale 0 0 0 0
Federal tax credits (b)3 (b)62 84 N/A
California tax credits 0 0 0 0
Cash distributions to investors
Source (on GAAP basis)
--Investment income 0 0 0 0
--Return of capital 0 0 0 0
Source (on cash basis)
--Sales 0 0 0 0
--Refinancing 0 0 0 0
--Operations 0 0 0 0
--Other (c)5 0 0 0
Amount (in percentage terms) remaining
invested in program properties at end of
year (original total acquisition costs of
properties retained divided by total
original acquisition costs of all
properties) 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax income (losses) and tax credits allocated to an investor in
the first two years are dependent upon an investor's entry date.
Amount shown is that allocated to initial investors.
(c) This amount was distributed in 1995 by the general partner and not
by the partnership.
(d) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-17
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
/----------------------------HTCF V-4-----------------------------\
1996 (a) 1997 (c) 1998 (d)
--------- --------- --------
<S> <C> <C> <C>
Gross revenue $ 15,529 $ 225,609 $114,567
Less:
Operating expenses 30,183 68,263 59,918
Interest 0 0 0
Depreciation and amortization 2,851 42,034 28,348
Equity in losses (income) in local
partnerships 29,329 225,000 273,700
------ ------- -------
Net income (loss) - GAAP basis (46,834) (109,688) (247,399)
Taxable income (loss) from operations (23,166) (97,159) (278,399)
Cash generated (used) from operations 4,010 44,679 118,343
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Less: Cash distributions to investors 0 0 0
Cash generated (deficiency) after
cash distributions and special items 4,010 44,679 118,343
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)5 (b)(4) (13)
From gain on sale 0 0 0
Federal tax credits (b)14 19 N/A
California tax credits 0 0 0
Cash distributions to investors 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided by
total original acquisition costs
of all acquisition costs of all
properties) 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax income (losses) and tax credits allocated to an investor in
the first two years are dependent upon an investor's entry date.
Amount shown is that allocated to initial investors.
(c) Based on unaudited information as final audit not yet completed.
(d) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-18
UNAUDITED
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR
PROGRAMS
<TABLE>
/-------------------CHTC IV-5-------------\ /------HTCF VI-5-------\
1996(a) 1997 1998 (c) 1997 (a) 1998(c)
------------- ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 54,573 $ 78,454 $ 28,239 $ 10,012 123,367
Less:
Operating expenses 1,393 25,517 20,127 7,843 21,603
Interest 0 0 0 0 0
Depreciation and amortization 7,753 11,352 6,158 2,256 17,160
Equity in losses (income) in local
partnerships (15) 146,305 95,600 (2,395) 26,100
------ ------- -------- -------- ------
Net income (loss) - GAAP basis 45,442 (104,720) (93,646) 2,308 58,504
Taxable income (loss) from 45,427 (84,003) (86,054) 9,308 76,539
operations
Cash generated (used) from 159,328 (39,216) 13,012 (2,873) 90,496
operations
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to 0 0 0 0 0
investors
Cash generated (deficiency) after
cash distributions and special items 159,328 (39,216) 13,012 (2,873) 90,496
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)10 (13) (13) (b)(1) 6
From gain on sale 0 0 0 0 0
Federal tax credits 0 31 N/A 0 N/A
California tax credits 0 67 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs of
properties retained divided by total original
acquisition costs of all
properties 100 100 100 100 100
- --------------------------------
<FN>
(a) Partial year of operations.
(b) Tax income (losses) and tax credits allocated to an investor in the first
two years are dependent upon an investor's entry date. Amount shown is that
allocated to initial investors.
(c) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of the
partnership's 1998 tax returns.
A-19
UNAUDITED
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
FOUR PRIVATE
/------------------------OFFERINGS CLOSED DURING 1993--------------------------\
1993(a) 1994 1995 1996 1997 1998(c)
------- -------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $ 130,878 $ 332,016 $ 242,791 $ 147,841 $ 85,512 $10,092
Less:
Operating expenses 2,834 16,958 10,944 23,613 27,073 13,060
Interest 6,111 14,094 14,427 0 4,091 0
Depreciation and amortization 13,808 12,262 15,457 13,863 13,863 6,201
Equity in losses in local partnerships 435,734 959,693 878,965 805,025 670,896 332,093
---------- --------- ------- -------- --------- --------
Net income (loss) - Tax basis (327,609) (670,691) (677,002) (694,660) (630,411) (341,262)
Cash generated (used) from operations 121,645 302,422 6,094 124,228 55,638 (2,968)
Cash generated from sales 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0 34,060
Cash generated (deficiency) after
cash distributions and special items 121,645 302,422 6,094 124,228 55,638 (37,028)
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(48) (113) (112) (114) (105) (57)
From gain on sale 0 0 0 0 0 0
Federal tax credits 49 101 126 130 130 N/A
California tax credits 46 46 46 27 0 0
Cash distributions to investors
Source (on GAAP basis)
--Investment income 0 0 0 0 0 0
--Return of capital
Price adjusters 0 0 0 0 0 6
Balance of uninvested assets 0 0 0 0 0 0
Source (on cash basis)
--Sales
--Refinancing 0 0 0 0 0 0
--Operations 0 0 0 0 0 0
--Other
Price adjusters 0 0 0 0 0 6
Balance of uninvested assets 0 0 0 0 0 0
Amount (in percentage terms) remaining
invested in program properties at end of
year (original total acquisition costs of
properties retained divided by total
original acquisition costs of all
properties) 100 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax loss and tax credits allocated to an investor in the first
year are dependent upon an investor's entry date.
Amount shown is that allocated to initial investors.
(c) Six months ended June 30, 1998.
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-20
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
TWO PRIVATE
/--------------------------OFFERINGS CLOSED DURING 1994------------------------\
1994(a) 1995 1996 1997 1998(c)
------- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 7,619 $112,058 $ 67,700 $ 23,771 13,844
Less:
Operating expenses 111,523 36,529 54,699 55,471 18,838
Interest 0 0 0 0 0
Depreciation and amortization 1,305 12,906 37,940 37,490 18,970
Equity in losses in local partnerships 129,352 861,238 1,285,203 1,002,071 446,698
--------- --------- --------- ---------- -------
Net income (loss) - Tax basis for WNC Tax Credits XXX; (234,561) (798,615) (1,310,142) (1,071,261) (470,662)
GAAP basis for ITC I
Cash generated (used) from operations (39,826) (61,055) 13,001 (47,895) 1,953
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (39,826) (61,055) 13,001 (47,895) 1,953
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (24) (101) (158) (89) (36)
From gain on sale 0 0 0 0 0
Federal tax credits 11 74 126 139 N/A
Federal historic rehabilitation credits 41 31 0 0 0
California tax credits 0 0 0 0 0
Cash distributions to investors 0 0 0 0 0
Amount (in percentage terms) remaining
invested in program properties at end of
year (original total acquisition costs
of properties retained divided by total
original acquisition costs of all properties) 100 100 100 100 100
- --------------------------------
<FN>
(a) Partial year of operations.
(c) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-21
UNAUDITED
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
ONE PRIVATE THREE PRIVATE
/--------OFFERING CLOSED DURING 1995------------\ /-OFFERINGS CLOSED DURING 1997--\
1995 (a) 1996 1997 1998(d) 1997(a)(c) 1998(d)
------------ ------------ ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $ 58,335 $138,052 $ 24,580 206 $ 143,224 121,289
Less:
Operating expenses 126,526 102,922 129,739 29,385 49,871 68,214
Interest 0 0 0 0 231,390 637,804
Depreciation and amortization 6,099 32,616 49,364 24,682 652,264 44,412
Equity in losses in local partnerships 161,903 453,545 739,326 324,700 690,667 1,626,600
--------- ------- ------- ------- ------- ---------
Net income (loss) -GAAP basis (236,193) (451,031) (893,849) (378,561) (1,480,968) (2,255,741)
Taxable (income) loss from operations (146,497) (716,986) (1,232,653) (529,750) (1,733,726) (2,436,000)
Cash generated (used)from operations (74,596) (44,733) 193,726 (53,861) 25,022 53,075
Cash generated from sales 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0
Less: Cash distributions to investors 0 0 0 0 0 0
Cash generated (deficiency) after
cash distributions and special items (74,596) (44,733) 193,726 (53,861) 25,022 53,075
TAX AND DISTRIBUTION DATA PER $1,OOO INVESTED
Federal income tax results
Ordinary income (loss)
From operations (b)(10) (48) (81) (29) (b)(30) (37)
From gain on sale 0 0 0 0 0 0
Federal tax credits (b)7 59 129 N/A 22 N/A
California tax credits 0 0 0 0 8 N/A
Cash distributions to investors 0 0 0 0 0 0
Amount (in percentage terms)
remaining invested in program
properties at end of year
(original total acquisition costs
of properties retained divided by
total original acquisition costs
of all properties) 100 100 100 100 100 100
--------------------------------
<FN>
(a) Partial year of operations.
(b) Tax loss and tax credits allocated to an investor in the first
year are dependent upon an investor's entry date.
Amount shown is that allocated to initial investors.
(c) Based on unaudited information for WNC Institutional Tax Credit
Fund III, L.P. as final audit not yet completed.
(d) Six months ended June 30, 1998 (unaudited).
N/A The amount of tax credits is not available until the preparation of
the partnership's 1998 tax returns.
</FN>
</TABLE>
A-22
UNAUDITED
<PAGE>
TABLE IV
TABLE IV presents the results of programs sponsored by the Sponsor that have
completed operations during the five years and six months ended June 30, 1998.
One program, Virgin Islands, completed operations and is presented in TABLE II
under "Other Private Programs" and in TABLE V.
A-23
UNAUDITED
<PAGE>
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(January 1, 1992 - June 30, 1998)
VIRGIN ISLANDS
CLEARVIEW
APTS
Dollar Amount Raised $705,000
Number of Properties Purchased 1
Date of Closing of Offering 4/83
Date of First Sale of Property 12/26/97
Date of Final Sale of Property 12/26/97
Tax and Distribution Data Per $1,000 Investment Through December 31,
1997
Federal Income Tax Results:
Ordinary income (loss)
--from operations (3,551)
--from recapture 0
Capital Gain 2,963
Deferred Gain
Capital 296
Ordinary 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment income 0
--Return of capital (a)
Source (on cash basis) 0
--Sales (a)
--Refinancing 0
--Operations 0
--Other 0
Receivable on Net Purchase Money Financing 140,000(b)
- --------------------------------
(a) The first installment of $127 per $1,000 invested was made in July 1998.
The second and final installment of approximately $196 per $1,000
invested will be made in July 1999 if the buyer's promissory note is
retired.
(b) The program took back a note from the buyer in the principal amount of
$140,000, bearing no interest and payable in July 1999. The receivable is
presented at face amount and not at discounted current value.
A-24
UNAUDITED
<PAGE>
TABLE V
TABLE V presents the sales or disposals of property by partnerships sponsored by
the Sponsor during the three years and six months ended June 30, 1998. Two of
the sales were in Shelter Resource Fund which is presented in TABLE II under
"Other Public Programs," and the other sales were in programs presented in TABLE
II under "Other Private Programs."
A-25
UNAUDITED
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(January 1, 1995 - June 30, 1998)
/-------------SHELTER RESOURCE FUND---------------\
FOLSOM GARDEN I FOLSOM GARDEN II
Date property acquired 11/30/83 11/30/83
Date of sale 1/30/97(a) 1/30/97(a)
Selling Price, Net of Closing Costs and GAAP
Adjustments:
Cash received (disbursed) net of closing costs $(216,345) $117,454
Mortgage balance and accrued interest at time 1,918,394 1,586,941
of sale
Purchase money mortgage taken back by program 0 0
Adjustments resulting from application of GAAP 0 0
------------ ---------------
Total 1,702,049(b) 1,704,395(b)
Cost of Properties Including Closing and Soft
Costs
Original mortgage financing 1,200,000 1,200,000
Total acquisition cost, capital
improvement, closing and soft costs(c) 369,716 362,120
------- -------
Total 1,569,716 1,562,120
Excess (Deficiency) of Property
Operating Cash Receipts Over Cash
Expenditures(d) (27,339) 140,954
- ---------------------------------
(a) Sales were not to related parties.
(b) All taxable income was reported as Section 1231 income. Neither sale was
reported as an installment sale.
(c) Amounts shown do not include pro rata share of original offering costs.
(d) Costs incurred in the administration of the partnership and not related to
the operation of the property are not included.
A-26
UNAUDITED
<PAGE>
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(January 1, 1995 - June 30, 1998)
/-RIVERSIDE-\ /-VIRGIN ISLANDS-\
ALBANY CLEARVIEW APTS
<S> <C> <C> <C> <C>
Date property acquired 8/15/85 9/1/83
Date of sale 10/31/97 12/26/97
Selling Price, Net of Closing Costs and GAAP
Adjustments:
Cash received (disbursed) net of closing costs 42,693 105,058
Mortgage balance and accrued interest at time of 1,106,559 2,481,724
sale
Purchase money mortgage taken back by program 0 140,000
Adjustments resulting from application of GAAP 0 0
-------------- ---------------
Total 1,149,252 2,726,782
Cost of Properties Including Closing and Soft Costs
Original mortgage financing 1,045,489 2,267,400
Total acquisition cost, capital
improvement, closing and soft costs(c) 220,000 442,000
------- -------
Total 1,265,489 2,709,400
Excess (Deficiency) of Property
Operating Cash Receipts Over Cash
Expenditures(d) (150,000) (268,000)
- ---------------------------------
<FN>
(a) Sales were not to related parties.
(b) All taxable income was reported as Section 1231 income. Neither sale was
reported as an installment sale.
(c) Amounts shown do not include pro rata share of original offering costs.
(d) Costs incurred in the administration of the partnership and not related to
the operation of the property are not included.
</FN>
</TABLE>
A-27
UNAUDITED
<PAGE>
EXHIBIT B
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 6
FIRST AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
The AGREEMENT OF LIMITED PARTNERSHIP of WNC HOUSING TAX CREDIT FUND VI,
L.P., SERIES 6 dated as of March 3, 1997 among WNC & Associates, Inc., as
General Partner, John B. Lester, Jr., as Initial Limited Partner, and those
Persons admitted to the Partnership as Additional Limited Partners, is hereby
amended by the General Partner and the Initial Limited Partner as follows:
1. The definition of "Return on Investment" included in Article 1 thereof is
hereby amended to read in its entirety as follows:
"Return on Investment" means an annual, cumulative, but not compounded,
"return" to the Limited Partners as a class on their Adjusted Capital
Contributions commencing for each such Limited Partner on the last day of the
calendar quarter during which the Limited Partner's Capital Contribution is
received by the Partnership, calculated at the following annual rates: (i) 11%
through December 31, 2008 and (ii) 6% for the balance of the Partnership's term.
2. Section 4.3.1 thereof shall be amended to read in its entirety as follows:
4.3.1. Unless Section 4.3.3 applies, if there is an aggregate Loss
remaining, such remaining aggregate Loss shall be allocated:
(i) First, to the extent of the positive Capital Account balances of
the Partners, in such manner and amount as is necessary to cause such balances,
as so adjusted, to be in the ratio of 99.9% to the Limited Partners and 0.1% to
the General Partner until such balances are reduced to zero;
(ii) Second, to the extent of the excess of Partnership Minimum Gain
over the aggregate negative Capital Account balances
B-1
wncnat6-e1/exhB.wpd
<PAGE>
of the Partners with such balances, to the General Partner and the Limited
Partners in such manner and amount as is necessary to cause their negative
Capital Account balances, as so adjusted, to be in the ratio of 99.9% to the
Limited Partners and 0.1% to the General Partner; and
(iii) Third, to the General Partner.
3. Section 4.3.2 thereof shall be amended to read in its entirety as follows:
4.3.2. Unless Section 4.3.3 applies, if there is an aggregate Profit
remaining, such remaining aggregate Profit shall be allocated:
(i) First, in the event that the Limited Partners have an aggregate
positive Capital Account balance and the General Partner has a negative Capital
Account balance or vice versa, to the class of Partners with and to the extent
of such negative balances;
(ii) Second, to the extent of the aggregate negative Capital Account
balances of the Partners, to the Limited Partners and the General Partner in
such manner and amount as is necessary to cause the negative Capital Account
balances of such Partners, as so adjusted, to be in the ratio of 99.9% to the
Limited Partners and 0.1% to the General Partner; and
(iii) Third, to the Limited Partners to the extent that their positive
Capital Account balances are less than their Adjusted Capital Contributions.
4. Section 4.4.1(i) thereof shall be amended to read in its entirety as follows:
4.4.1.(i) The provisions of this Agreement related to the maintenance
of Capital Accounts, the allocation of Profits and Losses for Tax Purposes and
Tax Credits and the distribution of cash and property to the Partners are
intended to comply with the requirements of Treasury Regulation Section
1.704-1(b) by causing the amount of such Profits and Losses for Tax Purposes to
be allocated among the Partners' Capital Accounts so that the amount in their
Capital Accounts as of the end of each fiscal year of the Partnership is equal
to the Partners' Deemed Liquidation Distributions. Where there would be no
Deemed Liquidation Distribution to the Partners, such provisions are intended to
comply with the above-referenced Treasury Regulations by (a) limiting the
maximum negative balance in the Capital Accounts of the Limited Partners, as a
class, to an amount not in excess of their aggregate share (determined in
accordance with Treasury
B-2
wncnat6-e1/exhB.wpd
<PAGE>
Regulation Section 1.704-2(g)) of Partnership Minimum Gain, (b) allocating the
Partnership's aggregate Nonrecourse Deductions to cause the negative Capital
Account balances of the Limited Partners, as a class, and the General Partner to
be in the ratio of 99.9% to the Limited Partners and 0.1% to the General
Partner, and (c) allocating to the Partners an amount of gross income or gain of
the Partnership to the extent necessary to cause the Partnership to comply with
clauses (a) and (b) of this sentence at the end of each fiscal year of the
Partnership. In addition, such provisions are intended to cause the amount
distributable to each Partner in an actual distribution pursuant to Section
4.2.2 to equal the amount that would be distributable to each Partner if Section
4.2.1 rather than Section 4.2.2 applied to such distribution.
5. Section 4.4.3(ix) thereof shall be amended to read in its entirety as
follows:
(ix) Except as otherwise expressly provided herein, Nonrecourse
Deductions shall be allocated 99.9% to the Limited Partners and 0.1% to the
General Partner.
6. Section 4.5.1 thereof shall be amended to read in its entirety as follows:
4.5.1. Except as provided in Section 4.5.2, in accordance with Treasury
Regulation Section 1.704-1(b)(4)(ii), all expenditures giving rise to the
allowance of any Tax Credits shall be allocated among the Partners in the manner
in which the deductions arising from such expenditures are allocated among the
Partners for the relevant taxable year, it being the intention of the Partners
that such expenditures, including, without limitation, expenditures giving rise
to the allowance of Low Income Housing Credits, be allocated 99.9% to the
Limited Partners, as a class, and 0.1% to the General Partner.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
to Partnership Agreement as of August 29, 1997.
WNC & ASSOCIATES, INC.
General Partner
By: /s/ JOHN B. LESTER, JR.
John B. Lester, Jr.,
President
B-3
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 35. Financial Statements and Exhibits.
(a) Financial Statements
The Index under the heading "Financial Statements" included in the
Prospectus is hereby incorporated herein by reference.
The Index under the heading "Financial Statements" included in the
Supplement dated November 18, 1998 is hereby incorporated herein by reference.
(b) Exhibits.
1.1 Selling Agreement (1)
1.2 Selected Dealers Agreement (1)
1.3 Investor Form (filed as Exhibit C to the
Prospectus)
3.1 Agreement of Limited Partnership (filed as Exhibit
B to the Prospectus)
3.2 First Amendment to Agreement of Limited Partnership
of Series 5 (filed as Exhibit B to the Supplement
dated January 21, 1998)(6)
3.3 First Amendment to Agreement of Limited Partnership
of Series 6 (filed as Exhibit B to the Supplement
dated November 18, 1998)
5.1 Opinion of Counsel (1)
8.1 Opinion of Tax Counsel (1)
10.1 Escrow Agreement (1)
10.2 Amended and Restated Agreement of Limited
Partnership of Chillicothe Plaza Apts., L.P. (2)
10.3 Amended and Restated Operating Agreement of Spring
Valley Terrace Apartments, L.L.C. (3)
10.4 Amended and Restated Agreement of Limited
Partnership of El Reno Housing Associates Limited
Partnership (4)
10.5 Second Amended and Restated Agreement of Limited
Partnership of Hughes Villas Limited Partnership
(4)
wncnat6-e1/154rs.wpd
II-1
<PAGE>
10.6 First Amendment to Second Amended and Restated
Agreement of Limited Partnership of Hughes Villas
Limited Partnership (5)
10.7 Amended and Restated Agreement of Limited
Partnership of Mark Twain Senior Community Limited
Partnership (5)
10.8 Bradley Villas Limited Partnership Second Amended
and Restated Agreement of Limited Partnership (7)
10.9 First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Bradley Villas
Limited Partnership (7)
10.10 Agreement for Purchase and Sale of Partnership
Interest (Bradley Villas)(7)
10.11 Murfreesboro Villas Limited Partnership Agreement
of Limited Partnership(7)
10.12 First Amendment to the Agreement of Limited
Partnership of Murfreesboro Villas Limited
Partnership (7)
10.13 Agreement for Purchase and Sale of Partnership
Interest (Murfreesboro)(7)
10.14 Amended and Restated Agreement of Limited
Partnership of United Development Co., L.P. - 97.2
(8)
10.15 Second Amended and Restated Agreement of Limited
Partnership of United Development Co., L.P. -
97.2(9)
10.16 Second Amended and Restated Agreement of Limited
Partnership of United Development Co., L.P. -
97.1(10)
10.17 Second Amended and Restated Agreement of Limited
Partnership of Concord Apartment Partners, L.P.
(11)
10.18 Agreement of Limited Partnership of Hillcrest
Heights, L.P. (11)
10.19 Amended and Restated Agreement of Limited
Partnership of Mansur Wood Living Center, L.P. (12)
10.20 Amended and Restated Agreement of Limited
Partnership of Trenton Village Apts., L.P. (13)
wncnat6-e1/154rs.wpd
II-2
<PAGE>
10.21 Second Amended and Restated Agreement of Limited
Partnership of United Development Co., L.P. - 97.0
(14)
10.22 First Amendment to the Amended and Restated
Agreement of Limited Partnership of United
Development Co., L.P. - 97.0 (15)
10.23 Amended and Restated Agreement of Limited
Partnership of Apartment Housing of Theodore, LTD
23.1 Consent of Derenthal & Dannhauser as to securities
opinion is set forth in Exhibit 5.1 to this
Registration Statement (1)
23.2 Consent of Derenthal & Dannhauser as to tax opinion
is set forth in Exhibit 8.1 to this Registration
Statement (1)
23.3 Superseded
to
23.9
23.10 Consents of Corbin & Wertz
25.1 Power of attorney is included in signature page
contained in Part II of this Registration Statement
---------------------------------------
(1) Included in Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-11.
(2) Included in the Current Report on Form 8-K dated November 5,
1997.
(3) Included in Post-Effective Amendment No. 1 to the
Registration Statement on Form S-11.
(4) Included in the Current Report on Form 8-K dated January 15,
1998.
(5) Included in Amendment No. 1 the Current Report on Form 8-K/A
dated January 15, 1998.
(6) Included in Post-Effective Amendment No. 2 to the
Registration Statement on Form S-11.
(7) Included in the Current Report on Form 8-K dated April 1,
1998.
(8) Included in the Current Report on Form 8-K dated April 30,
1998.
(9) Included in Amendment No. 2 to the Current Report on Form
wncnat6-e1/154rs.wpd
II-3
<PAGE>
8-K/A dated April 30, 1998.
(10) Included in Amendment No. 3 to the Current Report on Form
8-K/A dated April 30, 1998.
(11) Included in Amendment No. 3 to the Current Report on Form
8-K/A dated May 31, 1998.
(12) Included in Amendment No. 1 to the Current Report on Form
8-K/A dated September 19, 1998.
(13) Included in the Current Report on Form 8-K dated August 11,
1998
(14) Included in Amendment No. 1 to the Current Report on Form
8-K/A dated September 22, 1998.
(15) Included in Amendment No. 2 to the Current Report on Form
8-K/A dated September 22, 1998.
wncnat6-e1/154rs.wpd
II-4
<PAGE>
INFORMATION CONCERNING PRIOR PROGRAMS
Table VI - Acquisition of Properties by Prior Programs
Table VI describes all property acquisitions by all public Prior
Programs during the three years and six months ended June 30, 1998. Refer to
Table I in the Supplement for a presentation of acquisition costs as a
percentage of total dollars raised.
wncnat6-e1/154rs.wpd
II-5
<PAGE>
<TABLE>
Table VI
Other Cash Expenditures
Total
Square
Feet Mortgage
of Financing at Cash Down Total
Units Date of Date of Payment Acquisition
Project/Location Apt. Units (1) Purchase Purchase (2) Total Expensed Capitalized Cost
- ---------------------------------------------------------------------------------------------------------------------------------
WNC California Housing Tax Credits IV, L.P., Series 4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chadron NE 16 11,200 12/17/1996 400,000 482,865 882,865 10,065 892,930
Eagleville MO 16 11,200 2/28/1996 358,000 81,827 439,827 1,706 441,533
Pawnee IL 20 14,000 2/28/1996 615,264 138,042 753,306 2,877 756,183
Salem IN 24 16,800 1/9/1995 814,800 184,972 999,772 3,856 1,003,628
Santa Barbara CA 14 9,800 9/26/1995 970,940 960,891 1,931,831 20,030 1,951,861
Stockton CA 69 48,300 5/31/1995 1,598,200 1,524,233 3,122,433 31,772 3,154,205
Wills Point TX 36 25,200 7/26/1995 447,050 234,567 681,617 4,890 686,507
Woodlake CA 47 32,900 12/6/1995 1,176,121 1,798,247 2,974,368 37,484 3,011,852
WNC California Housing Tax Credits IV, L.P., Series 5
Carthage MO 52 36,400 5/30/1996 690,000 657,221 1,347,221 1611 1,348,832
Stockton CA 82 57,400 3/31/1996 2,711,699 2,909,790 5,621,489 7132 5,628,621
WNC Housing Tax Credit Fund III, L.P.
Beaumont MS 30 21,000 1/6/1995 1,123,988 260,128 1,384,116 1608 1,385,724
Buffalo TX 24 16,800 1/6/1995 426,130 106,924 533,054 661 533,715
WNC Housing Tax Credit Fund IV, L.P., Series 2
Bakersfield CA 112 78,400 7/5/1995 1,960,000 2,139,736 4,099,736 33,585 4,133,321
Broken Bow NE 18 12,600 6/26/1996 450,000 608,192 1,058,192 9,546 1,067,738
Buna TX 24 16,800 8/28/1995 716,000 185,452 901,452 2,911 904,363
Hereford TX 28 19,600 1/4/1995 809,756 179,012 988,768 2,810 991,578
Navasota TX 48 33,600 2/20/1996 1,009,500 228,320 1,237,820 3,584 1,241,404
Newton TX 24 16,800 8/28/1995 598,900 172,024 770,924 2,700 773,624
Portage MI 114 79,800 7/22/1997 6,133,000 451,440 6,584,440 7,086 6,591,526
Sidney NE 18 12,600 5/9/1996 450,000 535,892 985,892 8,411 994,303
Vidor TX 48 33,600 8/28/1995 1,172,600 338,739 1,511,339 5,317 1,516,656
Waukee IA 23 16,100 2/14/1995 694,148 125,388 819,536 1,968 821,504
II-6
<PAGE>
WNC Housing Tax Credit Fund V, L.P., Series 3
Alliance NE 19 13,300 2/5/1996 647,779 604,108 1,251,887 3,953 1,255,840
Atlanta GA 375 262,500 4/26/1996 8,555,000 1,471,854 10,026,854 9,631 10,036,485
Berkeley MD 78 54,600 7/23/1996 713,307 773,469 1,486,776 5,061 1,491,837
Chattanooga TN 221 154,700 12/21/1995 7,930,000 2,170,680 10,100,680 14,204 10,114,884
Curtis NE 12 8,400 9/25/1996 430,000 98,622 528,622 645 529,267
El Monte (3) CA 68.5 47,950 9/17/1996 1,762,500 2,581,086 4,343,586 16,889 4,360,475
Greensboro NC 22 15,400 2/6/1996 947,000 1,482,525 2,429,525 9,701 2,439,226
Hastings NE 18 12,600 2/6/1996 450,000 536,070 986,070 3,508 989,578
Hobbs NM 17 11,900 4/10/1997 1,273,034 1,896,260 3,169,294 12,408 3,181,702
Jackson MS 31 21,700 1/3/1997 900,500 268,831 1,169,331 1,759 1,171,090
Morganton NC 36 25,200 2/5/1996 1,194,500 943,918 2,138,418 6,177 2,144,595
Ontario OR 28 19,600 7/23/96 1,311,000 372,114 1,683,114 2,435 1,685,549
Shepherd TX 24 16,800 12/14/1995 583,900 158,068 741,968 1,034 743,002
Silver City NM 31 21,700 5/26/1996 1,330,000 308,762 1,638,762 2,020 1,640,782
Solomon KS 16 11,200 6/20/1996 274,260 142,061 416,321 930 417,251
Syracuse KS 8 5,600 6/20/1996 295,171 84,524 379,695 553 380,248
Talladega AL 30 21,000 2/5/1996 822,513 688,792 1,511,305 4,507 1,515,812
Tulsa OK 76 53,200 11/14/1995 650,000 549,327 1,199,327 3,595 1,202,922
WNC Housing Tax Credit Fund V, L.P., Series 4
Belen NM 56 39,200 4/28/1997 1,546,000 400,925 1,946,925 3,917 1,950,842
Crescent City CA 55 38,500 5/24/1996 1,960,000 1,191,878 3,151,878 11,643 3,163,521
El Monte (3) CA 68.5 47,950 9/17/1996 1,762,500 2,581,086 4,343,586 25,214 4,368,800
Lamar MO 28 19,600 1/14/1997 888,400 797,842 1,686,242 7,794 1,694,036
Los Alamos NM 142 99,400 2/21/1997 2,557,904 3,940,587 6,498,491 38,494 6,536,985
Los Alamos NM 52 36,400 5/15/1997 1,450,000 320,467 1,770,467 3,131 1,773,598
Marion AL 42 29,400 1/9/1997 1,296,500 1,347,008 2,643,508 13,159 2,656,667
II-7
<PAGE>
WNC Housing Tax Credit Fund V, L.P., Series 4
(continued)
Palestine TX 24 16,800 4/14/1997 371,450 120,814 492,264 1,180 493,444
Raleigh NC 48 33,600 5/29/1998 530,000 543,322 1,073,322 5,308 1,078,630
Shawnee OK 100 70,000 12/31/1996 2,187,000 231,700 2,418,700 2,263 2,420,963
Winsor MO 24 16,800 5/9/1997 643,000 641,829 1,284,829 6,270 1,291,099
WNC Housing Tax Credit Fund VI, L.P., Series 5
Bradley AR 20 15,600 4/1/1998 110,685 532,196 642,881 8,820 651,701
Chillicothe MO 28 19,600 11/5/1997 775,000 981,049 1,756,049 16,259 1,772,308
El Reno OK 100 70,000 1/15/1998 2,403,000 3,039,985 5,442,985 50,382 5,493,367
Hughes Villas AR 21 14,700 1/23/1998 384,000 181,885 565,885 3,014 568,899
Mayer AZ 20 14,000 12/19/1997 624,987 716,254 1,341,241 11,871 1,353,112
Memphis TN 20 17,000 4/30/1998 380,392 742,930 1,123,322 12,313 1,135,635
Murfreesboro AR 24 16,800 4/10/1998 632,019 685,474 1,317,493 11,360 1,328,853
Oakland CA 106 74,200 1/14/1998 1,495,957 740,155 2,236,112 12,267 2,248,379
Orlando FL 26 18,200 4/8/1998 295,000 470,185 765,185 7,792 772,977
<FN>
(1) Based on an average of 700 square feet per apartment unit.
(2) Cash down payments include capital contributions made to the operating
partnerships by the investment partnership.
(3) WNC Housing Tax Credit Fund IV, L.P., Series 3 and Series 4 have each
invested 49.495% the in El Monte project. Therefore units, square feet and
mortgage financing are equally allocated.
</FN>
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants certify that they have reasonable grounds to believe that they meet
all of the requirements for filing on Form S-11 and have duly caused this
amendment to Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of Costa Mesa, State of
California, on the 18th day of November, 1998.
WNC HOUSING TAX CREDIT FUND V, L.P.,
SERIES 5 and SERIES 6
By: WNC & ASSOCIATES, INC.,
General Partner
By: /s/ JOHN B. LESTER, JR.
John B. Lester, Jr.,
President
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II-9
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
WILFRED N. COOPER, SR. * Director and chief November 18, 1998
Wilfred N. Cooper, Sr. executive officer of
WNC & Associates, Inc.
/s/ JOHN B. LESTER, JR. Director, president, November 18, 1998
John B. Lester, Jr. chief operating officer
and secretary of WNC &
Associates, Inc.
WILFRED N. COOPER, JR. * Director and November 18, 1998
Wilfred N. Cooper, Jr . senior vice president
of WNC & Associates,
Inc.
DAVID N. SHAFER * Director and November 18, 1998
David N. Shafer senior vice president
of WNC & Associates,
Inc.
THEODORE M. PAUL * Chief financial officer November 18, 1998
Theodore M. Paul and chief accounting
officer of WNC &
Associates, Inc.
* /s/ JOHN B. LESTER, JR.
By: John B. Lester, Jr.,
as attorney-in-fact
Wncnat6-e1/154rs.wpd
II-10
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
10.23 Amended and Restated Agreement of Limited
Partnership of Theodore, LTD
23.10 Consents of Corbin & Wertz
Wncnat6-e1/154rs.wpd
Amended And Restated Agreement
Of Limited Partnership Of
Apartment Housing of Theodore, LTD
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS ......................................... 1
1.1 "Accountant" ................................... 1
1.2 "Act" .......................................... 2
1.3 "Actual Tax Credit"............................. 2
1.4 "Adjusted Capital Account Deficit" ............. 2
1.5 "Affiliate" .................................... 2
1.6 "Agreement" or "Partnership Agreement".......... 2
1.7 "Assignee" ..................................... 2
1.8 "Bankruptcy" or "Bankrupt"...................... 2
1.9 "Break-even Operations"......................... 3
1.10 "Capital Account" .............................. 3
1.11 "Capital Contribution" ......................... 3
1.12 "Code" ......................................... 3
1.13 "Completion of Construction".................... 3
1.14 "Compliance Period"............................. 4
1.15 "Consent of the Special Limited Partner"........ 4
1.16 "Construction Contract"......................... 4
1.17 "Construction Loan" ............................ 4
1.18 "Contractor" ................................... 4
1.19 "Debt Service Coverage"......................... 4
1.20 "Deferred Management Fee"....................... 4
1.21 "Developer"..................................... 4
1.22 "Development Fee" .............................. 4
1.23 "Distributions" ................................ 5
1.24 "Fair Market Value" ............................ 5
1.25 "First Year Certificate" ....................... 5
1.26 "Force Majeure"................................. 5
1.27 "General Partner" .............................. 5
1.28 "Gross Asset Value" ............................ 5
1.29 "Hazardous Substance"........................... 6
1.30 "Improvements".................................. 6
1.31 "Incentive Management Fee"...................... 6
1.32 "Income and Losses"............................. 7
1.33 "Insurance" .................................... 8
1.34 "Insurance Company" ............................ 8
1.35 "Interest" ..................................... 8
1.36 "Involuntary Withdrawal"........................ 8
1.37 "LIHTC"......................................... 8
1.38 "Limited Partner"............................... 8
1.39 "Management Agent".............................. 8
1.40 "Management Agreement".......................... 9
1.41 "Minimum Set-Aside Test"........................ 9
1.42 "Mortgage" or "Mortgage Loan"................... 9
1.43 "Net Operating Income".......................... 9
1.44 "Nonrecourse Deductions"........................ 10
1.45 "Nonrecourse Liability"......................... 10
1.46 "Operating Deficit" ............................ 10
1.47 "Operating Deficit Guarantee Period"............ 10
1.48 "Operating Loans"............................... 10
i
<PAGE>
1.49 "Original Limited Partner" ..................... 10
1.50 "Partner(s)" ................................... 10
1.51 "Partner Nonrecourse Debt" ..................... 10
1.52 "Partner Nonrecourse Debt Minimum Gain" ........ 10
1.53 "Partner Nonrecourse Deductions" ............... 10
1.54 "Partnership" .................................. 11
1.55 "Partnership Minimum Gain" ..................... 11
1.56 "Permanent Mortgage Commencement" .............. 11
1.57 "Person" ....................................... 11
1.58 "Project" ...................................... 11
1.59 "Project Documents" ............................ 11
1.60 "Projected Annual Tax Credits" ................. 11
1.61 "Projected Tax Credits" ........................ 11
1.62 "Qualified Tenants" ............................ 11
1.63 "Rent Restriction Test" ........................ 11
1.64 "Reporting Fee"................................. 11
1.65 "Revised Projected Tax Credits"................. 12
1.66 "Sale or Refinancing"........................... 12
1.67 "Sale or Refinancing Proceeds" ................. 12
1.68 "Special Limited Partner"....................... 12
1.69 "State" ........................................ 12
1.70 "State Tax Credit Agency" ...................... 12
1.71 "Substitute Limited Partner" ................... 12
1.72 "Tax Credit" ................................... 12
1.73 "Tax Credit Conditions"......................... 12
1.74 "Tax Credit Period"............................. 12
1.75 "TRA 1986" ..................................... 13
1.76 "Treasury Regulations" ......................... 13
1.77 "Withdrawing" or "Withdrawal"................... 13
II. NAME ................................................ 13
III. PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE ........ 13
3.1 Principal Executive Office ..................... 13
3.2 Agent for Service of Process ................... 13
IV. PURPOSE ............................................. 13
V. TERM ................................................ 14
VI. GENERAL PARTNER'S CONTRIBUTIONS AND LOANS............ 14
6.1 Capital Contribution of General Partner......... 14
6.2 Construction and Operating Obligations;
General Partner Loans......................... 14
6.3 Other General Partner Loans..................... 15
VII. CAPITAL CONTRIBUTIONS OF LIMITED PARTNER............. 15
7.1 Original Limited Partner........................ 15
7.2 Capital Contribution of Limited Partner......... 15
7.3 Repurchase of Limited Partner's Interest........ 17
7.4 Reduction of Limited Partner's
Capital Contribution.......................... 18
7.5 Capital Contribution of Special Limited Partner. 20
ii
<PAGE>
7.6 Return of Capital Contribution.................. 20
7.7 Liability of Limited Partner and Special
Limited Partner................................. 21
VIII. WORKING CAPITAL AND RESERVES ....................... 21
8.1 Operation and Maintenance Reserve and
Replacement Reserve Account..................... 21
8.2 Tax and Insurance Account....................... 21
8.3 Other Reserves.................................. 21
IX. MANAGEMENT AND CONTROL .............................. 21
9.1 Power and Authority of General Partner ......... 21
9.2 Payments to the General Partners and Others .... 22
9.3 Specific Powers of the General Partner ......... 24
9.4 Authority Requirements.......................... 24
9.5 Limitations on General Partner's
Power and Authority ............................ 25
9.6 Restrictions on Authority of General Partner.... 26
9.7 Duties of General Partner ...................... 26
9.8 Partnership Expenses ........................... 28
9.9 General Partner Expenses ....................... 30
9.10 Other Business of Partners ..................... 30
9.11 Covenants, Representations and Warranties....... 30
X. ALLOCATIONS OF INCOME, LOSSES AND CREDITS ........... 33
10.1 General ........................................ 33
10.2 Allocations From Sale or Refinancing............ 34
10.3 Special Allocations............................. 38
10.4 Curative Allocations............................ 38
10.5 Other Allocation Rules.......................... 38
10.6 Tax Allocations: Code Section 704(c)........... 39
10.7 Allocation Among Limited Partners............... 40
10.8 Allocation Among General Partners .............. 40
10.9 Modification of Allocations .................... 40
XI. DISTRIBUTION ........................................ 40
11.1 Distribution of Net Operating Income ........... 40
11.2 Distribution of Sale or Refinancing Proceeds.... 41
XII. TRANSFERS OF LIMITED PARTNER'S INTEREST
IN THE PARTNERSHIP................................... 42
12.1 Assignment of Limited Partner's Interest ....... 42
12.2 Effective Date of Transfer ..................... 42
12.3 Invalid Assignment ............................. 42
12.4 Assignee's Rights to Allocations
and Distributions .............................. 43
12.5 Substitution of Assignee as Limited Partner
or Special Limited Partner........................ 43
12.6 Death, Bankruptcy, Incompetency, etc.
of a Limited Partner ............................. 43
iii
<PAGE>
XIII. WITHDRAWAL, REMOVAL AND REPLACEMENT OF GENERAL
PARTNER ............................................ 44
13.1 Withdrawal of General Partner .................. 44
13.2 Removal of General Partner ..................... 44
13.3 Effects of a Withdrawal......................... 46
13.4 Successor General Partner....................... 48
13.5 Admission of Additional or Successor
General Partner ................................ 48
13.6 Transfer of Interest ........................... 48
13.7 No Goodwill Value............................... 48
XIV. BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS,
FISCAL YEAR AND BANKING ............................. 49
14.1 Books and Accounts ............................. 49
14.2 Accounting Reports ............................. 49
14.3 Other Reports .................................. 50
14.4 Late Reports ................................... 52
14.5 Annual Site Visits.............................. 52
14.6 Tax Returns..................................... 53
14.7 Fiscal Year .................................... 53
14.8 Banking ........................................ 53
14.9 Certificates and Elections ..................... 53
XV. DISSOLUTION, WINDING UP, TERMINATION AND
LIQUIDATION OF THE PARTNERSHIP ...................... 53
15.1 Dissolution of Partnership ..................... 53
15.2 Return of Capital Contribution upon
Dissolution .................................... 54
15.3 Distributions of Assets ........................ 54
15.4 Deferral of Liquidation......................... 55
15.5 Liquidation Statement .......................... 56
15.6 Certificates of Dissolution; Certificate of
Cancellation of Certificate of Limited
Partnership .................................... 56
XVI. AMENDMENTS .......................................... 56
XVII. MISCELLANEOUS ...................................... 57
17.1 Voting Rights .................................. 57
17.2 Meeting of Partnership ......................... 57
17.3 Notices ........................................ 58
17.4 Successors and Assigns ......................... 58
17.5 Recording of Certificate of Limited
Partnership. ................................... 59
17.6 Amendment of Certificate of Limited
Partnership .................................... 58
17.7 Counterparts ................................... 59
17.8 Captions ....................................... 59
17.9 Saving Clause................................... 59
17.10 Tax Matters Partners........................... 59
iv
<PAGE>
17.11 Expiration of Compliance Period................ 60
17.12 Number and Gender ............................. 61
17.13 Entire Agreement .............................. 61
17.14 Governing Law ................................. 61
17.15 Attorney's Fees ............................... 61
17.16 Receipt of Correspondence ..................... 61
17.17 Security Interest and Right of Set-Off ........ 61
EXHIBIT A - Legal Description...................... A-1
EXHIBIT B - Form of Legal Opinion.................. B-1 - B-4
EXHIBIT C - Certification and Agreement............ C-1 - C-4
EXHIBIT D - General Partner Certification.......... D-1 - D-5
EXHIBIT E - Form of Completion Certificate......... E-1
EXHIBIT F - Accountant's Certificate............... F-1
EXHIBIT G - Contractor's Letter.....................G-1
EXHIBIT H - Report of Operations................... H-1 - H-10
v
<PAGE>
Amended And Restated Agreement
Of Limited Partnership Of
Apartment Housing of Theodore, LTD
This Amended And Restated Agreement Of Limited Partnership is being
entered into effective as of the date written below by and between Apartment
Developers, Inc. and Thomas H. Cooksey as the general partners (the "General
Partners"), WNC Housing Tax Credit Fund VI, L.P. Series 5, a California limited
partnership as the limited partner (the "Limited Partner"), WNC Housing, L.P.,
as the special limited partner (the "Special Limited Partner") and Thomas H.
Cooksey, Kay F. Wallace and Charles T. Farrow, Jr. as the withdrawing limited
partners (the "Original Limited Partners").
RECITALS
WHEREAS, Apartment Housing of Theodore, LTD, an Alabama limited
partnership (the "Partnership") recorded a certificate of limited partnership
with the Alabama Secretary of State on February 24, 1997. A partnership
agreement dated on February 14, 1997 was entered into by and between the General
Partner and the Original Limited Partner (the "Original Partnership Agreement").
WHEREAS, the Partners desire to enter into this Agreement to provide
for, among other things, (i) the continuation of the Partnership, (ii) the
admission of the Limited Partner and the Special Limited Partner as partners of
the Partnership, (iii) the liquidation of the Original Limited Partner's
Interest in the Partnership, (iv) the payment of Capital Contributions by the
Limited Partner and the Special Limited Partner to the Partnership, (v) the
allocation of Income, Losses, Tax Credits and distributions of Net Operating
Income and other cash funds of the Partnership among the Partners (vi) the
respective rights, obligations and interests of the Partners to each other and
to the Partnership, and (vii) certain other matters.
WHEREAS, the Partners desire hereby to amend and restate the Original
Partnership Agreement.
NOW, THEREFORE, in consideration of their mutual agreements herein set
forth, the Partners hereby agree to amend and restate the Original Partnership
Agreement in its entirety to provide as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 "Accountant" shall mean Machen, McChesney, Chastain, or such other
firm of independent certified public accountants as may be engaged for the
Partnership by the General Partner with the Consent of the Special Limited
Partner. Notwithstanding any provision of this Agreement to the contrary, the
Special Limited Partner shall have the discretion to dismiss the Accountants for
cause if such Accountant fails to provide, or inaccurately provides, the
information required in Section 14.2 and 14.3 of this Agreement.
Section 1.2 "Act" shall mean the laws of the State governing limited
partnerships, as now in effect and as the same may be amended from time to time.
Section 1.3 "Actual Tax Credit" shall mean as of any point in time, the total
amount of the LIHTC actually allocated by the Partnership to the Limited
Partner, representing % of the LIHTC actually received by the Partnership, as
shown on the applicable tax returns of the Partnership.
Section 1.4 "Adjusted Capital Account Deficit" shall mean with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal period, after giving effect to the following
adjustments:
(a) Credit to such Capital Account any amounts which such Partner is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
Section 1.5 "Affiliate" shall mean (a) any Person directly or indirectly
controlling, controlled by, or under common control with another Person; (b) any
Person owning or controlling 10% or more of the outstanding voting securities of
such other Person; (c) any officer, director, trustee, or partner of such other
Person; and (d) if such Person is an officer, director, trustee or general
partner, any other Person for which such Person acts in any such capacity.
Section 1.6 "Agreement" or "Partnership Agreement" shall mean this Amended and
Restated Agreement of Limited Partnership, as it may be amended from time to
2
<PAGE>
time. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby" and
"thereunder," when used with reference to this Agreement, refers to this
Agreement as a whole, unless the context otherwise requires.
Section 1.7 "Assignee" shall mean a Person who has acquired all or a portion of
the Limited Partner's beneficial interest in the Partnership and has not become
a Substitute Limited Partner.
Section 1.8 "Bankruptcy" or "Bankrupt" shall mean the making of an assignment
for the benefit of creditors, becoming a party to any liquidation or dissolution
action or proceeding, the commencement of any bankruptcy, reorganization,
insolvency or other proceeding for the relief of financially distressed debtors,
or the appointment of a receiver, liquidate, custodian or trustee and, if any of
the same occur involuntarily, the same not being dismissed, stayed or discharged
within 90 days; or the entry of an order for relief under Title 11 of the United
States Code. A Partner shall be deemed Bankrupt if the Bankruptcy of such
Partner shall have occurred and be continuing.
Section 1.9 "Break-even Operations" shall mean at such time as the Partnership
has Net Operating Income as determined by the Accountant and approved by the
Special Limited Partner.
Section 1.10 "Capital Account" shall mean, with respect to each Partner, the
account maintained for such Partner comprised of such Partner's Capital
Contribution as increased by allocations to such Partner of Partnership Income
(or items thereof) and any items in the nature of income or gain which are
specially allocated pursuant to Section 10.3 or 10.4 hereof, and decreased by
the amount of any Distributions made to such Partner, and allocations to such
Partner of Partnership Losses (or items thereof) and any items in the nature of
expenses or losses which are specially allocated pursuant to Section 10.3 or
10.4 hereof.
In the event of any transfer of an interest in the Partnership in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
The foregoing definition and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), as amended or any successor thereto, and
shall be interpreted and applied in a manner consistent with such Treasury
Regulation.
Section 1.11 "Capital Contribution" shall mean the total amount of money, or the
Gross Asset Value of property contributed to the Partnership, if any, by all the
Partners or any class of Partners or any one Partner as the case may be (or by a
predecessor-in-interest of such Partner or Partners), reduced by any such
capital which shall have been returned pursuant to Section 7.3, 7.4 or 7.6 of
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this Agreement. A loan to the Partnership by a Partner shall not be considered a
Capital Contribution.
Section 1.12 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
Section 1.13 "Completion of Construction" shall mean the completion of
construction of the Project substantially in accordance with the Project
Documents in order to obtain the required certificates of occupancy (or the
local equivalent) for all 40 apartment units as evidenced by the issuance of the
certificate of occupancy by the governmental agency having jurisdiction over the
Project or by the issuance of the inspecting architect's certification, in a
form substantially similar to the form attached hereto as Exhibit "E" and
incorporated herein by this reference. Completion of Construction further means
that the construction shall be completed in good quality, free and clear of all
mechanic, material or similar liens; all other expenses and costs must be paid
with respect to the Project through completion, including but not limited to
costs of financing.
Section 1.14 "Compliance Period" shall mean the period set forth in Section
42 (i)(1) of the Code, as amended, or any successor statute.
Section 1.15 "Consent of the Special Limited Partner" shall mean the prior
written consent or approval of the Special Limited Partner.
Section 1.16 "Construction Contract" shall mean the construction contract in the
amount of $1,770,593, entered into between the Partnership and the Contractor
pursuant to which the Project is being constructed.
Section 1.17 "Construction Loan" shall mean the loan obtained from Colonial Bank
in the principal amount of $750,000 at an interest rate equal to 9.5% per annum
for a term of 12 to provide funds for the acquisition, renovation and/or
construction and development of the Project. Where the context admits, the term
"Construction Loan" shall include any deed, deed of trust, note, security
agreement, assumption agreement or other instrument executed by, or on behalf
of, the Partnership or General Partner in connection with the Construction Loan.
Section 1.18 "Contractor" shall mean Jerry Kyser Builders, Inc., which is the
general construction contractor for the Project.
Section 1.19 "Debt Service Coverage" shall mean the ratio between the Net
Operating Income (excluding Mortgage payments) and the debt service required to
be paid on the Mortgage(s); as example, a 1.15 Debt Service Coverage means that
for every $1.00 of debt service required to be paid there must be $1.15 of Net
Operating Income available. A worksheet for the calculation of Debt Service
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Coverage is found in the Report of Operations attached hereto as Exhibit "H" and
incorporated herein by this reference.
Section 1.20 "Deferred Management Fee" shall have the meaning set forth in
Section 9.2(c) hereof.
Section 1.21 "Developer" shall mean Thomas H. Cooksey.
Section 1.22 "Development Fee" shall mean the fee payable to the Developer
pursuant to Section 9.2(a) of this Agreement for services incident to the
development and construction of the Project in accordance with the Development
Fee Agreement between the Partnership and the Developer dated the even date
herewith and incorporated herein by this reference.
Section 1.23 "Distributions" shall mean the total amount of money, or the Gross
Asset Value of property (net of liabilities securing such distributed property
that such Partner is considered to assume or take subject to under Section 752
of the Code), distributed to Partners with respect to their Interests in the
Partnership, but shall not include any payments to the General Partner or its
Affiliates for fees or other compensation as provided in this Agreement or any
guaranteed payment within the meaning of Section 707(c) of the Code, as amended,
or any successor thereto.
Section 1.24 "Fair Market Value" shall mean, with respect to any property, real
or personal, the price a ready, willing and able buyer would pay to a ready,
willing and able seller of the property, provided that such value is reasonably
agreed to between the parties in arm's-length negotiations and the parties have
sufficiently adverse interests.
Section 1.25 "First Year Certificate" shall mean the certificate to be filed by
the General Partner with the Secretary of the Treasury as required by Code
Section 42(1)(1), as amended, or any successor thereto.
Section 1.26 "Force Majeure" shall mean any act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockage, public
riot, fire, flood, explosion, governmental action, governmental delay, restraint
or inaction and any other cause or event, whether of the kind enumerated
specifically herein, or otherwise, which is not reasonably within the control of
a Partner to this Agreement claiming such suspension.
Section 1.27 "General Partners" shall mean Apartment Developers, Inc.
and Thomas H. Cooksey and such other Persons as are admitted to the
Partnership as additional or substitute General Partners pursuant to this
Agreement.
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Section 1.28 "Gross Asset Value" shall mean with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
a) The initial Gross Asset Value of any asset contributed by a Partner
to the Partnership shall be the Fair Market Value of such asset, as determined
by the contributing Partner and the General Partner, provided that, if the
contributing Partner is a General Partner, the determination of the Fair Market
Value of a contributed asset shall be determined by appraisal;
(b) The Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective Fair Market Values, as determined by the General
Partner, as of the following times: (1) the acquisition of an additional
Interest in the Partnership by any new or existing Partner in exchange for more
than a de minimus Capital Contribution; (2) the distribution by the Partnership
to a Partner of more than a de minimis amount of Partnership property as
consideration for an Interest in the Partnership; and (3) the liquidation of the
Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to
clauses (1) and (2) above shall be made only with the Consent of the Special
Limited Partner and only if the General Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(c) The Gross Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal the Fair Market Value of such asset on the
date of distribution as determined by the distributee and the General Partner,
provided that, if the distributee is a General Partner, the determination of the
Fair Market Value of the distributed asset shall be determined by appraisal; and
(d) The Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset Values shall not be adjusted
pursuant to this Section 1.28(d) to the extent the General Partner determines
that an adjustment pursuant to Section 1.28(b) hereof is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 1.28(d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section 1.28(a), Section 1.28(b), or Section 1.28(d) hereof, such
Gross Asset Value shall thereafter be adjusted by the depreciation taken into
account with respect to such asset for purposes of computing Income and Losses.
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Section 1.29 "Hazardous Substance" shall mean and include any substance,
material or waste, including asbestos, petroleum and petroleum products
(including crude oil), that is or becomes designated, classified or regulated as
"toxic" or "hazardous" or a "pollutant" or that is or becomes similarly
designated, classified or regulated, under any federal, state or local law,
regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications promulgated pursuant thereto.
Section 1.30 "Improvements" shall mean the 40 unit apartment complex for
family tenants built in accordance with the Project Documents.
Section 1.31 "Incentive Management Fee" shall have the meaning set forth in
Section 9.2(e) hereof.
Section 1.32 "Income and Losses" shall mean, for each fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Income or Losses pursuant to
this Section 1.32 shall be added to such taxable income or loss;
(b) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Income and Losses pursuant to this Section 1.32 shall be subtracted
from such taxable income or loss;
(c) in the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Section 1.28(a) or (b) hereof, the amount of such
adjustment shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Income and Losses;
(d) gain or loss resulting from any disposition of Partnership assets
with respect to which gain or loss is recognized for federal income purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(e) in lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation for such fiscal year or other period,
computed as provided below; and
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(f) notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Sections 10.3 or 10.4 hereof shall not
otherwise be taken into account in computing Income or Losses.
Depreciation for each fiscal year or other period shall be calculated
as follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period for federal income tax purposes, except that if the Gross Asset Value of
an asset differs from its adjusted basis for federal income tax purposes at the
beginning of such year or other period, depreciation shall be an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis; provided, however,
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
Section 1.33 "Insurance" shall mean:
(a) during construction, the Insurance shall include builder's risk
insurance, liability insurance in the minimum amount of $1,000,000 per
occurrence with an aggregate of $2,000,000, and worker's compensation;
(b) during operations the Insurance shall include business interruption
coverage covering actual sustained loss for 12 months, worker's compensation,
hazard coverage (including but not limited to fire, or other casualty loss to
any structure or building on the Project in an amount equal to the full
replacement value of the damaged property without deducting for depreciation)
and general liability coverage against liability claims for bodily injury or
property damage in the minimum amount of $1,000,000 per occurrence and an
aggregate of $2,000,000;
(c) all liability coverage shall include an umbrella liability coverage in
a minimum amount of $4,000,000 per occurrence and an aggregate of $4,000,000;
(d) all Insurance polices shall name the Partnership as the named
insured and the Limited Partner as an additional insured, and WNC & Associates,
Inc. as the certificate holder;
(e) all Insurance policies shall include a provision to notify the
insured prior to cancellation;
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(f) hazard coverage must include inflation and building or ordinance
endorsements;
(g) the minimum builder's risk coverage shall be in an amount equal to
the construction contract amount; and
(h) the Contractor must also provide evidence of liability coverage
equal to $1,000,000 per occurrence with an aggregate of $2,000,000 and shall
name the Partnership as an additional insured and WNC & Associates, Inc., as
certificate holder.
Section 1.34 "Insurance Company" shall mean any insurance company engaged by the
General Partner for the Partnership with the Consent of the Special Limited
Partner which Insurance Company shall have an A rating or better for financial
safety by A.M. Best or Standard & Poor's.
Section 1.35 "Interest" shall mean the entire ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled hereunder and the
obligation of such Partner to comply with the terms of this Agreement.
Section 1.36 "Involuntary Withdrawal" means any Withdrawal caused by the death,
adjudication of insanity or incompetence, or Bankruptcy of a General Partner, or
the removal of a General Partner pursuant to Section 13.2 hereof.
Section 1.37 "LIHTC" shall mean the low-income housing tax credit
established by TRA 1986 and which is provided for in Section 42 ----- of the
Code, as amended, or any successor thereto.
Section 1.38 "Limited Partner" shall mean WNC Housing Tax Credit Fund VI, L.P.
Series 5, a California limited partnership, and such other Persons as are
admitted to the Partnership as additional or Substitute Limited Partners
pursuant to this Agreement.
Section 1.39 "Management Agent" shall mean the property management company which
oversees the property management functions for the Project and which is on-site
at the Project. The initial Management Agent shall be Apartment Services and
Management Co..
Section 1.40 "Management Agreement" shall mean the agreement between the
Partnership and the Management Agent for property management services. The
management fee shall equal % of gross revenues. Neither the Management Agreement
nor ancillary agreement shall provide for an initial rent-up fee nor a set-up
fee, nor any other similar pre-management fee payable to the Management Agent.
Section 1.41 "Minimum Set-Aside Test" shall mean the 20-50 set-aside test
pursuant to Section 42(g), as amended and any successor thereto, of the Code
with respect to the percentage of apartment units in the Project to be occupied
by tenants whose incomes are equal to or less than the required percentage of
the area median gross income.
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Section 1.42 "Mortgage" or "Mortgage Loan" shall mean the permanent nonrecourse
financing wherein the Partnership promises to pay: (a) Colonial Bank, or its
successor or assignee, the principal sum of $374,625, plus interest on the
principal at % per annum over a term of 20 years and amortized over years; (b)
Alabama Housing Finance Authority (HOME), or its successor or assignee, the
principal sum of $815,000, plus interest on the principal at % per annum over a
term of 20 years and amortized over years. Where the context admits, the term
"Mortgage" or "Mortgage Loan" shall include any mortgage, deed, deed of trust,
note, regulatory agreement, security agreement, assumption agreement or other
instrument executed in connection with the Mortgage which is binding on the
Partnership; and in case any Mortgage is replaced or supplemented by any
subsequent mortgage or mortgages, the Mortgage shall refer to any such
subsequent mortgage or mortgages. In the event the terms of the Mortgage are not
as specified herein and the Special Limited Partner determines in its discretion
that the Debt Service Coverage falls below 1.15 then at the request of the
Special Limited Partner the General Partner shall reduce and/or refinance the
principal of the Mortgage to an amount the Special Limited Partner determines is
adequate to produce a 1.15 Debt Service Coverage. The Mortgage funds shall be
used to retire the Construction Loan and if there are any funds remaining the
Mortgage funds shall be used to retire any outstanding hard construction costs
including labor and materials.
Section 1.43 "Net Operating Income" shall mean the excess of revenues over
expenses determined as follows: (a) the excess of actual cash received on a cash
basis by the Partnership from operating revenues of the Partnership, including,
without limitation, rental income (but not any subsidy thereof from the General
Partner or an Affiliate thereof) and laundry income, but excluding prepayments,
security deposits and interest thereon; (b) over all cash operating obligations
of the Partnership (other than those covered by Insurance) in accordance with
the applicable budget adopted by the Partnership in accordance with Section
14.3(k) of this Agreement (the "Budget"), including, without limitation, the
payment of the Mortgage, the Management Agent fees (which shall be deemed to
include that portion of such fees which is deferred and not currently paid) and
the funding of reserves in accordance with Article VIII of this Agreement, and a
reserve for all taxes or payments in lieu of taxes and any other expenses which
may reasonably be expected to be paid in a subsequent period but which on an
accrual basis are allocable to the period in question, such as insurance
premiums, audit, tax or accounting expenses (excluding deductions for cost
recovery of buildings, improvements and personal property and amortization of
any financing fees). Without limiting the generality of the foregoing, the
Partnership's gross revenues for purposes of this Section shall not include
Capital Contributions, borrowings, any lump-sum payment or any other
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extraordinary receipt of funds thereby, or interest or any other income earned
on investment of its funds, and unless otherwise provided in a Budget, the cash
operating obligations of the Partnership shall be deemed to include real estate
taxes for the period at the fully assessed rate.
Section 1.44 Nonrecourse Deductions" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(1).
Section 1.45 "Nonrecourse Liability" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(3).
Section 1.46 "Operating Deficit" shall mean at any time when the Partnership
does not have Net Operating Income as determined by the Accountant and approved
by the Special Limited Partner.
Section 1.47 "Operating Deficit Guarantee Period" shall mean the period
commencing with the date of this Agreement and ending five years after
construction completion.
Section 1.48 "Operating Loans" shall mean loans made by the General Partner to
the Partnership pursuant to Article VI of this Agreement, which loans do not
bear interest and are repayable only as provided in Article XI of this
Agreement.
Section 1.49 "Original Limited Partners" shall mean Thomas H. Cooksey, Kay
F. Wallace and Charles T. Farrow, Jr.
Section 1.50 "Partner(s)" shall collectively mean the General Partner, the
Limited Partner and the Special Limited Partner or individually may mean any
Partner as the context dictates.
Section 1.51 "Partner Nonrecourse Debt" shall have the meaning set forth in
Section 1.704-2(b)(4) of the Treasury Regulations.
Section 1.52 "Partner Nonrecourse Debt Minimum Gain" shall mean an amount, with
respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
Section 1.53 "Partner Nonrecourse Deductions" shall have the meaning set forth
in Sections 1.704-2 (i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
Section 1.54 "Partnership" shall mean the limited partnership continued under
this Agreement.
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Section 1.55 "Partnership Minimum Gain" shall mean the amount determined in
accordance with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
Section 1.56 "Permanent Mortgage Commencement" shall mean the first date on
which all of the following have occurred: (a) the Construction Loan shall have
been repaid in full; (b) the Mortgage shall have closed and funded; and (c)
amortization of the Mortgage shall have commenced.
Section 1.57 "Person" shall collectively mean an individual, proprietorship,
trust, estate, partnership, joint venture, association, company, corporation or
other entity.
Section 1.58 "Project" shall collectively mean the approximately 2.38 acres of
land in Theodore, Mobile, Alabama, as more fully described in Exhibit "A"
attached hereto and incorporated herein by this reference, and the Improvements.
Section 1.59 "Project Documents" shall mean all documents relating to the
Construction Loan and Mortgage Loan. It shall also include all documents
required by any governmental agency having jurisdiction over the Project in
connection with the development, construction and financing of the Project,
including but not limited to, the approved plans and specifications for the
development and construction of the Project.
Section 1.60 "Projected Annual Tax Credits" shall mean LIHTC in the amount of
$133,425 for 1999, $199,513 per year for each of the years 2000 through 2008,
and $66,089 for 2009, which the General Partner has projected to be the total
amount of LIHTC which will be allocated to the Limited Partner by the
Partnership, constituting % of the aggregate amount of LIHTC of $2,015,490 to be
available to the Partnership.
Section 1.61 "Projected Tax Credits" shall mean LIHTC in the aggregate
amount of $2,015,490.
Section 1.62 "Qualified Tenants" shall mean any tenants who have incomes of 50%
or less of the area median gross income, as adjusted for family size, so as to
make the Project eligible for LIHTC.
Section 1.63 "Rent Restriction Test" shall mean the test pursuant to Section 42
of the Code whereby the gross rent charged to tenants of the low-income
apartment units in the Project must not exceed 30% of the applicable income
standards.
Section 1.64 "Reporting Fee" shall have the meaning set forth in Section
9.2(d) hereof.
Section 1.65 "Revised Projected Tax Credits" shall have the meaning set
forth in Section 7.4(a) hereof.
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Section 1.66 "Sale or Refinancing" shall mean any of the following items or
transactions: a sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Partnership, a condemnation of or
casualty at the Project or any part thereof, a claim against a title insurance
company, the refinancing or any Mortgage or other indebtedness of the
Partnership and any similar item or transaction; provided, however, that the
payment of Capital Contributions by the Partners shall not be included within
the meaning of the term "Sale or Refinancing."
Section 1.67 "Sale or Refinancing Proceeds" shall mean all cash receipts of the
Partnership arising from a Sale or Refinancing (including principal and interest
received on a debt obligation received as consideration in whole or in part, on
a Sale or Refinancing) less the amount paid or to be paid in connection with or
as an expense of such Sale or Refinancing, and with regard to damage recoveries
or insurance or condemnation proceeds, the amount paid or to be paid for
repairs, replacements or renewals resulting from damage to or partial
condemnation of the Project.
Section 1.68 "Special Limited Partner" shall mean WNC Housing, L.P., a
California limited partnership, and such other Persons as are admitted to the
Partnership as additional or substitute Special Limited Partners pursuant to
this Agreement.
Section 1.69 "State" shall mean the State of Alabama.
Section 1.70 "State Tax Credit Agency" shall mean the state agency of Alabama
which has the responsibility and authorization to administer the LIHTC program
in Alabama.
Section 1.71 "Substitute Limited Partner" shall mean any Person who is admitted
to the Partnership as a Limited Partner pursuant to Section 12.5 or acquires the
Interest of the Limited Partner pursuant to Section 7.3 of this Agreement.
Section 1.72 "Tax Credit" shall mean any credit permitted under the Code or the
law of any state against the federal or a state income tax liability of any
Partner as a result of activities or expenditures of the Partnership including,
without limitation, LIHTC.
Section 1.73 "Tax Credit Conditions" shall mean, for the duration of the
Compliance Period, any and all restrictions including, but not limited to,
applicable federal, state and local laws, rules and regulations, which must be
complied with in order to qualify for the LIHTC or to avoid an event of
recapture in respect of the LIHTC.
Section 1.74 "Tax Credit Period" shall mean the ten year time period referenced
in Code Section 42(f)(1) over which the Projected Tax Credits are allocated to
the Partners. It is the intent of the Partners that the Projected Tax Credits
will be allocated during the Tax Credit Period and not a longer term.
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Section 1.75 "TRA 1986" shall mean the Tax Reform Act of 1986.
Section 1.76 "Treasury Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
Section 1.77 "Withdrawing" or "Withdrawal" (including the verb form "Withdraw"
and the adjectival forms "Withdrawing" and "Withdrawn") shall mean, as to a
General Partner, the occurrence of the death, adjudication of insanity or
incompetence, or Bankruptcy of such Partner, or the withdrawal, removal or
retirement from the Partnership of such Partner for any reason, including any
sale, pledge, encumbering, assignment or other transfer of all or any part of
its General Partner Interest and those situations when a General Partner may no
longer continue as a General Partner by reason of any law or pursuant to any
terms of this Agreement.
ARTICLE II
NAME
The name of the Partnership shall be "Apartment Housing of Theodore, LTD."
ARTICLE III
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1 Principal Executive Office. The principal executive office
of the Partnership is located at P/O Box 2768, Auburn, Alabama 36830, or at such
other place or places within the State as the General Partner may hereafter
designate.
Section 3.2 Agent for Service of Process. The name of the agent for service
of process on the Partnership is Thomas H. Cooksey, whose address is 2177 Moores
Mill Road, Auburn, Alabama 36830.
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ARTICLE IV
PURPOSE
The purpose of the Partnership is to acquire, construct, own and
operate the Project in order to provide, in part, Tax Credits to the Partners in
accordance with the provisions of the Code and the Treasury Regulations
applicable to LIHTC and to sell the Project. The Partnership shall not engage in
any business or activity which is not incident to the attainment of such
purpose.
ARTICLE V
TERM
The Partnership term commenced upon the filing of the Certificate of
Limited Partnership in the office of, and on the form prescribed by, the
Secretary of State of the State, and shall continue until February 7, 2047
unless terminated earlier in accordance with the provisions of this Agreement or
as otherwise provided by law.
ARTICLE VI
GENERAL PARTNER'S CONTRIBUTIONS AND LOANS
Section 6.1 Capital Contribution of General Partner. The General Partner
shall make a Capital Contribution in the amount of $116,000.
Section 6.2 Construction and Operating Obligations; General Partner Loans.
(a) The General Partner shall cause Completion of Construction in
accordance with the Project Documents, and shall equip the Project or cause the
same to be equipped with all necessary and appropriate fixtures, equipment and
articles of personal property, including but not limited to, refrigerators and
ranges. If costs and expenses necessary to effect Completion of Construction
exceed the sum of the Capital Contributions, the proceeds of the Mortgage and
the Development Fee then the General Partner shall be responsible for and shall
be obligated to pay such deficiencies. Any such advances by the General Partner
shall not change the Interest of any Partner in the Partnership and shall be
considered a cost overrun and not be repayable. In addition, if (1) the
Improvements are not completed on or before April 01, 1999 ("Completion Date")
(which date may be extended in the events of Force Majeure, but in no event
longer than three months from the Completion Date); (2) prior to completing the
Improvements, there is an uncured default under or termination of the
Construction Loan, Mortgage Loan commitment, or other material documents; or (3)
a foreclosure action is commenced against the Partnership, then at the Special
Limited Partner's election, either the General Partner will be removed from the
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Partnership and the Special Limited Partner will be admitted as successor
General Partner, all in accordance with Article XIII hereof, or the General
Partner will repurchase the Interests of the Limited Partner and the Special
Limited Partner for an amount equal to the amounts theretofore paid by the
Limited Partner and the Special Limited Partner, and the Limited Partner and the
Special Limited Partner shall have no further Interest in the Partnership. If
the Limited Partner elects to have the General Partner repurchase the Interest
of the Limited Partner then the repurchase shall occur within 60 days after the
General Partner receives written demand from the Limited Partner.
(b) From Completion of Construction until three consecutive months of
Break-even Operations, the General Partner will personally provide Operating
Loans to pay any Operating Deficits; and for the balance of the Operating
Deficit Guarantee Period the General Partner will provide Operating Loans to pay
any Operating Deficits up to the aggregate maximum amount of one year's
operating expenses (including debt and reserves) approved by the General Partner
and the Special Limited Partner. Each Operating Loan shall be nonrecourse to the
Partners, and shall be repayable out of 50% of the available Net Operating
Income or Sale or Refinancing Proceeds in accordance with Article XI of this
Agreement.
Section 6.3 Other General Partner Loans. After expiration of the
Operating Deficit Guarantee Period, with the Consent of the Special Limited
Partner, the General Partner may loan to the Partnership any sums required by
the Partnership and not otherwise reasonably available to it. Any such loan
shall bear simple interest (not compounded) at the rate of 2% per annum above
the then prevailing prime or reference rate charged by Bank of America N.T. &
S.A., Main Office, San Francisco, California, or, if lesser, the maximum legal
rate. The maturity date and repayment schedule of any such loan shall be as
agreed to by the General Partner and the Special Limited Partner. The terms of
any such loan shall be evidenced by a written instrument. The General Partner
shall not charge a prepayment penalty on any such loan. Any loan in
contravention of this Section shall be deemed an invalid action taken by the
General Partner and such advance will be classified as a General Partner Capital
Contribution.
ARTICLE VII
CAPITAL CONTRIBUTIONS OF LIMITED PARTNER
AND SPECIAL LIMITED PARTNER
Section 7.1 Original Limited Partner. The Original Limited Partner made
a Capital Contribution of $116,000. Effective as of the date of this Agreement,
the Original Limited Partner's Interest has been liquidated and the Partnership
has reacquired the Original Limited Partner's Interest in the Partnership. The
Original Limited Partner acknowledges that it has no further interest in the
Partnership as a limited partner as of the date of this Agreement, and has
released all claims, if any, against the Partnership arising out of its
participation as a limited partner.
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Section 7.2 Capital Contribution of Limited Partner. The Limited
Partner shall make a Capital Contribution in the amount of $1,276,886, as may be
adjusted in accordance with Section 7.4 of this Agreement, in cash on the dates
and subject to the conditions hereinafter set forth.
(a) The obligation of the Limited Partner to pay the aforesaid Capital
Contribution shall be subject to the satisfaction of the following conditions.
(1) Prior to the initial Capital Contribution payment the General Partner
shall deliver to the Limited Partner:
(A) a legal opinion in a form substantially similar
to the form of opinion attached hereto as Exhibit
"B" and incorporated herein by this reference;
(B) a fully executed Certification and Agreement in
the form attached hereto as Exhibit "C" and
incorporated herein by this reference;
(C) a copy of an ALTA owners title insurance policy naming the Limited
Partner as a co-insured and including a non-imputation and fairway endorsement
("Title Insurance"). The Title Insurance shall be in an amount equal to the
Mortgage Loan and the Limited Partner's Capital Contribution;
(D) verification that the Partnership has obtained
Insurance required during construction; and
(E) delivery to the Limited Partner a copy of the
recorded grant deed (warranty deed).
(2) Prior to the due date of each Capital Contribution
installment, except the first payment, the General Partner shall deliver to the
Limited Partner a fully executed General Partner Certification in the form
attached hereto as Exhibit "D" and incorporated herein by this reference.
(3) Prior to the Capital Contribution payment referenced in Section
7.2(b)(4) the General Partner shall deliver to the Limited Partner:
(A) a certificate of occupancy (or equivalent evidence of local occupancy
approval if a permanent certificate is not available) on all the apartment units
in the Project;
(B) if not previously provided, the draw request
information referenced in Section 14.3(a) of this
Agreement;
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(C) a certification signed by the architect in a form
substantially similar to the form attached
hereto as Exhibit "E" and incorporated herein by this reference, indicating that
the Improvements have been completed in accordance with the Project Documents;
(D) a letter from the Contractor in a form
substantially similar to the form attached hereto as
Exhibit "G" and incorporated herein by this reference stating that all amounts
payable to the Contractor have been paid in full and that the Partnership is not
in violation of the Construction Contract; and
(E) verification that the Partnership has obtained
Insurance required during operations.
(4) Prior to the Capital Contribution payment referenced in Section
7.2(b)(5) the General Partner shall deliver to the Limited Partner:
(A) the current rent roll;
(B) copies of all initial tenant files including
completed applications, completed questionnaires or
checklist of income and assets, documentation of third party verification of
income and assets, and income certification forms (LIHTC specific) collected by
the Management Agent, or General Partner, verifying each tenant's eligibility as
a Qualified Tenant; and
(C) copies of the executed lease agreement with the
tenants.
(5) Prior to the Capital Contribution payment referenced in
Section 7.2(b)(5) the General Partner shall deliver to the Limited Partner
copies of all Mortgage documents and Title Insurance in an amount equal to the
Mortgage and the Limited Partner's Capital Contribution.
(6) Prior to the Capital Contribution payment referenced in Section
7.2(b)(6) the General Partner shall deliver to the Limited Partner:
(A) a copy of the declaration of restrictive covenants/extended use
agreement entered into between the Partnership and the State Tax Credit Agency;
(B) an audited construction cost certification (which
includes an itemized cost breakdown);
(C) the Accountant's final tax credit certification
in a form substantially similar to the form
attached hereto as Exhibit "F" and incorporated herein by this reference;
(D) Internal Revenue Code Form 8609, or any successor
form; and
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(E) any documents previous not provided to the
Limited Partner but required pursuant to this Section 7.2(a)
and Sections 14.3(a), (b) and (c).
(b) Provided the conditions of Section 7.2(a) of this Partnership Agreement
have been met, the Limited Partner shall make the following Capital
Contributions:
(1) $319,221 shall be payable upon:
(A) admittance of the Investment Partnership into the
Project Partnership; (B) receipt and approval by the
Investment Partnership of applicable due diligence
documents (see Exhibit C attached); (C) receipt by
the Investment Partnership of the opinion letter from
the Project Partnership's attorney (see Exhibit B
attached); (D) the Investment Partnership's receipt
of and approval of the construction costs, the
sources and uses and operating budget; and (E)
closing of the construction loan;
(2) $319,221 shall be payable upon:
(A) 50% construction completion as evidenced by the inspecting architect's
certification and the construction draw requests;
(3) $200,000 shall be payable upon:
(A) 75% construction completion as evidenced by the
inspecting architect's certification and the
construction draw requests;
(4) $119,221 shall be payable upon:
(A) construction completion as evidenced by the
inspecting architect's certification; (B) the issuance of a
permanent certificate of occupancy (or equivalent evidence of local occupancy
approval if permanent certificate is not available) for all units; (C) receipt
by the Investment Partnership of a letter from the contractor stating that all
amounts payable to the contractor have been paid in full and that the Project
Partnership is not in violation of the construction contract; and (D)
verification that the Project Partnership has obtained casualty insurance and
general liability insurance;
(5) $212,729 shall be payable upon:
(A) achievement by the Project Partnership of a debt service coverage of
1.15 for 30 consecutive days; (B) receipt by the Investment Partnership of
tenant income verification data to determine that 100% of the apartment units in
the Apartment Complex qualify under Section 42 of the Internal Revenue Code; and
(C) receipt by the Investment Partnership of a fully executed set of permanent
mortgage documents;
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(6) $106,492 shall be payable upon:
(A) when all the conditions above have been met and
(b) upon receipt by the Investment Partnership of a
fully executed IRS Form 8609, the first year tax return in which Tax Credits are
taken and the construction cost certificate (which includes an itemized cost
breakdown, the accountant's final tax credit certification setting forth the
Project's eligible basis with the amount of Tax Credits to which the Project
Partnership is entitled and a copy of the restrictive covenant/extended use
agreement).
Section 7.3 Repurchase of Limited Partner's Interest. Within 60 days
after the General Partner receives written demand from the Limited Partner
and/or the Special Limited Partner, the Partnership shall repurchase the Limited
Partner's Interest and/or the Special Limited Partner's Interest in the
Partnership by refunding to it in cash the full amount of the Capital
Contribution which the Limited Partner and/or the Special Limited Partner has
theretofore made in the event that, for any reason, the Partnership shall fail
to:
(a) receive an allocation of LIHTC no later than the close of the
calendar year during which the Project is placed in service;
(b) cause the Project to be placed in service by April 01, 1999;
(c) achieve 90% occupancy of the Project by Qualified Tenants by June
01, 1999;
(d) obtain Permanent Mortgage Commencement by April 01, 1999;
(e) meet both the Minimum Set-Aside Test and the Rent Restriction Test
not later than December 31 of the first year the Partnership elects the LIHTC to
commence in accordance with the Code; and
(f) obtain a carryover allocation, within the meaning of Section 42 of the
Code, from the State Tax Credit Agency on or before December 31, 1997.
Section 7.4 Reduction of Limited Partner's Capital Contribution.
(a) If the anticipated amount of Projected Tax Credits to be allocated
to the Limited Partner and Special Limited Partner as evidenced by IRS Form
8609, Schedule A thereto, and the audited construction cost certification
provided to the Limited Partner and Special Limited Partner are less than
$2,010,987(the "Revised Projected Tax Credits") then the Limited Partner's and
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Special Limited Partner's Capital Contribution provided for in Section 7.2 and
Section 7.5 respectively shall be reduced by the amount which will make the
total Capital Contribution to be paid by the Limited Partner and Special Limited
Partner to the Partnership equal to % of the Revised Projected Tax Credits so
anticipated to be allocated to the Limited Partner and Special Limited Partner.
If the Capital Contribution reduction referenced in this Section 7.4(a) is
greater than the remaining Capital Contribution to be paid by the Limited
Partner and the Special Limited Partner then the General Partner shall have
ninety days from the date the General Partner receives notice from either the
Limited Partner or the Special Limited Partner to pay the shortfall.
(b) The General Partner is required to use its best efforts to rent
100% of the Project's apartment units to Qualified Tenants throughout the
Compliance Period. If at the end of each calendar year during the first five
calendar years following the year in which the Project is placed in service, the
Actual Tax Credit for any fiscal year or portion thereof is or will be less than
the Projected Annual Tax Credit, or the Revised Projected Tax Credit calculated
on an annual basis ("Revised Projected Annual Tax Credit"), if applicable (the
"Annual Credit Shortfall"), then, unless the Annual Credit Shortfall shall have
previously been addressed under Section 7.4(a), the next Capital Contribution
owed by the Limited Partner or the Special Limited Partner shall be reduced by
the Annual Credit Shortfall amount, and any portion of such Annual Credit
Shortfall in excess of such Capital Contribution shall be applied to reduce
succeeding Capital Contributions of the Limited Partner or the Special Limited
Partner. If the Annual Credit Shortfall is greater than the Limited Partner's
and Special Limited Partner's remaining Capital Contributions then the General
Partner shall pay to the Limited Partner and Special Limited Partner the excess
of the Annual Credit Shortfall over the remaining Capital Contributions. The
General Partner shall have ninety days to pay the Annual Credit Shortfall from
the date the General Partner receives notice from either the Limited Partner or
the Special Limited Partner.
(c) In the event that, for any reason, at any time after the first five
calendar years following the year in which the Project is placed in service,
there is an Annual Credit Shortfall, then, unless the Annual Credit Shortfall
shall have previously been addressed under Section 7.4(a) or Section 7.4(b),
there shall be a reduction in the General Partner's share of Net Operating
Income in an amount equal to the Annual Credit Shortfall and said amount instead
shall be paid to the Limited Partner. In the event there are not sufficient
funds to pay the full Annual Credit Shortfall to the Limited Partner at the time
of the next Distribution of Net Operating Income, then the unpaid Annual Credit
Shortfall shall be repaid in the next year in which sufficient monies are
available from the General Partner's Net Operating Income. In the event a Sale
or Refinancing of the Project occurs prior to repayment in full of the Annual
Credit Shortfall then the excess will be paid in accordance with Section
11.2(b).
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(d) The General Partner has represented, in part, that the Limited
Partner will receive Projected Annual Tax Credits of $133,425 in 1999 and
$199,513 in 2000. In the event the 1999 and 2000 Projected Annual Tax Credits
are less than projected then the Limited Partner's Capital Contribution shall be
reduced by an amount equal to % times the difference between the Projected
Annual Tax Credits for 1999 and 2000 and the Actual Tax Credits for 1999 and
2000. If the 1999 and 2000 Tax Credits are less than projected then the Special
Limited Partner's Capital Contribution shall be reduced following the same
equation referenced in the preceding sentence. If, at the time of determination
thereof, the Capital Contribution adjustment referenced in this Section 7.4(d)
is greater than the balance of the Limited Partner's or Special Limited
Partner's Capital Contribution payment which is then due, if any, then the
Capital Contribution reduction amount shall be paid by the General Partner to
the Limited Partner and/or the Special Limited Partner within ninety days of the
General Partner receiving notice of the reduction from the Limited Partners
and/or the Special Limited Partner.
(e) The Partners recognize and acknowledge that the Limited Partner and
the Special Limited Partner are making their Capital Contribution, in part, on
the expectation that the Projected Tax Credits are allocated to the Partners
over the Tax Credit Period. If the Projected Tax Credits are not allocated to
the Partners during the Tax Credit Period then the Limited Partner's and Special
Limited Partner's Capital Contribution shall be reduced by an amount agreed upon
by the Partners, in good faith, to provide the Limited Partner and the Special
Limited Partner with their anticipated internal rate of return.
(f) In the event there is a reduction in the qualified basis of the
Project for income tax purposes following an audit by the Internal Revenue
Service (IRS) resulting in a recapture of Tax Credits previously claimed, then,
in addition to any other payments to which the Limited Partner and Special
Limited Partner are entitled under the terms of this Section 7.4, the General
Partner shall pay to the Limited Partner and the Special Limited Partner the sum
of (1) the deficiency assessed against the Limited Partner or Special Limited
Partner as a result of the Tax Credit recapture, (2) any interest and penalties
imposed on the Limited Partner or Special Limited Partner with respect to such
deficiency, and (3) an amount sufficient to pay any tax liability owed by the
Limited Partner or Special Limited Partner resulting from the receipt of the
amounts specified in (1) and (2).
Section 7.5 Capital Contribution of Special Limited Partner. The
Special Limited Partner shall make a Capital Contribution of $ at the time of
the Limited Partner's Capital Contribution payment referenced in Section
7.2(b)(1) upon the same conditions. The Special Limited Partner shall be in a
different class from the Limited Partner and, except as otherwise expressly
stated in this Agreement, shall not participate in any rights allocable to or
exercisable by the Limited Partner under this Agreement.
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Section 7.6 Return of Capital Contribution. From time to time the
Partnership may have cash in excess of the amount required for the conduct of
the affairs of the Partnership, and the General Partner may, with the Consent of
the Special Limited Partner, determine that such cash should, in whole or in
part, be returned to the Partners, pro rata, in reduction of their Capital
Contribution. No such return shall be made unless all liabilities of the
Partnership (except those to Partners on account of amounts credited to them
pursuant to this Agreement) have been paid or there remain assets of the
Partnership sufficient, in the sole discretion of the General Partner, to pay
such liabilities.
Section 7.7 Liability of Limited Partner and Special Limited Partner.
The Limited Partner and Special Limited Partner shall not be liable for any of
the debts, liabilities, contracts or other obligations of the Partnership. The
Limited Partner and Special Limited Partner shall be liable only to make Capital
Contributions in the amounts and on the dates specified in this Agreement and,
except as otherwise expressly required hereunder, shall not be required to lend
any funds to the Partnership or, after their respective Capital Contributions
have been paid, to make any further Capital Contribution to the Partnership.
ARTICLE VIII
WORKING CAPITAL AND RESERVES
Section 8.1 Operating and Maintenance Account. The General Partner, on
behalf of the Partnership, shall establish an operating and maintenance account
and shall deposit thereinto an annual amount equal to $250 per residential unit
per year for the purpose of repairs, maintenance and capital repairs. Said
deposit shall be made monthly in equal installments. Withdrawals from such
account shall be made only with the Consent of the Special Limited Partner. Any
balance remaining in the account at the time of a sale of the Project shall be
allocated and distributed equally between the General Partner and the Limited
Partner.
Section 8.2 Tax and Insurance Account.The General Partner, on behalf of
the Partnership, shall establish a tax and insurance account ("T & I Account")
for the purpose of making the requisite Insurance premium payments and the real
estate tax payments. The annual deposit to the T & I Account shall equal the
total annual Insurance payment and the total annual real estate tax payment.
Said amount shall be deposited monthly in equal installments. Withdrawals from
such account shall be made only for its intended purpose. Any balance remaining
in the account at the time of a sale of the Project shall be allocated and
distributed equally between the General partner and the Limited Partner.
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Section 8.3 Other Reserves. The General Partner, on behalf of the
Partnership, shall establish out of funds available to the Partnership a reserve
account sufficient in its sole discretion to pay any unforeseen contingencies
which might arise in connection with the furtherance of the Partnership business
including, but not limited to, (a) any rent subsidy required to maintain rent
levels in compliance with the Tax Credit Conditions; and (b) any debt service or
other payments for which other funds are not provided for hereunder or otherwise
expected to be available to the Partnership. The General Partner shall not be
liable for any good-faith estimate which it shall make in connection with
establishing or maintaining any such reserves nor shall the General Partner be
required to establish or maintain any such reserves if, in its sole discretion,
such reserves do not appear to be necessary.
ARTICLE IX
MANAGEMENT AND CONTROL
Section 9.1 Power and Authority of General Partner. Subject to the
Consent of the Special Limited Partner or the consent of the Limited Partner
where required by this Agreement, and subject to the other limitations and
restrictions included in this Agreement, the General Partner shall have complete
and exclusive control over the management of the Partnership business and
affairs, and shall have the right, power and authority, on behalf of the
Partnership, and in its name, to exercise all of the rights, powers and
authority of a partner of a partnership without limited partners. If there is
more than one General Partner, all acts, decisions or consents of the General
Partners shall require the concurrence of all of the General Partners. No
actions taken without the authorization of all the General Partners shall be
deemed valid actions taken by the General Partners pursuant to this Agreement.
No Limited Partner or Special Limited Partner (except one who may also be a
General Partner, and then only in its capacity as General Partner within the
scope of its authority hereunder) shall have any right to be active in the
management of the Partnership's business or investments or to exercise any
control thereover, nor have the right to bind the Partnership in any contract,
agreement, promise or undertaking, or to act in any way whatsoever with respect
to the control or conduct of the business of the Partnership, except as
otherwise specifically provided in this Agreement.
Section 9.2 Payments to the General Partners and Others.
(a) The Partnership shall pay to the Developer a Development Fee in the
amount of $300,700. The Development Fee shall first be paid from available
proceeds in accordance with Section 9.2(b) of this Agreement and if not paid in
full then the Development Fee will be paid to the extent permitted in Section
11.1 of this Agreement.
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(b) The Partnership shall utilize the proceeds from the Capital
Contributions paid pursuant to Section 7.2(b) and Section 7.5 of this Agreement
for development costs including, but not limited to, land costs, architectural
fees, survey and engineering costs, financing costs, loan fees, building
materials and labor. If any Capital Contribution proceeds are remaining after
Completion of Construction and all construction costs, excluding the Development
Fee, are paid in full and the Construction Loan retired, then the remainder
shall: first be paid to the Developer in payment of the Development Fee; second
be paid to the General Partner as a reduction of the General Partner's Capital
Contribution; and any remaining Capital Contribution proceeds shall be paid to
the General Partner as a Partnership oversight fee.
(c) The Partnership shall pay to the Management Agent a property
management fee for the leasing and management of the Project in an amount in
accordance with the Management Agreement. The term of the Management Agreement
shall not exceed one year, and the execution or renewal of any Management
Agreement shall be subject to the prior Consent of the Special Limited Partner.
If the Management Agent is an Affiliate of the General Partner then commencing
with the termination of the Operating Deficit Guarantee Period, in any year in
which the Project has an Operating Deficit, 40% of the management fee will be
deferred ("Deferred Management Fee"). Deferred Management Fees, if any, shall be
paid to the Management Agent in accordance with Section 11.1 of this Agreement.
(1) The General Partner shall, upon receiving any request of
the Mortgage lender requesting such action, dismiss the Management Agent as the
entity responsible for management of the Project under the terms of the
Management Agreement; or, the General Partner shall dismiss the Management Agent
at the request of the Special Limited Partner.
(2) The appointment of any successor Management Agent is
subject to the Consent of the Special Limited Partner which may only be sought
after the General Partner has provided the Special Limited Partner with accurate
and complete disclosure respecting the proposed Management Agent.
(d) The Partnership shall pay to the Limited Partner a fee (the
"Reporting Fee") commencing in 2000 equal to % of the Net Operating Income but
in no event less than $ 500 for the Limited Partner's services in monitoring the
operations of the Partnership and for services in connection with the
Partnership's accounting matters and assisting with the preparation of tax
returns and the reports required in Sections 14.2 and 14.3 of this Agreement.
The Reporting Fee shall be payable within seventy-five (75) days following each
calendar year and shall be payable from Net Operating Income in the manner and
priority set forth in Section 11.1 of this Agreement; provided, however, that if
in any year Net Operating Income is insufficient to pay the full $ 500, the
unpaid portion thereof shall accrue and be payable on a cumulative basis in the
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first year in which there is sufficient Net Operating Income, as provided in
Section 11.1, or sufficient Sale or Refinancing Proceeds, as provided in Section
11.2.
(e) The Partnership shall pay to the General Partner an Incentive
Management Fee equal to % of the available Net Operating Income in accordance
with Section 11.1 of this Agreement for each fiscal year of the Partnership
commencing in 2000 for services incident to the administration of the business
and affairs of the Partnership, which services shall include, but not limited
to, maintaining the books and records of the Partnership, selecting and
supervising the Partnership's Accountants, bookkeepers and other Persons
required to prepare and audit the Partnership's financial statements and tax
returns, and preparing and disseminating reports on the status of the Project
and the Partnership, all as required by Article XIV of this Agreement. The
Incentive Management Fee shall be payable within seventy-five (75) days
following each calendar year and shall be payable from Net Operating Income in
the manner and priority set forth in Section 11.1. If the Incentive Management
Fee is not paid in any year it shall not accrue for payment in subsequent years.
Section 9.3 Specific Powers of the General Partner. Subject to the other
provisions of this Agreement, the General Partner, in the Partnership's name and
on its behalf, may:
(a) hold, sell, transfer, lease or otherwise deal with any real,
personal or mixed property, interest therein or appurtenance thereto in
accordance with the purpose of this Agreement as indicated in Article IV hereto;
(b) employ, contract and otherwise deal with, from time to time,
Persons whose services are necessary or appropriate in connection with
management and operation of the Partnership business, including, without
limitation, contractors, agents, brokers, Accountants and Management Agents
(provided that the selection of any Accountant or Management Agent has received
the Consent of the Special Limited Partner) and attorneys, on such terms as the
General Partner shall determine;
(c) bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the
Partnership;
(d) pay as a Partnership expense any and all costs and expenses
associated with the formation, development, organization and operation of the
Partnership, including the expense of annual audits, tax returns and LIHTC
compliance;
(e) deposit, withdraw, invest, pay, retain and distribute the
Partnership's funds in a manner consistent with the provisions of this
Agreement;
(f) execute the Construction Loan and the Mortgage; and
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(g) execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing.
Section 9.4 Authority Requirements. During the Compliance Period, the
following provisions shall apply.
(a) Each of the provisions of this Agreement shall be subject to, and
the General Partner covenants to act in accordance with, the Tax Credit
Conditions and all applicable federal, state and local laws and regulations.
(b) The Tax Credit Conditions and all such laws and regulations, as
amended or supplemented, shall govern the rights and obligations of the
Partners, their heirs, executors, administrators, successor and assigns, and
they shall control as to any terms in this Agreement which are inconsistent
therewith, and any such inconsistent terms of this Agreement shall be
unenforceable by or against any of the Partners.
(c) Upon any dissolution of the Partnership or any transfer of the
Project, no title or right to the possession and control of the Project and no
right to collect rent therefrom shall pass to any Person who is not, or does not
become, bound by the Tax Credit Conditions in a manner that, in the opinion of
counsel to the Partnership, would not avoid a recapture thereof on the part of
the former owners.
(d) Any conveyance or transfer of title to all or any portion of the
Project required or permitted under this Agreement shall in all respects be
subject to the Tax Credit Conditions and all conditions, approvals or other
requirements of the rules and regulations of any authority applicable thereto.
Section 9.5 Limitations on General Partner's Power and Authority.
Notwithstanding the provisions of this Article IX, the General Partner shall
not:
(a) except as required by Section 9.4, act in contravention of this
Agreement;
(b) act in any manner which would make it impossible to carry on the
ordinary business of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess Partnership property, or assign the Partner's right in
specific Partnership property, for other than the exclusive benefit of the
Partnership;
(e) admit a Person as a General Partner except as provided in this
Agreement;
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(f) admit a Person as a Limited Partner except as provided in this
Agreement;
(g) violate any provision of the Mortgage;
(h) cause the Project apartment units to be rented to anyone other than
Qualified Tenants;
(i) violate the Minimum Set-Aside Test or the Rent Restriction Test for the
Project;
(j) cause any recapture of the Tax Credits;
(k) permit any creditor who makes a nonrecourse loan to the Partnership
to have, or to acquire at any time as a result of making such loan, any direct
or indirect interest in the profits, income, capital or other property of the
Partnership, other than as a secured creditor;
(l) commingle funds of the Partnership with the funds of another Person; or
(m) take any action which requires the Consent of the Special Limited
Partner or the consent of the Limited Partner unless the General Partner has
received said Consent.
Section 9.6 Restrictions on Authority of General Partner. Without consent
of the Special Limited Partner the General Partner shall not:
(a) sell, exchange, lease or otherwise dispose of the Project;
(b) incur indebtedness other than the Construction Loan and Mortgage
Loan in the name of the Partnership, other than in the ordinary course of the
Partnership's business;
(c) engage in any transaction not expressly contemplated by this
Agreement in which the General Partner has an actual or potential conflict of
interest with the Limited Partner or the Special Limited Partner;
(d) contract away the fiduciary duty owed to the Limited Partner and
the Special Limited Partner at common law;
(e) take any action which would cause the Project to fail to qualify,
or which would cause a termination or discontinuance of the qualification of the
Project, as a "qualified low income housing project" under Section 42(g)(1) of
the Code, as amended, or any successor thereto, or which would cause the Limited
Partner to fail to obtain the Projected Tax Credits or which would cause the
recapture of any LIHTC;
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(f) make any expenditure of funds, or commit to make any such
expenditure, other than in response to an emergency, except as provided for in
the annual budget approved by the Special Limited Partner, as provided in
Section 14.3(i) hereof;
(g) cause the merger or other reorganization of the Partnership; or
(h) dissolve the Partnership, except as provided in this Agreement.
Section 9.7 Duties of General Partner. The General Partner agrees that it
shall at all times:
(a) diligently and faithfully devote such of its time to the business of
the Partnership as may be necessary to properly conduct the affairs of the
Partnership;
(b) file and publish all certificates, statements or other instruments
required by law for the formation and operation of the Partnership as a limited
partnership in all appropriate jurisdictions;
(c) cause the Partnership to carry Insurance from an Insurance Company;
(d) have a fiduciary responsibility for the safekeeping and use of all
funds and assets of the Partnership, whether or not in its immediate possession
or control and not employ or permit another to employ such funds or assets in
any manner except for the benefit of the Partnership;
(e) use its best efforts so that all requirements shall be met which
are reasonably necessary to obtain or achieve (1) compliance with the Minimum
Set-Aside Test, the Rent Restriction Test, and any other requirements necessary
for the Project to initially qualify, and to continue to qualify, for LIHTC; (2)
issuance of all necessary certificates of occupancy, including all governmental
approvals required to permit occupancy of all of the apartment units in the
Project; (3) compliance with all provisions of the Project Documents and (4) a
reservation and allocation of LIHTC from the State Tax Credit Agency;
(f) use its best efforts to keep the Project in decent, safe, sanitary
and good condition, repair and working order, ordinary use and obsolescence
excepted, and make or cause to be made from time to time all necessary repairs
thereto (including external and structural repairs) and renewals and
replacements thereof;
(g) pay, before the same shall become delinquent and before penalties
accrue thereon all Partnership taxes, assessments and other governmental charges
against the Partnership or its properties, and all of its other liabilities,
except to the extent and so long as the same are being contested in good faith
by appropriate proceedings in such manners as not to cause any material adverse
effect on the Partnership's property, financial condition or business
operations, with adequate reserves provided for such payments;
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(h) permit, and cause the Management Agent to permit, the Special
Limited Partner and its representatives: (1) to have access to the Project and
personnel employed by the Partnership and by the Management Agent at all times
during normal business hours after reasonable notice; (2) to examine all
agreements, LIHTC compliance data and plans and specifications; and (3) to make
copies thereof;
(i) exercise good faith in all activities relating to the conduct of
the business of the Partnership, including the development, operation and
maintenance of the Project, and shall take no action with respect to the
business and property of the Partnership which is not reasonably related to the
achievement of the purpose of the Partnership;
(j) make any Capital Contributions, advances or loans required to be
made by the General Partner under the terms of this Agreement;
(k) establish and maintain all reserves required to be established and
maintained under the terms of this Agreement;
(l) cause the Management Agent to manage the Project in such a manner
that the Project will be eligible to receive LIHTC with respect to 100% of the
apartment units in the Project. To that end, the General Partner agrees, without
limitation: (1) to make all elections requested by the Special Limited Partner
under Section 42 of the Code to allow the Partnership or its Partners to claim
the Tax Credit; (2) to file Form 8609 with respect to the Project as required,
for at least the duration of the Compliance Period; (3) to operate the Project
and cause the Management Agent to manage the Project so as to comply with the
requirements of Section 42 of the Code, as amended, or any successor thereto,
including, but not limited to, Section 42(g) and Section 42(i)(3) of the Code,
as amended, or any successors thereto; (4) to make all certifications required
by Section 42(l) of the Code, as amended, or any successor thereto; and (5) to
operate the Project and cause the Management Agent to manage the Project so as
to comply with all other Tax Credit Conditions; and
(m) perform such other acts as may be expressly required of it under
the terms of this Agreement.
Section 9.8 Partnership Expenses.
(a) All of the Partnership's expenses shall be billed directly to and
paid by the Partnership to the extent practicable. Reimbursements to the General
Partner or any of its Affiliates by the Partnership shall be allowed only for
the Partnership's operating cash expenses and subject to the limitations on the
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reimbursement of such expenses set forth herein. As used in this Section 9.8 the
term "operating cash expenses" shall mean, with respect to any fiscal period,
the amount of cash disbursed by the Partnership for Partnership business in that
period in the ordinary course of business for the payment of its operating
expenses, including, but not limited to expenses for advertising and promotion,
management, utilities, repair and maintenance, Insurance, Partner
communications, legal, accounting, statistical and bookkeeping services, use of
computing or accounting equipment, travel and telephone expenses, salaries and
direct expenses of Partnership employees while engaged in Partnership business,
and any other operational and administrative expenses necessary for the prudent
operation of the Partnership. Without limiting the generality of the foregoing,
"operating cash expenses" shall include fees paid by the Partnership to the
General Partner or any Affiliate of the General Partner permitted by this
Agreement and the actual cost of goods, materials and administrative services
used for or by the Partnership, whether incurred by the General Partner, an
Affiliate of the General Partner or a nonaffiliated Person in performing the
foregoing functions. As used in the preceding sentence, "actual cost of goods
and materials" means the actual cost of goods and materials used for or by the
Partnership and obtained from entities which are not Affiliates of the General
Partner, and actual cost of administrative services means the pro rata cost of
personnel (as if such persons were employees of the Partnership) associated
therewith, but in no event to exceed the amount which would be charged by
nonaffiliated Persons for comparable goods and services.
(b) Reimbursement to the General Partner or any of its Affiliates of
operating cash expenses pursuant to Subsection (a) hereof shall be subject to
the following:
(1) no such reimbursement shall be permitted for services for
which the General Partner or any of its Affiliates is entitled to compensation
by way of a separate fee; and
(2) no such reimbursement shall be made for (A) rent or
depreciation, utilities, capital equipment or other such administrative items,
and (B) salaries, fringe benefits, travel expenses and other administrative
items incurred or allocated to any "controlling person" of the General Partner
or any Affiliate of the General Partner. For the purposes of this Section
9.8(b)(2), "controlling person" includes, but is not limited to, any Person,
however titled, who performs functions for the General Partner or any Affiliate
of the General Partner similar to those of: (i) chairman or member of the board
of directors; (ii) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (iii) senior
management, such as the vice president of an operating division who reports
directly to executive management; or (iv) those holding 5% or more equity
interest in such General Partner or any such Affiliate of the General Partner or
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a person having the power to direct or cause the direction of such General
Partner or any such Affiliate of the General Partner, whether through the
ownership of voting securities, by contract or otherwise.
Section 9.9 General Partner Expenses. The General Partner or Affiliates
of the General Partner shall pay all Partnership expenses which are not
permitted to be reimbursed pursuant to Section 9.8 and all expenses which are
unrelated to the business of the Partnership.
Section 9.10 Other Business of Partners. Any Partner may engage
independently or with others in other business ventures wholly unrelated to the
Partnership business of every nature and description, including, without
limitation, the acquisition, development, construction, operation and management
of real estate projects and developments of every type on their own behalf or on
behalf of other partnerships, joint ventures, corporations or other business
ventures formed by them or in which they may have an interest, including,
without limitation, business ventures similar to, related to or in direct or
indirect competition with the Project. Neither the Partnership nor any Partner
shall have any right by virtue of this Agreement or the partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom. Conversely, no Person shall have any rights to
Partnership assets, incomes or proceeds by virtue of such other ventures or
activities of any Partner.
Section 9.11 Covenants, Representations and Warranties. The General
Partner covenants, represents and warrants that the following are presently true
and will be true during the term of this Agreement, to the extent then
applicable.
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of the
Limited Partner and the Special Limited Partner.
(b) The Partnership Agreement and the Project Documents are in full
force and effect and neither the Partnership nor the General Partner is in
breach or violation of any provisions thereof.
(c) Improvements will be completed in a timely and workerlike manner in
accordance with all applicable requirements of all appropriate governmental
entities and the plans and specifications of the Project, as such plans and
specifications may be changed from time to time with the approval of Colonial
Bank, Alabama Housing Finance Authority (HOME) and any applicable governmental
entities, if such approval shall be required.
(d) The Project is being operated in accordance with standards and
procedures which are prudent and customary for the operation of properties
similar to the Project.
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(e) Additional Improvements on the Project, if any, shall be completed
substantially in conformity with plans and specifications approved by the
Special Limited Partner.
(f) No Partner has or will have any personal liability with respect to
or has or will have personally guaranteed the payment of the Mortgage.
(g) The Partnership is in compliance with all construction and use
codes applicable to the Project and is not in violation of any zoning,
environmental or similar regulations applicable to the Project.
(h) All appropriate public utilities, including sanitary and storm
sewers, water, gas and electricity, are currently available and will be
operating properly for all units in the Project at the time of first occupancy
and throughout the term of the Partnership.
(i) The Partnership has obtained Insurance written by an Insurance
Company.
(j) The Partnership owns the fee simple interest in the Project.
(k) The Construction Contract has been entered into between the
Partnership and the Contractor; no other consideration or fee shall be paid to
the Contractor other than amounts set forth in the Construction Contract.
(l) The Partnership will require the Accountant to depreciate the
Improvements over a 27 1/2 year term.
(m) To the best of the General Partner's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Project and (2) no aboveground or underground
storage tanks are now or have ever been located on or under the Project. The
General Partner will not install or allow to be installed any aboveground or
underground storage tanks on the Project. The General Partner covenants that the
Project shall be kept free of Hazardous Materials and shall not be used to
generate, manufacture, refine, transport, treat, store, handle, dispose of,
transfer, produce or process Hazardous Materials, except in connection with the
normal maintenance and operation of any portion of the Project. The General
Partner shall comply, or cause there to be compliance, with all applicable
Federal, state and local laws, ordinances, rules and regulations with respect to
Hazardous Materials and shall keep, or cause to be kept, the Project free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The General Partner must promptly notify the Limited Partner and
the Special Limited Partner in writing (3) if it knows, or suspects or believes
there may be any Hazardous Substance in or around any part of the Project, any
Improvements constructed on the Project, or the soil, groundwater or soil vapor,
(4) if the General Partner or the Partnership may be subject to any threatened
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or pending investigation by any governmental agency under any law, regulation or
ordinance pertaining to any Hazardous Substance, and (5) of any claim made or
threatened by any Person, other than a governmental agency, against the
Partnership or General Partner arising out of or resulting from any Hazardous
Substance being present or released in, on or around any part of the Project.
(n) The General Partner has not executed and will not execute any
agreements with provisions contradictory to, or in opposition to, the provisions
of this Agreement.
(o) The Partnership will allocate to the Limited Partner the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(p) No charges, liens or encumbrances exist with respect to the Project
other than those which are created or permitted by the Project Documents or
Mortgage or are noted or excepted in the title policy for the Project.
(q) The buildings on the Project site constitute or shall constitute a
"qualified low-income housing project" as defined in Section 42(g) of the Code,
and as amplified by the Treasury Regulations thereunder. In this connection, not
later than December 31 of the first year in which the Partners elect the LIHTC
to commence in accordance with the Code, the Project will satisfy the Minimum
Set-Aside Test.
(r) All accounts of the Partnership required to be maintained under the
terms of the Project Documents, including, without limitation, any reserves in
accordance with Article VIII hereof, are currently funded to required levels,
including levels required by any authority.
(s) The General Partner has not lent or otherwise advanced any funds to
the Partnership other than its Capital Contribution and the Partnership has no
unsatisfied obligation to make any payments of any kind to the General Partner
or any Affiliate thereof.
(t) No event has occurred which constitutes a default under any of the
Project Documents.
(u) No event has occurred which has caused, and the General Partner has
not acted in any manner which will cause (1) the Partnership to be treated for
federal income tax purposes as an association taxable as a corporation, (2) the
Partnership to fail to qualify as a limited partnership under the Act, or (3)
the Limited Partner to be liable for Partnership obligations; provided however,
the General Partner shall not be in breach of this representation if all or a
portion of a Limited Partner's agreed upon Capital Contributions are used to
satisfy the Partnership's obligations to creditors of the Partnership and such
action by the General Partner is otherwise authorized under this Agreement and;
provided further, however, the General Partner shall not be in breach of this
representation if the action causing the Limited Partner to be liable for the
Partnership obligations is undertaken by the Limited Partner.
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(v) No event or proceeding, including, but not limited to, any legal
actions or proceedings before any court, commission, administrative body or
other governmental authority, and acts of any governmental authority having
jurisdiction over the zoning or land use laws applicable to the Project, has
occurred the continuing effect of which has: (1) materially or adversely
affected the operation of the Partnership or the Project; (2) materially or
adversely affected the ability of the General Partner to perform its obligations
hereunder or under any other agreement with respect to the Project; or (3)
prevented the completion of construction of the Improvements in substantial
conformity with the Project Documents, other than legal proceedings which have
been bonded against (or as to which other adequate financial security has been
issued) in a manner as to indemnify the Partnership against loss; provided,
however, the foregoing does not apply to matters of general applicability which
would adversely affect the Partnership, the General Partner, Affiliates of the
General Partner or the Project only insofar as they or any of them are part of
the general public.
(w) Neither the Partnership nor the General Partner has any
liabilities, contingent or otherwise, which have not been disclosed in writing
to the Limited Partner and the Special Limited Partner and which in the
aggregate affect the ability of the Limited Partner to obtain the anticipated
benefits of its investment in the Partnership.
(x) The General Partner has and shall maintain a net worth equal to at
least $1,000,000 computed in accordance with generally accepted accounting
principles.
The General Partner shall be liable to the Limited Partner for any
costs, damages, loss of profits, diminution in the value of its investment in
the Partnership, or other losses, of every nature and kind whatsoever, direct or
indirect, realized or incurred by the Limited Partner as a result of any
material breach of the representations and warranties set forth in this Section
9.11.
ARTICLE X
ALLOCATIONS OF INCOME, LOSSES AND CREDITS
Section 10.1 General. All items includable in the calculation of Income
or Loss not arising from a Sale or Refinancing, and all Tax Credits, shall be
allocated % to the Limited Partner, % to the Special Limited Partner and % to
the General Partner.
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Section 10.2 Allocations From Sale or Refinancing. All Income and
Losses arising from a Sale or Refinancing shall be allocated between the
Partners as follows:
(a) As to Income:
(1) first, an amount of Income equal to the aggregate negative
balances (if any) in the Capital Accounts of all Partners having negative
Capital Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of the related Sale or Refinancing Proceeds, but after giving
effect to Distributions of Net Operating Income and allocations of other Income
and Losses pursuant to this Article X up to the date of the Sale or Refinancing)
shall be allocated to such Partners in proportion to their negative Capital
Account balances until all such Capital Accounts shall have zero balances;
(2) second, an amount of Income sufficient to increase the
Limited Partner's positive Capital Account balance to its Capital Contribution
and to increase the Special Limited Partner's positive Capital Account balance
to an amount equal to its Capital Contribution, shall be allocated to the
Limited Partner and the Special Limited Partner, respectively;
(3) third, an amount of Income sufficient to increase the
General Partner's positive Capital Account balance to an amount equal to its
Capital Contribution; and
(4) the balance, if any, of such Income shall be allocated % to the Limited
Partner and 1195 to the General Partner.
(b) As to Losses:
(1) an amount of Losses equal to the aggregate positive
balances (if any) in the Capital Accounts of all Partners having positive
Capital Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of the related Sale or Refinancing Proceeds, but after giving
effect to Distributions of Net Operating Income and allocations of Income and
Losses pursuant to Section 10.1 up to the date of the Sale or Refinancing) shall
be allocated to such Partners in proportion to their positive Capital Account
balances until all such Capital Accounts shall have zero balances; and
(2) the balance of any such Losses shall be allocated % to the
Limited Partner, % to the Special Limited Partner and % to the General Partner.
(c) Notwithstanding the foregoing provisions of Section 10.2(a) and
(b), in no event shall any Losses be allocated to the Limited Partner or the
Special Limited Partner if and to the extent that such allocation would create
or increase an Adjusted Capital Account Deficit for the Limited Partner or the
Special Limited Partner. In the event an allocation of % or % of each item
includable in the calculation of Income or Loss not arising from a Sale or
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Refinancing, would create or increase an Adjusted Capital Account Deficit for
the Limited Partner or the Special Limited Partner, respectively, then so much
of the items of deduction other than projected depreciation shall be allocated
to the General Partner instead of the Limited Partner or the Special Limited
Partner as is necessary to allow the Limited Partner or the Special Limited
Partner to be allocated % and %, respectively, of the items of Income and
Project depreciation without creating or increasing an Adjusted Capital Account
Deficit for the Limited Partner or the Special Limited Partner, it being the
intent of the parties that the Limited Partner and the Special Limited Partner
always shall be allocated % and %, respectively, of the items of Income not
arising from a Sale or Refinancing and % and %, respectively, of the Project
depreciation.
Section 10.3 Special Allocations. The following special allocations shall
be made in the following order.
(a) Except as otherwise provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Partnership Minimum Gain during any Partnership fiscal year,
each Partner shall be specially allocated items of Partnership income and gain
for such fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Person's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Treasury Regulations Section 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 Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Section
1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(a) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(f) of the Treasury Regulations and shall be interpreted
consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the
Treasury Regulations, notwithstanding any other provision of this Article X, if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
a Partner Nonrecourse Debt during any Partnership fiscal year, each Person who
has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury Regulations, shall be specially allocated items of Partnership
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Person's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
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respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted
consistently therewith.
(c) In the event any Partner unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided that an allocation
pursuant to this Section 10.3(c) shall be made if and only to the extent that
such Partner would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 10.3 have been tentatively made as if
this Section 10.3(c) were not in the Agreement.
(d) In the event any Partner has a deficit Capital Account at the end
of any Partnership fiscal year which is in excess of the sum of (i) the amount
such Partner is obligated to restore, and (ii) the amount such Partner is deemed
to be obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.3(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 10.3 have been tentatively made as if this Section
10.3(d) and Section 10.3(c) hereof were not in the Agreement.
(e) Nonrecourse Deductions for any fiscal year shall be specially
allocated % to the Limited Partner, % to the Special Limited Partner and % to
the General Partner.
(f) Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partner who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Partner in complete liquidation of
his interest in the Partnership, 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 Partners in accordance with
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their interests in the Partnership in the event that Treasury Regulations
Section 1.704-1 (b)(2)(iv)(m)(2) applies, or to the Partner to whom such
distribution was made in the event that Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) To the extent the Partnership has taxable interest income with respect
to any promissory note pursuant to Section 483 or Section 1271 through 1288 of
the Code:
(1) such interest income shall be specially allocated to the Limited
Partner to whom such promissory note relates; and
(2) the amount of such interest income shall be excluded from
the Capital Contributions credited to such Partner's Capital Account in
connection with payments of principal with respect to such promissory note.
(i) In the event the adjusted tax basis of any investment tax credit
property that has been placed in service by the Partnership is increased
pursuant to Code Section 50(c), such increase shall be specially allocated among
the Partners (as an item in the nature of income or gain) in the same
proportions as the investment tax credit that is recaptured with respect to such
property is shared among the Partners.
(j) Any reduction in the adjusted tax basis (or cost) of Partnership
investment tax credit property pursuant to Code Section 50(c) shall be specially
allocated among the Partners (as an item in the nature of expenses or losses) in
the same proportions as the basis (or cost) of such property is allocated
pursuant to Treasury Regulations Section 1.46-3(f)(2)(i).
(k) Any income, gain, loss or deduction realized as a direct or
indirect result of the issuance of an interest in the Partnership by the
Partnership to a Partner (the "Issuance Items") shall be allocated among the
Partners so that, to the extent possible, the net amount of such Issuance Items,
together with all other allocations under this Agreement to each Partner, shall
be equal to the net amount that would have been allocated to each such Partner
if the Issuance Items had not been realized.
(l) If any Partnership expenditure treated as a deduction on its
federal income tax return is disallowed as a deduction and treated as a
distribution pursuant to Section 731(a) of the Code, there shall be a special
allocation of gross income to the Partner deemed to have received such
distribution equal to the amount of such distribution.
(m) The allocation to the General Partner of each material item of
Partnership income, loss, deduction or credit will not be less than % of each
such item at all times during the existence of the Partnership.
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(n) Interest deduction on the Partnership indebtedness referred to in
Section 6.3 shall be allocated 100% to the General Partner.
Section 10.4 Curative Allocations. The allocations set forth in
Sections 10.2(c), 10.3(a), 10.3(b), 10.3(c), 10.3(d), 10.3(e), 10.3(f), and
10.3(g) hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of the Treasury Regulations. It is the intent of the
Partners that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Partnership income, gain, loss, or deduction pursuant to this
Section 10.4. Therefore, notwithstanding any other provision of this Article X
(other than the Regulatory Allocations), with the Consent of the Special Limited
Partner, the General Partner shall make such offsetting special allocations of
Partnership income, gain, loss, or deduction in whatever manner the General
Partner, with the Consent of the Special Limited Partner, determines appropriate
so that, after such offsetting allocations are made, each Partner's Capital
Account balance is, to the extent possible, equal to the Capital Account balance
such Partner would have had if the Regulatory Allocations were not part of the
Agreement and all Partnership items were allocated pursuant to Sections 10.1,
10.2(a), 10.2(b), 10.3(h), 10.3(i), 10.3(j), 10.3(k), 10.3(l), 10.3(m), 10.3(n)
and 10.5. In exercising its authority under this Section 10.4, the General
Partner shall take into account future Regulatory Allocations under Section
10.3(a) and 10.3(b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Sections 10.3(e) and 10.3(f).
Section 10.5 Other Allocation Rules.
(a) The basis (or cost) of any Partnership investment tax credit
property shall be allocated among the Partners in accordance with Treasury
Regulations Section 1.46-3(f)(2)(i). All Tax Credits (other than the investment
tax credit) shall be allocated among the Partners in accordance with applicable
law. Consistent with the foregoing, the Partners intend that LIHTC will be
allocated % to the Limited Partner, % to the Special Limited Partner and % to
the General Partner.
(b) In the event Partnership investment tax credit property is disposed
of during any taxable year, profits for such taxable year (and, to the extent
such profits are insufficient, profits for subsequent taxable years) in an
amount equal to the excess, if any, of (1) the reduction in the adjusted tax
basis (or cost) of such property pursuant to Code Section 50(c), over (2) any
increase in the adjusted tax basis of such property pursuant to Code Section
50(c) caused by the disposition of such property, shall be excluded from the
profits allocated pursuant to Section 10.1 and Section 10.2(a) hereof and shall
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instead be allocated among the Partners in proportion to their respective shares
of such excess, determined pursuant to Section 10.3(i) and 10.3(j) hereof. In
the event more than one item of such property is disposed of by the Partnership,
the foregoing sentence shall apply to such items in the order in which they are
disposed of by the Partnership, so the profits equal to the entire amount of
such excess with respect to the first such property disposed of shall be
allocated prior to any allocations with respect to the second such property
disposed of, and so forth.
(c) For purposes of determining the Income, Losses, or any other items
allocable to any period, Income, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partner with the Consent of the Special Limited Partner, using any permissible
method under Code Section 706 and the Treasury Regulations thereunder.
(d) Solely for purposes of determining a Partner's proportionate share of
the "excess nonrecourse liabilities" of the Partnership within the meaning of
Treasury Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are as follows: Limited Partner: 98.99%; Special Limited
Partner: %; General Partner: %.
(e) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the General Partner shall endeavor to treat Distributions as having
been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such Distributions would cause or increase an
Adjusted Capital Account Deficit for any Partner who is not a General Partner.
Section 10.6 Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss,
and deduction with respect to any property contributed to the capital of the
Partnership shall, solely for tax purposes, be allocated among the Partners so
as to take account of any variation between the adjusted basis of such property
to the Partnership for federal income tax purposes and its initial Gross Asset
Value (computed in accordance with Section 1.28(a) hereof).
In the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to Section 1.30(b) hereof, subsequent allocations of income, gain,
loss, and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the General Partner with the Consent of the Special Limited Partner in
any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 10.6 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account
in computing, any Person's Capital Account or share of Income, Losses, other
items, or distributions pursuant to any provision of this Agreement.
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Section 10.7 Allocation Among Limited Partners. In the event that the
Interest of the Limited Partner hereunder is at any time held by more than one
Limited Partner all items which are specifically allocated to the Limited
Partner for any month pursuant to this Article X shall be apportioned among such
Persons according to the ratio of their respective profit-sharing interests in
the Partnership at the last day of such month.
Section 10.8 Allocation Among General Partners. In the event that the
Interest of the General Partner hereunder is at any time held by more than one
General Partner all items which are specifically allocated to the General
Partner for any month pursuant to this Article X shall be apportioned among such
Persons in such percentages as may from time to time be determined by agreement
among them without amendment to this Agreement or consent of the Limited Partner
or Consent of the Special Limited Partner.
Section 10.9 Modification of Allocations. The provisions of Articles X
and XI and other provisions of this Agreement are intended to comply with
Treasury Regulations Section 1.704 and shall be interpreted and applied in a
manner consistent with such section of the Treasury Regulations. In the event
that the General Partner determines, in its sole discretion, that it is prudent
to modify the manner in which the Capital Accounts of the Partners, or any debit
or credit thereto, are computed in order to comply with such section of the
Treasury Regulations, the General Partner may make such modification, but only
with the Consent of the Special Limited Partner, to the minimum extent
necessary, to effect the plan of allocations and Distributions provided for
elsewhere in this Agreement. Further, the General Partner shall make any
appropriate modifications, but only with the Consent of the Special Limited
Partner, in the event it appears that unanticipated events (e.g., the existence
of a Partnership election pursuant to Code Section 754) might otherwise cause
this Agreement not to comply with Treasury Regulation Section 1.704.
ARTICLE XI
DISTRIBUTION
Section 11.1 Distribution of Net Operating Income. Net Operating Income
for each fiscal year shall be distributed within seventy-five (75) days
following each calendar year and shall be applied in the following order of
priority:
(a) to pay the Deferred Management Fee, if any;
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(b) to pay the current Reporting Fee and then to pay any accrued Reporting
Fees which have not been paid in full from previous years;
(c) to pay the Development Fee;
(d) to pay the Operating Loans, if any, as referenced in Section 6.2(b)
of this Agreement, limited to 50% of the Net Operating Income remaining after
reduction for the payments made pursuant to subsections (a) through (c) of this
Section 11.1;
(e) to pay the Incentive Management Fee from Net Operating Income
remaining after reduction for the payments made pursuant to subsections (a)
through (d) of this Section 11.1; and
(f) to the Limited Partner in an amount equal to % of the remaining Net
Operating Income and to the General Partner in an amount equal to 20% of the
remaining Net Operating Income.
Section 11.2 Distribution of Sale or Refinancing Proceeds. Sale or
Refinancing Proceeds shall be distributed in the following order:
(a) to the payment of the Mortgage and other matured debts and
liabilities of the Partnership, other than accrued payments, debts or other
liabilities owing to Partners or former Partners;
(b) to any accrued payments, debts or other liabilities owing to the
Partners or former Partners, including, but not limited to, accrued Reporting
Fees and Operating Loans, to be paid prorata if necessary;
(c) to the establishment of any reserves which the General Partner,
with the Consent of the Special Limited Partner, shall deem reasonably necessary
for contingent, unmatured or unforeseen liabilities or obligations of the
Partnership;
(d) to the Limited Partner in an amount equal to its Capital Contribution;
(e) to the Special Limited Partner in an amount equal to its Capital
Contribution;
(f) to the General Partner in an amount equal to its Capital Contribution;
and
(g) thereafter, 35% to the Limited Partner and 65% to the General Partner.
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ARTICLE XII
TRANSFERS OF LIMITED
PARTNER'S INTEREST IN THE PARTNERSHIP
Section 12.1 Assignment of Limited Partner's Interest. Except
assignments to the Southern California Bank to secure capital contribution
loans, the Limited Partner and Special Limited Partner shall not have the right
to assign all or any part of their respective Interests to any other Person,
whether or not a Partner, except upon satisfaction of each of the following:
(a) by a written instrument in form and substance satisfactory to the
General Partner and its counsel, setting forth the name and address of the
proposed transferee, the nature and extent of the Interest which is proposed to
be transferred and the terms and conditions upon which the transfer is proposed
to be made, stating that the Assignee accepts and agrees to be bound by all of
the terms and provisions of this Agreement, and providing for the payment of all
reasonable expenses incurred by the Partnership in connection with such
assignment, including but not limited to the cost of preparing any necessary
amendment to this Agreement;
(b) upon consent of the General Partner to such assignment, which shall
not be unreasonably withheld; and
(c) upon receipt by the General Partner of the Assignee's written
representation that the Partnership Interest is to be acquired by the Assignee
for the Assignee's own account for long-term investment and not with a view
toward resale, fractionalization, division or distribution thereof.
THE LIMITED PARTNERSHIP INTEREST AND THE SPECIAL LIMITED PARTNERSHIP
INTEREST DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED OR UNDER ANY STATE SECURITIES LAW. THESE INTERESTS MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Section 12.2 Effective Date of Transfer. Any assignment of a Limited
Partner's Interest or Special Limited Partner's Interest pursuant to Section
12.1 shall become effective as of the last day of the calendar month in which
the last of the conditions to such assignment are satisfied.
Section 12.3 Invalid Assignment. Any purported assignment of an
Interest of a Limited Partner or Special Limited Partner otherwise than in
accordance with Section 12.1 or Section 12.6 shall be of no effect as between
the Partnership and the purported assignee and shall be disregarded by the
General Partner in making allocations and Distributions hereunder.
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Section 12.4 Assignee's Rights to Allocations and Distributions. An
Assignee shall be entitled to receive allocations and Distributions from the
Partnership attributable to the Interest acquired by reason of any permitted
assignment from and after the first day of the calendar month following the
month which ends with the effective date of the transfer of such Interest as
provided in Section 12.2. The Partnership and the General Partner shall be
entitled to treat the assignor of such Partnership Interest as the absolute
owner thereof in all respects, and shall incur no liability for allocations and
Distributions made in good faith to such assignor, until such time as the
written instrument of assignment has been received by the Partnership.
Section 12.5 Substitution of Assignee as Limited Partner or Special Limited
Partner.
(a) An Assignee shall not have the right to become a Substitute Limited
Partner or substitute Special Limited Partner in place of his assignor unless
the written consent of the General Partner to such substitution shall have been
obtained, which consent, in the General Partner's absolute discretion, may be
withheld.
(b) A nonadmitted transferee of a Limited Partner's Interest or Special
Limited Partner's Interest in the Partnership shall only be entitled to receive
that share of allocations, Distributions and the return of Capital Contribution
to which its transferor would otherwise have been entitled with respect to the
Interest transferred, and shall have no right to obtain any information on
account of the Partnership's transactions, to inspect the Partnership's books
and records or have any other of the rights and privileges of a Limited Partner
or Special Limited Partner, provided, however, that the Partnership shall, if a
transferee and transferor jointly advise the General Partner in writing of a
transfer of an Interest in the Partnership, furnish the transferee with
pertinent tax information at the end of each fiscal year of the Partnership.
(c) The General Partner may elect to treat a transferee of a
Partnership Interest who has not become a Substitute Limited Partner or
substitute Special Limited Partner as a Substitute Limited Partner or substitute
Special Limited Partner, as the case may be, in the place of its transferor
should the General Partner determine in its absolute discretion that such
treatment is in the best interest of the Partnership.
Section 12.6 Death, Bankruptcy, Incompetency, etc. of a Limited
Partner. Upon the death, dissolution, adjudication of bankruptcy, or
adjudication of incompetency or insanity of a Limited Partner or Special Limited
Partner, such Partner's executors, administrators or legal representatives shall
have all the rights of a Limited Partner or Special Limited Partner, as the case
may be, for the purpose of settling or managing such Partner's estate, including
such power as such Partner possessed to constitute a successor as a transferee
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of its Interest in the Partnership and to join with such transferee in making
the application to substitute such transferee as a Partner. However, such
executors, administrators or legal representatives will not have the right to
become Substitute Limited Partners or substitute Special Limited Partners in the
place of their respective predecessors-in-interest unless the General Partner
shall so consent.
ARTICLE XIII
WITHDRAWAL, REMOVAL AND REPLACEMENT OF
GENERAL PARTNER
Section 13.1 Withdrawal of General Partner.
(a) The General Partner may not Withdraw (other than as a result of an
Involuntary Withdrawal) without the Consent of the Special Limited Partner, and,
to the extent required, of Colonial Bank, Alabama Housing Finance Authority
(HOME) and the State Tax Credit Agency. Withdrawal shall be conditioned upon the
agreement of the Special Limited Partner to be admitted as a successor General
Partner, or if the Special Limited Partner declines to be admitted as a
successor General Partner then on the agreement of one or more Persons who
satisfy the requirements of Section 13.5 of this Agreement to be admitted as
successor General Partner(s).
(b) Each General Partner shall indemnify and hold harmless the
Partnership and all Partners from its Withdrawal in violation of Section 13.1(a)
hereof. Each General Partner shall be liable for damages to the Partnership
resulting from its Withdrawal in violation of Section 13.1(a).
Section 13.2 Removal of General Partner.
(a) The Special Limited Partner or the Limited Partner, or both of
them, may remove the General Partner for cause if such General Partner has:
(1) been subject to Bankruptcy in accordance with this Agreement;
(2) committed any fraud, willful misconduct, breach of
fiduciary duty or other negligent conduct in the performance of its duties under
this Agreement;
(3) been convicted of, or entered into a plea of guilty to, a felony;
(4) made personal use of Partnership funds or properties;
(5) violated the terms of the Mortgage and such violation
prompts Colonial Bank, Alabama Housing Finance Authority (HOME) and to issue a
default letter or acceleration notice to the Partnership or General Partner and
such violation has not been cured within 30 days of such letter or notice;
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(6) failed to provide any loan, advance, Capital Contribution
or any other payment to the Partnership required under this Agreement;
(7) failed to obtain the Consent of the Special Limited
Partner prior to any decision, act or omission under circumstances where this
Agreement requires that such consent be obtained;
(8) breached any representation, warranty or covenant
contained in this Agreement, or failed to perform any other action which may be
required by this Agreement;
(9) caused the Projected Tax Credits to be allocated to the
Partners for a term longer than the Tax Credit Period unless the provisions of
Section 7.4(e) of this Agreement apply;
(10) violated any federal or state tax law which causes a recapture of
LIHTC; or
(11) failed during any six-month period during the Compliance
Period to cause at least 85% of the total apartment units in the Project to
qualify for LIHTC, unless such failure is the result of Force Majeure or unless
such failure is cured within 120 days after the end of the six-month period.
(b) Written notice of the removal for cause of the General Partner
shall be served by the Special Limited Partner or the Limited Partner, or both
of them, upon the General Partner either by certified or by registered mail,
return receipt requested, or by personal service. Such notice shall set forth
the reasons for the removal, if any, and the date upon which the removal is to
become effective.
(c) Upon receipt of such notice of removal for cause, the General
Partner shall cause an accounting to be prepared covering the transactions of
the Partnership from the end of the previous fiscal year through the date of
receipt of such notice, and thereafter it shall not sell or dispose of
Partnership assets under any circumstances. The accounting shall be completed by
the effective date of the removal and shall be in sufficient detail to
accurately and fully reflect the earnings or losses for the period and the
financial condition of the Partnership. If the General Partner fails to cause
the accounting to be prepared within 30 days of receipt of the notice of removal
for cause then the Limited Partner may cause the accounting to be prepared. The
expenses of the accounting shall be borne by the General Partner.
Section 13.3 Effects of a Withdrawal. In the event of a Withdrawal, the
entire Interest of the Withdrawing General Partner shall immediately and
automatically terminate on the effective date of such Withdrawal, and such
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General Partner shall immediately cease to be a General Partner, shall have no
further right to participate in the management or operation of the Partnership
or the Project or to receive any allocations or Distributions from the
Partnership or any other funds or assets of the Partnership, except as
specifically set forth below. In the event of a Withdrawal, any or all executory
contracts, including but not limited to the Management Agreement, between the
Partnership and the Withdrawing General Partner or its Affiliates may be
terminated by the Partnership, with the Consent of the Special Limited Partner,
upon written notice to the party so terminated.
Furthermore, notwithstanding such Withdrawal, the Withdrawing General
Partner shall be and shall remain, liable as a General Partner for all
liabilities and obligations incurred by the Partnership or by the General
Partner prior to the effective date of the Withdrawal, or which may arise upon
such Withdrawal. Any remaining Partner shall have all other rights and remedies
against the Withdrawing General Partner as provided by law or under this
Agreement.
The General Partner agrees that in the event of its Withdrawal it will
indemnify and hold the Limited Partner and the Special Limited Partner harmless
from and against all losses, costs and expenses incurred in connection with the
Withdrawal, including, without limitation, all legal fees and other expenses of
the Limited Partner and the Special Limited Partner in connection with the
transaction.
The following additional provisions shall apply in the event of a
Withdrawal.
(a) In the event of a Withdrawal which is not an Involuntary
Withdrawal, the Withdrawing General Partner shall have no further right to
receive any future allocations or Distributions from the Partnership or any
other funds or assets of the Partnership, nor shall it be entitled to receive or
to be paid by the Partnership any further payments of fees (including fees which
have been earned but are unpaid) or to be repaid any outstanding advances or
loans made by it to the Partnership or to be paid any amount for its former
Interest. From and after the effective date of such Withdrawal, the former
rights of the Withdrawing General Partner to receive or to be paid such
allocations, Distributions, funds, assets, fees or repayments shall be assigned
to the other General Partner or General Partners (which may include the Special
Limited Partner), or if there is no other general partner of the Partnership at
that time, to the Special Limited Partner.
(b) In the event of an Involuntary Withdrawal, except as provided in
Section 13.3(b)(3) below, the Withdrawing General Partner shall have no further
right to receive any future allocations or Distributions from the Partnership or
any other funds or assets of the Partnership, provided that accrued and payable
fees (i.e., fees earned but unpaid as of the date of Withdrawal) owed to the
Withdrawing General Partner, and any outstanding loans of the Withdrawing
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General Partner to the Partnership, shall be paid to the Withdrawing General
Partner in the manner and at the times such fees and loans would have been paid
had the Withdrawing General Partner not Withdrawn. The Interest of the General
Partner shall be purchased as follows.
(1) If the Involuntary Withdrawal arises from removal for
cause as set forth in Section 13.2(a) hereof, the Withdrawn General Partner
shall be entitled to receive as its sole compensation for its Interest in the
Partnership an amount equal to its positive Capital Account balance determined
as of the effective date of the removal, if any, payable upon the dissolution
and termination of the Partnership after all of the Partners have been
distributed the positive balances in their Capital Accounts.
(2) If the Involuntary Withdrawal does not arise from removal
for cause under Section 13.2(a) hereof, and if the Partnership is to be
continued with one or more remaining or successor General Partner(s), the
Partnership, with the Consent of the Special Limited Partner, may, but is not
obligated to, purchase the Interest of the Withdrawing General Partner in
Partnership allocations, Distributions and capital. The purchase price of such
Interest shall be its Fair Market Value as determined by agreement between the
Withdrawing General Partner and the Special Limited Partner, or, if they cannot
agree, by arbitration in accordance with the then current rules of the American
Arbitration Association. The cost of such arbitration shall be borne equally by
the Withdrawing General Partner and the Partnership. The purchase price shall be
paid by the Partnership by delivering to the General Partner or its
representative the Partnership's non-interest bearing unsecured promissory note
payable, if at all, upon liquidation of the Partnership in accordance with
Section 11.2(b). The note shall also provide that the Partnership may prepay all
or any part thereof without penalty.
(3) If the Involuntary Withdrawal does not arise from removal
for cause under Section 13.2(a) hereof, and if the Partnership is to be
continued with one or more remaining or successor General Partner(s), and if the
Partnership does not purchase the Interest of the Withdrawing General Partner in
Partnership allocations, Distributions and capital, then the Withdrawing General
Partner shall retain its Interest in such items, but such Interest shall be held
as a special limited partner.
Section 13.4 Successor General Partner. Upon the occurrence of an event
giving rise to a Withdrawal of a General Partner, any remaining General Partner,
or, if there be no remaining General Partner, the Withdrawing General Partner or
its legal representative, shall promptly notify the Special Limited Partner of
such Withdrawal (the "Withdrawal Notice"). Whether or not the Withdrawal Notice
shall have been sent as provided herein, the Special Limited Partner shall have
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the right to become a successor General Partner (and to become the successor
managing General Partner if the Withdrawing General Partner was previously the
managing General Partner). In order to effectuate the provisions of this Section
13.4 and the continuance of the Partnership, the Withdrawal of a General Partner
shall not be effective until the expiration of 120 days from the date on which
occurred the event giving rise to the Withdrawal, unless the Special Limited
Partner shall have elected to become a successor General Partner as provided
herein prior to expiration of such 120-day period, whereupon the Withdrawal of
the General Partner shall be deemed effective upon the notification of all the
other Partners by the Special Limited Partner of such election.
Section 13.5 Admission of Additional or Successor General Partner. No
Person shall be admitted as an additional or successor General Partner unless
(a) such Person shall have agreed to become a General Partner by a written
instrument which shall include the acceptance and adoption of this Agreement;
(b) the Consent of the Special Limited Partner to the admission of such Person
as a substitute General Partner, which consent may be withheld in the discretion
of the Special Limited Partner, shall have been given; and (c) such Person shall
have executed and acknowledged any other instruments which the Special Limited
Partner shall reasonably deem necessary or appropriate to affect the admission
of such Person as a substitute General Partner. If the foregoing conditions are
satisfied, this Agreement shall be amended in accordance with the provisions of
the Act, and all other steps shall be taken which are reasonably necessary to
effect the Withdrawal of the Withdrawing General Partner and the substitution of
the successor General Partner. Nothing contained herein shall reduce the Limited
Partner's Interest or the Special Limited Partner's Interest in the Partnership.
Section 13.6 Transfer of Interest. Except as otherwise provided herein,
the General Partner may not Withdraw from the Partnership, or enter into any
agreement as the result of which any Person shall become interested in the
Partnership, without the Consent of the Special Limited Partner.
Section 13.7 No Goodwill Value. At no time during continuation of the
Partnership shall any value ever be placed on the Partnership name, or the right
to its use, or to the goodwill appertaining to the Partnership or its business,
either as among the Partners or for the purpose of determining the value of any
Interest, nor shall the legal representatives of any Partner have any right to
claim any such value. In the event of a termination and dissolution of the
Partnership as provided in this Agreement, neither the Partnership name, nor the
right to its use, nor the same goodwill, if any, shall be considered as an asset
of the Partnership, and no valuation shall be put thereon for the purpose of
liquidation or distribution, or for any other purpose whatsoever.
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ARTICLE XIV
BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND BANKING
Section 14.1 Books and Accounts.
(a) The General Partner shall cause the Partnership to keep and
maintain at its principal executive office full and complete books and records
which shall include each of the following:
(1) a current list of the full name and last known business or
residence address of each Partner set forth in alphabetical order together with
the Capital Contribution and the share in Income and Losses of each Partner;
(2) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, together with executed copies of any powers
of attorney pursuant to which any certificate has been executed;
(3) copies of the Partnership's federal, state and local
income tax information returns and reports, if any, for the six most recent
taxable years;
(4) copies of the original of this Agreement and all amendments thereto;
(5) financial statements of the Partnership for the six most recent fiscal
years; and
(6) the Partnership's books and records for at least the current and past
three fiscal years.
(b) Upon the request of the Limited Partner, the General Partner shall
promptly deliver to the Limited Partner, at the expense of the Partnership, a
copy of the information set forth in Section 14.1(a) above. The Limited Partner
shall have the right upon reasonable request and during normal business hours to
inspect and copy any of the foregoing, or any of the other books and records of
the Partnership or the Project at its own expense.
Section 14.2 Accounting Reports.
(a) By February 20 of each calendar year the General Partner shall
provide to the Limited Partner and the Special Limited Partner all tax
information necessary for the preparation of their federal and state income tax
returns and other tax returns with regard to the jurisdiction(s) in which the
Partnership is formed and in which the Project is located.
(b) By March 1 of each calendar year the General Partner shall send to
the Limited Partner and the Special Limited Partner: (1) a balance sheet as of
the end of such fiscal year and statements of income, Partners' equity and
changes in cash flow for such fiscal year prepared in accordance with generally
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accepted accounting principles and accompanied by an auditor's report containing
an opinion of the Partnership's Accountants; (2) a report (which need not be
audited) of any Distributions made at any time during the fiscal year,
separately identifying Distributions from Net Operating Income for the fiscal
year, Net Operating Income for prior years, Sale or Refinancing Proceeds, and
reserves; and (3) a report setting forth the amount of all fees and other
compensation and Distributions and reimbursed expenses paid by the Partnership
for the fiscal year to the General Partner or Affiliates of the General Partner
and the services performed in consideration therefor, which report shall be
verified by the Partnership's Accountants, with the method of verification to
include, at a minimum, a review of the time records of individual employees, the
costs of whose services were reimbursed, and a review of the specific nature of
the work performed by each such employee, all in accordance with generally
accepted auditing standards and, accordingly, including such tests of the
accounting records and such other auditing procedures as the Accountants
consider appropriate in the circumstances.
(c) Within 60 days after the end of each fiscal quarter in which a Sale
or Refinancing of the Project occurs, the General Partner shall send to the
Limited Partner and the Special Limited Partner a report as to the nature of the
Sale or Refinancing and as to the Income and Losses for tax purposes and
proceeds arising from the Sale or Refinancing.
Section 14.3 Other Reports. The General Partner shall provide to the
Limited Partner and the Special Limited Partner the following reports.
(a) During construction, a copy of the construction schedule and any
updates to the construction schedule; and by the twentieth day of each month a
copy of the previous month's Construction Loan draw request and the inspecting
architect's application and certification of payment (AIA Document G702, or
similar form acceptable to the Limited Partner).
(b) During the rent-up phase, and continuing until the end of the first
six-month period during which the Project has a sustained occupancy of 95% or
better, by the twentieth day of each month within such period a copy of the
previous month's rent roll (through the last day of the month) and a tenant
LIHTC compliance worksheet similar to the monthly initial tenant certification
worksheet included in Exhibit "H" attached hereto and incorporated herein by
this reference.
(c) A quarterly tax credit compliance report similar to the worksheet
included in Exhibit "H" due on or before April 30 of each year for the first
quarter, July 31 of each year for the second quarter, October 31 of each year
for the third quarter and January 31 of each year for the fourth quarter. In
order to verify the reliability of the information being provided on the
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compliance report the Limited Partner may request a small sampling of tenant
files to be provided. The sampling will include, but not be limited to, copies
of tenant applications, certifications and third party verifications used to
qualify tenants. If any inaccuracies are found to exist on the tax credit
compliance report or any items of noncompliance are discovered then the sampling
will be expanded as determined by the Limited Partner.
(d) By September 15 of each year, an estimate of LIHTC for that year.
(e) If the Project receives a reservation of LIHTC in one year but will
not complete the construction and rent-up until a later year, the General
Partner will provide to the Limited Partner by December 31 of the year during
which the reservation is received an audited cost certification together with
the Accountant's work papers verifying that the Partnership has expended the
requisite 10% of the reasonably expected cost basis to meet the carryover test
provisions of Section 42 of the Code. Furthermore, if materials and supplies are
purchased to meet the 10% requirement then the General Partner shall provide to
the Limited Partner an opinion of counsel that title to the materials and
supplies pass to the Partnership and that the Partnership bears the risk of loss
of the materials and supplies.
(f) During the Compliance Period, no later than the day any such
certification is filed, copies of any certifications which the Partnership must
furnish to federal or state governmental authorities administering the Tax
Credit program including, but not limited to, copies of all annual tenant
recertifications required under Section 42 of the Code.
(g) A quarterly report on operations, in the form attached hereto as
Exhibit "H", due on or before April 30 of each year for the first quarter of
operations, July 31 of each year for the second quarter of operations, October
31 of each year for the third quarter of operations and January 31 of each year
for the fourth quarter of operations which shall include, but is not limited to,
an unaudited income statement showing all activity in the reserve accounts
required to be maintained pursuant to Section VIII of this Agreement, statement
of income and expenses, balance sheet, rent roll as of the end of each calendar
quarter of each year, and third party verification of current utility allowance.
(h) By the annual renewal date each and every year, an executed
original or certified copy of each and every Insurance policy or certificate
required by the terms of this Agreement.
(i) By the payment date of the real estate property taxes each and every
year verification that the same has been paid in full.
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(j) On or before March 15th of each calendar year, the General Partner's
updated financial statement as of December 31 of the previous year.
(k) On or before November 1 of each calendar year, a copy of the
following year's proposed operating budget. Each such budget shall contain an
amount required for reserves in accordance with Article VIII and for the payment
of real estate taxes, insurance, debt service and other payments. Such budget
shall only be adopted with the Consent of the Special Limited Partner.
(l) If the Limited Partner is required by the Securities and Exchange
Commission to file a post-effective amendment to its offering document, an
audited operating statement for the Project within 30 days of the request
therefor by the Limited Partner, covering the Project's operating history from
the Completion of Construction to the date requested by the Limited Partner and
in a form required by the Securities and Exchange Commission.
(m) Notice of the occurrence, or of the likelihood of occurrence, of
any event which has had a material adverse effect upon the Project or the
Partnership, including, but not limited to, any breach of any of the
representations and warranties set forth in Section 9.11 of this Agreement, and
any inability of the Partnership to meet its cash obligations as they become
payable, within ten days after the occurrence of such event.
Section 14.4 Late Reports. If the General Partner does not fulfill its
obligations under Section 14.2 within the time periods set forth therein, the
General Partner, using its own funds, shall pay as damages the sum of $100 per
day (plus interest at the rate established by Section 6.3 of this Agreement) to
the Limited Partner until such obligations shall have been fulfilled. If the
General Partner does not fulfill its obligations under Section 14.3 within the
time periods set forth therein, the General Partner, using its own funds, shall
pay as damages the sum of $100.00 per week (plus interest at the rate
established by Section 6.3 of this Agreement) to the Limited Partner until such
obligations shall have been fulfilled. If the General Partner shall so fail to
pay, the General Partner and its Affiliates shall forthwith cease to be entitled
to any fees hereunder (other than the Development Fee) and/or to the payment of
any Net Operating Income or Sale or Refinancing Proceeds to which the General
Partner may otherwise be entitled hereunder. Payments of fees and Distributions
shall be restored only upon payment of such damages in full.
Section 14.5 Annual Site Visits. On an annual basis a representative of
the Limited Partner, at the Limited Partner's expense, will conduct a site visit
which will include, in part, an inspection of the property, a review of the
office and tenant files and an interview with the property manager. The Limited
Partner may, in its sole discretion, cancel all or any part of the annual site
visit.
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Section 14.6 Tax Returns. The General Partner shall cause income tax
returns for the Partnership to be prepared and timely filed with the appropriate
federal, state and local taxing authorities.
Section 14.7 Fiscal Year. The fiscal year of the Partnership shall be
the calendar year or such other period as may be approved by the Internal
Revenue Service for federal income tax purposes.
Section 14.8 Banking. All funds of the Partnership shall be deposited
in a separate bank account or accounts as shall be determined by the General
Partner with the Consent of the Special Limited Partner. All withdrawals
therefrom shall be made upon checks signed by the General Partner or by any
person authorized to do so by the General Partner. The General Partner shall
provide to any Partner who requests same the name and address of the financial
institution, the account number and other relevant information regarding any
Partnership bank account.
Section 14.9 Certificates and Elections.
(a) The General Partner shall file the First Year Certificate within 90
days following the close of the taxable year during which Completion of
Construction occurs and thereafter shall timely file any certificates which the
Partnership must furnish to federal or state governmental authorities
administering the Tax Credit programs under Section 42 of the Code.
(b) The General Partner, with the Consent of the Special Limited
Partner, may, but is not required to, cause the Partnership to make or revoke
the election referred to in Section 754 of the Code, as amended, or any similar
provisions enacted in lieu thereof.
ARTICLE XV
DISSOLUTION, WINDING UP, TERMINATION
AND LIQUIDATION OF THE PARTNERSHIP
Section 15.1 Dissolution of Partnership. The Partnership shall be dissolved
upon the expiration of its term or the earlier occurrence of any of the
following events.
(a) The effective date of the Withdrawal or removal of the General
Partner, unless (1) at the time there is at least one other General Partner
(which may be the Special Limited Partner if it elects to serve as successor
General Partner under Section 13.4 hereof) who will continue as General Partner,
or (2) within 120 days after the occurrence of any such event the Limited
Partner elects to continue the business of the Partnership.
(b) The sale of the Project and the receipt in cash of the full amount
of the proceeds of such sale.
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Notwithstanding the foregoing, however, in no event shall the
Partnership terminate prior to the expiration of its term if such termination
would result in a violation of the Mortgage or any other agreement with or rule
or regulation of Colonial Bank, Alabama Housing Finance Authority (HOME) and to
which the Partnership is subject.
Section 15.2 Return of Capital Contribution upon Dissolution. Except as
provided in Sections 7.3 and 7.4 of this Agreement, which provide for a
reduction or refund of the Limited Partner's Capital Contribution under certain
circumstances, and which shall represent the personal obligation of the General
Partner, as well as the obligation of the Partnership, each Partner shall look
solely to the assets of the Partnership for all Distributions with respect to
the Partnership (including the return of its Capital Contribution) and shall
have no recourse therefor (upon dissolution or otherwise) against any General
Partner. No Partner shall have any right to demand property other than money
upon dissolution and termination of the Partnership, and the Partnership is
prohibited from such a distribution of property absent the Consent of the
Special Limited Partner.
Section 15.3 Distributions of Assets. Upon a dissolution of the
Partnership, the General Partner (or, if there is no General Partner then
remaining, such other Person(s) designated as the liquidator of the Partnership
by the Special Limited Partner or by the court in a judicial dissolution) shall
take full account of the Partnership assets and liabilities and shall liquidate
the assets as promptly as is consistent with obtaining the fair value thereof.
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Partnership pursuant to Section
11.2(a) through and including 11.2(c), the remaining assets of the Partnership
shall be distributed to the Partners in accordance with Section 11.2, after
taking into account all allocations under Article X hereof.
(b) In the event that a General Partner has a deficit balance in its
Capital Account following the liquidation of the Partnership or its Interest, as
determined after taking into account all Capital Account adjustments for the
Partnership's taxable year in which such liquidation occurs, such General
Partner shall pay to the Partnership the amount necessary to restore such
deficit balance to zero in compliance with Treasury Regulation Section
1.704-1(b)(2)(ii)(b)(3).
The deficit make-up shall be paid by the General Partner by the end of
such taxable year and shall, upon liquidation of the Partnership, be paid to
creditors of the Partnership or distributed to other Partners in accordance with
their positive Capital Account balances. Notwithstanding, if the Special Limited
Partner has become successor General Partner, it shall not be responsible for
any deficit balance in its Capital Account which arose during the time the
former General Partner served as General Partner.
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(c) With respect to assets distributed in kind to the Partners in
liquidation or otherwise:
(1) unrealized appreciation or unrealized depreciation in the
values of such assets shall be deemed to be Income and Losses realized by the
Partnership immediately prior to the liquidation or other Distribution event;
and
(2) such Income and Losses shall be allocated to the Partners
in accordance with Section 10.2 hereof, and any property so distributed shall be
treated as a Distribution of an amount in cash equal to the excess of such Fair
Market Value over the outstanding principal balance of and accrued interest on
any debt by which the property is encumbered.
(d) For the purposes of Section 15.3(c), "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the Fair Market
Value of such assets, taking into account the Fair Market Value of the
associated financing but subject to Section 7701(g) of the Code, and the
Partnership's adjusted basis in such assets for book purposes. Section 15.3(c)
is merely intended to provide a rule for allocating unrealized Income and Losses
upon liquidation or other Distribution event, and nothing contained in Section
15.3(c) or elsewhere in this Agreement is intended to treat or cause such
Distributions to be treated as sales for value. The Fair Market Value of such
assets shall be determined by an independent appraiser to be selected by the
General Partner with the Consent of the Special Limited Partner.
Section 15.4 Deferral of Liquidation. If at the time of liquidation the
General Partner or other liquidator shall determine that an immediate sale of
part or all of the Partnership assets could cause undue loss to the Partners,
the liquidator may, in order to avoid loss, but only with the Consent of the
Special Limited Partner, either defer liquidation and retain all or a portion of
the assets or distribute all or a portion of the assets to the Partners in kind.
In the event that the liquidator elects to distribute such assets in kind, the
assets shall first be assigned a value (by appraisal by an independent
appraiser) and the unrealized appreciation or depreciation in value of the
assets shall be allocated to the Partners' Capital Accounts, as if such assets
had been sold, in the manner described in Section 10.2, and such assets shall
then be distributed to the Partners as provided herein. In applying the
preceding sentence, the Project shall not be assigned a value less than the
unamortized principal balance of any loan secured thereby.
Section 15.5 Liquidation Statement. Each of the Partners shall be
furnished with a statement prepared or caused to be prepared by the General
Partner or other liquidator, which shall set forth the assets and liabilities of
the Partnership as of the date of complete liquidation. Upon compliance with the
distribution plan as outlined in Sections 15.3 and 15.4, the Limited Partner and
Special Limited Partner shall cease to be such and the General Partner shall
execute, acknowledge and cause to be filed those certificates referenced in
Section 15.6.
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Section 15.6 Certificates of Dissolution; Certificate of Cancellation of
Certificate of Limited Partnership.
(a) Upon the dissolution of the Partnership, the General Partner shall
cause to be filed in the office of, and on a form prescribed by the Secretary of
State of the State, a certificate of dissolution. The certificate of dissolution
shall set forth the Partnership's name, the Secretary of State's file number for
the Partnership, the event causing the Partnership's dissolution and the date of
the dissolution.
(b) Upon the completion of the winding up of the Partnership's affairs,
the General Partner shall cause to be filed in the office of, and on a form
prescribed by, the Secretary of State of the State, a certificate of
cancellation of the Certificate of Limited Partnership. The certificate of
cancellation of the Certificate of Limited Partnership shall set forth the
Partnership's name, the Secretary of State's file number for the Partnership,
and any other information which the General Partner determines to include
therein.
ARTICLE XVI
AMENDMENTS
This Agreement may be amended at any time by the Limited Partner. This
Agreement may not be amended by the General Partner absent the Consent of the
Special Limited Partner. Notwithstanding the foregoing, no amendment shall
change the Partnership to a general partnership; extend the term of the
Partnership beyond the date provided for in this Agreement; modify the limited
liability of the Limited Partner and the Special Limited Partner; allow the
Limited Partner to take control of the Partnership's business within the meaning
of the Act; reduce or defer the realization of any Partner's interest in
allocations, Distributions, capital or compensation hereunder, or increase any
Partner's obligations hereunder, without the consent of the Partner so affected;
or change the provisions of this Article XVI.
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ARTICLE XVII
MISCELLANEOUS
Section 17.1 Voting Rights.
(a) The Limited Partner shall have no right to vote upon any matters
affecting the Partnership, except as provided in this Agreement. Notwithstanding
the foregoing, the Limited Partner may, without the concurrence of the General
Partner:
(1) approve or disapprove, but not initiate, the Sale or Refinancing of the
Project;
(2) remove the General Partner and elect a substitute General
Partner as provided in this Agreement;
(3) elect a successor General Partner upon the Withdrawal of
the General Partner;
(4) approve or disapprove, but not initiate, the dissolution of the
Partnership; or
(5) subject to the provisions of Article XVI hereof, amend
this Agreement.
(b) On any matter where the Limited Partner has the right to vote,
votes may only be cast at a duly called meeting of the Partnership or through
written action without a meeting.
(c) The Special Limited Partner shall have the right to consent to
those actions or inactions of the Partnership and/or General Partner as
otherwise set forth in this Agreement, and the General Partner is prohibited
from any action or inaction requiring such consent unless such consent has been
obtained.
Section 17.2 Meeting of Partnership. Meetings of the Partnership may be
called either (a) at any time by the General Partner; or (b) upon the General
Partner's receipt of a written or facsimile request from the Limited Partner
setting forth the purpose of such meeting. Within ten days after receipt of the
Limited Partner's written or facsimile request for a meeting, the General
Partner shall provide all Partners with written notice of the meeting (which
shall be by telephone conference, or at the principal place of business of the
Partnership or such other location referenced in the notice) to be held not less
than 15 days nor more than 30 days after receipt of such written or facsimile
request from the Limited Partner, which notice shall specify the time and place
of such meeting and the purpose or purposes thereof. If the General Partner
fails to provide the written notice of the meeting within ten days after receipt
of the Limited Partner's request to hold a meeting, then the Limited Partner may
59
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provide the written notice of the meeting to all the Partners, which notice
shall specify the time and place of such meeting and the purpose or purposes
thereof. All meetings and actions of the Limited Partner shall be governed in
all respects, including matters relating to notice, quorum, adjournment,
proxies, record dates and actions without a meeting, by the applicable
provisions of the Act, as it shall be amended from time to time.
Section 17.3 Notices. Any notice given pursuant to this Agreement may
be served personally on the Partner to be notified, or may be mailed, first
class postage prepaid, to the following address, or to such other address as a
party may from time to time designate in writing:
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To the General Partner: Apartment Developers, Inc.
P/O Box 2768
Auburn, Alabama 36830
Thomas H. Cooksey
2177 Moores Mill Road
Auburn, Alabama 36830
To the Limited Partner: WNC Housing Tax Credit Fund VI, L.P. Series 5
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
To the Special
Limited Partner: WNC HOUSING, L.P.
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
Section 17.4 Successors and Assigns. All the terms and conditions of
this Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the Partners.
Section 17.5 Recording of Certificate of Limited Partnership. If the
General Partner should deem it advisable to do so, the Partnership shall record
in the office of the County Recorder of the county in which the principal place
of business of the Partnership is located a certified copy of the Certificate of
Limited Partnership, or any amendment thereto, after such Certificate or
amendment has been filed with the Secretary of State of the State.
Section 17.6 Amendment of Certificate of Limited Partnership.
(a) The General Partner shall cause to be filed, within 30 days after
the happening of any of the following events, an amendment to the Certificate of
Limited Partnership reflecting the occurrence of any of the following.
(1) A change in the name of the Partnership.
(2) A change in the street address of the Partnership's
principal executive office.
(3) A change in the address, or the Withdrawal, of a General
Partner, or a change in the address of the agent for service of process, or
appointment of a new agent for service of process.
(4) The admission of a General Partner and that Partner's
address.
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(5) The discovery by the General Partner of any false or
erroneous material statement contained in the Certificate of Limited Partnership
or any amendment thereto.
(b) The Certificate of Limited Partnership may also be amended in
conformity with this Agreement at any time in any other respect that the General
Partner determines.
(c) The General Partner shall cause the Certificate of Limited
Partnership to be amended, when required or permitted as aforesaid, by filing a
certificate of amendment thereto in the office of, and on a form prescribed by,
the Secretary of State of the State. The certificate of amendment shall set
forth the Partnership's name, the Secretary of State's file number for the
Partnership and the text of the amendment.
Section 17.7 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and said
counterparts shall constitute but one and the same instrument which may
sufficiently be evidenced by one counterpart.
Section 17.8 Captions. Captions to and headings of the Articles,
Sections and subsections of this Agreement are solely for the conveniences of
the Partners, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
Section 17.9 Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Section 17.10 Tax Matters Partners. All the Partners hereby agree that
the Special Limited Partner shall be the "Tax Matters Partner" pursuant to the
Code and in connection with any audit of the federal income tax returns of the
Partnership; provided, however, that if the Special Limited Partner shall
withdraw from the Partnership or become Bankrupt, the General Partner shall
thereafter be the "Tax Matters Partner". If the Tax Matters Partner shall
determine to litigate any administrative determination relating to federal
income tax matters, it shall litigate such matter in such court as the Tax
Matters Partner shall decide in its sole discretion. In discharging its duties
and responsibilities, the Tax Matters Partner shall act as a fiduciary (i) to
the Limited Partner (to the exclusion of the other Partners) insofar as tax
matters related to the Tax Credits are concerned, and (ii) to all of the
Partners in other respects. The Limited Partner will make no claim against the
Partnership in respect of any action or omission by the Tax Matters Partner
during such time as the Special Limited Partner acts as the Tax Matters Partner.
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Section 17.11 Expiration of Compliance Period.
(a) Notwithstanding any provision hereof to the contrary (other than
this Section 17.11), the Special Limited Partner shall have the right at any
time after the beginning of the last year of the Compliance Period to require,
by written notice to the General Partner, that the General Partner promptly
submit a written request to the applicable State Tax Credit Agency pursuant to
Section 42(h) of the Code (or any successor provision) that such agency endeavor
to locate within one year from the date of such written request a purchaser for
the Project who will continue to operate the Project as a qualified low income
property, at a purchase price that is not less than the minimum amount set forth
in Section 42(h)(6) of the Code (or any successor provision). In the event that
the State Tax Credit Agency obtains an offer satisfying the conditions of the
preceding sentence, the General Partner shall promptly notify the Special
Limited Partner in writing with respect to the terms and conditions of such
offer, and, if the Special Limited Partner notifies the General Partner that
such offer should be accepted, the General Partner shall cause the Partnership
promptly to accept such offer and to proceed to sell the Project pursuant to
such offer.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Special Limited Partner shall have the right at any time after the
end of the Compliance Period to require, by written notice to the General
Partner (the "Required Sale Notice"), that the General Partner promptly use its
best efforts to obtain a buyer for the Project on the most favorable terms then
available. The General Partner shall submit the terms of any proposed sale to
the Special Limited Partner for its approval in the manner set forth in Section
17.11(a) hereof. If the General Partner shall fail to so obtain a buyer for the
Project within six months of receipt of the Required Sale Notice or if the
Consent of the Special Limited Partner in its sole discretion shall be withheld
to any proposed sale, then the Special Limited Partner shall have the right at
any time thereafter to obtain a buyer for the Project on terms acceptable to the
Special Limited Partner (but not less favorable to the Partnership than any
proposed sale previously rejected by the Special Limited Partner). In the event
that the Special Limited Partner so obtains a buyer, it shall notify the General
Partner in writing with respect to the terms and conditions of the proposed sale
and the General Partner shall cause the Partnership promptly to sell the Project
to such buyer.
(c) A sale of the Project prior to the end of the Compliance Period may
only take place if the conditions of Section 42(j)(6) of the Code (or any
successor provision) will be satisfied upon such sale by having the purchaser of
the Project post the required bond on behalf of the Partnership.
Section 17.12 Number and Gender. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the Person or Persons may require.
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Section 17.13 Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
all prior understandings and agreements between the parties, written or oral,
respecting this transaction are merged in this Agreement.
Section 17.14 Governing Law. This Agreement and its application shall be
governed by the laws of the State.
Section 17.15 Attorney's Fees. If a suit or action is instituted in
connection with an alleged breach of any provision of this Agreement, the
prevailing party shall be entitled to recover, in addition to costs, such sums
as the court may adjudge reasonable as attorney's fees, including fees on any
appeal.
Section 17.16 Receipt of Correspondence. The Partners agree that the
General Partner shall send to the Limited Partner and the Special Limited
Partner a copy of any correspondence relative to the Project's noncompliance
with the Mortgage, relative to the acceleration of the Mortgage and/or relative
to the disposition of the Project.
Section 17.17 Security Interest and Right of Set-Off. As security for
the performance of the respective obligations to which any Partner may be
subject under this Agreement, the Partnership shall have (and each Partner
hereby grants to the Partnership) a security interest in all funds distributable
to said Partner to the extent of the amount of such obligation.
IN WITNESS WHEREOF, this Amended and Restated Agreement of Limited
Partnership of Apartment Housing of Theodore, LTD, an Alabama limited
partnership, is made and entered into as of the ________ day of
_________________, 1998.
GENERAL PARTNER
Apartment Developers, Inc.
By:
Thomas H. Cooksey,
President
signatures continued...
Thomas H. Cooksey
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----------------------------------
WITHDRAWING ORIGINAL LIMITED PARTNERS
Thomas H. Cooksey
--------------------------
Kay F. Wallace
--------------------------
Charles T. Farrow, Jr.
LIMITED PARTNER
WNC Housing Tax Credit Fund VI, L.P.,Series 5
By: WNC & ASSOCIATES, INC.
General Partner
By: _________________
David N. Shafer,
Senior Vice President
SPECIAL LIMITED PARTNER
WNC HOUSING, L.P.
By: WNC & Associates, Inc.,
General Partner
By:_______________________
David N. Shafer,
Senior Vice President
65
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EXHIBIT A TO PARTNERSHIP AGREEMENT
LEGAL DESCRIPTION
Lot 2 amended plat, Hunters Run, plat 1 as recorded in map book 60, page 25 in
the office of the Judge of Probate, Mobile County, Alabama. Excepting therefrom
all oil, gas and other minerals in, on and under said real property, together
with all rights in connection therewith, as have previously been reserved by or
conveyed to others than the Grantors. The Grantor hereby warrants and declares
that the above described property constitutes no part of the Grantor's
homestead, and such property is not claimed or declared as homestead property.
A-1
<PAGE>
EXHIBIT B TO PARTNERSHIP AGREEMENT
FORM OF LEGAL OPINION
WNC Housing Tax Credit Fund VI, L.P. Series 5
c/o WNC & Associates, Inc.
3158 Redhill Avenue, Suite 120
Costa Mesa, California 92626
RE: Apartment Housing of Theodore, LTD
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the investment by WNC Housing Tax Credit Fund VI, L.P. Series 5,
a California limited partnership (the "Limited Partner") in Apartment Housing of
Theodore, LTD (the "Partnership"), an Alabama limited partnership formed to own,
develop, (construct/-rehabilitate) finance and operate an apartment complex for
low-income persons (the "Apartment Complex") in Theodore, Mobile County, Alabama
. The general partners of the Partnership are Apartment Developers, Inc. and
Thomas H. Cooksey (the "General Partner(s)").
In rendering the opinions stated below, we have examined and relied
upon the following:
(i) [Certificate of Limited Partnership];
(ii) [Agreement of Limited Partnership] (the "Partnership
Agreement");
(iii) A preliminary reservation letter from [State
Allocating Agency] (the "State Agency") dated
_________, 199___ conditionally awarding
$_______________ in Federal tax credits annually for
each of ten years and $_______________ in California
tax credits annually for each of four years for the
Apartment Complex; and
(iv) Such other documents, records and instruments as
we have deemed necessary in order to enable us to
render the opinions referred to in this letter.
For purposes of rendering the opinions stated below we have assumed
that, in those cases in which we have not been involved directly in the
preparation, execution or the filing of a document, that (a) the document
reviewed by us is an original document, or a true and accurate copy of the
original document, and has not been subsequently amended, (b) the signatures on
each original document are genuine, and (c) each party who executed the document
had proper authority and capacity.
B-1
<PAGE>
Based on the foregoing we are of the opinion that:
(a) ________________________, one of the General Partners, is a
[corporation/partnership] duly formed and validly existing under the laws of the
State of _____________________ and has full power and authority to enter into
and perform its obligations under the Partnership Agreement.
_____________________, one of the other General Partners, is a
[corporation/partnership] duly formed and validly existing under the laws of the
State of __________________ and has full power and authority to enter into and
perform its obligations under the Partnership Agreement.
(b) The Partnership is a limited partnership duly formed and validly
existing under the laws of the State of Alabama.
(c) The Partnership is validly existing under and subject to the laws
of Alabama with full power and authority to own, develop,
[construct/rehabilitate], finance and operate the Apartment Complex and to
otherwise conduct business under the Partnership Agreement.
(d) Execution of the Partnership Agreement by the General Partner(s)
has been duly and validly authorized by or on behalf of the General Partner(s)
and, having been executed and delivered in accordance with its terms, the
Partnership Agreement constitutes the valid and binding agreement of the General
Partner(s), enforceable in accordance with its terms.
(e) The execution and delivery of the Partnership Agreement by the
General Partner(s) does not conflict with and will not result in a breach of any
of the terms, provisions or conditions of any agreement or instrument known to
counsel to which any of the General Partner(s) or the Partnership is a party or
by which any of them may be bound, or any order, rule, or regulation to be
applicable to any of such parties of any court or governmental body or
administrative agency having jurisdiction over any of such parties or over the
property.
(f) To the best of counsel's knowledge, after due inquiry, there is no
litigation or governmental proceeding pending or threatened against, or
involving the Apartment Complex, the Partnership or any General Partner which
would materially adversely affect the condition (financial or otherwise) or
business of the Apartment Complex, the Partnership or any of the Partners of the
Partnership.
(g) The Limited Partner and the Special Limited Partner have been
admitted to the Partnership as limited partners of the Partnership under
__________ law and are entitled to all of the rights of limited partners under
the Partnership Agreement. Except as described in the Partnership Agreement, no
person is a partner of or has any legal or equitable interest in the
Partnership, and all former partners of record or known to counsel have validly
withdrawn from the Partnership and have released any claims against the
Partnership arising out of their participation as partners therein.
B-2
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(h) Liability of the Limited Partner for obligations of the Partnership
is limited to the amount of the Limited Partner's capital contributions required
by the Partnership Agreement.
(i) Neither the General Partner(s) of the Partnership nor the Limited
Partner nor the Special Limited Partner will have any liability for the Mortgage
represented thereby (as those terms are defined in the Partnership Agreement,
and the lender of the Mortgage Loan will look only to its security in the
Apartment Complex for repayment of the Mortgage Loan.
(j) The Partnership owns a fee simple interest in the Apartment
Complex.
(k) To the best of our actual knowledge and belief, after due inquiry,
the Partnership has obtained all consents, permissions, licenses, approvals, or
orders required by all applicable governmental or regulatory agencies for the
development, [construction/rehabilitation] and operation of the Apartment
Complex, and the Apartment Complex conforms to all applicable Federal, state and
local land use, zoning, health, building and safety laws, ordinances, rules and
regulations.
(l) The Apartment Complex has obtained a preliminary reservation of low
income housing tax credits ("LIHTC") from the State Agency. The final allocation
of the LIHTC and ultimately eligibility of the Apartment Complex for such final
allocation are subject to a series of requirements which must be met, performed
or achieved at various times prior to and after such final allocation. Assuming
all such requirements are met, performed or achieved at the time or times
provided by applicable laws and regulations, the Apartment Complex will qualify
for LIHTC.
All of the opinions set forth above are qualified to the extent that
the validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to, the applicability
of, or liability under, any Federal, state or local law, ordinance or regulation
governing or pertaining to environmental matters, hazardous wastes, toxic
substances or the like.
B-3
<PAGE>
We express no opinion as to any matter except those set forth above.
These opinions are rendered for use by the Limited Partner and its legal counsel
which will rely on this opinion in connection with federal income tax opinions
to be rendered by that firm. This opinion may not be delivered to or relied upon
by any other person or entity without our express written consent.
Sincerely,
- --------------------
B-4
<PAGE>
EXHIBIT C TO PARTNERSHIP AGREEMENT
CERTIFICATION AND AGREEMENT
CERTIFICATION AND AGREEMENT made as of the date written below by Apartment
Housing of Theodore, LTD, an Alabama limited partnership (the "Partnership");
Apartment Developers, Inc. and Thomas H. Cooksey (collectively referred to as
the "General Partner"); and Thomas H. Cooksey, Kay F. Wallace, Charles T.
Farrow, Jr. (collectively referred to as the "Original Limited Partners") for
the benefit of WNC Housing Tax Credit Fund VI, L.P. Series 5, a California
limited partnership (the "Investment Partnership"), and WNC & Associates, Inc.
("WNC").
WHEREAS, the Partnership proposes to admit the Investment Partnership
as a limited partner thereof pursuant to an Amended and Restated Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"), in
accordance with which the Investment Partnership will make substantial capital
contributions to the Partnership; and
WHEREAS, the Investment Partnership and WNC have relied upon certain
information and representations described herein in evaluating the merits of
investment by the Investment Partnership in the Partnership;
NOW, THEREFORE, to induce the Investment Partnership to enter into the
Partnership Agreement and become a limited partner of the Partnership, and for
$1.00 and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Partnership, the General Partner and the
Original Limited Partner hereby agree as follows for the benefit of the
Investment Partnership and WNC.
1. Representations, Warranties and Covenants of the Partnership,
the General Partner and the Original
Limited Partner
The Partnership, the General Partner and the Original Limited Partner
jointly and severally represent, warrant and certify to the Investment
Partnership and WNC that, with respect to the Partnership, as of the date
hereof:
1.1 The Partnership is duly organized and in good standing as
a limited partnership pursuant to the laws of the state of its formation with
full power and authority to own its apartment complex (the "Apartment Complex")
and conduct its business; the Partnership, the General Partner and the Original
Limited Partner have the power and authority to enter into and perform this
Certification and Agreement; the execution and delivery of this Certification
and Agreement by the Partnership, the General Partner and the Original Limited
Partner have been duly and validly authorized by all necessary action; the
execution and delivery of this Certification and Agreement, the fulfillment of
C-1
<PAGE>
its terms and consummation of the transactions contemplated hereunder do not and
will not conflict with or result in a violation, breach or termination of or
constitute a default under (or would not result in such a conflict, violation,
breach, termination or default with the giving of notice or passage of time or
both) any other agreement, indenture or instrument by which the Partnership or
any General Partner or Original Limited Partner is bound or any law, regulation,
judgment, decree or order applicable to the Partnership or any General Partner
or Original Limited Partner or any of their respective properties; this
Certification and Agreement constitutes the valid and binding agreement of the
Partnership, the General Partner and the Original Limited Partner, enforceable
against each of them in accordance with its terms.
1.2 The General Partner has delivered to the Investment
Partnership, WNC or their affiliates all documents and information which would
be material to a prudent investor in deciding whether to invest in the
Partnership. All factual information provided to the Investment Partnership, WNC
or their affiliates either in writing or orally, did not, at the time given, and
does not, on the date hereof, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they are made.
1.3 Each of the representations and warranties contained in
the Partnership Agreement is true and correct as of the date hereof.
1.4 Each of the covenants and agreements of the Partnership
and the General Partner contained in the Partnership Agreement has been duly
performed to the extent that performance of any covenant or agreement is
required on or prior to the date hereof.
1.5 All conditions to admission of the Investment Partnership
as the investment limited partner of the Partnership contained in the
Partnership Agreement have been satisfied.
1.6 No default has occurred and is continuing under the
Partnership Agreement or any of the Project Documents (as such term is defined
in the Partnership Agreement) for the Partnership.
1.7 The Partnership will allocate to the Limited Partner the
Projected Annual Tax Credits, or the Revised Projected Tax Credits, if
applicable.
1.8 The General Partner agrees to take all actions necessary
to claim the Projected Tax Credit, including, without limitation, the filing of
Form(s) 8609 with the Internal Revenue Service.
C-2
<PAGE>
1.9 No person or entity other than the Partnership holds any equity
interest in the Apartment Complex.
1.10 The Partnership has the sole responsibility to pay all
maintenance and operating costs, including all taxes levied and all insurance
costs, attributable to the Apartment Complex.
1.11 The Partnership, except to the extent it is protected by
insurance and excluding any risk borne by lenders, bears the sole risk of loss
if the Apartment Complex is destroyed or condemned or there is a diminution in
the value of the Apartment Complex.
1.12 No person or entity except the Partnership has the right
to any proceeds, after payment of all indebtedness, from the sale, refinancing,
or leasing of the Apartment Complex.
1.13 No General Partner is related in any manner to the
Investment Partnership, nor is any General Partner acting as an agent of the
Investment Partnership.
2. Miscellaneous
2.1 This Certification and Agreement is made solely for the
benefit of the Investment Partnership and WNC, and their respective successors
and assignees, and no other person shall acquire or have any right under or by
virtue of this Agreement.
2.2 This Certification and Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, all of
which together shall constitute one and the same instrument.
2.3 Capitalized terms used but not defined in this
Certification Agreement shall have the meanings given to them in the Partnership
Agreement.
IN WITNESS WHEREOF, this Certificate and Agreement is made and entered
into as of the day of ____________, 1998.
signatures continued on next page..
PARTNERSHIP
Apartment Housing of Theodore, LTD
C-3
<PAGE>
By:
Thomas H. Cooksey
President
GENERAL PARTNER
Apartment Developers, Inc.
By: __________________________
Thomas H. Cooksey,
President
Thomas H. Cooksey
--------------------------
ORIGINAL LIMITED PARTNER
By:
Thomas H. Cooksey
By: ________________________
Kay F. Wallace
By: ________________________
Charles T. Farrow, Jr.
C-4
<PAGE>
EXHIBIT D TO THE PARTNERSHIP AGREEMENT
GENERAL PARTNER CERTIFICATION
This General Partner Certification is being issued to WNC Housing Tax
Credit Fund VI, L.P. Series 5 ("Limited Partner") by Apartment Developers, Inc.
and Thomas H. Cooksey, General Partner of Apartment Housing of Theodore, LTD, an
Alabama limited partnership ("Partnership") in accordance with Section 7.2 of
the Amended and Restated Agreement of Limited Partnership of the Partnership
("Partnership Agreement").
Capitalized terms used but not defined in this General Partner
Certification shall have the meanings given to them in the Partnership
Agreement.
WHEREAS, the Limited Partner is scheduled to make a Capital Contribution to
the Partnership;
WHEREAS, the Partnership Agreement requires the General Partner to
issue this Certification prior to the Limited Partner's payment; and
WHEREAS, the Limited Partner shall rely on this Certification in
evaluating the continued merits of its investment in the Partnership;
NOW, THEREFORE, to induce the Limited Partner to make its scheduled
Capital Contribution to the Partnership, the General Partner represents and
warrants to the Limited Partner that the following are true and correct as of
the date written below.
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of the
Limited Partner and the Special Limited Partner.
(b) The Partnership Agreement and the Project Documents are in full
force and effect and neither the Partnership nor the General Partner is in
breach or violation of any provisions thereof.
(c) Improvements will be completed in a timely and workerlike manner in
accordance with all applicable requirements of all appropriate governmental
entities and the plans and specifications of the Project, as such plans and
specifications may be changed from time to time with the approval of Colonial
Bank, Alabama Housing Finance Authority (HOME) and any applicable governmental
entities, if such approval shall be required.
D-1
<PAGE>
(d) The Project is being operated in accordance with standards and
procedures which are prudent and customary for the operation of properties
similar to the Project.
(e) Additional Improvements on the Project, if any, shall be completed
substantially in conformity with plans and specifications approved by the
Special Limited Partner.
(f) No Partner has or will have any personal liability with respect to,
or has or will have personally guaranteed the payment of, the Mortgage.
(g) The Partnership is in compliance with all construction and use
codes applicable to the Project and is not in violation of any zoning,
environmental or similar regulations applicable to the Project.
(h) All appropriate public utilities, including sanitary and storm
sewers, water, gas and electricity, are currently available and will be
operating properly for all units in the Project at the time of first occupancy
and throughout the term of the Partnership.
(i) The Partnership has obtained Insurance written by an Insurance
Company.
(j) The Partnership owns the fee simple interest in the Project.
(k) The Construction Contract has been entered into between the
Partnership and the Contractor; no other consideration or fee shall be paid to
the Contractor other than amounts set forth in the Construction Contract.
(l) The Partnership will require the Accountant to depreciate the
Improvements over a 27 1/2 year term.
(m) To the best of the General Partner's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Project and (2) no aboveground or underground
storage tanks are now or have ever been located on or under the Project. The
General Partner will not install or allow to be installed any aboveground or
underground storage tanks on the Project. The General Partner covenants that the
Project shall be kept free of Hazardous Materials and shall not be used to
generate, manufacture, refine, transport, treat, store, handle, dispose of,
transfer, produce or process Hazardous Materials, except in connection with the
normal maintenance and operation of any portion of the project. The General
Partner shall comply, or cause there to be compliance, with all applicable
Federal, state and local laws, ordinances, rules and regulations with respect to
Hazardous Materials and shall keep, or cause to be kept, the Project free and
D-2
<PAGE>
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The General Partner must promptly notify the Special Limited
Partner in writing (3) if it knows, or suspects or believes there may be any
Hazardous Substance in or around any part of the Project, any Improvements
constructed on the Project, or the soil, groundwater or soil vapor, (4) if the
General Partner or the Partnership may be subject to any threatened or pending
investigation by any governmental agency under any law, regulation or ordinance
pertaining to any Hazardous Substance, and (5) of any claim made or threatened
by any Person, other than a governmental agency, against the Partnership or
General Partner arising out of or resulting from any Hazardous Substance being
present or released in, on or around any part of the Project.
(n) The General Partner has not executed and will not execute any
agreements with provisions contradictory to, or in opposition to, the provisions
of the Partnership Agreement.
(o) The Partnership will allocate to the Limited Partner the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(p) No charges or encumbrances exist with respect to the Project other
than those which are created or permitted by the Project Documents or are noted
or excepted in the title policy for the Project.
(q) The buildings on the Project site constitute or shall constitute a
"qualified low-income housing project" as defined in Section 42(g) of the Code,
and as amplified by the Treasury Regulations thereunder. In this connection, not
later than December 31 of the first year in which the Partners elect the LIHTC
to commence in accordance the Code, the Project will satisfy the Minimum
Set-Aside Test.
(r) All accounts of the Partnership required to be maintained under the
terms of the Project Documents, including, without limitation, any reserves in
accordance with Article VIII hereof, are currently funded to required levels,
including levels required by any authority.
(s) The General Partner has not lent or otherwise advanced any funds to
the Partnership other than its Capital Contribution and the Partnership has no
unsatisfied obligation to make any payments of any kind to the General Partner
or any Affiliate thereof.
(t) No event has occurred which constitutes a material default under
any of the Project Documents.
(u) No event has occurred which has caused, and the General Partner has
not acted in any manner which will cause (1) the Partnership to be treated for
D-3
<PAGE>
federal income tax purposes as an association taxable as a corporation, (2) the
Partnership to fail to qualify as a limited partnership under the Act, or (3)
the Limited Partner to be liable for Partnership obligations; provided however,
the General Partner shall not be in breach of this representation if all or a
portion of a Limited Partner's agreed upon Capital Contributions are used to
satisfy the Partnership's obligations to creditors of the Partnership and such
action by the General Partner is otherwise authorized under this Agreement and;
provided further, however, the General Partner shall not be in breach of this
representation if the action causing the Limited Partner to be liable for the
Partnership obligations is undertaken by the Limited Partner.
(v) No event or proceeding, including, but not limited to, any legal
actions or proceedings before any court, commission, administrative body or
other governmental authority, and acts of any governmental authority having
jurisdiction over the zoning or land use laws applicable to the Project, has
occurred the continuing effect of which has: (1) materially or adversely
affected the operation of the Partnership or the Project; (2) materially or
adversely affected the ability of the General Partner to perform its obligations
hereunder or under any other agreement with respect to the Project; or (3)
prevented the completion of construction of the Improvements in substantial
conformity with the Project Documents, other than legal proceedings which have
been bonded against (or as to which other adequate financial security has been
issued) in a manner as to indemnify the Partnership against loss; provided,
however, the foregoing does not apply to matters of general applicability which
would adversely affect the Partnership, the General Partner, Affiliates of the
General Partner or the Project only insofar as they or any of them are part of
the general public.
(w) Neither the Partnership nor the General Partner has any
liabilities, contingent or otherwise, which have not been disclosed in writing
to the Limited Partner and the Special Limited Partner and which in the
aggregate affect the ability of the Limited Partner to obtain the anticipated
benefits of its investment in the Partnership.
(x) The General Partner has and shall maintain a net worth equal to at
least $1,000,000 computed in accordance with generally accepted accounting
principles.
D-4
<PAGE>
IN WITNESS WHEREOF, the undersigned have set their hands to this
General Partner Certification this day of _________, 1998.
General Partner
Apartment Developers, Inc.
By: ____________________
Thomas H. Cooksey'
President
Thomas H. Cooksey
----------------------
D-5
<PAGE>
EXHIBIT E TO PARTNERSHIP AGREEMENT
FORM OF COMPLETION CERTIFICATE
(to be used when construction [rehabilitation] completed)
COMPLETION CERTIFICATE
The undersigned, an architect duly licensed and registered in the State of
Alabama, has prepared final working plans and detailed specifications for
Apartment Housing of Theodore, LTD, an Alabama limited partnership (the
"Partnership"), between WNC Housing Tax Credit Fund VI, L.P. Series 5, a
California limited partnership ("Limited Partner") and the Partnership in
connection with the construction [rehabilitation] of improvements on certain
real property located in Theodore, Mobile, Alabama
(the "Improvements").
The undersigned hereby certifies (i) that the Improvements have been completed
in accordance with the aforesaid plans and specifications, (ii) that a permanent
certificate of occupancy and all other permits required for the continued use
and occupancy of the Improvements have been issued with respect thereto by the
governmental agencies having jurisdiction thereof, (iii) that the Improvements
are in compliance with all requirements and restrictions of all governmental
authorities having jurisdiction over the Improvements, including, without
limitation, all applicable zoning, building, environmental, fire, and health
ordinances, rules and regulations and (iv) that all contractors, subcontractors
and workmen who worked on the Improvements have been paid in full except for
normal retainages and amounts in dispute.
- -----------------------------------
Project Architect
Date: ____________________________
Confirmed by:
- -----------------------------------
General Partner
Date: ____________________________
E-1
<PAGE>
EXHIBIT F TO THE PARTNERSHIP
[ACCOUNTANT'S CERTIFICATE]
[Accountant's Letterhead]
_______________, 199____
WNC Housing Tax Credit Fund VI, L.P. Series 5
c/o WNC & Associates, Inc.
3158 Redhill Ave., Suite 120
Costa Mesa, California 92626
RE: Partnership
Certification as to Amount
of Eligible Tax Credit Base
Gentlemen:
In connection with the acquisition by WNC Housing Tax Credit Fund VI, L.P.
Series 5 (the "Limited Partner") of a limited partnership interest in Apartment
Housing of Theodore, LTD, an Alabama limited partnership (the "Partnership")
which owns a certain parcel of land located in Theodore, Mobile County, Alabama
and improvements thereon (the "Project"), the Limited Partner has requested our
certification as to the amount of low-income housing tax credits ("Tax Credits")
available with respect to the Project under Section 42 of the Internal Revenue
Code of 1986, as amended (the "Code"). Based upon our review of [the financial
information provided by the Partnership] of the Partnership, we are prepared to
file the Federal information tax return of the Partnership claiming annual Tax
Credits in the amount of $_______________, which amount is based on an eligible
basis (as defined in Section 42(d) of the Code) of the Project of
$________________, a qualified basis (as defined in Section 42(c) of the Code)
of the Project of $_________________ and an applicable percentage (as defined in
Section 42(b) of the Code) of _____%.
Sincerely,
- -------------------------
F-1
<PAGE>
EXHIBIT G TO THE PARTNERSHIP AGREEMENT
[CONTRACTOR'S CERTIFICATE]
[Contractor's Letterhead]
_______________, 199____
WNC Housing Tax Credit Fund VI, L.P. Series 5
c/o WNC & Associates, Inc.
3158 Redhill Avenue
Suite 120
Costa Mesa, California 92626
Re: Apartment Housing of Theodore, LTD
Dear Ladies and Gentlemen:
The undersigned Jerry Kyser Builders, Inc., (hereinafter referred to as
"Contractor"), has furnished or has contracted to furnish labor, services and/or
materials (hereinafter collectively referred to as the "Work") in connection
with the improvement of certain real property known as __________________
located in Theodore, Mobile County, Alabama
(hereinafter known as the "Project").
Contractor makes the following representations and warranties regarding Work at
the Project.
o Work on said Project has been performed and completed in accordance with the
plans and specifications for the Project.
o Contractor acknowledges that all amounts owed pursuant to the contract for
Work performed for Apartment Housing of Theodore, LTD is paid in full.
o Contractor acknowledges that Apartment Housing of Theodore, LTD is not in
violation with terms and conditions of the contractual documents related to
the Project.
o Contractor warrants that all parties who have supplied Work for improvement of
the Project have been paid in full.
o Contractor acknowledges the contract to be paid in full and releases any lien
or right to lien against the above property.
The undersigned has personal knowledge of the matters stated herein and is
authorized and fully qualified to execute this document on behalf of the
Contractor.
(NAME OF COMPANY)
By:_________________________________________
Title:________________________________________
G-1
<PAGE>
REPORT OF OPERATIONS
QUARTER ENDED:____________________________,199X
- ------------------------------------- -----------------------------------
LOCAL PARTNERSHIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
GENERAL PARTNER:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
FIRM NAME:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PROPERTY NAME:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
-----------------------------------
- ------------------------------------- -----------------------------------
RESIDENT MANAGER:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ACCOUNTANT:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
FIRM:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------ -----------------------------------
MANAGEMENT COMPANY
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CONTACT:
- ------------------------------------- -----------------------------------
- -------------------------------------------------------------------------------
OCCUPANCY INFORMATION
A. Number of Units_____ Number of RA Units_____ Number of Section 8 Tenants ____
B. Occupancy for the Quarter has: Increased ____ Decreased_____
Remained the Same _____
C. Number of: Move-Ins ______ Move-Outs __________ % of Occupancy ______
D. Average length of tenant residency: 1-6 months ______ 6-12 months ______
1-3 years ______ Over 4 years_____
E. Number of Basic rent qualified applicants on waiting list: ________
F. If the apartments are less than 90% occupied, please explain why and
describe what efforts are being made to lease-up remaining units.
___________________________________________________________________________
G. On site manager: Full Time__________ Part Time____________.
If part-time, the number of hours per week_____________.
H-1
<PAGE>
OPERATIONAL INFORMATION
Rent Schedule and Increases from Previous Quarter
Number Monthly Rent Rent Increases Effective
of Units Basic / Market Amount Percent Date
1 Bedroom ________ ______________ _________________ ________
2 Bedroom ________ ______________ _________________ ________
3 Bedroom ________ ______________ _________________ ________
PROPOSED MAINTENANCE
Completed Funded by
Type Description or Operations or Amount
Planned Reserves
- ------------------------------------------------------------------------------
Interior Painting
- ------------------------------------------------------------------------------
Exterior Painting
- ------------------------------------------------------------------------------
Siding
- ------------------------------------------------------------------------------
Roofing
- ------------------------------------------------------------------------------
Drainage
- ------------------------------------------------------------------------------
Paving
- ------------------------------------------------------------------------------
Landscaping
- ------------------------------------------------------------------------------
Playground
- ------------------------------------------------------------------------------
Community Room
- ------------------------------------------------------------------------------
Laundry Room
- ------------------------------------------------------------------------------
Common Areas
- ------------------------------------------------------------------------------
Carpet
- ------------------------------------------------------------------------------
Appliances
- ------------------------------------------------------------------------------
Lighting
- ------------------------------------------------------------------------------
Other
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Please describe in detail any major repairs:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
H-2
<PAGE>
CONDITION OF PROPERTY
THE OVERALL APPEARANCE OF THE BUILDING(S) IS:
Excellent Good Fair Bad
THE OVERALL APPEARANCE OF THE GROUNDS IS:
Excellent Good Fair Bad
EXTERIOR CONDITION (Please Check Appropriate Box)
- ------------------------------------------------------------------------------
Type of Condition Excellent Good Fair Problems/Comments
- ------------------------------------------------------------------------------
Signage
- -------------------------------------------------------------------------------
Parking Lots
- -------------------------------------------------------------------------------
Office/Storage
- -------------------------------------------------------------------------------
Equipment
- -------------------------------------------------------------------------------
Community Building
- -------------------------------------------------------------------------------
Laundry Room
- -------------------------------------------------------------------------------
Benches/Playground
- -------------------------------------------------------------------------------
Lawns, Plantings
- -------------------------------------------------------------------------------
Drainage, Erosion
- -------------------------------------------------------------------------------
Carports
- -------------------------------------------------------------------------------
Fences
- -------------------------------------------------------------------------------
Walks/Steps/Guardrails
- -------------------------------------------------------------------------------
Lighting
- -------------------------------------------------------------------------------
Painting
- -------------------------------------------------------------------------------
Walls/Foundation
- -------------------------------------------------------------------------------
Roof/Flashing/Vents
- -------------------------------------------------------------------------------
Gutters/Splashblocks
- -------------------------------------------------------------------------------
Balconies/Patios
- -------------------------------------------------------------------------------
Doors Windows/Screens
- -------------------------------------------------------------------------------
Elevators
- -------------------------------------------------------------------------------
INTERIOR CONDITION
- -------------------------------------------------------------------------------
Stairs
- -------------------------------------------------------------------------------
Flooring
- -------------------------------------------------------------------------------
Doors/Cabinets/Hardware
- -------------------------------------------------------------------------------
Drapes/Blinds
- -------------------------------------------------------------------------------
Interior Painting
- -------------------------------------------------------------------------------
Refrig/Stoves/Sinks
- -------------------------------------------------------------------------------
Bathroom/Tubs/Showers
Toilets
- -------------------------------------------------------------------------------
H-3
<PAGE>
FINANCIAL STATUS
A. Replacement Reserve is: Fully-funded Under-funded Amount
(complete attached schedule)
Tax/Insurance Escrow is: Fully-funded Under-funded Amount
(complete attached schedule)
Property is operating at a: Surplus Deficit Amount
If deficit, General Partner funding? Yes No Amount
Mortgage Payments are: On Schedule Delinquent Amount
Are the taxes current? Yes No
(please provide copy of paid tax bill)
Is the insurance current? Yes No Renewal Date
(please provide copy of yearly renewal)
B. Please note and explain any significant changes in the following:
Administrative Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Repairs/Maintenance Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Utility Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Taxes/Insurance Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
C. Do you anticipate making a return to owner distribution? Yes No
Explanation:
------------------------------------------------------------------------
------------------------------------------------------------------------
D. Please explain in detail any change in the financial condition:
------------------------------------------------------------------------
------------------------------------------------------------------------
E. Any insurance claims files? Yes______ No______
If yes, please explain:
------------------------------------------------------------------------
------------------------------------------------------------------------
H-4
<PAGE>
SCHEDULE OF RESERVES
Replacement Tax & Insurance Other Total
Beginning Balance:
Deposits:
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
Total Deposits
----------- ---------- ------- -------
Authorized Disbursements:
Description:
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
Total Disbursements: ----------- ---------- -------- ------
Ending Balance: (1) ----------- ---------- -------- ------
Required Balance: ----------- ---------- -------- ------
Over/under funding: ----------- ---------- -------- ------
(1) Must agree with amount shown on the balance sheet.
Prepared By: Date:
- -------------------------------------------------------------------------------
Firm: Telephone:
- -------------------------------------------------------------------------------
Reminder: Please include the following documents:
1. Completed Report of Operations
2. Balance Sheet
3. Statement of Income & Expenses
4. Rent roll for quarter ending
5. Tax Credit Compliance Report
H-5
<PAGE>
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
Fund: Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
Property Name: [ ] 20/50 or [ ] 40/60 Election
Address: Does the 51% average apply? [ ] Y [ ] N
Deeper Set-Aside __% @ 50% AMI
County:
Management Company
[ ] Multi-Family Contact Person:
[ ] Elderly
24 Number of Units Phone #
Number of Exempt
Units
LIHTC Project#
- -----------------------------------------------------------------------------
Gross Move-In
Unit First Time Move-In No. of No. in Income Income
No. Tenant Name Date Bdrms Sq. Ft. Set-Aside Unit Move-In Limits
- -------------------------------------------------------------------------------
BIN # Certificate of Occupancy Date:
- -----------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BIN # Certificate of Occupancy Date:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BIN # Certificate of Occupancy Date:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
(CONTINUED)
Tenant Tenant
Income Income Asset Unit Rent Tenant Utility
Qualified Verification Verification Rent Subsidy Payment Allowance
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
<PAGE>
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
(CONTINUED)
Tenant Tenant Overall
Gross Maximum Rent Tenant
Rent Rent Qualified Eligible
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
H-6
<PAGE>
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
Quarter Ending: Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
[ ] 20/50 or [ ] 40/60 Election
Does the 51% average apply? [ ] Y [ ] N
Deeper Set-Aside : ( List Details)
County: Allocation: Management Company:
Pre-1990 (Rent based on number of persons) Contact Person:
Elected to change No. Bedrm
Post-1989 (Based on number of Bedroom)
[ ] Multi-Family [ ] Elderly Phone No.
Number of Units
Number of Exempt Units Fax No.
Prepared by:
LIHTC Project#
- -----------------------------------------------------------------------------
Gross Annual
Unit Tenant Move-In No. Of Inc. Set- No. In Annual Income
No. Name Date Bdrms Pct. Aside Unit Income Limits
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
(CONTINUED)
Annual Tenant Less
Recert. Income Income Assets Unit Rent Tenant
Date Qualified Verified Verified Rent Subsidy Payment
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Tenant Tenant Overall
Utility Gross Maximum Rent Tenat
Allow. Rent Rent Qualified Eligible
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
H-7
<PAGE>
Tenant Tax Credit Compliance Audit
Document Transmittal Checklist
Unit Number Property Name Date
Tenant Name Completed By:
Initial _________ Annual________
Check Box for Type of Certification Management Company
This Section For WNC Use Only
Check Documents Being Sent
Received. Reviewed
___Internal Checklist or worksheet
___Initial - Rental Application/Rental Agreement
___Initial - Questionnaire of Income/Assets
___Recertification - Questionnaire of Income/Assets
___Recertification - Addendum to Lease
___Employment Verification
___Employment Termination Verification
___Military Verification
___Verification of Welfare Benefits
___Verification of Social Security Benefits
___Verification of Disability Benefits
___Unemployment Verification
___Verification of Unemployment Compensation
___Verification Worksmen Compensation
___Retirement/Annuities Verification
___Verification of Veterans Pension
___Verification of Child Support
___Verification of Alimony Support
___Disposed of Assets Last 2 yrs.
___Real Estate
___Investment
___Assets Verifications (savings, stocks etc.)
___Trusts/with Current Tax Return
___Lump Sum Settlements
___Notarized Affidavit of Support
___Certification of Handicap
___Notarized Self-Employed-Tax Return
___Notarized statement of no income
___Tenant Certification
- ------------------------------------------------------------------------------
This Section For WNC Use Only
YES NO
Are all required forms completed?
Are all required forms dated?
Did the Manager and Tenant sign all documents?
Third party verification of income completed?
Third party verification of assets completed?
Are verifications completed for all members 18 yrs. and
over?
Did all the members of the household 18 yrs. and
over sign all documents?
Is lease completed with a minimum of six months/ SRO
monthly?
Addendum completed?
Tenant Certification completed?
Are all members of the household full-time students?
Is utility allowance correct?
Is correct income limit being used?
Is correct rent limit being used?
For tenants with no income
Was notarized statement of no income obtained with tax
return?
or Were all sources verified (AFDC, Unemployment,
Soc. Sec., Disability)?
H-8
<PAGE>
TAX CREDIT COMPLIANCE MONITORING:
ANNUAL CERTIFICATION
As General Partner of Apartment Housing of Theodore, LTD, I hereby
certify as to the following:
1. Apartment Housing of Theodore, LTD owns a 40 unit project ("Project") in
Theodore, Mobile County, Alabama .
2. An annual income certification (including supporting documentation)
has been received from each tenant. The income certification reflects that the
tenant's income meets the income limitation applicable to the Project pursuant
to Section 42(g)(1) of the Internal Revenue Code ("Code").
3. The Project satisfies the requirements of the applicable minimum set
aside test as defined in Section 42(g)(1) of the Code.
4. Each unit within the Project is rent restricted as defined in
Section 42(g)(2)of the Code.
5. Each unit in the Project is available for use by the general public
and not for use on a transient basis.
6. Each building in the Project is suitable for occupancy in accordance
with local health, safety, and building codes.
7. During the preceding calendar year, there had been no change in the
eligible basis, as defined in Section 42(d)of the Code, of any building within
the Project.
8. All common area facilities included in the eligible basis of the
Apartment Complex are provided to the tenants on a comparable basis without a
separate fee to any tenant in the Project.
9. During the preceding calendar year when a unit in the Project became
vacant reasonable attempts were made to rent that unit to tenants whose incomes
met the income limitation applicable to the Project pursuant to Section 42(g)(1)
of the Code and while that unit was vacant no units of comparable or smaller
size were rented to tenants whose income did not meet the income limitation
applicable to the Project pursuant to Section 42(g)(1) of the Code.
10. If the income of a tenant in a unit increased above the limit
allowed in Section 42 (g)(2)(D)(ii), then the next available unit of comparable
or smaller size was rented to tenants whose incomes met the income limitation
applicable to the Project pursuant to Section 42(g)(1) of the Code.
H-9
<PAGE>
IN VERIFICATION OF THE FOREGOING ENCLOSED HEREWITH IS A COPY OF THE ANNUAL
INCOME CERTIFICATION RECEIVED FROM EACH TENANT IN THE PROJECT. UPON REQUEST I
WILL PROVIDE COPIES OF ALL DOCUMENTATION RECEIVED FROM THE TENANT TO SUPPORT
THAT CERTIFICATION.
I declare under penalty of perjury under the law of the State of
Alabama that the foregoing is true and correct.
Executed this day of at ,
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H-10
<PAGE>
Calculation of Debt Service Coverage
Month 1 Month 2 Month 3
------------ ------------ ------------
INCOME
Gross Potential Rent
Other Income
Vacancy Loss
------------ ------------ ------------
Adjusted Gross Income
------------ ------------ ------------
OPERATING EXPENSES
Utilities
Maintenance
Management Fee
Administration
Insurance
Real Estate Taxes
Other Expenses
------------ ------------ ------------
Total Operating Expenses
------------ ------------ ------------
Net Operating Income (1)
Accrual adjustments for:
R/E Taxes
Insurance
Tax/ Accounting
Other
Replacement Reserves
============ ============ ============
Income for DSC Calculation
============ ============ ============
------------ ------------ ------------
Stabilized Debt Service
------------ ------------ ------------
------------ ------------ ------------
Debt Service Coverage (2)
------------ ------------ ------------
Please submit this form along with the following supporting
documentation:
Monthly Financial Reports (income statement, balance sheet,
general ledger and rent rolls) Operating Budget
Copies of bank statements.
(1) This number should reconcile easily with the monthly financial
statements
(2) The ratio between the Income for DSC calculation and
Stabilized Debt Service. As example, a 1.15 DSC means that for
every $1.00 of Stabilized Debt Service required to be paid there
must be $1.15 of Net Operating Income available.
H-11
<PAGE>
DEVELOPMENT FEE AGREEMENT
This DEVELOPMENT FEE AGREEMENT ("Agreement"), is entered into as of the
date written below by and between Thomas H. Cooksey ("Developer") and Apartment
Housing of Theodore, LTD, an Alabama limited partnership ("Owner"). Developer
and Owner collectively may be referred to as the "Parties" or individually may
be referred to as a "Party".
RECITALS
A. Owner has acquired the real property located in Theodore, Mobile
County, Alabama, as more particularly described in Exhibit A attached hereto and
incorporated herein (the "Real Property").
B. Owner intends to develop on the Real Property a 40 unit low-income
rental housing complex and other related improvements, which is intended to
qualify for federal low-income housing tax credits (the "Project").
C. Prior to the date of this Agreement Developer has performed
substantial development services with respect to the Project as specified in
Section 2.3 of this Agreement. Developer has also agreed to oversee the
development of the Project until all construction work is completed and to
provide certain services relating thereto. The Parties recognize and acknowledge
that the Developer is, and has been, an independent contractor in all services
rendered to, and to be rendered to, the Owner pursuant to this Development Fee
Agreement.
D. Owner desires to commit its existing development agreement with
Developer into writing through this Development Fee Agreement for Developer's
services to manage, oversee, and complete development of the Project. Developer
desires to commit its existing development agreement with Owner into writing
through this Development Fee Agreement and Developer is willing to assign all
development rights to the Project to Owner, to undertake performance of such
development services, and to fulfill all obligations of the Developer set forth
in this Agreement, in consideration of Owner's restated promise to pay to
Developer the fee specified in this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises and undertakings in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Owner and Developer agree as follows.
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<PAGE>
SECTION I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall, when capitalized,
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Construction Documents" means the contract documents between the Owner
and the Construction Lender pertaining to construction of the Project.
"Construction Lender" means Colonial Bank, which has committed to make
a loan to finance construction of the Project.
"Construction Loan" means the loan to finance construction of the
Project, made to Owner by the Construction Lender.
"Contractor" means Jerry Kyser Builders, Inc..
"Department" means the Alabama agency responsible for the reservation and
allocation of Tax Credits.
"Development Fee" means the fee for development services described in
Section 2 of this Agreement.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership of Apartment Housing of Theodore, LTD, an Alabama limited
partnership, which Partnership Agreement is incorporated herein by this
reference. Any terms capitalized but not defined herein shall have the meaning
ascribed in the Partnership Agreement.
"Tax Credits" means the low-income housing tax credits found in Section
42 of the Code, and all rules, regulations, rulings, notices and other
promulgations thereunder.
SECTION 2
ENGAGEMENT OF DEVELOPER; FEE; SERVICES
2.1 Engagement; Term. Owner hereby confirms the engagement of Developer
to act as developer of the Project, and to perform the various covenants and
obligations of the Developer under this Agreement. Developer hereby confirms and
accepts such engagement and agrees to perform fully and timely each and every
one of its obligations under this Agreement. The term of such engagement shall
commence on the date hereof and subject to the pre-payment provisions of Section
3 shall expire on December 31, 2009.
2.2 Development Fee. In consideration of Developer's prior activities and
Developer's agreement to provide development services during the term of this
Agreement, Owner agrees to pay the Developer a Development Fee in the amount of
$300,700. The Development Fee shall be payable in accordance with Section 3 of
this Agreement.
2
<PAGE>
2.3 Development Services.
(a) Prior Services. Owner acknowledges that Developer has, prior to the
date hereof, performed substantial development services relating to the Project.
Such services (the "Prior Services") have included the following.
(1) Services Rendered Prior to December 31, 1997.
(A) Developer has located, negotiated and closed on
the purchase of the Real Property.
(B) Developer has made an application for Tax Credits
to the Department.
(C) Developer has negotiated, conferred and worked
with the Department to obtain a reservation of Tax
Credits for the Owner on the Project.
(D) Developer has negotiated, conferred and worked
with the Department to obtain an allocation of Tax
Credits for the Owner on the Project.
(E) Developer has negotiated and conferred with the
environmental engineer to provide a full
environmental evaluation of the Real Property.
(F) Developer has negotiated and conferred with a
market analyst to provide a full market feasibility
study of the Project.
(G) Developer has negotiated, conferred and caused
the Owner to execute an architectural contract for
the planning and design of the Project.
(2) Other Prior Services.
(A) Developer has created, refined and analyzed the
financial projections for the Project.
(B) Developer has negotiated, conferred, and worked
with the Project architects, engineers and
Contractor with regard to preparation, refinement, and finalization of the plans
and specifications for the Project, and projected construction schedules and
costs.
(C) Developer has applied for zoning approvals, land
use approvals and development permits necessary
for the Project, and has conferred and worked with the City of Theodore planning
and building agencies with regard to such approvals and permits.
3
<PAGE>
(D) Developer has negotiated and conferred with the
Construction Lender to obtain the Construction
Loan.
(E) Developer has negotiated and conferred with an
insurance carrier to provide a builder's risk
policy during construction.
(b) Future Services. Developer hereby agrees to perform the following
development services for and as an agent of Owner.
(1) Construction and Development Matters. Developer shall
oversee construction of the Project on Owner's behalf, as provided in this
Section 2.3(b)(1). Owner shall allow Developer full access to the Project during
the construction period. Developer and Developer's agents shall perform their
work in a manner that minimizes interference with the management and operation
of the Project.
(A) Developer shall exert its best efforts to ensure
that the Contractor performs its obligations
under the Construction Documents in a diligent and timely manner.
(B) Developer shall participate in and provide assistance with regard to
pre-construction conferences and pre-construction documents, including drawings,
specifications, contracts, and schedules.
(C) Developer shall review all Construction
Documents, identify construction issues and participate in
the resolution of such issues.
(D) Developer shall attend construction progress meetings at the Project
site to monitor construction progress and advise Owner and the Contractor with
respect to the resolution of construction issues.
(E) Developer shall review the Contractor's monthly
pay applications.
(F) Developer shall monitor the Contractor's progress with respect to the
approved Project schedule and keep the Owner informed of all pertinent Project
issues and construction progress.
(G) Developer shall advise Owner with respect to
relations with engineers, architects, and other
construction professionals.
4
<PAGE>
(H) Developer shall be available for immediate
response in critical situations arising during the
construction of the Project.
(I) Developer shall coordinate relations with the
City of Theodore and other governmental authorities
having jurisdiction over development of the Project.
(2) Tax Credit Matters. From the date hereof through the
completion of construction of the Project, the Developer shall provide the
following services to owner with regard to the Tax Credits which services do not
constitute the rendering of legal or tax advice:
(A) Developer shall consult with and advise Owner
concerning construction issues that could affect the
amount of Tax Credits for which the Project is eligible.
(B) Developer shall consult with and advise Owner
with respect to the requirements of the Department
as they relate to the construction and development of the Project.
(C) Developer shall monitor construction progress
with respect to the Project schedule agreed to with
the Department, if any.
(D) Developer shall coordinate and participate in any
conferences with the Department relating to the
Project and construction matters.
(c) Assignment of Development Rights. Developer hereby assigns to Owner
all rights to the development of the Project, including but not limited to, all
tangible and intangible rights arising with respect to the name Apartment
Housing of Theodore, LTD, the design of the Project, the plans and
specifications for the Project and all rights arising under the agreements with
Project architects, engineers and other Project design and construction
professionals.
SECTION 3
DEVELOPMENT FEE PAYMENTS
3.1 Services Rendered Prior to December , 1997. The Parties acknowledge
and agree that Developer has earned the sum of $0 for services rendered prior to
December , 1997, that said amount is reasonable in relation to the work
performed, is fully earned as of that date and said amount shall be paid in any
event notwithstanding the termination of this Agreement. The Parties further
acknowledge and agree that the Owner has accrued the Development Fee of $ ,
under its method of accounting, and has reported the Development Fee expense on
its 1997 income tax return.
5
<PAGE>
3.2 Payment of Development Fee. The Development Fee shall be paid to
the Developer from Capital Contribution payments received by the Owner in
accordance with Section 9.2(b) of the Partnership Agreement. If the Development
Fee is not paid in full in accordance with Section 9.2(b) of the Partnership
Agreement then the balance of the Development Fee shall be paid from available
Net Operating Income in accordance with the terms of Section 11.1 of the
Partnership Agreement, but in the event later than December 21, 2009. Also, if
the Development Fee is not paid in full in accordance with Section 9.2(b) of the
Partnership Agreement then the unpaid portion shall accrue interest at a rate
equal to the 5-year Treasury money rate in effect as of the date of the last
Capital Contribution payment referenced in Section 7.2(b) of this Agreement.
SECTION 4
TERMINATION
Neither Party to this Agreement shall have the right to terminate this
Agreement prior to the expiration of the term without cause. Owner may terminate
this Agreement without further liability, for cause, which shall mean any one of
the following:
(a) a material breach by Developer of its obligations under this
Agreement that is not cured within thirty (30) days after notice thereof (or, as
to any non-monetary obligations that is not reasonably capable of cure within 30
days, and provided that cure is commenced within 10 days of notice and
diligently pursued thereafter to completion, within such time as may reasonably
be necessary to complete such cure);
(b) a fraudulent or intentionally incorrect report by Developer to
Owner with respect to the Project; or
(c) any intentional misconduct or gross negligence by Developer with
respect to its duties under this Contract.
Upon proper termination of this Agreement by Owner pursuant to this
Section 4, all rights of Developer to receive unearned Development Fees pursuant
to this Agreement with respect to services not yet performed shall terminate.
Developer shall receive the full Development Fee for Prior Services and shall
receive a portion of the Development Fee for Future Services based on the
percentage of completion of construction of the Project at the time of
termination. Nothing in this Section 4 shall be deemed to prevent Owner from
bringing an action against Developer to recover fully all damages resulting from
any of the causes set forth in paragraphs (a), (b) or (c) above, or to prevent
Owner from contending in any action or proceeding that the Future Services were
not earned by Developer.
6
<PAGE>
SECTION 5
GENERAL PROVISIONS
5.1 Notices. Notices required or permitted to be given under this
Agreement shall be in writing sent by registered or certified mail, postage
prepaid, return receipt requested, to the Parties at the following addresses, or
such other address as is designated in writing by the Party, the date of
registry thereof, or the date of certification receipt therefor being deemed the
date of such notice; provided, however, that any written communication
containing such information sent to a Party actually received by a Party shall
constitute notice for all purposes of this Agreement.
If to Developer: Thomas H. Cooksey
2177 Moores Mill Road
Auburn, Alabama 36830
If to Owner: Apartment Housing of Theodore, LTD
P/O Box 2768
Auburn, Alabama 36830
5.2 Interpretation.
(a) Headings. The section headings in this Agreement are included for
convenience only; they do not give full notice of the terms of any portion of
this Agreement and are not relevant to the interpretation of any provision of
this Agreement.
(b) Relationship of the Parties. Neither Party hereto shall be deemed
an agent, partner, joint venturer, or related entity of the other by reason of
this Agreement and as such neither Party may enter into contracts or agreements
which bind the other Party.
(c) Governing Law. The Parties intend that this Agreement shall be
governed by and construed in accordance with the laws of the state of Alabama
applicable to contracts made and wholly performed within Alabama by persons
domiciled in Alabama.
(d) Severability. Any provision of this Agreement that is deemed
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without rendering invalid or unenforceable the remaining
provisions of this Agreement.
5.3 Integration; Amendment. This Agreement constitutes the entire
agreement of the Parties relating to the subject matter hereof. There are no
promises, terms, conditions, obligations, or warranties other than those
contained herein. This Agreement supersedes all prior communications,
representations, or agreements, verbal or written, among the Parties relating to
the subject matter hereof. This Agreement may not be amended except in writing.
7
<PAGE>
5.4 Attorney' Fees. If any suit or action arising out of or related to
this Agreement is brought by any Party to any such document, the prevailing
Party shall be entitled to recover the costs and fees (including without
limitation reasonable attorneys' fees and costs of experts and consultants,
copying, courier and telecommunication costs, and deposition costs and all other
costs of discovery) incurred by such Party in such suit or action, including
without limitation to any post-trial or appellate proceeding.
5.5 Binding Effect. This Agreement shall bind and inure to the benefit
of, and be enforceable by, the Parties hereto and their respective successors,
heirs, and permitted assigns.
5.6 Assignment. Neither Party may assign this Agreement without the
consent of the other Party. No assignment shall relieve any Party of liability
under this Agreement unless agreed in writing to the contrary.
5.7 Third-Party Beneficiary Rights. No person not a Party to this
Agreement is an intended beneficiary of this Agreement, and no person not a
Party to this Agreement shall have any right to enforce any term of this
Agreement.
5.8 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all the Parties, notwithstanding that all Parties are not signatories to the
same counterpart.
5.9 Further Assurances. Each Party agrees, at the request of the other
Party, at any time and from time to time after the date hereof, to execute and
deliver all such further documents, and to take and forbear from all such
action, as may be reasonably necessary or appropriate in order more effectively
to perfect the transfers or rights contemplated herein or otherwise to confirm
or carry out the provisions of this Agreement.
5.10 Mandatory Arbitration. Any person enforcing this Agreement may
require that all disputes, claims, counterclaims, and defenses ("Claims")
relating in any way to this Agreement or any transaction of which this Agreement
is a part (the "Transaction"), be settled by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and Title 9 of the U.S. Code. All claims will be subject to the statutes of
limitation applicable if they were litigated.
8
<PAGE>
If arbitration occurs, one neutral arbitrator will decide all issues
unless either Party's Claim is $100,000.00 or more, in which case three neutral
arbitrators will decide all issues. All arbitrators will be active Alabama State
Bar members in good standing. In addition to all other powers, the arbitrator(s)
shall have the exclusive right to determine all issues of arbitrability.
Judgment on any arbitration award may be entered in any court with jurisdiction.
If either Party institutes any judicial proceeding relating to the
Transaction, such action shall not be a waiver of the right to submit any Claim
to arbitration. In addition, both Parties have the right before, during, and
after any arbitration to exercise any of the following remedies, in any order or
concurrently: (i) setoff, (ii) self-help repossession, (iii) judicial or
non-judicial foreclosure against real or personal property collateral, (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery, and replevin.
This arbitration clause cannot be modified or waived by either Party
except in a writing that refers to this arbitration clause and is signed by both
Parties.
IN WITNESS WHEREOF, the Parties have caused this Development Fee
Agreement to be executed as of ___________________, 1998.
DEVELOPER: Apartment Developers, Inc.
By: _____________________
Thomas H. Cooksey
President
OWNER: Apartment Housing of Theodore, LTD
` By: Apartment Developers, Inc.
By: ______________________
Thomas H. Cooksey
President
Thomas H. Cooksey
---------------------
9
<PAGE>
EXHIBIT A
Lot 2 amended plat, Hunters Run, plat 1 as recorded in map book 60, page 25 in
the office of the Judge of Probate, Mobile County, Alabama. Execepting therefrom
all oil, gas and other minerals in, on and under said real property, together
with all rights in connection therewith, as have previously been reserved by or
conveyed to others than the Grantors. The Grantor hereby warrants and declares
that the above described property constitutes no part of the Grantor's
homestead, and such property is not claimed or declared as homestead property.
1
<PAGE>
GUARANTY AGREEMENT
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, and in consideration of the agreement of Thomas H. Cooksey, (the
"Developer") to permit deferral of the $300,700 due from Apartment Housing of
Theodore, LTD an Alabama limited partnership ("Debtor") to the Developer, the
undersigned Guarantor(s), hereby unconditionally guaranty the full and prompt
payment when due, whether by acceleration or otherwise of that certain Developer
Fee from Debtor to the Developer, evidenced by the Development Fee Agreement
dated the even date herewith, and incorporated herein by this reference. The
foregoing described debt is referred to hereinafter as the "Liabilities" or
"Liability."
The undersigned further agree to pay all expenses paid or incurred by
the Developer in endeavoring to collect the Liabilities, or any part thereof,
and in enforcing the Liabilities or this Guaranty Agreement (including
reasonable attorneys' fees if collected or enforced by law or through an
attorney-at-law). The undersigned hereby represent and warrant that the
extension of credit or other financial accommodations by the Developer to Debtor
will be to the interest and advantage of the undersigned, and acknowledge that
this Guaranty Agreement is a substantial inducement to the Developer to extend
credit to Debtor and that the Developer would not otherwise extend credit to
Debtor.
The Developer may, from time to time, without notice to or consent of
the undersigned, (a) retain or obtain a security interest in any property to
secure any of the Liabilities or any obligation hereunder, (b) retain or obtain
the primary or secondary liability of any party or parties, in addition to the
undersigned, with respect to any of the Liabilities, (c) extend or renew for any
period (whether or not longer than the original period) or alter any of the
Liabilities, (d) release or compromise any Liability of the undersigned
hereunder or any Liability of any other party or parties primarily or
secondarily liable on any of the Liabilities, (e) release, compromise or
subordinate its title or security interest, or any part thereof, if any, in all
or any property now or hereafter securing any of the Liabilities or any
obligation hereunder, and permit any substitution or exchange for any such
property, and (f) resort to the undersigned for payment of any of the
Liabilities, whether or not the Developer shall have resorted to any property
securing any of the Liabilities or any obligation hereunder or shall have
preceded against any other party primarily or secondarily liable on any of the
Liabilities.
The undersigned hereby expressly waive: (a) notice of the existence or
creation of all or any of the Liabilities, (b) notice of any amendment or
modification of any of the instruments or documents evidencing or securing the
Liabilities, (c) presentment, demand, notice of dishonor and protest, (d) all
diligence in collection or protection of or realization upon the Liabilities or
any thereof, any obligation hereunder, or any security for any of the foregoing,
and (e) the right to require the Developer to proceed against Debtor on any of
the Liabilities.
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<PAGE>
In the event any payment of Debtor to the Developer is held to
constitute a preference under the bankruptcy laws, or if for any other reason
the Developer is required to refund such payment or pay the amount thereof to
any other party, such payment by Debtor to the Developer shall not constitute a
release of Guarantor from any Liability hereunder, but Guarantor agrees to pay
such amount to the Developer upon demand and this Guaranty shall continue to be
effective or shall be reinstated, as the case may be, to the extent of any such
payment or payments.
No delay or failure on the part of the Developer in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Developer of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy. No action of the
Developer permitted hereunder shall in any way impair or affect this Guaranty
Agreement. For the purpose of this Guaranty Agreement, the Liabilities of Debtor
to the Developer are guaranteed notwithstanding any right or power of Debtor or
anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
impair or affect the obligations of the undersigned hereunder.
Payment by the Guarantor under this Guaranty Agreement shall be
recorded as a capital contribution payment from the Guarantor to Debtor and,
subsequently, as a payment of the Development Fee from Debtor to Developer.
This Guaranty Agreement shall be binding upon the undersigned, and upon
the legal representatives, heirs, successors and assigns of the undersigned.
This Guaranty Agreement has been made and delivered in the state of
Alabama and shall be construed and governed under Alabama law.
Whenever possible, each provision of the Guaranty Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition of invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty Agreement.
Whenever the singular or plural number, masculine or feminine or neuter
is used herein, it shall equally include the other where applicable. In the
event this Guaranty Agreement is executed by more than one guarantor, this
Guaranty Agreement and the obligations hereunder are the joint and several
obligation of the undersigned.
Guarantor consents to the jurisdiction of the courts in the State of
Alabama and/or to the jurisdiction and venue of any United States District Court
in the State of Alabama having jurisdiction over any action or judicial
proceeding brought to enforce, construe or interpret this Guaranty. Guarantor
agrees to stipulate in any such proceeding that this Guaranty is to be
considered for all purposes to have been executed and delivered within the
geographical boundaries of the State of Alabama, even if it was, in fact,
executed and delivered elsewhere.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto caused this Guaranty
Agreement to be executed as of _______________________, 1998.
Signed, sealed and delivered GUARANTOR:
in the presence of:
- ----------------------------
Witness
--------------------------
____________________________ Thomas H. Cooksey
Notary Public
My Commission Expires:
Address for Guarantor:
____________________________ 2177 Moores Mill Road
Auburn, Alabama 36830
(NOTARY SEAL)
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<PAGE>
CONSTRUCTION AND OPERATING BUDGET
AGREEMENT
This Construction and Operating Budget Agreement ("Agreement") is
entered into as of the date written below by and between Apartment Housing of
Theodore, LTD, an Alabama limited Partnership ("Owner"), Apartment Developers,
Inc. and Thomas H. Cooksey, ("General Partner"), WNC Housing Tax Credit Fund VI,
L.P. Series 5, a California limited Partnership ("Limited Partner") and WNC
Housing, L.P., a California limited Partnership ("Special Limited Partner").
Owner, General Partner, Limited Partner and Special Limited Partner collectively
may be referred to as the "Parties" or individually may be referred to as a
"Party".
RECITALS
A. Owner has acquired 2.38 acres of land in Theodore, Mobile County,
Alabama (the "Real Property").
B. Owner intends to develop on the Real Property a unit low-income
rental housing complex and other related improvements for family, which is
intended to qualify for federal low-income housing tax credits (the "Project").
C. On the even date herewith a Partnership agreement for Apartment
Housing of Theodore, LTD ("Partnership Agreement") was entered into by and
between Apartment Developers, Inc. and Thomas H. Cooksey as the general partner
("General Partner"), WNC Housing Tax Credit Fund VI, L.P. Series 5 as the
limited partner and WNC Housing, L.P. as the special limited partner (the
Partnership Agreement is incorporated herein by this reference as if the same
were reproduced in full and any capitalized terms not defined in this Agreement
shall have the meaning as defined in the Partnership Agreement).
D. In determining whether to be admitted into Apartment Housing of
Theodore, LTD and contribute funds to the development of the Project, the
Limited Partner and Special Limited Partner performed a due diligence review.
Part of the due diligence review included an analysis of the available sources
of funds to develop the Project, the cost of construction, the anticipated
revenues associated with the rental of the Project apartment units and the
expenses required to operate the Project.
E. The Parties recognize and acknowledge that the final construction
cost determination involves substantial negotiations with lenders, contractors
and governmental authorities.
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F. The Parties recognize and acknowledge that a final operating budget
involves substantial negotiations with lenders and governmental authorities.
G. Limited Partner's and Special Limited Partner's decision to execute
the Partnership Agreement is based, in part, on their acceptance of the sources
of funds available to develop the Project, the cost of construction to build the
Project and the operating budget necessary to provide a positive Debt Service
Coverage..
Now Therefore, in consideration of the foregoing recitals and the
mutual promises and undertakings in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Owner and Developer agree as follows.
1. Source of Funds. Attached hereto as Exhibit "A" and incorporated
herein by this reference is the Project Source of Funds. The Source of Funds
have been specified in the Partnership Agreement as the Construction Loan, the
Mortgage, the Capital Contribution of the General Partner, the Capital
Contribution of the Limited Partner and the Capital Contribution of the Special
Limited Partner. Unless expressly permitted in the Partnership Agreement,
Consent of the Special Limited Partner is required for any change to the Source
of Funds.
2. Construction Proforma. Attached hereto as Exhibit "B" and
incorporated herein by this reference is the Construction Proforma. If the
construction costs exceed the sum of the Capital Contributions, the proceeds of
the Mortgage and the Development Fee then the General Partner shall be
responsible for and shall be obligated to pay such deficiencies.
3. Operating Proforma. Attached hereto as Exhibit "C" and incorporated
herein by this reference is the Operating Proforma. The Limited Partner and the
Special Limited Partner underwrote the subject transaction at a 1.15 Debt
Service Coverage. Notwithstanding, in the event the Net Operating Income does
not produce a 1.15 Debt Service Coverage as determined by the Special Limited
Partner then at the request of the Special Limited Partner the General Partner
shall reduce and/or refinance the principal of the Mortgage to an amount the
Special Limited Partner determines is adequate to produce a 1.15 Debt Service
Coverage.
4. Notices. Any notice given pursuant to this Agreement may be served
personally on the Party to be notified, or may be mailed, first class postage
prepaid, to the following address, or to such other address as a party may from
time to time designate in writing:
2
<PAGE>
To the General Partner: Apartment Developers, Inc.
P/O Box 2768
Auburn, Alabama 36830
To the General Partner: Thomas H. Cooksey
2177 Moores Mill Road
Auburn, Alabama 36830
To the Limited Partner: WNC Housing Tax Credit Fund VI, L.P. Series 5
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
To the Special
Limited Partner: WNC HOUSING, L.P.
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
5. Successors and Assigns. All the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the Parties.
6. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument which may sufficiently be
evidenced by one counterpart.
7. Captions. Captions to and headings of the Sections of this Agreement
are solely for the conveniences of the Parties, are not a part of this
Agreement, and shall not be used for the interpretation or determination of the
validity of this Agreement or any provision hereof.
8. Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
9. Governing Law. This Agreement and its application shall be governed
by the laws of Alabama.
10. Attorney's Fees. If a suit or action is instituted in connection
with an alleged breach of any provision of this Agreement, the prevailing party
shall be entitled to recover, in addition to costs, such sums as the court may
adjudge reasonable as attorney's fees, including fees on any appeal.
3
<PAGE>
In Witness Whereof, this Construction and Operating Budget Agreement is
made and entered into as of _________, 1998.
GENERAL PARTNER
Apartment Developers, Inc.
By: ______________________________
Thomas H. Cooksey,
President
Thomas H. Cooksey
LIMITED PARTNER
WNC Housing Tax Credit Fund VI, L.P.,Series 5
By: WNC & Associates, Inc.,
General Partner
By: _________________________
David N. Shafer,
Senior Vice President
signatures continued...
SPECIAL LIMITED PARTNER
4
<PAGE>
WNC Housing, L.P.
By: WNC & Associates, Inc.,
General Partner
By: __________________________
David N. Shafer,
Senior Vice President
5
<PAGE>
EXHIBIT A
TO CONSTRUCTION AND OPERATING BUDGET AGREEMENT
SOURCE OF FUNDS
A
<PAGE>
EXHIBIT B
TO CONSTRUCTION AND OPERATING BUDGET AGREEMENT
CONSTRUCTION PROFORMA
B
<PAGE>
EXHIBIT C
TO CONSTRUCTION AND OPERATING BUDGET AGREEMENT
OPERATING PROFORMA
C
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6
We consent to the use in this post-effective Amendment No. 5 to the Registration
Statement of WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6, on Form S-11
of our report on the balance sheet of WNC Housing Tax Credit Fund VI, L.P.,
Series 5 as of April 30, 1997 dated May 5, 1997 appearing in the Prospectus,
which is a part of this Registration Statement and to the reference to us under
the heading "Experts" in such Prospectus.
/s/CORBIN & WERTZ
Irvine, California
November 19, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6
We consent to the use in this post-effective Amendment No. 5 to the Registration
Statement of WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6, on Form S-11
of our report on the consolidated balance sheet of WNC & Associates, Inc. and
Subsidiaries as of August 31, 1996 dated October 28, 1996 appearing in the
Prospectus, which is a part of this Registration Statement and to the reference
to us under the heading "Experts" in such Prospectus.
/s/CORBIN & WERTZ
Irvine, California
November 19, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6
We consent to the use in this post-effective Amendment No. 5 to the Registration
Statement of WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6, on Form S-11
of our report on the balance sheet of WNC Housing Tax Credit Fund VI, L.P.,
Series 6 as of April 10, 1998 dated April 16, 1998 appearing in the Prospectus,
which is a part of this Registration Statement and to the reference to us under
the heading "Experts" in such Prospectus.
/s/CORBIN & WERTZ
Irvine, California
November 19, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6
We consent to the use in this post-effective Amendment No. 5 to the
Registration Statement of WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6,
on Form S-11 of our report on the consolidated balance sheet of WNC &
Associates, Inc. and Subsidiaries as of August 31, 1998 dated October 28, 1998
appearing in the Prospectus, which is a part of this Registration Statement and
to the reference to us under the heading "Experts" in such Prospectus.
/s/CORBIN & WERTZ
Irvine, California
November 19, 1998
