Y
As filed with the Securities and Exchange Commission on October 17, 1997
File No. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
and
BCTC IV ASSIGNOR CORP.
(Exact name of registrants as specified in their governing instruments)
One Boston Place, Suite 2100
Boston, Massachusetts 02108
(Address of principal executive offices)
Richard J. DeAgazio, Executive Vice President
Boston Capital Partners, Inc.
One Boston Place, Suite 2100
Boston, Massachusetts 02108
(Name and address of agent for service)
----------------
Copy to:
Scott Nemeroff, Esq.
Peabody & Brown
1255 23rd Street, NW
Washington, D.C. 20037
Approximate date of commencement of proposed sale to 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]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered (Per Unit) Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beneficial Assignee
Certificates (BACS)(1)... 25,000,000 $10.00 $250,000,000 $75,750
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes underlying units of Partnership Interest.
----------------
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus included
in this Registration Statement is a combined prospectus and relates to
registration statement No. 33-99602 as previously filed by the registrant on
Form S-11. Such registration statement No. 33-99602 was declared effective on
April 19, 1996. This Registration Statement, which is a new registration
statement, also constitutes Post-Effective Amendment No. 8 to registration
statement No. 33-99602 and such Post-Effective Amendment No. 8 shall hereafter
become effective concurrently with the effectiveness of this Registration
Statement and in accordance with Section 8(c) of the Securities Act of 1933.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.'S
REGISTRATION STATEMENT ON FORM S-11
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Location in
No. Caption Prospectus
- ---- ------- ----------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus .................................. Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus ............................................. Inside Front and Outside
Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................................ Summary; Conflicts of
Interest; Risk Factors
4. Determination of Offering Price.................................. *
5. Dilution......................................................... *
6. Selling Securities Holders....................................... *
7. Plan of Distribution............................................. The Offering
8. Use of Proceeds.................................................. Estimated Use of Proceeds;
Investment Objectives and
Acquisition Policies
9. Selected Financial Data.......................................... *
10. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. Investment Objectives and
Acquisition Policies;
Investment in Operating
Partnerships
11. General Information as to Registrant............................. Summary; Management;
Investment Objectives and
Acquisition Policies;
Summary of Certain
Provisions of the Fund
Agreement
12. Policy With Respect to Certain Activities........................ Summary; Investment
<PAGE>
Objectives and Acquisition
Policies; Summary of
Certain Provisions of the
Fund Agreement; Reports
13. Investment Policies of Registrant................................ Summary; Investment
Objectives and Acquisition
Policies; Investment in
Operating Partnerships
14. Description of Real Estate....................................... Investment Objectives and
Acquisition Policies;
Investment in Operating
Partnerships
15. Operating Data................................................... *
16. Tax Treatment of Registrant and its Security
Holders......................................................... Summary; Risk Factors;
Federal Income Tax
Matters
17. Market Price of and Dividends on Registrant's
Common Equity and Related Stockholder Matters.................... *
18. Description of Registrant's Securities........................... Summary; Risk Factors;
Investment Objectives and
Acquisition Policies;
Sharing Arrangements:
Profits, Credits, Losses,
Net Cash Flow and
Residuals
19. Legal Proceedings................................................ *
20. Security Ownership of Certain Beneficial
Owners and Management............................................ Management; Conflicts of
Interest; The Offering
21. Directors and Executive Officers................................. Management
22. Executive Compensation........................................... Management;
Compensation and Fees;
Conflicts of Interest
23. Certain Relations and Related Transactions....................... Management; Conflicts of
Interest; Compensation and
Fees
2
<PAGE>
24. Selection, Management and Custody of
Registrant's Investment.......................................... Investment Objectives and
Acquisition Policies;
Investment in Operating
Partnerships;
Management;
Compensation and Fees;
Conflicts of Interest
25. Policies With Respect to Certain
Transactions..................................................... Conflicts of Interest;
Management
26. Limitations of Liability......................................... Risk Factors; Fiduciary
Responsibility of the
General Partner; Summary
of Certain Provisions of the
Fund Agreement
27. Financial Statements and Information............................. Reports of Independent
Certified Public
Accountants and Financial
Statements
28. Interests of Named Experts and
Counsel(1)....................................................... *
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................... Fiduciary Responsibility of
the General Partner
</TABLE>
- --------
(1) Omitted since answers are negative or inapplicable.
3
<PAGE>
Y
JANUARY , 1998
SUPPLEMENT NO. 1 TO PROSPECTUS FOR
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
DATED
JANUARY , 1998
(SUPPLEMENT OFFERING BCTC IV SERIES 32 AND
IDENTIFYING CERTAIN ANTICIPATED INVESTMENTS)
- --------------------------------------------------------------------------------
This Supplement is part of, and should be read in conjunction with, the
Prospectus of the Fund. Capitalized terms used herein but not defined have the
meanings ascribed to them in the Prospectus. This Supplement supersedes all
previous supplements to the Prospectus.
Results of BCTC IV Series 31
The Fund received orders for a total of BACs ($ ) with respect to Series
31, and issued the last of such Series 31 BACs on , 1997. The aggregate fees
paid as of , 1997 to the General Partner and Affiliates with respect to Series
31 were $ . No additional BACs will be offered with respect to Series 31. The
Fund has issued a total of BACs, raised $ and admitted Investors with respect to
Series 20 through 31 and may still sell up to $ to the public if all the BACs in
Series 32 are sold. (See "Prior Performance of the General Partner and its
Affiliates" in the Prospectus for information about Series 20 through 28.)
Offering of BCTC IV Series 32
The Fund is offering, effective , 1997, the thirteenth series of BACs
("Series 32") consisting of 4,000,000 BACs, with a minimum required investment
of five hundred BACs at $10 per BAC ($5,000) per Investor, on the terms and
conditions as are set forth in the Prospectus. No BACs in Series 32 will be
issued unless at least 250,000 BACs in such series are sold. In the event that
only the minimum amount of 250,000 BACs are sold in Series 32, a significant
portion of the Apartment Complexes identified herein will not be invested in. In
addition, of each dollar raised by Series 32, approximately 72% to 73% will be
used for investments in Apartment Complexes, and about one-half of the balance
will be used to pay fees and expenses to the General Partner or its Affiliates.
(See "Estimated Use of Proceeds," and "Compensation and Fees" in the
Prospectus.) The offering of BACs in Series 32 will not exceed 12 months.
THE PURCHASE OF BACS IN SERIES 32 WILL NOT ENTITLE THE INVESTOR TO ANY
INTEREST IN ANY OTHER SERIES OF THE FUND NOR ANY INTEREST IN BOSTON CAPITAL TAX
CREDIT FUND LIMITED PARTNERSHIP, OR BOSTON CAPITAL TAX CREDIT FUND II LIMITED
PARTNERSHIP, OR BOSTON CAPITAL TAX CREDIT FUND III L.P.
The Fund anticipates acquiring, on behalf of Series 32, limited partnership
interests in the six (6) Operating Partnerships more fully described hereinafter
(the "Operating Partnerships") pursuant to the provisions of "Investment
Objectives and Acquisition Policies," as set forth in the Prospectus. The
Operating General Partners (or affiliates thereof) with respect to certain of
the Operating Partnerships described below are general partners of other
operating partnerships which have been invested in by the Fund on behalf of
other series and/or other partnerships affiliated with the General Partner. (See
"Conflicts of Interest" in the Prospectus). A significant portion of the funds
invested by the Fund in each Operating Partnership will be used to pay fees and
expenses to the Operating General Partners. (See the table entitled "Terms of
Investment in Operating Partnerships" in this Supplement.)
The Fund will endeavor to invest in Operating Partnerships with a goal of
generating tax credits for allocation to Investors, upon completion and
occupancy of all Apartment Complexes, averaging approximately $1.00 to $1.20 per
BAC annually in Series 32, which would be the equivalent of an approximate
10%-12% annual Tax Credit as a percentage of capital invested, for the ten year
credit period applicable to each Apartment Complex in which
<PAGE>
Series 32 invests. (See "Investment Objectives and Acquisition Policies" in the
Prospectus.) This assumes: (a) the applicability of current tax laws and
regulations and current interpretations of such laws and regulations by the
courts; (b) each of such Apartment Complexes is occupied with qualifying
individuals throughout the 15-year Federal Housing Tax Credit compliance period;
and (c) BAC Holders are unable to use any passive tax losses generated by the
Fund. These investment objectives do not represent yield or return on
investment.
Assuming: none of the Apartment Complexes invested in by a Series has any
value at the end of the 15-year Federal Housing Tax Credit compliance period
applicable to the investments of a Series and at such time if an Investor uses
the suspended passive losses equal to the unreturned Capital Contribution, the
equivalent tax-free internal rate of return would be approximately 4%-6%
(approximately 4.7%-9.9% taxable internal rate of return) for Investors with
taxable income which is taxed at that time in the 15%-39.6% tax brackets,
respectively. (See "Federal Income Tax Matters--Passive Loss and Tax Credit
Limitations" for a discussion of offsetting an Investor's loss of Capital
Contribution against active income.) If the Apartment Complexes appreciate in
value, such increased value can be recognized through sales of Operating
Partnership Interests or the sale or refinancing of Apartment Complexes (even
though the restrictions and compliance requirements of the Federal Housing Tax
Credit program will continue to apply to such Apartment Complexes at that time),
and Investors receive distributions from such sales, the equivalent tax-free
internal rate of return will be greater.
The selection of a 10%-12% annual Tax Credit as a percentage of capital
invested, as an investment objective, has been made by the Fund after consulting
with the Dealer-Manager regarding tax-free returns currently available to
investors in other similar tax credit investments. Pursuant to the rules for the
allocation of Federal Housing Tax Credits, the Fund's investment goal is for the
following annual tax-free amounts (for each $10,000 investment in Series 32):
$200-$300 in 1998; $400-$600 in 1999; $1,000-$1,200 in 2000-2007; $800-$900 in
2008 and $500-$700 in 2009. This statement of Tax Credit investment goal does
not represent a forecast of anticipated Tax Credits to be obtained nor does it
represent a yield or return on investment. Rather it represents an investment
goal of the Fund under the rules for allocation of Tax Credits for the credit
period applicable to the Fund's anticipated Series 32 investments. As there is
no assurance that the value of the Fund's assets will equal such amount or that
such distributions will be made, there is no assurance that any particular
tax-free internal rate of return will be achieved. (See "Tax Credit
Programs--The Federal Housing Tax Credit," commencing at page 64 of the
Prospectus, for a discussion of the allocation of Federal Housing Tax Credits
during the applicable credit period.)
The Fund's investment in Operating Partnerships on behalf of Series 32
will be consistent with the provisions of the Prospectus relating to the
investment in Operating Partnerships. (See, particularly, "Investment
Objectives and Acquisition Policies," "Investment in Operating Partnerships,"
and "Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow and
Residuals.")
THE POTENTIAL OPERATING PARTNERSHIP INTERESTS IDENTIFIED BELOW RELATE ONLY
TO BCTC IV--SERIES 32.
While the General Partner believes that the Fund, on behalf of Series 32,
is reasonably likely to acquire interests in the Operating Partnerships which
are developing or will develop, as applicable, the Apartment Complexes described
hereinafter, the Fund may not be able to do so as a result of additional
information or changes in circumstances. Before any such acquisition is made,
the General Partner will continue and complete its due diligence review as to
the applicable Operating Partnership and the related Apartment Complex. This
process will include the review and analysis of information concerning, among
other matters, market competition and environmental factors; if any significant
adverse information is obtained by the General Partner, either action will be
taken to mitigate the adverse factor(s), or the acquisition will not be made. If
such interests are acquired, the terms may differ materially from those
described below. Accordingly, Investors should not rely on the ability of the
Fund to invest in these Apartment Complexes or under the described investment
terms in deciding whether to invest in the Fund. If the entire $40 million is
raised for Series 32, the anticipated acquisition of the Operating Partnership
Interests, described hereinafter, will represent approximately 75% of the total
money which the Fund currently expects to spend on behalf of Series 32.
S-2
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Since Series 32 is currently in the offering phase, it has no material
assets or any operating history. The six (6) Operating Partnerships in which
Interests are currently expected to be acquired, and the respective Operating
General Partners, are as follows:
Partnership General Partner(s)
- -------------------------------------- -----------------------------
1. Brockport Village L.P. Belmont Development Group
(the "Brockport Partnership")
2. Clearview L.P. Realto Properties, Inc.
(the "Clearview Partnership")
3. East Bridge Street L.P. Mill Development Corporation
(the "Mill Partnership")
4. Madison L.P. Parkwood LLC
(the "Parkwood Partnership")
5. Pin Oak II L.P. Humphrey Stavrou Associates
(the "Pin Oak II Partnership")
6. Tannehill L.P. Chartwell Interests, Inc.
(the "Tannehill Partnership")
Permanent Mortgage Loan financing for the Apartment Complexes described
herein is being or will be provided from a variety of sources, as described
below. The Apartment Complexes described in this Supplement are anticipated to
complete construction or rehabilitation, as applicable, during 1998 and 1999.
Certain of the Apartment Complexes, as described below, have not yet begun
construction. Delays in construction could occur with respect to Apartment
Complexes currently under construction or as to which construction has not yet
commenced, which could result in delay or reduction in achieving Tax Credits.
(See "Risk Factors--Tax Risks Associated with the Fund's Investments" in the
Prospectus.) The General Partner believes that each of the Apartment Complexes
has or will have adequate property insurance. The tables included in this
Supplement describe in greater detail information concerning the Apartment
Complexes and the anticipated terms of investment in each Operating Partnership.
The Priority Return Base for Series 32 is $1.10 per BAC (12%). (See
"Glossary" at page 162 of the Prospectus for the definition of the term
"Priority Return Base.") Investors should note that the "Priority Return Base"
is the level of return that must be provided to Investors before the General
Partner may receive a 5% share in the proceeds from the sale or refinancing of
Apartment Complexes or Operating Partnership Interests. (See "Liquidation Phase"
at page 49 of the Prospectus.) In establishing the Priority Return Base, the
General Partner is not representing that the Fund is expected to provide this
level of return to Investors. The General Partner will receive fees and
compensation for services prior to BAC Holders receiving the Priority Return.
S-3
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Basic Government
Partnership Location of Number Monthly(1) Assistance
Name Property of Units Rents Anticipated
------------- ------------------- ---------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
1. Brockport Brockport, 28 $345 1BR FmHA Sec. 515
Partnership New York with 100%
rental
assistance
2. Clearview Charlotte Amalie, 44 $804 1BR FmHA Sec. 515
Partnership USVI $844 2BR with 100%
rental
assistance
3. Mill Saugerties, 90 $437 0BR Secured Loan
Partnership New York $475 1BR Rental Housing
Program(a)
Acquisition
Rehabilitation
Loan Program(b)
(5)
4. Parkwood Jackson, 84 $305-$376 1BR Federal Housing
Partnership Tennessee $367-$453 2BR Tax Credits
$521 3BR
5. Pin Oak II Bowie, 110 $706 1BR Multifamily Bond
Partnership Maryland Program with
insurance
provided by
Maryland Housing
Fund(a)
Elderly Rental
Housing
Program(b)
HOME
Investment
Program(c)
(7)
6. Tannehill Austin, 186 $405-$610 1BR Federal Housing
Partnership Texas $470-$720 2BR Tax CreditsR
$530-$870 3BR
<CAPTION>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
Permanent Mortgage Annual Annual
Mortgage Interest Reserve Management Management
Loan(3) Rate Amount Agent Fee
------------------- ---------- --------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
1. $352,000 1%(2) $16,730 Belmont 35% per occupied
New York 1% Management unit per month
Housing Trust
Fund Corporation
$922,500
(4)
2. $3,344,000 1%(2) $30,000 Pan American $35 per occupied
Investments, Inc. unit per month
3. New York 8.75% $18,000 Jobco 5% of net
State Housing
Management, Inc. rental income
Finance Agency
$2,174,000(a)
New York State 1%
Housing Trust
Fund
$600,000(b)
(5)
4. BCMC 9.5 % $16,800 Park 5% of net
$1,840,000 Management, Inc. rental income
(6)
5. State of 9.5 % $35,000 Humphrey 5% of net
Maryland
Management, Inc. rental income
$3,360,000(a)
Maryland 3%
Rental
Housing Fund
$1,000,000(b)
Maryland 3%
Rental Housing
Fund
$300,000(c)
(7)
6. BCMC 9% $54,000 Faulkner 5% of net
$7,550,000 Group, Inc. rental income
(8)
</TABLE>
(1) Exclusive of utilities, unless indicated otherwise.
(2) FmHA 515 loan with a term of 50 years and a stated interest rate of between
7.5% and 9.5%, written down to an effective rate of 1% through an interest
credit subsidy, and payments of principal and interest on the basis of a
50-year amortization schedule.
(3) Except as and to the extent noted in the following footnote, the terms of
all permanent mortgage loans described in the following footnotes, which
have a term to maturity which is shorter than the term employed for the
amortization schedule, provide or are expected to provide that the entire
outstanding balance of principal of and interest on such permanent mortgage
loan shall be due and payable in full at the maturity of such mortgage loan.
S-4
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES--(Continued)
(4) The terms of the Brockport Partnership's anticipated permanent second
mortgage loan in the amount of $922,500 are expected to include a term of 30
years, an interest rate of 1% and payments of principal and interest on the
basis of a 30-year amortization schedule.
(5) (a) The terms of the Mill Partnership's anticipated permanent first
mortgage loan in the amount of $2,174,000 are expected to include a term
of 30 years, an interest rate of 8.75% and payments of principal and
interest on the basis of a 30-year amortization schedule.
(b) The terms of the Mill Partnership's anticipated permanent second
mortgage loan in the amount of $600,000 are expected to include a term
of 30 years, an interest rate of 1% and payments of principal and
interest on the basis of a 30-year amortization schedule, provided,
however, that the terms of the permanent second mortgage loan will
provide for the deferral and accrual of payments of principal and
interest based on available cash flow, and for the payment of the entire
outstanding balance of principal and interest at the end of the 30-year
term.
(6) The terms of the Parkwood Partnership's anticipated permanent first mortgage
loan in the amount of $1,840,000 are expected to include a term of 30 years,
an interest rate of 9.5% and payments of principal and interest on the basis
of a 30-year amortization schedule.
(7) (a) The terms of the Pin Oak II Partnership's anticipated permanent
first mortgage loan in the amount of $3,360,000 are expected to include
a term of 30 years, an interest rate of 9.5% and payments of principal
and interest on the basis of a 30-year amortization schedule.
(b) The terms of the Pin Oak II Partnership's anticipated permanent second
mortgage loan in the amount of $1,000,000 are expected to include a term
of 30 years, an interest rate of 3% and payments of principal and
interest on the basis of a 30-year amortization schedule, provided,
however, that the terms of the permanent second mortgage loan will
provide for the deferral and accrual of payments of principal and
interest based on available cash flow, and for the payment of the entire
outstanding balance of principal and interest at the end of the 30-year
term.
(c) The terms of the Pin Oak II Partnership's anticipated permanent third
mortgage loan in the amount of $300,000 are expected to include a term
of 30 years, an interest rate of 3% and payments of principal and
interest on the basis of a 30-year amortization schedule, provided,
however, that the terms of the permanent second mortgage loan will
provide for the deferral and accrual of payments of principal and
interest based on available cash flow, and for the payment of the entire
outstanding balance of principal and interest at the end of the 30-year
term.
(8) The terms of the Tannehill Partnership's anticipated permanent first
mortgage loan in the amount of $7,555,000 are expected to include a term of
30 years, an interest rate of 9% and payments of principal and interest on
the basis of a 30-year amortization schedule.
S-5
<PAGE>
THE BROCKPORT PARTNERSHIP
(Brockport Village Apartments)
Brockport Village Apartments is a 28-unit apartment complex for senior
citizens which is to be constructed on Main Street in Brockport, New York.
Brockport Village Apartments will consist of 28 one-bedroom units contained in 1
building. The complex will offer a meeting room and central laundry facilities.
Individual units will contain a refrigerator, range, bathroom exhaust
fans and a patio or porch.
Construction of Brockport Village Apartments is anticipated to begin in
January 1988. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
Number Number
of Units Completion of Units Rent-Up
- ---------- ------------ ---------- -------------
28 June, 1998 14 July, 1998
14 August, 1998
THE CLEARVIEW PARTNERSHIP
(Clearview Apartments)
Clearview Apartments is an existing 44-unit apartment complex for
families which is to be rehabilitated on Clearview Vista in Charlotte Amalie,
U.S. Virgin Islands. Clearview Apartments will consist of 32 one-bedroom units
and 12 two-bedroom units contained in 9 buildings. The complex will offer a
basketball court and central laundry facilities.
Individual units will contain a refrigerator, range, air conditioning,
bathroom exhaust fans and a patio or porch.
Rehabilitation of Clearview Apartments is anticipated to begin in March,
1998. The Operating General Partner anticipates that completion of
rehabilitation and occupancy will occur as follows:
Number Number
of Units Completion of Units Rent-Up
- ---------- ---------------- ---------- --------------
22 October, 1998 44 January, 1999
22 November, 1998
THE MILL PARTNERSHIP
(Mill Apartments)
Mill Apartments is an existing 90-unit apartment complex for senior
citizens which is to be rehabilitated in Saugerties, New York. Mill apartments
will consist of 18 studio units and 72 one-bedroom units contained in1 building.
The complex will offer a solarium/living room and central laundry facilities.
Individual units will contain a refrigerator and range.
Rehabilitation of Mill Apartments is anticipated to begin in June, 1998.
The Operating General Partner anticipates that completion of rehabilitation and
occupancy will occur as follows:
Number Number
of Units Completion of Units Rent-Up
- ---------- ------------ ---------- ----------------
90 May, 1999 18 June, 1999
18 July, 1999
18 August, 1999
18 September, 1999
18 October, 1999
THE PARKWOOD PARTNERSHIP
(Parkwood Apartments)
Parkwood Apartments is an 84-unit complex for families which is to be
constructed on Whitehall Street in Jackson, Tennessee. Parkwood Apartments will
consist of 16 one-bedroom units. 48 two-bedroom units and 20 three-bedroom units
contained in 12 buildings. The complex will offer a function room, pool,
playground and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher, air
conditioning and a patio or balcony.
Construction of Parkwood Apartments is anticipated to begin in December,
1997. The Operating General Partner anticipates that construction completion
and occupancy will occur as follows:
Number Number
of Units Completion of Units Rent-Up
- ---------- ---------------- ---------- ---------------
21 January, 1999 12 February, 1999
21 February, 1999 12 March, 1999
21 March, 1999 12 April, 1999
21 April, 1999 12 May, 1999
12 June, 1999
12 July, 1999
12 August, 1999
S-6
<PAGE>
THE PIN OAK II PARTNERSHIP
(Pin Oak Village Apartments)
Pin Oak Village Apartments is a 110-unit apartment complex for senior
citizens which is to be constructed on Excalibur and Mitchellville Roads in
Bowie, Maryland. Pin Oak Village Apartments will consist of 110 one-bedroom
units contained in 1 building. The complex will offer a multipurpose room with
kitchen, library, video theater, exercise room, solarium, badminton and croquet
courts, horseshow pits, patio with barbecue and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher, disposal
and an emergency call system.
Construction of Pin Oak Village Apartments is anticipated to begin in
January, 1998. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
Number Number
of Units Completion of Units Rent-Up
- ---------- ---------------- ---------- ---------------
110 November, 1998 25 December, 1998
25 January, 1999
30 February, 1999
30 March, 1999
THE TANNEHILL PARTNERSHIP
(Tannehill Apartments)
Tannehill Apartments is a 186-unit apartment complex for families which
is to be constructed on East King Boulevard (East 19 Street) at Webberville Road
in Austin, Texas. Tannehill Apartments will consist of 72 one-bedroom units, 96
two-bedroom units and 18 three-bedroom units contained in 21 buildings. The
complex will offer a function room, pool, playgrounds, tot lots, basketball
court and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning, ceiling fans, solar window screens and patio or
balcony.
Construction of Tannehill apartments is anticipated to begin in
February, 1998. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
Number Number
of Units Completion of Units Rent-Up
- ---------- ---------------- ---------- ----------------
30 January, 1999 18 February, 1999
30 February, 1999 24 March, 1999
30 March, 1999 24 April, 1999
48 April, 1999 24 May, 1999
48 May, 1999 24 June, 1999
24 July, 1999
24 August, 1999
24 September, 1999
S-7
<PAGE>
PROSPECTUS
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
250,000 BENEFICIAL ASSIGNEE CERTIFICATES ("BACs")
Representing Assignments of Limited Partnership Interests
(Issuable In Series)
Minimum Investment-500 BACs at $10.00 per BAC ($5000);
Minimum Additional Purchase-100 BACs at $10.00 per BAC ($1000)
The BACs being offered for sale by Boston Capital Tax Credit Fund IV L.P. (the
"Fund") represent assignments of shares of the Limited Partnership Interest in
the Fund issued to BCTC IV Assignor Corp. (the "Assignor Limited Partner"). BAC
Holders will receive the same tax treatment as owners of limited partnership
interests.
The Fund has been formed to invest in other limited partnerships (collectively,
the "Operating Partnerships"), each of which will own and operate an apartment
complex intended for occupancy by individuals and families of low and moderate
income (an "Apartment Complex"). Federal tax law encourages investments in
Apartment Complexes by providing Federal Housing Tax Credits to investors in the
Apartment Complexes. (See "Summary of the Offering," "Tax Credit Programs" and
"Government Assistance Programs.") In addition to Federal Housing Tax Credits,
Investors will receive tax losses that can offset passive income from other
investments which they may have. Of each dollar raised by the Fund,
approximately 72% to 73% will be used for investments in Apartment Complexes,
and about one-half of the balance will be used to pay fees and expenses to the
General Partner or its Affiliates. (See "Estimated Use of Proceeds," and
"Compensation and Fees.")
Investment in the Fund involves risk, see "Risk Factors," including the
following:
[bullet] The Tax Credit rules are complicated and the usage of Tax Credits can
be limited.
[bullet] To the extent the Fund does not raise much capital, there will be
limited diversity.
[bullet] The only material benefit from the investment may be Tax Credits which
may mean that a material portion of each Tax Credit may represent a
return of the money originally invested in the Fund if there are not
sufficient proceeds from the sale or refinancing of Apartment
Complexes.
[bullet] There are limits on the transferability of BACs, and it is unlikely
that there will be a market for BACs.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Price to Selling Commissions and Net Proceeds
Public (1) Dealer-Manager Fee (2) to the Fund (3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Beneficial Assignee
Certificate ("BAC") .. $ 10.00 $ 0.90 $ 9.10
Total Minimum .......... $ 2,500,000.00 $ 225,000.00 $ 2,275,000.00
Total Maximum (40,000,000
BACs) (4) ............ $650,000,000.00 $58,500,000.00 $591,500,000.00
- --------------------------------------------------------------------------------------
</TABLE>
[LOGO]
Boston Capital | Services, Inc.
The date of this Prospectus is January __, 1998
<PAGE>
(1) Price to public includes Selling Commissions and Dealer-Manager Fee.
(2) Boston Capital Services, Inc., (the "Dealer-Manager") will receive an amount
equal to 9% of the purchase price of each BAC sold and may then reallow to
participating Soliciting Dealers as Selling Commissions up to 7% of the
purchase price of each BAC sold. As compensation for its services as
Dealer-Manager, the Dealer-Manager will retain 2% of the purchase price of
each BAC sold as the Dealer-Manager Fee. (See "The Offering-Selling
Arrangements.")
(3) This amount is net of Selling Commissions and the 2% Dealer-Manager Fee,
but not of other Organization and Offering Expenses (see "Glossary")
payable by the Fund, consisting of an accountable due diligence expense
reimbursement to the Dealer-Manager in an amount of up to $0.05 per BAC
sold; a non-accountable expense allowance to the Dealer-Manager in an
amount of up to $0.10 per BAC sold; an accountable expense reimbursement to
the General Partner and its Affiliates; and accountable expenses paid by
the Fund directly or by the General Partner and Affiliates, all as
described under the caption "Compensation And Fees." The total amount of
Organization and Offering Expenses net of Selling Commissions and the
Dealer-Manager Fee are estimated to be $112,500 if $2,500,000 of BACs are
sold and $22,750,000 if the maximum of $650,000,000 of BACs are sold. (See
"Estimated Use of Proceeds.")
(4) The Fund has registered with the Securities and Exchange Commission a total
of 65,000,000 BACs for sale to the public. As of January , 1998 the Fund
has sold a total of BACs and thus as of January , 1998 may sell up to BACs
to the public. BACs in excess of the initial 2,500,000 BACs sold hereunder
will be issued in separate series in amounts designated at the time the
series is offered, but in no event may the number of BACs offered in any
series be fewer than 250,000 BACs. (See "The Offering-Issuance of BACs in
Series" and "Estimated Use Of Proceeds.")
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE 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 ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
BOSTON CAPITAL TAX CREDIT FUND IV L.P. IS NOT A MUTUAL FUND OR ANY OTHER TYPE
OF INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940
AND IS NOT SUBJECT TO REGULATION THEREUNDER.
- --------------------------------------------------------------------------------
The BACs are being offered, in one or more series, by the Dealer-Manager on a
best efforts basis, which means that no specified amount of BACs will be sold.
Each series will consist of at least 250,000 BACs and may consist of all BACs
not previously purchased by Investors. The minimum purchase for each Investor is
500 BACs ($5,000), except employees of Boston Capital Associates IV L.P. (the
"General Partner") or its Affiliates, and/or previous investors in public
limited partnerships sponsored by Boston Capital, may purchase a minimum of 200
BACs ($2,000). Additional investments must be made in multiples of 100 BACs
($1,000). Sales in this offering are expected to continue until December 31,
1999, but the offering could be concluded earlier or extended by the General
Partner for an indefinite period of time, and are subject to the condition that
subscriptions for at least 250,000 BACs of a series be accepted by the General
Partner no later than 12 months from the commencement of each series. (See "The
Offering.")
Any Investor or prospective Investor may obtain, without charge, a copy of any
document included as an exhibit to the Registration Statement filed with the
Securities and Exchange Commission with respect to the securities offered hereby
upon written request to Boston Capital Tax Credit Fund IV
2
<PAGE>
L.P., c/o Boston Capital Partners, Inc., One Boston Place, Suite 2100, Boston,
Massachusetts 02108, Attention: Richard J. DeAgazio.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATION TO THE
CONTRARY AND ANY PREDICTION, WRITTEN OR ORAL, EXCEPT AS SET FORTH IN THIS
PROSPECTUS, AS TO THE AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT
OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN INVESTMENT IN THE FUND IS NOT
PERMITTED.
FOR A PERIOD OF NINETY DAYS AFTER THE DATE OF THE 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.
THE INVESTMENT DESCRIBED IN THIS PROSPECTUS HAS BEEN REGISTERED WITH THE
INTERNAL REVENUE SERVICE (THE "SERVICE") AS A TAX SHELTER PURSUANT TO PROCEDURES
SET FORTH IN THE TAX REFORM ACT OF 1984. THE IRS HAS GIVEN THE FUND REGISTRATION
TAX SHELTER IDENTIFICATION NUMBER 93355000022. BAC HOLDERS MUST INCLUDE IT ON
THEIR TAX RETURNS FOR THE PERIOD OF TIME IN WHICH THEY ARE BAC HOLDERS. ISSUANCE
OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR THE CLAIMED
TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE SERVICE.
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 representation must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
state in which or 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, at 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary .................................................................. 6
Additional Summary Information for Corporate Investors .................. 16
Suitability of an Investment in BACs .................................... 19
Estimated Use of Proceeds ................................................ 23
Risk Factors ............................................................ 24
A. Risks Associated with the Fund's Investments ........................ 25
Risk of Unspecified Investments ...................................... 25
Risk of Limited Diversification ...................................... 25
Risk of Inability to Repay Loans .................................... 25
B. Business Risks of Real Estate Investment .............................. 26
Risks Associated with Construction and Substantial Renovation ........ 26
Risks Associated with Operation ...................................... 26
Risks Associated with Leveraged Investments .......................... 26
Risks Associated with the Financial Resources of the Operating General
Partners ............................................................ 27
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Risks Associated with Government Assistance .......................... 27
Risk of Uninsured Losses .............................................. 29
Competition for Apartment Complex Investments ........................ 29
C. Tax Risks Associated with the Fund's Investments ...................... 29
Description of Tax Opinions .......................................... 29
Risk of No Return of Capital Other Than from Tax Credits .............. 29
Risk of Audit ........................................................ 30
The Availability and Use of Tax Credits are Subject to Complex Rules .. 30
Risk of the Limitations on Use of Tax Credits and Losses from Passive
Activities .......................................................... 31
Risk of Disallowance of Deduction of Certain Fees by the Fund ........ 31
Alternative Minimum Tax and Business Tax Credit Rules Could Reduce or
Eliminate the Benefits of the Investment ............................ 31
Risk that the Fund Could be Treated as a Corporation .................. 31
Allocation of Profits, Credits and Losses May be Unfavorably Changed
by the IRS ............................................................ 32
Taxable Gain on Sale or Disposition of BACs .......................... 32
Interest and Penalties on Understatements of Tax Liability ............ 32
Tax Liability in Excess of Cash ...................................... 32
Future Federal Income Tax Legislation and Regulations ................ 33
D. Certain Other Risks .................................................. 33
Risk of Significant Change in BAC Holder's Taxable Income ............ 33
Limits on Transferability .............................................. 33
Conflicting Activities of the General Partner. ........................ 34
Conflicts of Interest. ................................................ 34
Potential Liability of BAC Holders .................................... 34
Limitation on General Partner's Liability.. ............................ 35
Issuance of BACs in Series.. .......................................... 35
Non-Profit Operating Partnerships. .................................... 35
Absence of Independent Dealer-Manager .................................. 36
Fiduciary Responsibility of the General Partner .......................... 36
Conflicts of Interest .................................................... 38
Inconsistent Interests .................................................. 38
Common Management ...................................................... 40
Other Transactions With the General Partner or Its Affiliates .......... 41
Absence of Independent Dealer-Manager .................................. 43
Employment of Professionals ............................................ 43
Compensation and Fees .................................................... 43
Investment Objectives and Acquisition Policies ............................ 49
Investment Objectives .................................................. 49
Acquisition Policies .................................................... 52
The Operating General Partners .......................................... 60
Regulatory Restrictions ................................................ 61
Unused or Returned Funds ................................................ 61
Preliminary Investments and Reserves .................................... 62
Borrowing Policies ...................................................... 62
Certain Other Policies .................................................. 63
Investment in Operating Partnerships ...................................... 63
Tax Credit Programs ...................................................... 64
The Federal Housing Tax Credit .......................................... 64
Summary of the Federal Housing Tax Credit Program ...................... 65
Qualified Apartment Complexes .......................................... 67
Eligible Basis and Qualified Basis ...................................... 69
Utilization of the Federal Housing Tax Credit. .......................... 70
Credits Subject to State Allocation .................................... 71
State Housing Tax Credit Programs ...................................... 73
Historic Tax Credit .................................................... 73
Government Assistance Programs ............................................ 74
A. Rural Housing ("RHS") Programs ...................................... 75
B. Housing and Urban Development Grant Programs to Local Governments .... 77
C. USHUD Mortgage Loan Insurance Programs .............................. 78
D. USHUD Rental Assistance Programs .................................... 82
E. Rent Supplement Programs ............................................ 84
F. Transfers of Physical Assets Procedure .............................. 85
G. Government National Mortgage Association ............................ 85
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
H. State and Local Financing Programs .......................................... 85
I. HOME Program ................................................................ 87
J. USHUD's Administrative Guidelines .......................................... 88
Management ...................................................................... 88
The General Partner ............................................................ 88
Boston Capital Partners, Inc. and its Affiliates .............................. 89
Prior Performance of the General Partner and its Affiliates ...................... 92
Description of BACs (Beneficial Assignee Certificates) .......................... 96
The BACs ...................................................................... 96
Transfers ...................................................................... 97
Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals ...... 99
From the Fund to the Investors ................................................ 99
From the Operating Partnerships to the Fund .................................... 100
Federal Income Tax Matters ...................................................... 102
General Considerations ........................................................ 102
Brief Overview of Federal Income Tax Considerations ............................ 103
Opinions of Counsel ............................................................ 108
Tax Rates ...................................................................... 110
Classification as a Partnership ................................................ 110
Classification of BAC Holders as Partners for Tax Purposes .................... 112
Fund Allocations and Distributions ............................................ 112
Federal Housing Tax Credit .................................................... 120
Historic Tax Credit ............................................................ 121
Passive Loss and Tax Credit Limitation ........................................ 123
"At Risk" Limitations on Credits and Losses .................................... 126
Purchase of Existing Apartment Complexes from Tax-Exempt or Governmental
Entities ...................................................................... 127
Investment by Tax-Exempt Entities .............................................. 128
Recapture of Tax Credits ...................................................... 129
Depreciation .................................................................. 130
Construction Period Expenditures .............................................. 131
Certain Fees and Expenses ...................................................... 132
Sale or Disposition of BACs .................................................... 133
Sale or Other Disposition of an Apartment Complex and Interests in Operating
Partnerships .................................................................. 134
Excess Investment Interest Limitation .......................................... 135
Certain Tax Elections .......................................................... 136
IRS Audit Considerations ...................................................... 136
Penalties Due to Overstatement of Value ........................................ 138
Limitations for Deductions Attributable to Activities Not Engaged in for Profit 138
Overall Evaluation of Tax Benefits ............................................ 139
Certain Other Tax Considerations .............................................. 140
Suitability of an Investment in BACs .......................................... 141
"Tax Shelter" Registration .................................................... 142
Future Federal Income Tax Legislation and Regulations .......................... 142
State and Local Taxes .......................................................... 143
The Offering .................................................................... 143
Issuance of BACs in Series .................................................... 145
Selling Arrangements .......................................................... 146
Escrow Arrangements ............................................................ 148
Summary of Certain Provisions of the Fund Agreement .............................. 149
Withdrawal of the General Partner .............................................. 149
Removal of the General Partner ................................................ 150
Liability of Partners and Investors to Third Parties .......................... 150
Withdrawal of Capital and Redemption of Investors' Interest .................... 150
Management of the Fund ........................................................ 150
Mergers and Rollups ............................................................ 151
Voting Rights and Meetings .................................................... 151
Amendments to Fund Agreement .................................................. 152
Dissolution and Liquidation .................................................... 152
Tax Election .................................................................. 152
Tax Matters Partner Designation ................................................ 153
Books and Records .............................................................. 153
Successor in Interest .......................................................... 153
Power of Attorney .............................................................. 153
Applicable Law .................................................................. 153
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Sales Literature .......................................................... 153
Experts .................................................................. 154
Investor Reports .......................................................... 154
Legal Matters ............................................................ 155
Registration Statement .................................................... 155
Glossary .................................................................. 155
Appendix I--Reports of Independent Certified Public Accountants. Financial
Statements and Tabular Information Concerning Prior Limited
Partnerships .................................................. I-1
Exhibit A--Fund Agreement .............................................. A-1
Exhibit B--Investor Form ................................................ B-1
- ---------------------------------------------------------------------------- ----
</TABLE>
SUMMARY
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.
General:
The Fund is a Delaware limited partnership which was formed as of October 5,
1993 to provide its investors with Federal Housing Tax Credits authorized by
Congress in the Tax Reform Act of 1986 that may be used to offset federal income
tax liability. The Fund maintains its principal office c/o Boston Capital
Partners, Inc., One Boston Place, Suite 2100, Boston, Massachusetts 02108-4406,
telephone (617) 624-8900. (See "Management" and "Summary of Certain Provisions
of the Fund Agreement.")
The Offering
The Fund is offering Beneficial Assignee Certificates ("BACs"), in separate
series on a "best efforts" basis which means that no specified amount of capital
will be raised. Each series of BACs will consist of at least 250,000 BACs
($2,500,000), subject to expansion as described in "The Offering-Issuance of
BACs in Series." The General Partner and the Dealer-Manager are responsible for
deciding when one series stops and the next one, if any, starts. The Fund will
separately account for, and issue information with respect to each series. (See
"The Offering--Issuance of BACs in Series.") No series of BACs will be sold
unless at least 250,000 BACs ($2,500,000) are sold. Because each series will
invest in separate pools of investments that own and operate rental apartment
complexes that qualify for Federal Housing Tax Credits, the BAC Holders in
different series should expect different yields on their investments and be
subject to different investment risks.
Initial monies raised will be placed in an escrow account until the $2,500,000
minimum is achieved for each series (which could take several months). During
that time, interest will be earned at savings account rates. The interest will
be paid to the Investor on the applicable Closing Date. After $2,500,000 is
raised, the Fund will hold Closings approximately twice every month until the
conclusion of the series offering.
Suitability of an Investment in BACs
Individuals may use Tax Credits to reduce their federal income taxes, but should
only invest if they expect to have income taxes which the Tax Credits can
offset.
6
<PAGE>
In most cases, the amount of Tax Credits that can be used by individuals in any
one year is limited to the tax liability due on their last $25,000 of taxable
income. For example, an Investor in the 36% tax bracket may be able to use a
maximum annual amount of $9,000 of Tax Credits (25,000 x 36% = 9,000). Investors
should keep in mind that Tax Credits cannot be used:
[bullet] Against alternative minimum tax.
[bullet] In IRA, Keogh or other retirement plans.
[bullet] By nonresident aliens
Individual investors should also consider that:
[bullet] Married persons filing separately and living together in any year may
not use Tax Credits against taxes owed in that year on income derived
from wages, salaries, dividends or interest income.
[bullet] Use of passive losses, expected to be generated by the Fund through the
depreciation and operating expenses of the Apartment Complexes in which
it invests, is generally limited to reducing passive taxable income,
that is income other than wages, salaries, dividends and interest.
Corporations generally have no limits on the amount of tax credits and passive
losses they may use each year but should recognize that:
[bullet] Tax Credits cannot be used against the corporate alternative minimum
tax.
[bullet] The general limitations on business tax credits apply.
[bullet] There are special limits on the use of Tax Credits by closely-held,
personal service and S corporations.
See "Suitability of an Investment in BACs" for a detailed explanation of these
limitations for each category of Investor and a description of the minimum net
worth and income requirements that various states impose on Investors.
Estimated Use of Proceeds
Of each dollar raised by the Fund, approximately 72% to 73% will be invested
directly in Operating Partnerships owning Apartment Complexes, 4% will be held
in working capital reserves and the rest will go to pay fees and expenses to the
General Partner and others. See "Estimated Use of Proceeds" for a detailed
breakdown of the Fund's estimate of the use of the capital it raises.
Risk Factors
Investors should be aware that an investment in the Fund entails certain risks.
The "Risk Factors" section of this Prospectus contains a detailed discussion of
the material risks.
- --Risks associated with the Fund's investments include:
[bullet] The Fund was formed to generate Federal Housing Tax Credits and
therefore the only benefit of this investment may be Federal Housing
Tax Credits. There is a risk that Investors may not get their capital
back from the sale or refinancing of the Apartment Complexes. In such
instance, a material portion of the Tax Credits may represent a return
of the money originally invested in the Fund.
7
<PAGE>
[bullet] There may be limited diversity in Apartment Complexes if the Fund does
not raise substantially more than the minimum offering of $2,500,000
from Investors for each series.
[bullet] The Fund will depend upon the ability, integrity and expertise of the
General Partner in selecting the appropriate mix of properties.
- --Business Risks:
[bullet] To enable the Fund to generate more Tax Credits per invested dollar,
the Fund intends to invest in Apartment Complexes that are subject to
mortgage in debtedness. Therefore, a lender may foreclose on an
Apartment Complex if its mortgage is not timely paid, which would then
result in a loss of that property and a fractional recapture of Tax
Credits previously received.
- --Tax Risks:
[bullet] The Tax Credit rules are limited by the provisions of the Code.
[bullet] In addition to Tax Credits, the Fund expects to generate tax losses.
The tax losses allocated to BAC Holders may generally be deducted only
to the extent of their income derived from passive activities.
[bullet] There are significant continuing occupancy requirements that each
Apartment Complex must comply with for a fifteen year period after the
Federal Housing Tax Credits are first taken. Failure to comply with
these requirements could result in the loss and a fractional recapture
of Tax Credits.
[bullet] Tax Credits cannot be used to offset Alternative Minimum Tax.
- --Certain Other Risks:
[bullet] There is no trading market for the BACs and there are no assurances
that any market will develop. Accordingly, Investors may not be able to
sell their BACs promptly and should therefore consider BACs to be a
long-term investment.
[bullet] The Fund Agreement limits the liability of the General Partner to
Investors to conduct constituting fraud, bad faith, negligence or
misconduct.
Fiduciary Responsibility of the General Partner
The General Partner will act as a fiduciary to the Fund and therefore is
obligated to act in the best interests of the Fund. The Fund will provide
certain indemnities to the General Partner, and therefore may be required to pay
certain business costs of the General Partner in connection with its operation
of the Fund. As described under "Conflicts of Interests," the General Partner
will be permitted to engage in certain activities that may potentially involve a
conflict of interest, such as sponsoring other programs investing in apartment
complexes that generate Tax Credits, without providing the benefits of such
activities to the Fund.
Conflicts of Interest
The interests of the Investors in the Fund may conflict with the interests of
the General Partner, including having interests that are inconsistent with those
of the Investors in some respect and being permitted to engage in other
activities that may be in conflict with those of the Fund. The section
8
<PAGE>
of this Prospectus entitled "Conflicts of Interest" discusses the most important
of these conflicts of interest and how the General Partner intends to deal with
them.
Compensation and Fees
The General Partner will manage the business of the Fund, including the
investment and management of the Fund's assets, and will receive substantial
compensation and fees from the Fund and/or the Operating Partnerships in
connection with this Offering. The section of this Prospectus entitled
"Compensation and Fees" specifies the compensation payable to the General
Partner and its Affiliates. The most significant items of compensation are as
follows:
[bullet] Boston Capital Services, Inc. will receive a Dealer-Manager Fee equal
to $0.20 per BAC sold. In addition, the Dealer-Manager may also receive
selling commissions of up to $0.70 per BAC sold; and accountable and
non-accountable due diligence expense reimbursements of up to $0.15 per
BAC sold.
[bullet] The General Partner and its Affiliates will be reimbursed for all
accountable expense disbursements to third parties.
[bullet] Boston Capital Partners, Inc. will receive an Asset Acquisition Fee
equal to $0.85 per BAC sold.
[bullet] The General Partner or its Affiliates will be entitled to receive
Annual Fund Management and Reporting Fees each year equal to 0.5% of
the "Aggregate Cost" of the Apartment Complexes (the sum of equity
invested by the Fund in an Operating Partnership plus the proportionate
amount of mortgage debt associated with the Fund's interest in the
Operating Partnership). If $2,500,000 is raised and $1,800,000 invested
in Operating Partnerships, this amount could be 0.5% of an Aggregate
Cost of approximately $7,200,000 ($1,800,000 in equity and $5,400,000
in mortgage debt), or about $36,000 per year.
[bullet] After BAC Holders have received the Priority Return distributions of
Tax Credits and cash in an amount per year as disclosed for each series
in a supplement to this Prospectus, the General Partner will then be
entitled to receive 1% of the Tax Credits, 1% of any cash
distributions, and 5% of the net proceeds of the sale of the interests
in Apartment Complexes and Operating Partnerships. The General Partner
will receive certain fees and compensation for services prior to BAC
Holders receiving the Priority Return.
Investment Objectives and Acquisition Policies
The Fund's principal business is to invest, as a limited partner, in other
limited partnerships (the "Operating Partnerships"), each of which will own or
lease and will operate an Apartment Complex which is expected to qualify for
Federal Housing Tax Credits in order to:
[bullet] Generate Tax Credits, which can be used by investors to offset federal
income taxes from all sources.
[bullet] Preserve and protect the Fund's capital.
[bullet] Provide tax benefits in the form of passive losses.
9
<PAGE>
[bullet] Distribute net cash, if any, from a Capital Transaction as to the
Fund.
(1) Generate Federal Housing Tax Credits, and in limited instances a small
amount of Historic Tax Credits, during the first 10 to 12 years of an investment
in each Operating Partnership, which Investors may use to offset federal income
tax from all sources subject to certain restrictions. There are continuing
occupancy requirements that each Apartment Complex must comply with for a
fifteen year period after the Federal Housing Tax Credits are first taken. To
the extent the Federal Housing Tax Credit rules are not adhered to during the
fifteen year period, BAC Holders would have to pay a tax equal to a fraction of
the Federal Housing Tax Credits previously generated by the non-complying
dwelling units in the applicable Apartment Complex. (See "Tax Credit
Programs--The Federal Housing Tax Credit.")
(2) Preserve and protect the Fund's capital. Each of the Fund's investments will
have certain features designed to preserve and protect the Fund's invested
capital. The Fund may also require the developers of the Properties in which it
invests to provide guarantees and/or letters of credit, financial bonds and
escrow accounts to protect the Fund against failure to complete construction
reasonably on time and on budget, to receive Tax Credits reasonably on time and
to meet certain operating goals. While these safeguards provide additional
protection, there can be no assurance, however, that these measures will
adequately protect investments in the respective Partnerships.
(3) Provide tax benefits in the form of passive losses, which an Investor may
apply to offset passive income (if any). Any tax losses allocated to BAC Holders
may generally be deducted by such BAC Holder only to the extent of income
derived from passive activities. (See "Risk Factors--Tax Risks Associated with
the Partnership Investments.")
(4) Distribute net cash, if any, from a Capital Transaction as to the Fund. It
may be feasible under certain favorable market and regulatory conditions to
distribute to Investors part or all of their original investment when some or
all of the properties are sold or refinanced. However, it is impossible to
predict whether or not there will be increases in the value of the Apartment
Complexes. In order for Investors to get back their entire Capital Contribution
from the sale or refinancing of the Apartment Complexes, their overall value
must increase sufficiently and/or the relevant mortgage indebtedness must be
amortized to offset organizational, offering, acquisition and disposition
expenses currently estimated to be approximately 27% of each Investor's initial
Capital Contribution. BAC Holders will receive a Priority Return of cash and Tax
Credits before the General Partner can receive any cash distributions. However,
the General Partner and its Affiliates will receive certain fees and
compensation for services as set forth in this Prospectus, prior to cash
distributions to BAC Holders.
In furtherance of these objectives, the Fund will endeavor to invest in
Operating Partnerships with a goal of generating Tax Credits for allocation to
Investors upon completion and occupancy of all the Apartment Complexes averaging
approximately $1.00 to $1.20 per BAC annually (10%-12% annual Tax Credit as a
percentage of capital invested) for the ten year credit period applicable to
each Apartment Complex. For the remaining term of the 15-year Federal Housing
Tax Credit compliance period applicable to each Apartment Complex, no additional
Tax Credits will be available. This
10
<PAGE>
assumes: (a) the applicability of current tax law; (b) each of such Apartment
Complexes is occupied with qualifying individuals throughout the 15-year Federal
Housing Tax Credit compliance period and; (c) BAC Holders are unable to use any
passive tax losses generated by the Fund.
Assuming: (a) none of the Apartment Complexes invested in by a series has any
value at the end of the 15-year Federal Housing Tax Credit compliance period
applicable to the investments of such series, and; (b) that Investors do not use
for tax purposes the assumed loss of the Investor's entire Capital
Contributions, the equivalent tax-free internal rate of return would be
approximately 2.0%, exclusive of any cash available for distribution.
Conversely, if the value of the Apartment Complexes exceeds indebtedness and
such value can be recognized through sales of Operating Partnership Interests or
the sale or refinancing of Apartment Complexes (even though the restrictions and
compliance requirements of the Federal Housing Tax Credit program will continue
to apply to such Apartment Complexes at that time), and Investors receive
distributions from such sales or refinancings, the equivalent tax-free internal
rate of return will exceed 2.0%.
The attainment of the Fund's investment objectives will depend on many factors,
including the ability of the General Partner to select suitable investments on a
timely basis, the timely completion and successful management of such
investments and future economic conditions in the United States. Accordingly,
there can be no assurance that the Fund will meet its investment objectives.
(See "Risk Factors--Risks Associated with the Fund's Investments," "--Business
Risks of Real Estate Investment" and "Investment Objectives and Acquisition
Policies.")
The Fund will invest in Operating Partnerships owning Apartment Complexes which
are completed, newly-constructed, under construction or renovation, or to be
constructed or renovated, and which are expected to qualify for Federal Housing
Tax Credits. In addition to the Federal Housing Tax Credit, some Apartment
Complexes may also qualify for Historic Tax Credits and/or for a low-income
housing tax credit allowed against state income tax liability pursuant to the
applicable laws of a state (the "State Housing Tax Credit").
Fund and Investor Protections:
The Fund will try to protect your investment in a number of ways. First, it will
invest its capital in each Operating Partnership in stages based on completion
of construction, rental of apartments to qualified tenants and demonstrated
experience in covering operating costs through rental income. In this way the
Fund 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.
Second, the Fund will ask the Operating General Partner to provide some limited
guarantees that the Apartment Complex will fund deficits during its initial
period of operations. Third, the Fund will ask the Operating General Partner to
agree to obtain the Fund's permission to make certain major decisions (such as
the decision to sell an Apartment Complex.) Other specific protections are as
follows:
Tax Credit Adjuster. In the event that the amount of Tax Credits achieved by the
Operating Partnership is less than 90%-100% of the projected Tax Credits, there
will be a reduction in the Fund's Capital Contribution to such Operating
Partnership.
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Construction Guarantees. The Operating General Partner(s) will provide
assurances that construction of the Apartment Complex will be completed in a
timely manner and in accordance with all requirements necessary to obtain the
required certificates of occupancy. Such assurances are expected to be secured
by one or more of the following, including but not limited to, payment and
performance bonds, a letter of credit, and the right of the Fund to withhold
funds payable by the Fund to the Operating Partnership and to apply such funds
to the completion of the Apartment Complex. The specific types of security
backing the construction guarantees will be negotiated with the Operating
Partnerships prior to the execution of definitive acquisition agreements and
will depend on the General Partner's determination as to the relative financial
strength of individual Operating General Partners and the status of construction
at the time of the signing of definitive acquisition agreements. Such security
arrangements may not be sufficient to provide security for 100% of the Operating
General Partner's obligations.
Operating Deficit Guarantees. The Operating General Partner(s) will guarantee to
cover debt service and operating expenses arising from the operation of each
Apartment Complex. The amount of such operating deficit guarantees will, in some
instances, be limited to a specified term and/or dollar amount. The Operating
Deficit Guarantees are expected to be secured by the right of the Fund to
withhold funds payable by the Fund to the Operating Partnership and to apply
such funds to any operating deficit and in limited circumstances, cash reserves
required by the mortgage lender financing the Apartment Complex.
Repurchase of Operating Partnership Interest: The Operating General Partner(s)
will be obligated to repurchase the Operating Partnership Interest of the Fund
if the Operating Partnership fails to: (i) receive the allocation of Federal
Housing Tax Credits in the year the applicable Apartment Complex is placed in
service; (ii) remain eligible for Federal Housing Tax Credits during the period
when Capital Contributions of the Fund are due to such Operating Partnership; or
(iii) obtain permanent mortgage loan financing.
(See "Investment Objectives and Acquisition Policies" for a more detailed
discussion of the objectives and policies summarized above.)
Tax Credit Programs
Section 42 of the I.R.S. Code (the "Code") offers Federal Housing Tax Credits to
encourage investments in certain qualified apartment complexes for use by
persons of low and moderate income.
The Code pre-funded and made available to eligible properties $ billion of
Federal Housing Tax Credits ($1.25 annually per resident of each state) each
year since 1987. In 1993, the program's seventh year, Congress passed permanent
legislation which annually funds this ten-year tax credit allocation for
additional Federal Housing Tax Credits properties. The allocation of Federal
Housing Tax Credits to a particular building effectively constitutes an
allocation for the full ten-year credit eligibility and no reauthorization of
the Federal Housing Tax Credit program is required for any such existing
allocation of Federal Housing Tax Credits.
Investors in a partnership which owns an Apartment Complex are eligible to
receive, for a ten-year period, a credit against federal tax liability. A tax
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credit is a dollar for dollar reduction in tax liability, while a tax deduction
is a subtraction from adjusted gross income. The laws authorizing Federal
Housing Tax Credits and the rules the IRS have adopted to administer them define
the types of apartment complexes that qualify for the Federal Housing Tax
Credit, the kinds of tenants that must live in the apartment complex, the rents
such tenants may be charged and costs of construction or renovation of the
apartment complexes. These rules are complicated and must be followed for
Investors to receive Federal Housing Tax Credits, and are described in the
section of this Prospectus entitled "Tax Credit Programs."
Since Federal Housing Tax Credits do not reduce a taxpayer's basis, a taxpayer's
gain upon the sale or other disposition of BACs is not increased by the allowed
Federal Housing Tax Credits.
The Federal Housing Tax Credit program requires that its rules be complied with
during the fifteen year period after Federal Housing Tax Credits are first
taken. To the extent the Federal Housing Tax Credit rules are not adhered to
during the fifteen year period, BAC Holders would have to pay a tax equal to a
fraction of the Federal Housing Tax Credits previously generated by the
non-complying dwelling units in the applicable Apartment Complex. (See "Tax
Credit Programs--The Federal Housing Tax Credit.")
Investors may use the increased cash flow from the use of tax credits to make
other investments such as dollar cost averaging into mutual funds, saving for
retirement or future college expenses, fund life insurance expenses or simply
diversifying a tax advantage or conventional investment portfolio. The tax
credit benefit itself may be also used to offset the tax liability arising from
retirement plan withdrawals or used to reduce quarterly estimated tax payments.
Management
The General Partner of the Fund is Boston Capital Associates IV L.P. a Delaware
limited partnership. The general partner of the General Partner is Boston
Capital Associates, a Massachusetts general partnership whose two partners are
Herbert F. Collins ("Collins") and John P. Manning ("Manning"), the principals
of Boston Capital Partners. The business address of the General Partner is the
same as that of the Fund. (See "Management.")
The General Partner has complete authority in the overall management and
operation of the Fund, and will have responsibility for supervising the Fund's
selection, negotiation and investment in Operating Partnerships. (See "Risk
Factors--Unspecified Investments," "Management" and "Summary of Certain
Provisions of the Fund Agreement.")
Prior Performance of the General Partner and its Affiliates
Since the inception of Boston Capital's predecessor in interest, Affiliates of
the General Partner and their respective predecessors in interest, have raised
approximately $1.5 billion in equity from approximately 60,000 investors in over
350 investment programs, to acquire interests in approximately 1,800 properties
containing approximately 82,000 apartment units in 48 states and territories,
representing approximately $3.8 billion in original development cost.
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The section of this Prospectus entitled "Prior Performance of the General
Partner and its Affiliates" contains a discussion of the prior real estate
investment programs in which Affiliates of the General Partner have been
involved and it is not intended as an assurance of future performance. The Prior
Performance Tables attached to this Prospectus following the Financial
Statements contain certain tabular and statistical data regarding the prior
investment programs of the General Partner's Affiliates that have invested in
low-income and government assisted housing.
Description of BACs
Investors will be subscribing for Beneficial Assignee Certificates ("BACs"),
representing assignments of units of the beneficial interest of the Fund issued
to BCTC IV Assignor Corp., a Delaware corporation which is wholly owned by
Collins and Manning (the "Assignor Limited Partner"). The Assignor Limited
Partner was formed for the purpose of serving in that capacity for the Fund and
will not engage in any other business. Investors in BACs ("BAC Holders") will be
entitled to all the rights and economic benefits of a Limited Partner of the
Fund, including the rights to a percentage of the Fund's income, gain, credits,
losses, deductions and distributions. No BAC Holder will be personally liable
for the debts, liabilities, contracts or other obligations of the Fund. (See
"Summary of Certain Provisions of the Fund Agreement-Liability of Partners and
Investors to Third Parties.") By subscribing for BACs, BAC Holders are deemed to
be bound by the terms of the Fund's Agreement of Limited Partnership (the "Fund
Agreement"). The Assignor Limited Partner agrees that on any matter calling for
a vote of the Limited Partners, it will vote the assigned Limited Partnership
Interests only if and as directed by the BAC Holders. (See "Description of
BACs.")
The BACs are anticipated to be transferable, subject to certain restrictions. No
more than 50% of the BACs will be permitted to be transferred in any 12 month
period. This prevents any potential recapture of Tax Credits upon the transfer
of BACs. (See "Description of BACs," "Risk Factors--Certain Other
Risks--Transferability" and "Federal Income Tax Matters--Recapture of Tax
Credits.") Each certificate representing the BACs of a particular series will be
appropriately marked to identify the series of BACs to which the BAC certificate
relates. (See "Description of the BACs" and "Risk Factors--Transferability" and
"Risk Factors--Transferability" and "--Certain Federal Income Tax Risks.")
Sharing Arrangements: Profits, Credits, Losses
Net Cash Flow and Residuals
The Fund will allocate or distribute, as applicable, to the Investors:
(a) 99% of its Profits, Credits and Losses from normal operations, and;
(b) 99% of its Net Cash Flow, if any. (The difference between the Fund's
receipts and its expenses.)
Of such items, 1% of each shall be allocated or distributed, as applicable, by
the Fund or the General Partner, provided that the General Partner's
distribution of cash will be subordinated to the achievement of the Priority
Return to Investors.
In the event of a Capital Transaction related to the Fund (the sale or
refinancing of an Apartment Complex or the sale of the Fund's interest in an
Operating Partnership), the Fund will distribute 95% of the proceeds to the
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Investors, and 5% of the proceeds to the General Partner; provided that the
General Partner's distribution will be subordinated to the achievement of the
Priority Return to Investor.
Investors should note that the use of the term "Priority Return" is not a
guarantee or assurance that this return will be made available to Investors;
however, after certain fees and compensation have been paid to the General
Partner and its Affiliates, any available proceeds will be distributed first to
Investors, to the extent of the Priority Return, before any distributions are
made to the General Partner. (See "Sharing Arrangements: Profits, Credits,
Losses, Net Cash Flow and Residuals.")
Federal Income Tax Matters
The section of this Prospectus entitled "Federal Income Tax Matters" contains a
discussion of numerous federal income tax issues pertinent to the Fund. It also
contains the legal opinions of Peabody & Brown as to all material federal income
tax matters with respect to an investment in the Fund.
Summary of Certain Provisions
of the Fund Agreement
The Fund Agreement that will govern the relationship between the Investors and
the General Partner is a legal document, described in the section of this
Prospectus entitled "Summary of Certain Provisions of the Fund Agreement." Other
important portions of the Fund Agreement are summarized under "Sharing
Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals" and
"Description of BACs."
Investors should particularly be aware of the following terms of the Fund
Agreement:
[bullet] Voting Rights: The Fund Agreement gives a majority of BACs the right
to: (i) approve or disapprove the sale of all or substantially all of
the assets of the Fund at any one time; (ii) amend the Fund Agreement,
subject to important limitations (see below); (iii) remove the General
Partner with or without cause and elect a replacement; and (iv)
dissolve the Fund. Investors who do not vote with the majority in
interest of their fellow Investors nonetheless will be bound by the
majority vote.
[bullet] Changes in the rights of Investors: The Fund Agreement may not be
amended to: (i) alter the rights and obligations of each Investor under
the Fund Agreement; or (ii) modify the order of distributions or
allocations of Tax Credits or cash distributions, without the approval
of any affected Investor.
[bullet] Changes in investment objectives and policies: The General Partner
cannot change the investment objectives or policies of the Fund unless
the Fund Agreement is amended by the approval of a majority in interest
of the Investors. If such an amendment is made, Investors who do not
vote with the majority in interest of their fellow Investors
nonetheless will be bound by the majority vote.
[bullet] Mergers and Rollups: The Fund Agreement specifically prohibits the
merger or combination of the Fund with any other entity.
Under the Revised Uniform Limited Partnership Act as enacted in the State of
Delaware, a limited partner in a limited partnership is only liable for the
amount of the capital contributions that the limited partner agrees to make.
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As long as a limited partner does not participate in the management of a
partnership and as long as the limited partner does not receive a distribution
from the partnership and have knowledge at the time of such distribution that
such distribution was in violation of the Revised Uniform Limited Partnership
Act of the State of Delaware or the applicable partnership agreement, he will
have no additional financial liability to the partnership or to creditors of the
Partnership. All rights accorded limited partners in a partnership under the
laws of the State of Delaware extend to BAC Holders under the terms of the Fund
Agreement. (See "Summary of Certain Provisions of the Fund Agreement--Liability
of Partners and Investors to Third Parties.")
Investor Reports
Each Investor will receive:
(i) an acknowledgment of receipt of the investment;
(ii) a letter after the applicable Closing Date, confirming the assignment of
BACs;
(iii) quarterly reports with unaudited financial information for each of the
first three fiscal quarters of each year;
(iv) annual reports with audited financial statements; and
(v) Schedule K-1 and other necessary tax information.
Experts
Counsel for the Fund is:
Peabody & Brown
1255 23rd Street N.W.
Washington, D.C. 20037
Accountants for the Fund are:
Reznick Fedder & Silverman
4520 East-West Highway Suite 300
Bethesda, Maryland 20814
Glossary
For the definition of certain terms used in this Prospectus see "Glossary."
ADDITIONAL SUMMARY INFORMATION FOR CORPORATE INVESTORS
An investment in the Fund may enable C Corporations to reduce current taxes due,
increase cash flow and increase net income for the purposes of financial
reporting.
Tax Credits
The utilization of Tax Credits will reduce taxes, thereby increasing cash flow.
Unlike losses, Tax Credits are a reduction of tax liability rather than a
reduction of reportable income.
Since Federal Housing Tax Credits do not reduce a taxpayer's basis, a taxpayer's
gain upon sale or other disposition of BACs is not increased by the allowed
Federal Housing Tax Credits. But see "The Federal Housing Tax Credit--Recapture
of Federal Housing Tax Credits." Therefore, the utilization of Federal Housing
Tax Credits represents a reduction of taxes rather than a deferral of taxes. The
utilization of Tax Credits could, therefore, increase net income after taxes for
the purposes of financial reporting.
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Passive Losses
The utilization of passive losses will reduce current taxes, thereby increasing
cash flow.
A taxpayer's tax liability upon sale or other disposition of BACs will be
increased if passive losses are utilized prior to such disposition. Therefore,
the utilization of passive losses may be viewed as a tax deferral which would
not affect net income for the purposes of financial reporting. See "Federal
Income Tax Matters--Passive Loss and Tax Credit Limitations."
An objective of the Fund will be to invest in Operating Partnerships with a
view to generating losses from passive activities (for Federal income tax
purposes) during the first 10 to 12 years of Fund operations. THERE CAN BE NO
ASSURANCE THAT THE FUND WILL ATTAIN THIS INVESTMENT OBJECTIVE. THE FUND HAS NOT
IDENTIFIED ALL OF THE OPERATING PARTNERSHIPS IN WHICH IT WILL INVEST. SEE
"INVESTMENT OBJECTIVES AND ACQUISITION POLICIES."
If the cost method of accounting is available to a BAC Holder, the investment in
BACs would be carried as an asset on its balance sheet. The passive losses would
not be recorded for the purposes of financial reporting.
Utilization of Losses and Credits
Generally, there are no special limitations on a corporation's ability to
utilize either Tax Credits or passive losses to reduce its taxes on all sources
of income, including active income, passive income and portfolio income, except
for certain rules generally applicable to the use of all business tax credits
and except in the case of closely-held corporations and personal service
corporations. Closely-held corporations may not use Tax Credits and passive
losses to reduce taxes on portfolio income, but may reduce taxes on active and
passive income. Generally, personal service corporations will only be allowed to
use Tax Credits and passive losses to reduce taxes on passive income. Since a
corporation subject to Subchapter S of the Code is treated as a pass-through
entity for Federal tax purposes, each shareholder is generally subject to the
limitations on the use of Tax Credits and passive losses which apply to
individuals. See "Federal Income Tax Matters--Passive Loss and Tax Credit
Limitations" and "Suitability of an Investment in BACs."
In computing alternative minimum tax, losses and credits from passive
activities may only be used to offset income from passive activities of a
taxpayer. See "Federal Income Tax Matters--Other Tax Considerations--
Alternative Minimum Tax."
Examples
For example, assume a C Corporation makes an investment of $1,000,000 in the
Fund and it is allocated by the Fund $110,000 of Federal Housing Tax Credits and
$60,000 of losses. Further, assume that the cost method of accounting is
available to the corporation for its investment in the Fund. Such investment and
allocations would have a number of effects upon the income statement and the
balance sheet of the corporation. The principal effects which would be expected
are illustrated in this example.
Income Statement. If such a corporation is able to utilize fully the losses at
a 35% marginal rate and is also able to utilize fully the credits, the current
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income tax liability of the corporation would be reduced by $131,000 ($110,000
of credits plus 35% of the $60,000 of losses).
The utilization of the losses would create a deferred income tax liability of
$21,000 (35% of $60,000). Utilization of losses, therefore, does not affect net
income, since the reduction in current tax liability is exactly offset by
deferred tax liability. Utilization of Federal Housing Tax Credits would not
create a deferred income tax liability. Therefore, to the extent that credits of
$110,000 are utilized, net income would increase, thereby increasing earnings
per share.
Such an investment would likely have other effects on the income statement of a
corporation. For example, if the corporation were to liquidate short term
investments such as certificates of deposit in order to generate funds to invest
in the Fund, the income from such investments would no longer be available.
While this would reduce the corporation's tax liability by the amount of tax on
the foregone income from such investments, it would also reduce net income and
earnings per share by the amount of foregone net after-tax income from such
investments.
Balance Sheet. The increase in cash flow would be added to cash and would
therefore increase current assets by $131,000. The cash used to make the
investment would be deducted from cash or investments and would therefore
reduce current assets by $1,000,000.
The long term investments would be increased by the amount of the investment of
$1,000,000.
Under the cost method of accounting, the investment is shown on the balance
sheet at cost. Although the losses are utilized for tax purposes, for financial
reporting purposes the investment is not reduced by the losses. Therefore, the
utilization of the losses does not affect net income for financial reporting
purposes under the cost method of accounting.
The increase in deferred income tax liability of $21,000 would be recorded on
the balance sheet as a liability. The increase in net income could, depending
upon the corporation's dividend policies, increase retained earnings by
$110,000.
The example above assumes that the corporation is not a closely-held
corporation, a personal service corporation or a corporation subject to
Subchapter S of the Code to which the limitations on the utilization of losses
and credits from passive activities would apply. Furthermore, the above example
assumes that the corporation is not subject to the alternative minimum tax, that
the corporation is not subject to the limitations on the use of business tax
credits, and that the corporation has sufficient tax liability to utilize the
full amount of the Tax Credits and losses from passive activities.
The example above is presented for illustrative purposes only and should not be
deemed a projection or representation with respect to the amount, availability,
or timing of any benefit arising from an investment in BACs. The example above
is not intended to be a complete discussion of all of the possible income tax
effects or financial statement effects of the situation described. Each
potential corporate Investor is strongly advised to consult its own tax advisor
regarding the effect of an investment in the Fund.
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SUITABILITY OF AN INVESTMENT IN BACs
All Investors
The BACs being offered for sale by means of this Prospectus are suitable for all
Investors who (i) reasonably expect to have a tax liability during the next
twelve years against which the Tax Credits can be used to offset their federal
income tax liability, regardless of income, and (ii) have adequate financial
means to bear the lack of liquidity and the economic risks associated with
long-term investments in real estate.
The Internal Revenue Code imposes an alternative minimum tax on all taxpayers,
except certain qualifying small corporations, to the extent that this tax
exceeds their regularly computed income tax liability. Generally, the
alternative minimum tax requires that taxpayers pay a percentage of income as
taxes, regardless of the presence of certain items that the taxpayer would
otherwise be able to deduct. Tax Credits cannot be used to offset this tax. Tax
Credits are the primary benefit of an investment in the Fund. The Fund may not
be a suitable investment to an investor who expects to be subject to the
alternative minimum tax because such investor may not be able to utilize any Tax
Credits which may be made available as a result of the Fund's investments. In
addition, regardless of whether or not a prospective Investor is otherwise
subject to the alternative minimum tax, each prospective Investor must determine
what his potential alternative minimum tax would be, in order to determine the
maximum amount of Tax Credits which he can use in any given year. This is
because the amount of Tax Credits which an Investor may utilize in any year may
not exceed the difference between (i) his income tax as computed under the
normal formula for determining income tax liability, and (ii) his potential
income tax as computed under the alternative minimum tax formula. For example,
an Investor, not otherwise subject to the alternative minimum tax, with $10,000
in regular income tax liability and $5,000 in potential alternative minimum tax
liability (tentative minimum tax), could use up to $5,000 in Tax Credits to
offset his regular income tax liability. Any additional Tax Credits allocated to
such Investor for the applicable year which could not be utilized in such year,
could be carried back 1 year or forward 20 years (subject to limitations on
carry-backs for certain taxpayers). See the sections in this Prospectus entitled
"Risk Factors--Alternative Minimum Tax Could Reduce or Eliminate the Benefits of
the Investment" and "Federal Income Tax Matters--Certain Other
Considerations--Alternative Minimum Tax."
It is not likely that a tax-exempt entity would be able to utilize Tax Credits,
therefore an investment in BACs is not likely to be suitable for a tax-exempt
entity. However, if a tax-exempt entity has, and expects to continue to have,
unrelated business taxable income ("UBTI"), Tax Credits could be used to offset
the federal tax on such income. (See "Federal Income Tax Matters--Investment by
Tax-Exempt Entities.")
In the event BACs are distributed as a gift, the donor and not the donee must
satisfy all applicable suitability requirements.
It is the duty of each Soliciting Dealer to have reasonable grounds for
believing, on the basis of information obtained from an Investor concerning his
investment objectives, other investments, financial situation and needs, and any
other information known by the Soliciting Dealer, that: (i) an Investor
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is or will be in a financial position appropriate to enable him to realize, to a
significant extent, the benefits described in the Prospectus, including the tax
benefits; (ii) an Investor has a fair market net worth sufficient to sustain the
risks inherent in the Fund, including loss of investment and lack of liquidity;
and (iii) the Fund is otherwise suitable for the Investor. In addition, the
Soliciting Dealer must maintain in its file documents disclosing the basis upon
which the determination of suitability was reached as to each Investor.
Individual and Other Non-Corporate Investors
If an Investor is a natural person, BACs will be sold only to such Investors who
meet the following requirements: (a) minimum annual gross income for the current
year of $45,000 and a net worth (excluding home, home furnishings and
automobiles) of not less than $45,000, or (b) net worth (excluding home, home
furnishings and automobiles) of not less than $150,000. In the event more then
one Investor purchases BACs together, each Investor must satisfy all applicable
suitability requirements.
It is anticipated that a significant portion of the financial advantage to an
Investor in the Fund will be in the form of federal income tax benefits expected
to result from Federal Housing Tax Credits and, to the extent applicable,
Historic Tax Credits (collectively referred to as "Tax Credits"), which may be
applied against such Investor's federal income tax liability from other sources.
A non-corporate Investor who has no net passive income may take advantage of
such Tax Credits, for approximately ten to twelve years after his investment in
BACs, to reduce his federal income taxes on up to $25,000 of income in any tax
year, but not in excess of his federal income tax liability for such tax year.
Married individuals filing separately may not utilize Tax Credits to offset
taxes on non-passive income unless they live apart for the entire year. In the
event they do live apart for the entire year, each individual may utilize Tax
Credits to offset taxes on up to $12,500 of non-passive income for such year.
Special rules apply regarding an Investor's ability to carry unused Federal
Housing Tax Credits forward to future years. (See "Federal Income Tax
Matters--Passive Loss and Tax Credit Limitations.")
Additionally, there are further limits on the ability of non-corporate Investors
to utilize the Historic Tax Credit (but not the Federal Housing Tax Credit). In
general, noncorporate Investors may fully utilize the Historic Tax Credit in the
manner described in the previous paragraph, but only if such Investor's adjusted
gross income does not exceed $200,000 of income earned in such year. Thus, in
order for such an Investor to fully utilize Historic Tax Credits, such Investor
must have an adjusted gross income of not more than $200,000 for the applicable
tax year. The Historic Tax Credit maximum utilization would apply only if his
applicable adjusted gross income did not exceed $200,000, would be phased down
if such adjusted gross income was between $200,000 and $250,000, and would be
eliminated if such adjusted gross income exceeded $250,000. In addition, special
rules also apply regarding an Investor's ability to carry unused Historic Tax
Credits forward to future years. Regardless of income level, Investors with tax
liability attributable to net passive income may use Historic Tax Credits to
offset the tax liability, subject to the restrictions of the alternative minimum
tax and the general business credit limitations. (See "Federal Income Tax
Matters--Passive Loss and Tax Credit Limitations.")
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Corporate Investors
Generally, there are no special limitations on a corporation's ability to
utilize either Tax Credits or passive losses to reduce its taxes on all sources
of income, including active income, passive income and portfolio income, except
for certain rules generally applicable to the use of all business tax credits
and except in the case of closely-held corporations and personal service
corporations. In summary: (a) a corporation that is neither closely held nor a
personal service corporation and which is not subject to Subchapter S of the
Code (a "C Corporation") may take advantage of such Tax Credits to offset income
from all sources, but should reasonably expect to have sufficient federal
taxable income from all sources to utilize the Tax Credits and losses for tax
purposes anticipated from its investment in the BACs for approximately ten to
twelve years after its investment in BACs; (b) a C Corporation that is
closely-held, but is not a personal service corporation, should reasonably
expect to have sufficient active or passive income, but not portfolio income, to
utilize the Tax Credits and losses for tax purposes anticipated from its
investment in BACs for approximately ten to twelve years after its investment in
BACs; and (c) a C Corporation that is a personal service corporation should
reasonably expect to have sufficient passive income to utilize the Tax Credits
and losses for tax purposes anticipated from its investment in BACs for
approximately ten to twelve years after its investment in BACs. For this
purpose, 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 individuals, after application of
certain rules of ownership attribution. A personal service corporation is
generally any corporation the principal activity of which is the performance of
personal services by a corporation's employees-owners. (See "Federal Income Tax
Matters--Passive Loss and Tax Credit Limitations.") In addition, there are no
net worth suitability requirements for corporations.
Foreign Investors
If a Person who is a citizen of a country other than the United States were to
purchase BACs, the tax consequences of an investment in the Fund for such Person
might differ significantly from those described in the Prospectus. Any Investor
who is a natural person and a resident of the United States but who is a citizen
of a country other than the United States (a "Foreign Person"), should consult
his own advisor(s) as to legal, tax, business and related matters concerning an
investment in BACs. Additionally, BACs will be sold to a Foreign Person only if
such Foreign Person has and expects to continue to have income subject to
taxation by the United States sufficient to use the Tax Credits expected to be
derived from an investment in the Fund to offset his federal income tax
liability.
The Fund may be required to withhold up to 30% of any distributions to an
Investor who is a Foreign Person pursuant to the Code. In addition, the Foreign
Investment in Real Property Tax Act ("FIRPTA") imposes on every partnership
owning real estate the obligation of withholding 28% (as to non-corporate
partners) of the gain arising from the transfer of a partnership's real property
interest otherwise due to any nonresident alien and other foreign person who is
a partner. Consequently, the Fund may be required to withhold part of any
distribution of proceeds from the sale of an Apartment Complex or Interest in an
Operating Partnership otherwise due to an Investor who is a Foreign Person.
21
<PAGE>
Additional Suitability Requirements
Sales of BACs are not deemed completed until five days after an Investor has
received the Prospectus during which period they may receive a refund of their
subscription.
Various states have established suitability standards for Investors which are
different from those established by the Fund and which must be met by Investors
residing in any such state.
California, Iowa, and Washington: (1) minimum annual gross income of at least
$60,000 and a net worth (excluding home, home furnishings and automobiles) of
not less than $60,000 or (2) a net worth (exclusive of home, home furnishings
and automobiles) of not less than $175,000. In the case of investments by or on
behalf of a fiduciary account, the suitability requirements must be met by
either (a) the donor of the funds for investment in the Fund, or (b) the
beneficiaries of the fiduciary account (in which case the beneficiaries' share
of the fiduciary account may be included in determining whether such standards
are met).
Maine: (1) minimum annual gross income for the current year of $50,000 and a net
worth (exclusive of home, home furnishings and automobiles) of not less than
$50,000, or (2) a net worth (exclusive of home, home furnishings and
automobiles) not less than $200,000. Additional investments by Maine investors
not made at the time of initial investment must be for a minimum of $5,000.
Nebraska: Nebraska Investors have until at least five business days after they
receive a Prospectus until the sale of BACs is final.
New Hampshire: (1) minimum annual gross taxable income of at least $50,000 and a
net worth (excluding home, home furnishings, automobiles) of not less than
$125,000, or (2) a net worth (exclusive of home, home furnishings and
automobiles) of net less than $250,000.
New Jersey: (1) minimum annual gross income of at least $50,000 and a net worth
(exclusive of home, home furnishings and automobiles) of not less than $60,000
or (2) net worth (exclusive of home, home furnishings and automobiles) of not
less than $150,000.
Pennsylvania: A Pennsylvania Investor's net worth (excluding home, home
furnishings and automobiles) must be equal to or greater than ten times his or
her dollar amount of BACs purchased. Furthermore, (1) each Investor must be in a
financial position appropriate to enable him to realize to a significant extent
the benefits described in this Prospectus, (2) each Investor must have a fair
market net worth sufficient to sustain the risks described in this Prospectus,
and (3) the investment in BACs must be otherwise suitable for each Investor.
Pennsylvania investors will not be admitted to the Fund until at least
$5,000,000 has been raised. Because the minimum offering amount is less than
$10,000,000, Pennsylvania investors are advised to carefully evaluate the Fund's
ability to fully accomplish its investment objectives and to inquire as to the
current dollar volume of BAC subscriptions for the applicable series of BACs.
South Dakota: (1) minimum annual gross income of at least $60,000 and a net
worth (exclusive of home, home furnishings and automobiles) of not less than
$60,000 or (2) net worth (exclusive of home, home furnishings and automobiles)
of not less than $225,000.
22
<PAGE>
Tennessee: Tennessee investors may withdraw or rescind their subscriptions
within five (5) business days from receipt of confirmation or of the Final
Prospectus, whichever is later.
Texas: (1) a minimum annual gross income of $60,000 and a net worth (exclusive
of home, home furnishings and automobiles) of not less than $60,000, or (2) a
net worth (exclusive of home, home furnishings and automobiles) of not less than
$175,000.
Residents of Arizona, Arkansas, California, Iowa, Maine, Massachusetts,
Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico,
North Carolina, Oklahoma, Oregon, South Dakota, Texas, Washington and Wisconsin
who wish to purchase BACs will be required to execute an Investor Form to be
provided by the Soliciting Dealers or Dealer-Manager on behalf of the Fund.
ESTIMATED USE OF PROCEEDS
At the commencement of the Offering, the Fund will have minimal capitalization.
(See "Reports of Independent Certified Public Accountants and Financial
Statements.") The proceeds of the Offering will provide all of the working
capital of the Fund, without which the Fund will not be able to achieve its
investment objectives. The following table sets forth the estimated application
of the sum of the Gross Offering Proceeds of the sale of BACs. These figures
represent the Fund's present estimates and the actual figures may differ. Of
each dollar raised by the Fund, approximately 72% to 73% will be invested
directly in Operating Partnerships, 4% in working capital reserves, with the
remainder to pay for services provided to the Fund by affiliated and
non-affiliated entities. All proceeds of the Offering will be held in trust by
the Fund for the benefit of the Investors to be used only for the purposes set
forth below.
23
<PAGE>
<TABLE>
<CAPTION>
Dollar Dollar
Amount Percentage Amount Percentage
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Gross Offering Proceeds to Fund ...... $2,500,000 100.0% $650,000,000 100.0%
=========== ======= ============= =======
Less Public Offering Expenses:
Selling Commissions (1) ............ $ 175,000 7.0% $ 45,500,000 7.0%
Dealer-Manager Fee .................. 50,000 2.0% 13,000,000 2.0%
Organization and Offering
Expenses (2) ...................... 112,500 4.5% 22,750,000 3.5%
Total Offering Expenses .............. 337,500 13.5% 81,250,000 12.5%
----------- ------- ------------- -------
Amount Available for Investment ...... $2,162,500 86.5% $568,750,000 87.5%
=========== ======= ============= =======
Acquisition Expenses (3) ............ 50,000 2.0% 13,000,000 2.0%
Asset Acquisition Fee (3) ............ 212,500 8.5% 55,250,000 8.5%
Working Capital Reserve (4) .......... 100,000 4.0% 26,000,000 4.0%
----------- ------- ------------- -------
Capital Contributions to Operating
Partnerships (5) .................. $1,800,000 72.0% $474,500,000 73.0%
=========== ======= ============= =======
</TABLE>
- ----------------
(1) Selling Commissions of up to 7% payable to the Dealer-Manager or to
applicable Soliciting Dealers. (See "The Offering-Selling Arrangements.")
(2) Includes among others legal, accounting, escrow, printing, travel,
marketing, registration, qualification, distribution, filing and other
accountable expenses paid by the Fund directly, or by the General Partner
and its Affiliates, in connection with the organization of the Fund, the
structuring of the Fund's investments and the offering of BACs.
Organization and Offering Expenses also include an accountable expense
reimbursement to the General Partner, an accountable due diligence expense
reimbursement to the Dealer-Manager in the amount of up to 0.5% of Gross
Offering Proceeds and a non-accountable expense allowance to the
Dealer-Manager in the amount of up to 1.0% of Gross Offering Proceeds to be
paid to the Dealer-Manager, as described under the caption "The
Offering-Selling Arrangements." If actual Organization and Operating
Expenses exceed the estimates set forth above, they will be paid from the
Offering proceeds; provided, however, if the Organization and Offering
Expenses and the Selling Commissions exceed 15% of the Gross Offering
Proceeds, the excess will be paid by the General Partner and not the Fund.
A significant amount of Organization and Offering Expenses will be paid
from the proceeds of the sale of the first series of BACs. To the extent
additional BACs are sold in subsequent series, each such series will
reimburse the first series, for its pro rata portion of Organization and
Offering Expenses.
(3) Consists of legal and accounting fees and travel, communication and other
expenses to be paid to third parties and amounts to be paid to the General
Partner and Boston Capital for selecting, evaluating, negotiating and
closing the Fund's investments in Operating Partnership Interests,
including the making of loans and/or option payments and/or deposit
payments to Operating Partnerships prior to the acquisition by the Fund of
an interest therein including any interest expense incurred. Acquisition
expenses do not include, and the Fund will not incur any expenses for
mortgage origination and real estate brokerage fees from the proceeds of
the Offering. The General Partner reserves the right to reduce the Asset
Acquisition Fee and allow the Fund to use the proceeds of any such
reduction to invest in Operating Partnerships.
(4) It is anticipated that a Working Capital Reserve equal to 4% of the Gross
Offering Proceeds will initially be established. Funds in the Working
Capital Reserve will be available for contingencies relating to the
operation, management and administration of the Apartment Complexes,
Operating Partnerships and the Fund, including payment of the annual Fund
Management Fee, to the extent other funds are not so available. In
addition, funds held in the Working Capital Reserve will be available for
option and/or other payments and interest expense incurred which may be
necessary to secure the acquisition of Operating Partnership Interests.
(5) At a minimum, the General Partner shall commit a percentage of the Capital
Contributions of Investors to Investment in Properties (generally,
investments in Operating Partnership Interests) which is equal to the
greater of: (i) 82.5% of the Gross Offering Proceeds reduced by 0.1625% for
each 1% of financing encumbering the Apartment Complexes; or (ii) 69.5% of
the Gross Offering Proceeds. It is anticipated that each Apartment Complex
may be leveraged up to 100% of its value and that all or a portion of the
Capital Contributions to the Operating Partnerships may be used to pay fees
to non-affiliated Operating General Partners.
RISK FACTORS
Investing in BACs involves various risks. Therefore, prospective Investors
should consider, in addition to the matters set forth elsewhere in this
Prospectus, the following risk factors before making a decision to purchase
BACs.
24
<PAGE>
A. Risks Associated with the Fund's Investments.
1. Risk of Unspecified Investments. As of the date of this Prospectus, the
General Partner has not yet identified all of the specific Operating
Partnerships in which the Fund may invest. (See "Investment in Operating
Partnerships.") Therefore, purchasers of BACs will not have an opportunity to
evaluate for themselves the Operating Partnerships or the Apartment Complexes in
which monies of the Fund will be invested, or the terms of such investments.
There is no information available to purchasers of BACs as to: (a) the terms of
the acquisitions of the Operating Partnership Interests; (b) the specific terms
of the Operating Partnership Agreements; (c) the identity or experience of the
Operating General Partners; (d) the type or location of the Apartment Complexes;
(e) the financing terms and the form or amount of Government Assistance which
the Apartment Complexes may receive; (f) the amount of Tax Credits anticipated
from any particular Apartment Complex; or (g) other relevant economic and
financial data and other facts concerning the Apartment Complexes or the
Operating Partnerships. Purchasers of BACs must depend upon the ability of the
General Partner and its Affiliates with respect to such matters. See
"Management" and "Prior Performance of the General Partner and its Affiliates"
for a description of the prior real estate experience of the General Partner and
its Affiliates.
Operating Partnerships will be selected on the basis of the Fund's investment
objectives and acquisition policies.
There can be no assurance that the Fund will be successful in obtaining suitable
investments meeting the objectives of the Fund, or that such investments will be
available, or can be acquired on attractive terms, or that any acquired
investment will increase in value or generate cash flow.
2. Risk of Limited Diversification. The ability of the Fund to diversify its
portfolio of Operating Partnership Interests will be dependent upon the amount
of BACs sold in any series. To the extent that less than all of the BACs in any
series are sold, and especially if only the minimum number of BACs in any series
is sold, the Fund will invest in fewer Operating Partnerships, and thus the
risks associated with a purchase of BACs may increase. In addition, to the
extent that Net Offering Proceeds with respect to any series are invested in
Operating Partnerships which have the same or affiliated Operating General
Partner(s), or which may develop or renovate Apartment Complexes in the same
competitive market area or as to which there is limited geographic diversity,
the risks could also increase. To the extent that the amount of the Fund's net
proceeds available for investment with respect to any series which is allocated
for investment in Operating Partnerships which own or are developing or
renovating a small number of large Apartment Complexes, the Fund will be less
able to obtain diversification of its investments. In such circumstances, any
such larger Apartment Complex experiencing poor operating performance or
impairment of value would have an increased adverse impact upon the Fund's
operations as a whole. (See "The Offering--Issuance of BACs in Series.")
3. Risk of Inability to Repay Loans. The General Partner and/or its Affiliates
may arrange for the borrowing of funds by the Fund from lending institutions for
the purpose of acquiring previously specified investments in Operating
Partnerships after the minimum offering of 250,000 BACs with respect to a
particular series has been sold and before sufficient Net Offering Proceeds
25
<PAGE>
have been raised in a particular series to make such an investment. Any such
loan(s) will be repaid by the Fund from the Net Offering Proceeds of such
series. In the event the minimum offering with respect to the particular series
is sold and a sufficient number of BACs to provide the Fund with sufficient
funds to repay the loan(s) has not been sold prior to the termination of the
Offering for said series, the General Partner and/or its Affiliates will
purchase a sufficient number of BACs to provide the Fund with funds to repay
such loan(s). Such BACs will be purchased on the same terms and conditions as
other BAC Holders, except the General Partner will not pay Selling Commissions,
the Dealer-Manager Fee, or other Organization and Offering expenses otherwise
payable to the Dealer-Manager from the Fund. There can be no assurance that the
General Partner and/or its Affiliates will have sufficient funds to meet such
obligations.
In addition, when determining whether or not to purchase an Interest in an
Operating Partnership, the Fund may arrange for the making of, loans or option
payments or deposits to one or more Operating Partnerships prior to the
acquisition by the Fund of an interest(s) therein. If the Fund is unable or
chooses not to invest in such Operating Partnership, the Operating Partnership
may be unwilling or unable to repay the loan, or the option payment or deposit
may be forfeited; in addition, any interest expense incurred on loans made with
borrowed funds may be paid by the Fund. In such event, the amount of Net
offering Proceeds available for investment in other Operating Partnerships will
be reduced. (See "Investment Objectives and Acquisition Policies--Acquisition
Policies.")
B. Business Risks of Real Estate Investment.
1. Risks Associated with Construction and Substantial Renovation. Investment in
new construction or in substantial renovation of an Apartment Complex involves
risks because there is no prior operating history of the Apartment Complex, and
there are risks of cost overruns, delays in construction, labor and material
shortages, adverse weather, strikes, utility and energy unavailability and other
unpredictable contingencies beyond the control of the owner. In connection with
the substantial renovation of Apartment Complexes, risks associated with the
vacating of buildings to be renovated also may exist.
2. Risks Associated with Operation. If expenses of an Apartment Complex exceed
the rental and other income of such property, the Operating Partnership and/or
the Fund may have to advance monies in order to protect their respective
investments, or the applicable Operating Partnership may be required to dispose
of the Apartment Complex on disadvantageous terms, if necessary to raise funds.
In the event the operation of an Apartment Complex does not generate sufficient
operating income to pay all of its operating expenses, taxes and debt service
requirements, the Fund may sustain a loss of its investment as a result of the
foreclosure of the Permanent Mortgage. There can be no assurance that any of the
Operating Partnerships will not incur operating deficits.
3. Risks Associated with Leveraged Investments. Each Operating Partnership will
leverage the Fund's investment therein by incurring mortgage debt. The effects
of leveraging are, to increase the amount of property which can be obtained with
the funds available for investment and thereby to increase the aggregate amount
of depreciation and Tax Credits available to the Fund,
26
<PAGE>
which may increase the risk of loss. As a result of the use of leverage for
investments in an Apartment Complex receiving Government Assistance, a
relatively slight decrease in the rental revenues of the Operating Partnership
may materially and adversely affect the Apartment Complex's cash flow and, in
turn, the Fund's Net Cash Flow. Should any Operating Partnership's revenues and
initial operating reserves (if any) be insufficient to service its debt and pay
taxes and other operating expenses, such Operating Partnership and, perhaps, the
Fund, will be required to utilize working capital, seek additional funds, or
suffer a default under the Permanent Mortgage Loan and a possible foreclosure or
other loss of the Apartment Complex. There can be no assurance that additional
funds will be available to an Operating Partnership or the Fund if needed, or,
if available, will be on terms acceptable to the Fund. Foreclosure of the
Permanent Mortgage Loan as to an Operating Partnership's Apartment Complex would
result in tax liability to the BAC Holders under circumstances in which the BAC
Holders might not receive cash distributions from the Fund to provide for such
taxes. (See "Tax Risks Associated with the Fund's Investments" below in this
section.)
In addition, in order to repay the aggregate amount of the Permanent Mortgage
Loan indebtedness and the Capital Contributions of the BAC Holders, it is
anticipated that the Apartment Complexes, in most cases, must appreciate over
the term of the Fund's holding period. The achievement of any appreciation may
be affected by fluctuating economic conditions and restrictions pursuant to
applicable Government Assistance, and is dependent upon the occurrence or
non-occurrence of other future events which cannot be assured.
4. Risks Associated with the Financial Resources of the Operating General
Partners. The ability of the Operating Partnerships to (a) maintain or improve
levels of occupancy of the Apartment Complexes, and (b) where appropriate,
complete the construction or renovation and initial renting of certain of the
Apartment Complexes may depend upon the ability of the Operating General
Partners to provide the Operating Partnerships with any funds which may be
required in excess of the funds budgeted for the Apartment Complexes. In
addition, it is anticipated that the Operating General Partners will incur
significant obligations to the Fund, including the obligations to (i) adjust and
refund portions of the Installments of Capital Contributions due from the Fund
to an Operating Partnership under certain circumstances, (ii) repurchase the
Interest of the Fund in an Operating Partnership under certain circumstances,
and (iii) fund all or certain operating deficits of an Operating Partnership for
a certain period of time. (See "Investment Objectives and Acquisition
Policies--Acquisition Policies.") It is not anticipated that any escrow accounts
or other security arrangements will be established in connection with the
foregoing obligations. There can be no assurance that such Operating General
Partners will have sufficient funds to meet such obligations. If any of the
Operating General Partners fail to meet their obligations to the Fund or to pay
any Apartment Complex and/or Operating Partnership costs which they are required
to pay, the remedies of the Fund may be limited in certain cases to removing the
Operating General Partners as general partners of the Operating Partnership.
(See "Investment Objectives and Acquisition Policies.")
5. Risks Associated with Government Assistance.
(a) Limitations on Cash Distributions. Operating Partnerships owning Apartment
Complexes receiving Government Assistance will, in most instances,
27
<PAGE>
be limited by applicable government statutes and regulations as to the amount of
cash distributions which they may make from the net operating income of such
Apartment Complexes. (See "Government Assistance Programs.") During the initial
years of operation, it is not expected that any of the Operating Partnerships in
which the Fund invests will generate sufficient cash flow to permit distribution
of Net Cash Flow by the Fund to BAC Holders.
(b) Limitations on the Approval of Rent Increases; Rent Restriction Test for
Federal Housing Tax Credit. Generally, no rents in an Apartment Complex
receiving Government Assistance can be increased without the prior approval of
the applicable government agencies. When government approval is required, rent
increases generally will be approved only on the basis of the Apartment
Complex's increased operating expenses. There can be no assurance that any rent
increases will be approved, or that any rent increases that might be approved
will be sufficient in time or in amount to offset any increase in operating
expenses or other costs which the applicable Apartment Complex is experiencing,
or that tenants will be willing or able to pay any approved increased rents.
(c) Restrictions on the Eligibility of Tenants. Governmental regulations with
regard to the eligibility of tenants for Apartment Complexes receiving
Government Assistance may make it more difficult to rent the apartments in such
Apartment Complexes. In addition, factors such as excessive building, increases
in local unemployment and competition from other apartment complexes, including
those receiving Government Assistance, could have an adverse effect on occupancy
rates.
(d) Limitations on Available Subsidy Funds. Tenants in an Apartment Complex may
receive rent supplement payments under the RHS rental assistance or USHUD rent
supplement program. (See "Government Assistance Programs.") Annual rent
supplement payments are fixed in amount, unless RHS or USHUD has funding for and
approves an increase in payments. In the absence of such an increase, the
operating expenses of an Apartment Complex may increase without a corresponding
increase in rental income. This could ultimately lead to a foreclosure on an
Apartment Complex and the possible loss or fractional recapture of Tax Credits.
Tenants in an Apartment Complex may be eligible for rent supplement payments
under various Government Assistance Programs, subject to certain income and/or
occupancy restrictions. Subsidy payments or other assistance are subject to
reduction or termination under various circumstances, including vacancies, lack
of compliance with applicable federal, state or local regulations or shortfalls
in the appropriation of funds. There can be no assurance that, in any event,
subsidy payments and tenant rent payments will cover all operating costs of an
Apartment Complex or permit the making of cash distributions. (See "Government
Assistance Programs.")
(e) Limitations on Sale or Refinancing of Apartment Complexes and Sale of
Operating Partnership Interests. Apartment Complexes which are receiving
Government Assistance generally are subject to restrictions on sale or
refinancing. Accordingly, it may be difficult or impossible for an Operating
Partnership to arrange a sale of its Apartment Complex or a refinancing of a
government-assisted Permanent Mortgage Loan prior to the release of such
restrictions. Due to such restrictions, there can be no assurance that the
Operating Partnerships will be able to sell or refinance the Apartment Com-
28
<PAGE>
plexes when it is in the economic interest of the Fund and the BAC Holders to
do so. (See "Government Assistance Programs.")
Currently applicable regulations relating to Apartment Complexes receiving some
form of USHUD assistance require that USHUD approve the sale or transfer of more
than 50% of the interests in the applicable Operating Partnership. These
regulations could impair the ability of the Fund to sell all or a major part of
its Interest in an Operating Partnership. Similar restrictions are imposed by
RHS and may be imposed by state housing finance agencies or other governmental
entities. (See "Government Assistance Programs.")
6. Risk of Uninsured Losses. The Operating Partnerships will arrange for
comprehensive casualty insurance coverage which is customary for property
similar to the Apartment Complexes. However, there are certain types of losses
(generally of an unusual catastrophic nature) which are either uninsurable or
not economically insurable. Should such a casualty occur with respect to an
Apartment Complex, the applicable Operating Partner- ship, the Fund and the BAC
Holders could suffer a loss of the capital invested in the Operating Partnership
and the Apartment Complex, as well as anticipated benefits from investment in
the applicable Operating Partnership.
7. Competition for Apartment Complex Investments. The Fund will be competing for
apartment complex investments with other entities engaged in similar investment
activities, including partnerships or other entities which are Affiliates of the
General Partner. (See "Conflicts of Interest.") There can be no assurance that
the Fund will be successful in obtaining suitable investments consistent with
the terms set forth in "Investment Objectives and Acquisition Policies." (See
"Tax Credit Programs--The Federal Housing Tax Credit.")
C. Tax Risks Associated with the Fund's Investments.
1. Description of Tax Opinions; Lack of Opinions on Factual Issues; Possibility
of IRS Challenge of Fund Tax Positions. The Fund has not requested and will not
request any tax ruling from the IRS regarding the tax consequences of its
activities. Accordingly, there is no certainty as to the tax consequences of
participating in the Fund. Peabody & Brown, counsel to the General Partner and
the Fund ("Counsel"), will provide its legal opinion with regard to many of the
material tax issues involved in investment in the Fund. However, it will not
render an opinion on certain other material tax issues because they will depend
upon the specific investments made by the Fund which have not yet been
identified. Counsel's opinion is not binding on the IRS or any court; it merely
expresses the legal conclusion reached by the law firm which has provided its
opinion. It is possible that the IRS will challenge deductions and Tax Credits
claimed by the Fund. If such a challenge is successful, it would have an adverse
affect on the benefits to be obtained from an investment in the Fund.
Accordingly, each prospective Investor is urged to consult his or her own tax
advisor with respect to the federal and state tax consequences arising from an
investment in the Fund. (See "Federal Income Tax Matters--Opinions of Counsel".)
2. Risk of No Return of Capital Other Than from Tax Credit. There is no
assurance that Investors will receive any cash distributions from the sale or
refinancing of an Apartment Complex since the availability of such proceeds will
depend on the value of that Apartment Complex in relation to the out-
29
<PAGE>
standing debt and other expenses that must be paid at the time. If cash
distributions from a Capital Transaction are insufficient to return to Investors
the full amount of their Capital Contributions, then any cash distributions from
operations and any allocations of Tax Credits would effectively represent a
return of the original capital investment of the Investors to the extent of such
shortfall, instead of a return on their capital investment. In such a case, the
only benefit from the investment would be Tax Credits.
3. Risk of Audit to Investors. There is a possibility that the Internal Revenue
Service ("IRS") will audit the income tax returns of the Fund and the Operating
Partnerships. The IRS in fact has undertaken and completed audits of 23 limited
partnerships (of a total of more than 350 such limited partnerships) with which
Affiliates of the General Partner are associated. All these audits have now been
settled with the IRS without material changes. If the income tax returns of the
Fund or the Operating Partnerships are audited, the returns of the BAC Holders
might also be audited. (See "Federal Income Tax Matters--IRS Audit
Considerations.")
4. The Availability and Use of Tax Credits are Subject to Complex Rules. A
significant portion of the tax benefits to be derived by a BAC Holder depends
upon the eligibility of the Apartment Complexes for the Federal Housing Tax
Credit and, in the case of certain Apartment Complexes, the Historic Tax Credit.
The rules which determine whether an Apartment Complex is eligible for Tax
Credits and the rules regarding the use of Tax Credits are very complicated.
The Tax Credits are generated over 10 to 12 years of an investment in each
Operating Partnership and BAC Holders must reasonably expect to have a tax
liability during the next twelve years against which Tax Credits can be used to
offset their federal income tax liability.
If an Apartment Complex fails to receive State Designation or to meet initially
the applicable income and rent restrictions, such Apartment Complex would not
generate any Federal Housing Tax Credits. This would materially reduce the tax
benefits to a BAC Holder. At the time the Fund is admitted to an Operating
Partnership, it is possible that the Operating Partnership will not yet have
received its State Designation or have rented the Apartment Complex, both of
which are necessary to determine whether the income level and the Rent
Restriction Test can be met. (See "Investment Objectives and Acquisition
Policies--Acquisition Policies.")
If an Apartment Complex fails to satisfy the applicable income and rent
restrictions at any time during the initial 15-year Compliance Period, there
would be recapture of a portion of Federal Housing Tax Credits for prior years,
and loss of credits for the year such failure took place and future years. In
addition, if the Fund disposes of its Interest in an Operating Partnership
during the initial 15-year Compliance Period, or an Operating Partnership
disposes of all or a portion of its Apartment Complex during such period, future
Federal Housing Tax Credits, if any, could be lost, and there could be a
recapture of a portion of previously-allowed Federal Housing Tax Credits. (See
"Federal Income Tax Matters--Recapture of Tax Credits.")
Prior to acquiring interests in any Operating Partnership, the Fund will require
delivery of opinions of Counsel that, based on certain assumptions, Investors
will be entitled to the tax benefits from the Apartment Complex
30
<PAGE>
owned by the Operating Partnership. (See "Investment Objectives and Acquisition
Policies--Acquisition Policies" and "Federal Income Tax Matters--Federal
Housing Tax Credit" and "--Historic Tax Credit.")
5. Risk of the Limitations on Use of Tax Credits and Losses from Passive
Activities. Under the Code, Fund credits and losses allocated to individual BAC
Holders will be "passive activity credits and losses" and may be deducted by
such BAC Holders only to the extent of their income derived from other passive
activities or tax on net passive income, except in certain limited
circumstances. (See "Federal Income Tax Matters--Passive Loss and Tax Credit
Limitations.")
6. Risk of Disallowance of Deduction of Certain Fees by the Fund and/or the
Operating Partnerships. The Fund and the Operating Partnerships will deduct or
amortize certain fees and expenses payable to the General Partner, its
Affiliates, the Operating General Partners and/or their Affiliates, and other
Persons. If audited, it is possible that the deduction of some of such fees and
interest will be challenged or disallowed by the Internal Revenue Service and,
if so challenged, that some portion of the deductions claimed by the Fund and/or
the Operating Partnerships with respect to such challenged fees and interest
would be eliminated or deferred, either as a result of a settlement with the
Internal Revenue Service or as a result of litigation. In such event, the tax
losses allocated to BAC Holders in the years in which such deductions are
disallowed may be reduced. (See "Federal Income Tax Matters--IRS Audit
Considerations," "--Certain Fees and Expenses" and "--Overall Evaluation of Tax
Benefits.")
7. Alternative Minimum Tax and Business Tax Credit Rules Could Reduce or
Eliminate the Benefits of this Investment. Tax Credits are subject to the rule
governing general business credits which limit the amount of tax liabilities
which may be offset. Also, each purchaser of BACs should carefully consider the
effect of a purchase of BACs on the aggregate amount of his tax preference items
subject to the alternative minimum tax which, if applicable to the BAC Holder,
would reduce the federal income tax benefits and the economic benefits of this
investment. Neither Federal Housing Tax Credits nor Historic Tax Credits can be
used to reduce any liability for the alternative minimum tax. Moreover,
taxpayers not otherwise subject to alternative minimum tax may nonetheless have
the use of Tax Credits allocated to them limited to an amount no greater than
the difference between their regular income tax liability and their potential
alternative minimum tax liability. (See "Federal Income Tax Matters--Certain
Other Tax Considerations and Passive Loss and Tax Credit Limitations.")
8. Risk that the Fund Could be Treated as a Corporation for Federal Income Tax
Purposes and/or BAC Holders not Treated as Partners for Federal Income Tax
Purposes. The tax benefits to BAC Holders depend upon the federal income tax
classification of the Fund and the Operating Partnerships as "partnerships" and
not as associations taxable as corporations. Counsel is of the opinion that the
Fund will be treated as a partnership for federal income tax purposes. Prior to
any investment in an Operating Partnership, the Fund shall receive an opinion of
Counsel that such Operating Partnership will be treated as a partnership for
federal income tax purposes. The Fund will not apply to the IRS for a ruling
that the Fund or any Operating Partnership will be classified as a partnership
rather than an association taxable
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as a corporation and/or that the BAC Holders will be treated as partners.
Treatment by the IRS of the Fund or the Operating Partnerships as associations
taxable as corporations, rather than as partnerships, would have a material
adverse effect on the BAC Holders. In such event, none of the Tax Credits of the
Fund and/or of the affected Operating Partnership(s), as applicable, would be
passed through to them.
In addition, the availability of Tax Credits or any other tax benefits to BAC
Holders will depend upon their being treated as limited partners in the Fund for
federal income tax purposes. If they are not, they might be treated as having
received interests in the Assignor Limited Partner or in some other entity. In
such event, the tax consequences would be the same as if the Fund were treated
as a corporation. Counsel is of the opinion that the BAC Holders will be treated
as limited partners of a partnership for federal income tax purposes. (See
"Federal Income Tax Matters--Classification of the Fund for Federal Income Tax
Purposes," "--Classification of BAC Holders as Partners for Tax Purposes",
"--Fund Income" and "--Sale or Disposition of BACs.")
9. Allocation of Profits, Credits and Losses May be Unfavorably Changed by the
IRS. The Fund Agreement allocates 99% of the Profits, Credits and Losses of the
Fund to the BAC Holders. The IRS, if it audits the Fund, may seek to allocate
the Profits, Credits and Losses of the Fund in a manner less favorable to the
BAC Holders. In the opinion of Counsel, if the matter were litigated, it is more
likely than not that the allocations in the Fund Agreement have "substantial
economic effect" and/or are in accordance with the Interests of the Partners
(and BAC Holders). (See "Federal Income Tax Matters--Allocation of Profits,
Credits, Losses and Other Items in Accordance with Fund Agreements" and
"--Calculation of Investor's Basis in His BACs or Fund Interest" and "Sharing
Arrangements: Profits, Credits, Losses, Credits, Net Cash Flow and Residuals.")
10. Taxable Gain on Sale or Disposition of BACs. Upon the sale or other taxable
disposition of BACs and to the extent that a BAC Holder does not have any
suspended passive losses or credits, the BAC Holder will realize taxable income
to the extent that his allocable share (for federal income tax purposes) of the
nonrecourse mortgage indebtedness (but not recourse mortgage indebtedness) with
respect to the Apartment Complexes, together with the other consideration he
receives upon the sale of BACs, exceeds his basis in such BACs. However, such
sale may not result in cash proceeds sufficient to pay the tax obligations
arising from such sale. (See "Federal Income Tax Matters-Depreciation," "--Sale
of Fund Interests" and "--Certain Other Tax Considerations--Alternative Minimum
Tax.")
11. Interest and Penalties on Understatements of Tax Liability. The interest
rate payable to the Internal Revenue Service on a taxpayer's underpayment of tax
liability is the federal short-term rate plus three percentage points. In
addition, additional penalties may be applicable in the case of the underpayment
of a taxpayer's tax liability due to negligence or the intentional disregard of
rules or regulations, or if the total underpayment exceeds the greater of (i)
$5,000 ($10,000 in the case of corporations) or (ii) 10% of the tax liability
required to be shown on the taxpayer's return. (See "Federal Income Tax
Matters--IRS Audit Considerations.")
12. Tax Liability in Excess of Cash. BAC Holders eventually may be allocated
Fund profits and their resulting tax liability may exceed the cash, if any, dis-
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tributed to them by the Fund. Under these circumstances, unless a BAC Holder can
utilize passive losses or credits, the deduction or use of which was previously
suspended, to reduce such tax liability, payment of federal income taxes will be
an out-of-pocket expense to the BAC Holder. Similarly, in the event of a sale or
foreclosure of an Apartment Complex or a sale or other disposition of BACs, a
BAC Holder may be allocated taxable income (and resulting tax liability) in
excess of the cash, if any, distributed to him as a result of such event. (See
"Federal Income Tax Matters--Sale or Disposition of BACs" and "--Sale or Other
Disposition of an Apartment Complex and Interests in Operating Partnerships.")
13. Future Federal Income Tax Legislation and Regulations. The Congress enacted
comprehensive tax reform legislation in the 1986 Tax Act. No assurance can be
given that the current Congress or any future Congress will not enact other
federal income tax legislation that could adversely affect the tax consequences
of ownership of BACs, or that the Treasury Department will not promulgate
regulations, including regulations with respect to Federal Housing Tax Credits,
with similar adverse effects. ANY SUCH FUTURE LEGISLATION OR REGULATIONS ENACTED
OR PROMULGATED PRIOR TO THE ISSUANCE OF THE LEGAL OPINIONS ANTICIPATED TO BE
RENDERED IN CONNECTION WITH THE ISSUANCE OF BACs MAY AFFECT THE ABILITY OF
COUNSEL TO RENDER SUCH OPINIONS.
The U.S. Bureau of the Census estimates that in 1992 there was an unmet national
demand for an additional four million units of affordable rental housing
nationwide and that by the year 2000, there will be an unmet national demand for
an additional eight million units of affordable rental housing.
D. Certain Other Risks.
1. Risk of Significant Change in BAC Holder's Taxable Income. With the exception
of certain corporate BAC Holders, a change in a BAC Holder's personal situation
which, (a) in the case of Tax Credits, reduces his taxable income, or (b) in the
case of Historic Tax Credits only, increases his adjusted gross income above
$200,000 in a particular year (unless he has substantial net passive income),
will substantially reduce, defer or eliminate entirely the benefits to him of
the Tax Credits allocated by the Fund. (See "Tax Risks Associated with the
Fund's Investments" above in this section.)
2. Limits on Transferability. Although the BACs are anticipated to be issued in
a form permitting transfer 30 days after the issuance of the final BACs with
respect to the applicable series, and although it is possible that the BACs in
all series may be listed on a national securities exchange or the BACs may be
included for quotation on NASDAQ if deemed by the General Partner to be in the
best interests of the Fund and the BAC Holders (although any such listing is not
currently anticipated), there is no assurance that such a listing can or will be
accomplished or that a public trading market will develop. Even if free
transferability of the BACs is generally permitted initially, the transfers of
BACs will be limited in certain circumstances. BAC Holders may not be able to
liquidate their investment promptly at a reasonable price and BAC Holders should
consider BACs to be a long-term investment. (See "Description of
BACs--Transfers" and "Federal Income Tax Matters--Classification as a
Partnership" and "--Fund Income.")
The Fund Agreement authorizes the General Partner to impose restrictions on the
transfer of BACs in order (a) not to cause a termination of the Fund
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for tax purposes, or (b) to prevent a secondary market from developing if, in
the opinion of Counsel, classification as a partnership for federal income tax
purposes would be jeopardized by the creation of a secondary market. In
addition, the General Partner will not allow sales of BACs to any Investor who
does not meet the then-applicable suitability standards. (See "Federal Income
Tax Matters--Sale or Disposition of BACs.")
3. Conflicting Activities of the General Partner and the Operating General
Partners. The General Partner and its Affiliates are committed, and it is
expected that the Operating General Partners are or will be committed, to the
management of many other limited partnerships which have invested in
partnerships which own real estate or apartment complexes, and are planning to
be committed to the management of other entities similar to the Fund and the
Operating Partnerships.
4. Conflicts of Interest; Substantial Fees to the General Partner and its
Affiliates. The Offering involves certain potential conflicts of interest
including the fact that the General Partner and its Affiliates, including the
Dealer-Manager, will receive substantial fees, commissions, compensation and
other income from transactions with and by the Fund. (See "Compensation and
Fees.") The interests of the BAC Holders may be inconsistent in some respects
with the interests of the General Partner, and the interests of the Fund in the
Operating Partnerships may be inconsistent in some respects with the interests
of the Operating General Partners. (See "Conflicts of Interest.")
5. Potential Liability of BAC Holders. In general, limited partners in a
partnership are not liable for partnership obligations unless they take an
active part in the day-to-day management or control of the business of the
partnership. The Fund Agreement provides that a majority in Interest of the
Limited Partners (including the Assignor Limited Partner, voting as directed by
the BAC Holders) (unless a greater number of Limited Partners is required under
the Delaware Revised Uniform Limited Partnership Act), may remove the General
Partner, amend the Fund Agreement, approve the sale at one time of all or
substantially all of the Fund's investments, replace the General Partner and
dissolve the Fund. The Delaware Revised Uniform Limited Partnership Act
presently authorizes the exercise of such rights by the Limited Partners with
respect to any or all of the aforementioned matters without jeopardizing their
limited liability.
All rights accorded limited partners in a partnership under the laws of the
State of Delaware extend to BAC Holders under the terms of the Fund Agreement.
Unless a limited partner is deemed to be taking part in the control of the
business, a limited partner's liability is limited to the amount invested and
agreed to be invested by such limited partner in the partnership, whether or not
returned to the limited partner, together with such limited partner's capital
account and any money or other property paid or conveyed to him on account of
his contribution, including, but not limited to, money or property to which
creditors are legally entitled. Under applicable Delaware law, if a partner has
received the return of any part of his capital contribution without violation of
such law or the partnership agreement, the partner is liable to the partnership
for a period of one year thereafter for the amount of the returned contribution
to the extent necessary to discharge the partnership's liabilities to creditors
incurred during the period the contribution was held by the partnership.
However, if such return of any part of the capi-
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tal contribution is in violation of applicable Delaware law or the partnership
agreement, such liability of the partner is for a period of three years, for
the amount of the contribution wrongfully returned. (See "Summary of Certain
Provisions of the Fund Agreement.")
6. Limitation on General Partner's Liability. Under applicable Delaware law, the
General Partner is accountable to the BAC Holders as a fiduciary and,
consequently, is required to exercise good faith and integrity in handling the
affairs of the Fund. However, the Fund Agreement provides that the General
Partner will not be liable to BAC Holders for its acts and omissions performed
or omitted in good faith and in a manner it reasonably believes to be within the
scope of its authority under the Fund Agreement and in the best interest of the
Fund, except for conduct constituting fraud, bad faith, negligence or
misconduct. Therefore, BAC Holders may have more limited rights of action
against the General Partner than would otherwise be available absent these
provisions in the Fund Agreement. In addition, BAC Holders may have more limited
rights to bring a derivative action against the General Partner than would
limited partners under the Delaware Revised Uniform Limited Partnership Act.
(See "Fiduciary Responsibility of the General Partner.")
7. Issuance of BACs in Series. BACs are issued in series, and the Fund Agreement
provides that each series will be treated, for purposes of allocations of
Profits, Credits and Losses, operating expenses, and distributions of Net Cash
Flow and Residual Proceeds, as though it were a separate partnership, sharing in
a separate and distinct pool of Operating Partnership Interests. The rights and
ownership attributes of BAC Holders in all series will be identical in all other
respects, except with respect to voting rights and accounting matters applicable
only to any particular series. (See "The Offering--Issuance of BACs in Series.")
It is possible, however, that each series would not stand on its own with
respect to outside creditors and that, under certain circumstances, such
creditors would be able to reach all assets of the Fund, notwithstanding that
the matter affecting the creditor related only to a particular series.
Therefore, in the event that a creditor asserts a claim against the assets of
the Fund and it can be determined by the nature of the creditor's claim that
such claim is attributable to one series only, and that series' funds are
insufficient to satisfy the claim, then the General Partner will assume
liability for any unsatisfied portion of the creditor's claim. In the event of
any such claim against more than one series, if the proportional liability of a
particular series can be determined, such series will be liable only for such
proportional amount of the claim; if such series' funds are insufficient to
satisfy the proportional amount of the claim, the General Partner will assume
liability for any unsatisfied portion thereof. It is the Fund's intention to
require that the various series reimburse each other to the extent that expenses
relating to a particular series are borne by another series, but a series may be
financially unable to do so. There is a risk, therefore, that BAC Holders in a
particular series will be affected by the performance of Apartment Complexes in
all or some of the other series and that they may, as a result, earn lower
returns on their investments than would otherwise be the case.
8. Non-Profit Operating Partnerships. The Operating Partnerships in which the
Fund intends to invest have not yet been identified. Certain of the Operating
Partnerships in which the Fund may invest may have Operating Gen-
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eral Partners which are non-profit sponsors of low income housing. Such
Non-Profit Operating Partnerships may be subject to greater restrictions on
matters such as distributions of cash flow from operations and Liquidation,
Sale or Refinancing Proceeds. Investors may not have any opportunity to
evaluate for themselves the terms of any such investment in a Non-Profit
Operating Partnership. (See "Investment Objectives and Acquisition
Policies--Investment Objectives.")
9. Absence of Independent Dealer-Manager. The Dealer-Manager will receive
commissions and other compensation in its capacity as an agent of the Fund. The
Dealer-Manager has not retained counsel separate from the Fund's counsel, but
has conducted such due diligence investigation and review as it deems necessary
under the circumstances. However, because the Dealer-Manager is an Affiliate of
the General Partner, Investors will not have the benefit of an independent
investigation of the Fund as is customarily made by independent dealer-managers.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
A general partner is accountable to a limited partnership as a fiduciary and
consequently must exercise good faith and integrity in handling Fund affairs.
The interpretation of what constitutes "good faith" and "integrity" will be
decided by the court in which any legal action against the General Partner is
instituted.
Where the question has arisen, courts have held that a limited partner may
institute 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 duty, or on behalf of the partnership (a partnership
derivative action) to recover damages from third parties.
The Fund Agreement provides that a BAC Holder may bring a derivative action on
behalf of the Fund to recover a judgment to the same extent as a limited partner
has such rights under the Delaware Revised Uniform Limited Partnership Act. The
Delaware Revised Uniform Limited Partnership Act provides for such rights
although it requires that the Person bringing a derivative action be a limited
partner of the partnership. There is no specific Delaware judicial or statutory
authority governing the question of whether an assignee of a limited partner has
the right to bring a derivative action where a specific provision exists in the
Fund Agreement granting such rights. Furthermore, there is no express statutory
authority for a limited partner's class action in Delaware, and whether a class
action may be brought by BAC Holders to recover damages for breach of the
General Partner's fiduciary duties in Delaware state courts is unclear.
Accordingly, there is no assurance that legal remedies will be available or
affordable if fiduciary duties are breached, although it is anticipated that the
ability of the BAC Holders to enforce their rights against the General Partner
will be substantially the same as the rights of the Limited Partners.
Under applicable Delaware law, the General Partner is accountable to BAC Holders
as a fiduciary and, consequently, is required to exercise good faith and
integrity in handling the affairs of the Fund. However, the Fund Agreement
provides that the General Partner and certain of its Affiliates shall not be
liable, responsible, or accountable in damages or otherwise to the Fund or to
any of the Investors for any act or omission performed or omitted by
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the General Partner or certain of its Affiliates in good faith and in the best
interest of the Fund, except for conduct constituting fraud, bad faith,
negligence, misconduct or breach of fiduciary duty. The General Partner and
certain of its Affiliates are also indemnified by the Fund against and for loss,
liability or damages (including all judgments, costs and attorneys' fees and
amounts expended in the settlement of any claims of liability or damages)
incurred by them in good faith and in a manner reasonably believed by them to be
in the Fund's best interests, in connection with any act or omission in
connection with the business of the Fund, provided that the course of conduct
which caused the loss or liability is not attributable to fraud, bad faith,
negligence, misconduct or breach of fiduciary duty with respect to any such act
or omission. Such indemnification is recoverable only out of the assets of the
Fund and not from Investors. Under the provisions of the Fund Agreement,
Investors may have a more restricted right of action against the General Partner
and certain of its Affiliates than would be the case absent these provisions.
The Fund Agreement provides that neither the General Partner, nor its Affiliates
(including the Assignor Limited Partner), the Dealer-Manager nor the Fund shall
be indemnified against such liabilities arising under federal or state
securities laws, rules or regulations, unless (a) the General Partner, or its
Affiliates, the Dealer-Manager or the Fund are successful in defending such
action, such claim is dismissed or a court of competent jurisdiction approves a
settlement of such claim (in any of such circumstances, subject to court
approval of litigation and/or settlement costs); and (b) such indemnification is
specifically approved by a court of law which shall have been advised as to the
current position of the Securities and Exchange Commission and the securities
department of Massachusetts and other applicable state securities laws
administrators regarding indemnification for violations of securities law.
Notwithstanding the foregoing, the Assignor Limited Partner shall be indemnified
only so long as it is an Affiliate of the General Partner. TO THE EXTENT THAT
THE PROVISIONS OF THE FUND AGREEMENT INCLUDE INDEMNIFICATION FOR LIABILITIES
ARISING UNDER THE SECURITIES ACT OF 1933, SUCH INDEMNIFICATION IS, IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION AND CERTAIN STATE SECURITIES
DIVISIONS, CONTRARY TO PUBLIC POLICY AND THEREFORE UNENFORCEABLE. In any claim
for indemnification for federal or state securities law violations, the party
seeking indemnification will place before the court the position of the
Securities and Exchange Commission and certain state securities divisions with
respect to the issue of indemnification for securities law violations.
Investors should also be aware that the General Partner could have various
defenses available to it if the BAC Holders were to bring an action for breach
of the General Partner's fiduciary duty. Such defenses could include technical
defenses such as those based on statutes of limitations (if for example, the
suit is not brought within the applicable time limitations). Also, the General
Partner could attempt to establish that even though it made an error in
judgment, it had, in good faith, attempted to act in the best interest of the
Fund. In other words, a mere mistake in judgment may not constitute a breach of
fiduciary duty.
The matter of the fiduciary responsibility of general partners is an evolving
area of the law and Investors who have questions concerning the duties
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of the General Partner should consult with their legal counsel. (See "Risk
Factors.")
The Fund will not incur the cost of that portion of any insurance, other than
public liability insurance, which insures any party against any liability the
indemnification for which is herein prohibited.
CONFLICTS OF INTEREST
The General Partner, the Dealer-Manager and Boston Capital are Affiliates. John
P. Manning and Herbert F. Collins equally own all the stock in Boston Capital.
Messrs. Manning and Collins, along with Richard J. DeAgazio, equally own all the
stock of BCS Group, Inc., the parent company of the Dealer-Manager. Any
transactions between the Fund and the General Partner and its Affiliates will be
entered into without the benefit of arm's-length bargaining and will involve
conflicts of interest.
Management and operation of the Fund will subject the General Partner to certain
conflicts of interest. Certain agreements and arrangements among the Fund and
the General Partner and its Affiliates have been established by the General
Partner and are not the result of arm's-length negotiations. Although certain
provisions of the Fund Agreement are designed to mitigate such conflicts of
interest by limiting the authority of the General Partner and its ability to
enter into transactions with the Fund, such conflicts cannot be completely
eliminated. See "Fiduciary Responsibility of the General Partner" for a
discussion of the General Partner's fiduciary duties to the Investors, which, in
general, require the General Partner to consider the best interests of the
Investors in managing the Fund. Neither the General Partner nor its Affiliates
will receive any compensation other than that described in this Prospectus. (See
"Compensation and Fees.")
In considering the risks and merits of an investment in the Fund, prospective
Investors should carefully consider the following potential conflicts of
interest:
Inconsistent Interests
The interests of Investors may be inconsistent in some respects with the
interests of the General Partner. Also, the interests of the Fund in the
Operating Partnerships may be inconsistent in some respects with the interests
of the applicable Operating General Partners.
The General Partner and its Affiliates, by reason of the General Partner's
Interest in the Fund, their receipt of fees from the Fund (and, in certain
cases, from one or more Operating Partnerships) (see "Compensation and Fees"),
and their ongoing business relationships with certain of the Operating General
Partners, have conflicts of interest in connection with their performance of
certain activities, including particularly decisions under certain circumstances
as to the withholding of payments of Capital Contributions by the Fund to the
Operating Partnerships, the removal of any of the Operating General Partners and
the exercise or non-exercise of the repurchase obligation of the Operating
General Partners upon the occurrence of a Repurchase Event. (See "Investment
Objectives and Acquisition Policies.") Any decision of the General Partner on
behalf of the Fund to exercise or not to exercise a repurchase obligation,
actions with regard to the withholding of payments to an Operating Partnership,
and the removal of Operating General Partners may be taken without the prior
consent of the Investors.
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However, the General Partner is subject to a fiduciary duty to exercise good
faith and integrity in handling the affairs of the Fund.
In addition, a transaction such as a termination of the business of the Fund, a
sale of Operating Partnership Interests, or a sale or refinancing of an
Apartment Complex or liquidation of an Operating Partnership may produce profits
for the General Partner and/or its Affiliates and/or the Operating General
Partner(s) at a time when it produces adverse tax or other consequences for the
Investors. On the other hand, a continuation of business by the Fund or an
Operating Partnership may be advantageous to some or all of such Persons even
though termination of the Fund or an Operating Partnership might be advantageous
to the Investors.
Each Operating Partnership Agreement will restrict the right of the applicable
Operating General Partner(s) to sell or otherwise dispose of an Apartment
Complex and to refinance the Permanent Mortgage Loan as to an Apartment Complex
without the approval of the General Partner on behalf of the Fund. In general,
the General Partner will consent to the sale or disposition of an Apartment
Complex where such sale or disposition is consistent with the Fund's investment
policies. (See "Investment Objectives and Acquisition Policies--Acquisition
Policies.")
The Operating General Partners of some or all of the Operating Partnerships may
receive a Sales Preparation Fee upon the sale of the applicable Apartment
Complex for their services in preparing such Apartment Complex for sale. The
amount of the Sales Preparation Fee is expected to be 3% of the gross sale price
of the applicable Apartment Complex. It is not expected that any comparable fee
will be payable for any refinancing of the Permanent Mortgage Loan for an
Apartment Complex. Therefore, the interest of such Operating General Partners to
arrange for the sale of an Apartment Complex (and thereby receive a Sales
Preparation Fee) may be in conflict with the interest of the Fund, and therefore
the Investors, to receive benefits from a refinancing of the Permanent Mortgage
Loan.
The inherent conflict caused by the affiliation of a builder of an Apartment
Complex and an Operating General Partner causes certain government agencies to
require that an independent architect review the work of each builder so
affiliated. Because many of the Management Agents are expected to be affiliated
with the Operating General Partners, a continuing conflict of interest will
exist because there may not be any independent review of their performance on
behalf of the Operating Partnership. It is anticipated that each Operating
Partnership Agreement will provide that if an Apartment Complex is subject to
substantial building code violations which are not cured within six months after
notice from the applicable governmental agency or department, or if certain
operational performance standards are not met, then, at the request of the
General Partner on behalf of the Fund and subject to the applicable agency's
approval, the Operating General Partners will be obligated to terminate the
Management Agreement and appoint a new Management Agent, which shall not be an
Affiliate of the Operating General Partners.
Under the Fund Agreement and the Operating Partnership Agreements, the General
Partner or the Operating General Partner(s), as applicable, are or will be
authorized to employ their respective Affiliates to perform services for, or to
sell goods to, the Fund or the Operating Partnership, as applicable.
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Thus, conflicts of interest in addition to those disclosed above may arise from
any such future business relationships. However, the Fund Agreement sets forth
significant restrictions on the terms of agreements for the provision of any
goods and services to the Fund by the General Partner and its Affiliates. Such
restrictions generally require the terms of transactions with Affiliates be no
less favorable to the Fund than the terms obtainable from nonaffiliated entities
rendering similar services as an ongoing activity in the same geographical
location.
Common Management; Selection of Operating Partnership Interests
The General Partner and its Affiliates are committed to and expect to be
committed in the future to the continuing management of numerous public and
private limited partnerships which have invested or will invest in limited
partnerships which own Apartment Complexes similar to the Operating Partnerships
in which the Fund will invest. (See "Management.") It is expected that the
Operating General Partners also are committed to and expect to be committed in
the future to the continuing management of other limited partnerships which are
similar to the Operating Partnerships. In addition, Operating General Partners
may be general partners of other partnerships which may own apartment complexes
located proximate to or in the same market area, and compete with the Apartment
Complexes. Under certain limited circumstances, more than one series of the Fund
could be offered to potential Investors concurrently. (See "The
Offering--Issuance of the BACs in Series.") However, both the General Partner
and the Operating General Partners will be bound by the terms of the applicable
partnership agreements to manage the affairs of the applicable limited
partnerships to the best of their abilities, to use their best efforts to carry
out the purposes of the Fund or the Operating Partnership, as applicable, and to
devote such time as is, in their judgment, necessary to the business of the Fund
or the Operating Partnership, as applicable. (See "Management.")
In the event that the General Partner or any of its Affiliates offers interests
in public limited partnerships with similar investment objectives as the Fund
and which will acquire operating partnership interests which would satisfy the
same criteria and standards of Operating Partnership Interests to be acquired by
the Fund, the following criteria will apply: the General Partner and its
Affiliates will review the investment portfolio of each partnership (including
any series being offered by each such entity) and, to the extent that they have
selected and/or evaluated Operating Partnership Interests, will in their sole
determination decide which such entity will acquire the investment on the basis
of various factors such as the amount of funds available and the length of time
such funds have been available for investment; the cash requirements of each
such entity; and the effect of the acquisition on each such entity's portfolio.
If funds should be available to two or more public limited partnerships to
acquire a given investment and all factors have been evaluated and deemed
equally applicable to each entity (including any series being offered by each
such partnership), then the General Partner and its Affiliates will acquire such
investments for the entities on a basis of rotation with the order or priority
determined by the dates of formation of the entities (including any series being
offered by each such partnership).
In the event that two or more series of the Fund have funds available at the
same time for investment, and investment opportunities become available
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in Operating Partnership Interests, conflicts may arise as to which of the
series of the Fund should invest in the investments involved. In that event, the
following criteria will apply: the General Partner and its Affiliates will
review the investment portfolio of any such series and, to the extent that they
have selected and/or evaluated Operating Partnership Interests, will decide
which such series will acquire the investment on the basis of various factors
such as the amount of funds available and the length of time such funds have
been available for investment; the cash requirements of each such series; and
the effect of the acquisition on each such series' portfolio. If funds should be
available to two or more series to acquire a given investment and all factors
have been evaluated and deemed equally applicable to each series, then the
General Partner and its Affiliates will acquire such investments for the series
on a basis of rotation with the order or priority determined by the dates of
formation of the series (based on the commencement of the respective Series
offering Periods).
The General Partner and its Affiliates, will devote only as much of their time
to the business of the Fund as in their judgment and experience is reasonably
required. Since the officers and employees of the General Partner are also
officers and/or employees of other Affiliates of the General Partner, they will
have conflicts of interest in allocating management time, services and functions
among the Fund and any present and future partnerships or other ventures which
are or may be organized by Affiliates of the General Partner. If necessary, the
Fund will hire its own employees to help carry out the business and operations
of the Fund. The General Partner and its Affiliates will allocate their
management time, services and functions among the various Operating Partnership
Interests and if additional series of BACs are issued, among the several series
of BACs, as in their discretion best serves the interest of the Fund and the
Investors. For an indication of the number and size of partnerships which are
presently being managed by Affiliates of the General Partner, see "Prior
Performance of the General Partner and its Affiliates."
The Fund will not invest, with respect to any series of BACs, in any Operating
Partnership owned or controlled by any of its Affiliates.
Other Transactions With the General Partner or Its Affiliates
The General Partner and its Affiliate(s) are expected to provide services to the
Fund in connection with finding, analyzing, structuring and acquiring Operating
Partnership Interests.
The General Partner and its Affiliates, including the Dealer-Manager, will
receive substantial fees, commissions, compensation and other income from
transactions with the Fund as described in this Prospectus and the Fund
Agreement. (See "Compensation and Fees.")
All expenses of the Fund must be billed directly to and paid by the Fund. The
General Partner and its Affiliates may be reimbursed for the actual costs of
goods and materials used for or by the Fund, provided, however, that unless the
General Partner or its Affiliates purchase the goods or materials on behalf of
the Fund from an independent third party, the reimbursement to the General
Partner or its Affiliates therefor shall not exceed the lesser of the cost of
such goods and materials or 90% of the competitive price which would be charged
by non-affiliated Persons. If the General Partner
41
<PAGE>
or its Affiliates purchase goods or materials from an independent third party
which are used by the Fund, the General Partner may be reimbursed at its cost as
set forth in Section 5.01(e) of the Fund Agreement. No reimbursement shall be
permitted for services for which the General Partner or its Affiliates is
entitled to compensation by way of a separate fee. Excluded from the allowable
reimbursement (except as permitted under Section 5.01(e) of the Fund Agreement)
shall be general overhead expenses in connection with the on-going
administration of the Fund during its operational phase, such as rent or
depreciation, utilities, capital equipment, other administrative expenses or
salaries or fringe benefits incurred by or allocated to any of their controlling
persons (as defined in Section V.E.1. of the NASAA Guidelines, which includes
any of their officers, di rectors, senior management personnel or Persons owning
5% or more of the equity of the General Partner or any Affiliate thereof, or
Persons having the power to cause the direction of the General Partner or any of
its Affiliates).
The Fund's annual report must contain a breakdown of any costs reimbursed to the
General Partner and its Affiliates. The General Partner and its Affiliates shall
cause its accountants to verify the allocation of such costs to the Fund. The
method of verification shall, at minimum, provide: (a) a review of the time
records of individual employees, the cost of whose services were reimbursed; and
(b) a review of the specific nature of the work performed by each such employee.
The additional costs of such verification will be itemized by said accountants
on a program-by-program basis and may be reimbursed to the General Partner by
the Fund in accordance with this provision only to the extent that such
reimbursement, when added to the cost for administrative services rendered, does
not exceed the competitive rate for such services as determined above.
Any services beyond those described under "Compensation and Fees" and in the
Fund Agreement rendered to the Fund by the General Partner or its Affiliates may
be provided only under extraordinary circumstances and must meet the following
criteria: (a) the compensation, price or fee therefor must be comparable and
competitive with the compensation, price or fee of any other person who is
rendering comparable services or selling or leasing comparable goods which could
reasonably be made available to the Fund and shall be on competitive terms;
provided, however, that the services will be provided at a price which does not
exceed the lesser of the cost of such services to the General Partner or its
Affiliates or 90% of the competitive price which would be charged by
non-affiliated Persons rendering similar services in the same or comparable
geographic location; (b) the fees and other terms of the contract for services
shall be disclosed in a supplement to the Prospectus if the services are
rendered during the offering period or in the annual reports to be provided to
Investors pursuant to Article IX of the Fund Agreement; (c) the General Partner
or its Affiliates must be previously engaged in the business of rendering such
services or selling or leasing such goods, independently of the Fund and as an
ordinary and ongoing business; and (d) all services or goods for which the
General Partner or its Affiliates is to receive compensation shall be embodied
in a written contract which precisely describes the services to be rendered and
all compensation to be paid. Each such contract must contain a clause allowing
termination without penalty on sixty (60) days' notice. In addition, all such
services must be necessary to the prudent operation of the Fund.
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<PAGE>
No rebates or give-ups may be received by the General Partner or its Affiliates,
nor may the General Partner or its Affiliates participate in any reciprocal
business arrangements which would circumvent the Fund Agreement. Furthermore,
reciprocal business arrangements which would circumvent the restrictions of the
Fund Agreement against dealing with Affiliates are prohibited.
The monies of the Fund may not be commingled with the funds of any other Person.
Nothing contained in this provision, however, shall prohibit the General Partner
from establishing a master fiduciary account pursuant to which separate subtrust
accounts are established for the benefit of affiliated entities.
The Fund may invest in joint venture arrangements with another program formed by
the General Partner or its Affiliates if the conditions set forth under "The
Offering--Issuance of BACs in Series" are met.
The Fund may obtain loans from the General Partner or any Affiliate of the
General Partner, subject to the limitations as to interest rates set forth under
"Compensation and Fees," and as to borrowing policies under "Investment
Objectives and Acquisition Policies--Borrowing Policies." However, the General
Partner may not borrow money from the Fund.
Absence of Independent Dealer-Manager
The Dealer-Manager will receive commissions and other compensation in its
capacity as an agent of the Fund. The Dealer-Manager has not retained counsel
separate from the Fund's counsel, but has conducted such due diligence
investigation and review as it deems necessary under the circumstances. However,
because the Dealer-Manager is an Affiliate of the General Partner, Investors
will not have the benefit of an independent investigation of the Fund as is
customarily made by independent dealer-managers.
Employment of Professionals
Peabody & Brown in Washington, D.C., is Counsel to the Fund, the General Partner
and Affiliates of the General Partner, the Assignor Limited Partner, the
Dealer-Manager and to other entities in which Affiliates of the General Partner
are general partners.
If any dispute should arise between the Fund and the General Partner or any
Affiliate of the General Partner, the General Partner, depending on the nature
of the dispute, may cause the Fund to retain separate counsel for such matters
as and when appropriate. (See "Legal Matters.")
Reznick Fedder & Silverman, of Bethesda, Maryland, are accountants and auditors
for the Fund, the General Partner, the Assignor Limited Partner and for other
entities in which the General Partner and/or its Affiliates are general
partners.
COMPENSATION AND FEES
The amounts and kinds of all of the compensation and fees to be paid to the
General Partner and its Affiliates, during the various phases of the
organization, operation and termination of the Fund are summarized below. NONE
OF THE FEES TO BE PAID TO THE GENERAL PARTNER AND ITS AFFILIATES HAS BEEN OR
WILL BE NEGOTIATED AT ARMS-LENGTH. No
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<PAGE>
compensation, that duplicates the fees to be paid to the General Partner and its
Affiliates, will be paid to the Operating General Partners or their Affiliates
in connection with organization and operation of the Operating Partnerships.
Compensation and/or fees in one category in excess of the maximum amounts
disclosed below may not be recovered by reclassifying them under a different
category.
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- ------------------------------------------
Organization, Offering and Acquisition Phase
Allowance for and reim- Reimbursement by the Fund from the
bursement of costs and proceeds of this Offering for all costs
expenses of the General and expenses actually paid by them
Partner and its Affiliates in on behalf of the Fund in connection
connection with the organi- with the organization of the Fund and
zation of the Fund and the the offering of BACs, including among
offering of the BACs others legal, accounting and Investor
communications and computer services related
thereto, printing, travel, distribution,
filing and other accountable Offering
expenses. The actual amount depends on the
number of BACs sold, but is not expected to
exceed $13,000,000 if the maximum of
$650,000,000 of BACs are sold. If the Front
End Fees, including Organization and Offering
Expenses and Selling Commissions, exceed the
amount allowed therefor pursuant to Section
IV.C.2. of the NASAA Guidelines (up to 30.5%
of the Gross Offering Proceeds), the excess
will be paid by the General Partner and not
the Fund.
Selling Commissions payable $0.70 per BAC (7%) payable with
to Boston Capital Services, respect to BACs sold by Boston Capi-
Inc. tal Services, Inc., or up to $45,500,000
if the maximum of $650,000,000 of
BACs are sold and all such BACs
were to be sold directly by BCS.*
Dealer-Manager Fee payable $0.20 per BAC (2%), all or a portion of
to Boston Capital Services, which may be reallowed to Soliciting
Inc. Dealers. The actual amount depends
on the number of BACs sold, but is not
expected to exceed $13,000,000 if the maximum
$650,000,000 of BACs are sold.
44
<PAGE>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- -------------------------------------------
Accountable due diligence Up to $0.05 per BAC (0.5%) as reim-
expenses reimbursement to bursement for bona fide due diligence
Boston Capital Services, Inc. expenses, for a total of up to $3,250,000
if the maximum of $650,000,000 of BACs are
sold. The Dealer-Manager anticipates that most
of this reimbursement will be reallowed to
Soliciting Dealers.
Non-Accountable Expense Up to $0.10 per BAC (1%) as reim-
Allowance payable to Boston bursement of costs and expenses
Capital Services, Inc. incurred in connection with sale of
the BACs, for a total of up to $6,500,000
if the maximum of $650,000,000 of
BACs are sold. The Dealer-Manager
anticipates that most of this reim-
bursement will be reallowed to Solic-
iting Dealers.
Asset Acquisition Fee to $0.85 per BAC (8.5%), or up to
Boston Capital Partners, Inc. $55,250,000 if the maximum of
$650,000,000 of BACs are sold.**
Allowance to Boston Capital Reimbursement by the Fund from the
Partners, Inc. for reimburse- proceeds of this Offering for all costs
ment of costs and expenses and expenses actually paid by them
in connection with the mak- on behalf of the Fund in connection
ing of the Fund's investments with the structuring and making of the
Fund's investments, including the
reimbursement of any interest expense incurred
in obtaining funds with which to make: (i)
loans and/or option and/or deposit payments to
Operating Partnerships prior to the
acquisition by the Fund of an interest
therein; and (ii) investments in Operating
Partnerships prior to the sale of the number
of BACs the Net Offering Proceeds of which
would enable the Fund to acquire interests
therein. The actual amount depends on the
number of BACs sold, but is not expected to
exceed $13,000,000 if the maximum of
$650,000,000 of BACs are sold. In no event,
however, will such reimbursements exceed $15
million.
45
<PAGE>
Type of Compensation
and Recipient Estimated Amount of Compensation
- -------------------------------- ----------------------------------------
Operating Phase
Annual Fund Management 0.5% of the Aggregate Cost of all
Fee to the General Partner Apartment Complexes as to which
or its Affiliates Operating Partnership Interests are
acquired and held by the Fund. The amount of
the annual Fund Management Fee is not
determinable at this time.*** However,
assuming each Operating Partnership uses the
maximum degree of leverage and the maximum of
$650,000,000 of BACs are sold, the Aggregate
Cost of the Apartment Complexes would be
approximately $1,423,500,000 and this annual
fee would be approximately $7,117,500.
Reporting Fees from Operat- Annually, with respect to each Oper-
ing Partnerships to Affiliates ating Partnership, not more than 0.5%
of the General Partner of the Aggregate Cost of the appli-
cable Apartment Complex. The amount of the
Reporting Fee is not determinable at this
time.*** However, assuming each Operating
Partnership uses the maximum degree of
leverage and the maximum of $650,000,000 of
BACs are sold, the Aggregate Cost of the
Apartment Complexes would be approximately
$1,423,500,000 and this annual fee would be
approximately $7,117,500.
The annual Fund Management Fee will be reduced by the amount of any Reporting
Fees paid to Affiliates of the General Partner to the extent the combined
amounts of the Fund Management Fee and the Reporting Fees exceed 0.5% of the
Aggregate Cost of the applicable Apartment Complexes on an annual basis.
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<PAGE>
Type of Compensation
and Recipient Estimated Amount of Compensation
- -------------------------------- --------------------------------------------
Management Fee to Affili- The lesser of (i) 5% of the gross
ates of the General Partner receipts of any Apartment Complex
with respect to which property management
services are provided by an Affiliate of the
General Partner, or (ii) the competitive fees
for such services in the area. The amount of
the Management Fee to Affiliates of the
General Partner is not determinable at this
time.***
Interest on any loans to the Not to exceed the interest or similar
Fund or Operating Partner- charges or fees of unrelated lending
ship from the General Part- institutions for similar loans.***
ner or Affiliates
Reimbursement to the Gen- Reimbursement for the actual costs of
eral Partner or its Affiliates goods and materials used for or by the
for costs and expenses in Fund and/or the Operating Partnerships
connection with the opera- and obtained from entities unaffiliated
tion of the Fund and/or the with the General Partner. In addition,
Operating Partnerships the General Partner and its Affiliates
(including the Assignor Limited Partner) may
be reimbursed for the administrative services
necessary to the prudent operation of the
Fund and the Operating Partnerships, provided
that any such reimbursement shall be at the
lower of the General Partner's actual cost or
the amount the Fund or an Operating
Partnership would be required to pay to
independent parties for comparable
administrative services in the same
geographic location. The General Partner or
its Affiliates may not be reimbursed for rent
or depreciation, utilities, capital
equipment, other on-going administrative
expenses or salaries or fringe benefits
incurred by or allocated to any of their
controlling persons (as set forth and defined
in Section V.E.1. of the NASAA Guidelines.***
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<PAGE>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------ ---------------------------------------
General Partner's Share of 1.00% of Profits, Credits and Losses
Profits, Losses and Credits and of Net Cash Flow based on the
and of Net Cash Flow Distri- Fund's share of such items from the
bution Operating Partnerships, anticipated
to be 99% of Profits, Credits and
Losses and 50-99% of Net Cash Flow
of the Operating Partnerships. The
General Partner's 1.00% share of Net
Cash Flow will be subordinated to the
achievement of the Priority Return.***
(See "Sharing Arrangements: Profits,
Credits, Losses, Net Cash Flow and
Residuals.")
48
<PAGE>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- -----------------------------------------
Liquidation Phase
General Partner's Share of 5.00% after certain priority allocations
Liquidation, Sale or Refi- and distributions. This 5.00% share
nancing Proceeds will be subordinated to the achieve-
ment of the Priority Return.*** (See
"Sharing Arrangements: Profits,
Credits, Losses, Net Cash Flow and
Residuals.")
General Partner's Share of 5.00% after certain priority alloca-
Losses arising from a Capital tions.*** (See "Sharing Arrange-
Transaction ments: Profits, Credits, Losses, Net
Cash Flow Residuals.")
- ----------------
*Boston Capital Services, Inc., presently expects that at least 95% of the
potential Selling Commissions will be reallotted to non-affiliated
Soliciting-Dealers.
**Reduced to the extent that any Acquisition Fees, Development Fees or
consulting fees are paid to the General Partner or its Affiliates by
Operating Partnerships or Operating General Partners. In addition, the
General Partner reserves the right to reduce the Asset Acquisition Fee and
allow the Fund to use the proceeds of any such reduction to invest in
Operating Partnerships.
***The General Partner and its Affiliates are unable to predict the amounts
which could be realized. Any such prediction would necessarily involve
assumptions of future events and operating results which cannot be made at
this time.
INVESTMENT OBJECTIVES AND ACQUISITION POLICIES
Investment Objectives
The Fund intends to invest, as a limited partner, in Operating Partnerships
which will own and operate newly-constructed, substantially renovated or
existing (and to be substantially renovated) Apartment Complexes which are
expected to qualify for Federal Housing Tax Credits, and which are expected to
receive Government Assistance. The Operating Partnerships in which the Fund
intends to invest have not yet been identified. During any applicable Series
offering Period, this Prospectus will be supplemented if and when negotiations
with respect to acquisition of an Operating Partnership Interest have progressed
to an extent that there is a reasonable probability that the Fund will undertake
to acquire that particular Operating Partnership Interest, and such
supplement(s) shall be supplied to all Investors in the series of BACs then
being offered and to all prospective Investors. All such Apartment Complexes are
expected to qualify, subject to certain conditions, for the Federal Housing Tax
Credit; certain Apartment Complexes also may qualify for the Historic Tax Credit
and/or State Housing Tax Credits. In addition, most of such Apartment Complexes
are expected to be the recipients of further Government Assistance through
government direct grant or loan, loan guarantee, mortgage insurance and/or
subsidy programs; however, certain of such Apartment Complexes may be
conventionally financed.
The objectives of the Fund's investments in Operating Partnerships, in order of
importance, are to:
(1) Generate Federal Housing Tax Credits, and in limited instances a small
amount of Historic Tax Credits, during the first 10 to 12 years of an
investment in each Operating Partnership which Investors may use to offset
federal income tax from all sources subject to certain restrictions. There
49
<PAGE>
are continuing occupancy requirements that each Apartment Complex must comply
with for a fifteen year period after the Federal Housing Tax Credits are first
taken. To the extent the Federal Housing Tax Credit rules are not adhered to
during the fifteen year period, the BAC Holder would have to pay a tax equal
to a fraction of the Federal Housing Tax Credits previously generated by the
non-complying dwelling units in the applicable Apartment Complex. (See "Tax
Credit Programs--The Federal Housing Tax Credit.")
(2) Preserve and protect the Fund's capital. Each of the Fund's investments
will have certain features designed to preserve and protect the Fund's
invested capital. The Fund may also require the developers of the Properties
in which it invests to provide guarantees and/or letters of credit, financial
bonds and escrow accounts to protect the Fund against failure to complete
construction reasonably on time and on budget, to receive Tax Credits
reasonably on time and to meet certain operating goals. While these safeguards
provide additional protection, there can be no assurance, however, that these
measures will adequately protect investments in the respective Partnerships.
(3) Provide tax benefits in the form of passive losses, which an Investor may
apply to offset passive income (if any). Any tax losses allocated to BAC
Holders may generally be deducted by such BAC Holder only to the extent of
income derived from passive activities. (See "Risk Factors--Tax Risks
Associated with the Partnership Investments.")
(4) Distribute net cash, if any, from a Capital Transaction as to the Fund. It
may be feasible under certain favorable market and regulatory conditions to
distribute to Investors part or all of their original investment when some or
all of the properties are sold or refinanced. However, it is impossible to
predict whether or not there will be increases in the value of the Apartment
Complexes. In order for Investors to get back their entire Capital
Contribution from the sale or refinancing of the Apartment Complexes, their
overall value must increase sufficiently and/or the relevant mortgage
indebtedness must be amortized to offset organizational, offering, acquisition
and disposition expenses currently estimated to be approximately 27% of each
Investor's initial Capital Contribution. BAC Holders will receive a Priority
Return of cash and Tax Credits before the General Partner can receive any cash
distributions. However, the General Partner and its Affiliates will receive
certain fees and compensation for services as set forth in this Prospectus,
prior to cash distributions to BAC Holders.
In furtherance of the above-described objectives, the Fund will endeavor to
invest in Operating Partnerships with a goal of generating Tax Credits for
allocation to Investors upon completion and occupancy of all the Apartment
Complexes, averaging approximately $1.00 to $1.20 per BAC annually (10%-12%
annual Tax Credit as a percentage of capital invested) for the ten-year credit
period applicable to each Apartment Complex. For the remaining term of the
15-year Federal Housing Tax Credit compliance period applicable to each
Apartment Complex, no additional Tax Credits will be available. This assumes:
(a) the applicability of current tax law and regulations and current
interpretations of such law and regulations by the courts; (b) each of such
Apartment Complexes is occupied with qualifying individuals throughout the
15-year Federal Housing Tax Credit compliance period; and (c) BAC Holders are
unable to use any passive tax losses generated by the Fund.
50
<PAGE>
Assuming: (a) the Apartment Complexes invested in by a series do not have
sufficient value at the end of the 15-year Federal Housing Tax Credit compliance
period applicable to the investments of such series to make any cash
distributions to Investors, and; (b) that Investors do not use for tax purposes
the assumed loss of the Investor's entire Capital Contributions, the equivalent
tax-free internal rate of return would be approximately 2.0%, exclusive of any
cash available for distribution. However, at such time if an Investor uses the
suspended passive losses equal to the unreturned Capital Contribution, the
equivalent tax-free internal rate of return would be approximately 4% to 6%
(approximately 4.7%-9.9% taxable internal rate of return) for Investors with
taxable income which is taxed at that time in the 15%-39.6% tax bracket,
respectively. (See "Federal Income Tax Matters--Passive Loss and Tax Credit
Limitations" for a discussion of offsetting an Investor's loss of Capital
Contribution against active income.) If the value of the Apartment Complexes
exceeds indebtedness and such value can be recognized through sales of Operating
Partnership Interests or the sale or refinancing of Apartment Complexes (even
though the restrictions and compliance requirements of the Federal Housing Tax
Credit program will continue to apply to such Apartment Complexes at that time),
and Investors receive distributions from such sales or refinancings, the
equivalent tax-free internal rate of return will be higher.
The selection of the investment objectives have been determined by the Fund
after consulting with the Dealer-Manager regarding tax-free investments
currently available to investors in other similar tax credit investments. (See
"Tax Credit Programs--Qualified Apartment Complexes.") Tax Credits will not be
available for an Apartment Complex until such Apartment Complex has been placed
in service and, with respect to Federal Housing Tax Credits, until its apartment
units are occupied by qualified tenants. No Federal Housing Tax Credits will be
available with respect to an Apartment Complex after the ten-year credit period
applicable to each such Apartment Complex. (See "Tax Credit
Programs--Utilization of the Federal Housing Tax Credit.")
Interests in Operating Partnerships will be acquired with a view toward
maximizing Tax Credits and other current tax benefits to a degree consistent
with the Fund's other business objectives, including cash flow and long-term
appreciation considerations (except with respect to the Fund's investment in
certain Non-Profit Operating Partnerships), but not with a view to early resale.
However, after the expiration of the ten-year credit period, an Interest in an
Operating Partnership may be sold, or the Fund may agree to the sale of the
underlying Apartment Complex, in the sole discretion of the General Partner when
it deems such action to be in the best interest of the Investors. As is
described in "--Acquisition Policies" below in this section, in light of the
continuing restrictions and compliance requirements of the Federal Housing Tax
Credit program, the Fund may not be able to liquidate its investments until well
after the end of the ten-year credit period. After the expiration of the
ten-year credit period applicable to each Apartment Complex, any yield on the
Fund's investments will be derived solely from Net Cash Flow, if any, and/or
Liquidation, Sale or Refinancing Proceeds, if any, and/or passive losses, if
any, and to the extent usable by an Investor.
THERE CAN BE NO ASSURANCE THAT ANY OR ALL OF THE OBJECTIVES WILL BE ATTAINED IN
WHOLE OR IN PART. IN ADDITION, THE ACHIEVE-
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<PAGE>
MENT OF THE FUND'S OBJECTIVES MAY VARY AMONG THE SERIES. (See "--Acquisition
Policies" in this section.)
As there is no assurance that the value of the Fund's assets will equal
Investors' initial Capital Contributions or that any distributions will be made,
there is no assurance that any particular tax-free internal rate of return will
be achieved.
Notwithstanding the fact that an Investor may be allocated the maximum amount of
Tax Credits, as described above, an individual Investor's ability to fully
utilize the Tax Credits allocated to him (i) will be affected by the
characteristics of other investments in his financial portfolio in each such
year, (ii) will be significantly affected by whether or not such Investor is
subject to the alternative minimum tax in each such year, and (iii) with respect
only to Historic Tax Credits allocated for any year, is subject to significant
restrictions based on the level of his adjusted gross income. Further, a
non-corporate Investor's ability to utilize passive losses allocated to him
depends on the extent to which he has passive income, no significant level of
which is expected to be generated by the Operating Partnerships. (See
"Suitability of an Investment in BACs" and "Risk Factors--Tax Risks Associated
with the Fund's Investments.")
Cash distributions with respect to each series of BACs will be made on an
annual basis. (See "Sharing Arrangements: Profits, Credits, Losses, Net Cash
Flow and Residuals.")
The Assignor Limited Partner, acting at the direction of a majority in interest
of the BAC Holders, may, subject to certain limitations, amend the Fund
Agreement; any such amendment could include a change in the purpose or
investment policies of the Fund. (See "Summary of Certain Provisions of the Fund
Agreement.")
Certain of the Operating Partnerships in which the Fund may invest may have
Operating General Partners which are non-profit sponsors of low-income housing.
Such Non-Profit Operating Partnerships may be subject to greater restrictions,
or agreed-to limitations, on matters such as distributions of cash flow from
operations and Liquidation, Sale or Refinancing Proceeds. For example, certain
non-profit Operating General Partners may be given an option to repurchase the
applicable Operating Partnership Interest of the Fund upon the termination of
the initial 15-year Compliance Period for an amount equal to the outstanding
balance of the applicable Permanent Mortgage Loan and any accrued but unpaid
interest, plus an amount calculated to compensate Investors for any federal
income tax liability resulting from such repurchase, in which case the
equivalent tax-free yield would be reduced.
Acquisition Policies
The Fund will make investments in Operating Partnerships which the General
Partner believes to be consistent with the Fund's investment objectives. In the
event that the applicable provisions of the Code are not interpreted in the way
the General Partner has interpreted such provisions, and as are set forth in
this Prospectus, or tax law changes occur which would materially adversely
affect the ability of the Fund to attain its investment objectives by pursuing
the acquisition policies described below, the General Partner will have the
right to modify appropriately such acquisition policies so as to afford the Fund
a better opportunity to achieve its investment objec-
52
<PAGE>
tives. In the event that the Fund's acquisition policies were to materially
change after the final Investment Date, a material amendment to the Fund
Agreement would generally require the Consent of the Investors.
The Fund intends to invest in Operating Partnerships or limited partnership
interests in partnerships which invest in Operating Partnerships, each of which
will own and operate an Apartment Complex that is expected to qualify for the
Federal Housing Tax Credit, and some of which also may qualify for Historic Tax
Credits and/or State Housing Tax Credits. Each Operating Partnership will be
required to use the straight line method of depreciation over a recovery period
of 271/2 years (or 40 years in the event the Fund elects to do so) with respect
to the applicable Apartment Complex; provided, however, that with respect to any
Non-Profit Operating Partnership, an amount equal to the tax-exempt entity's
proportionate share of the ownership of the applicable Apartment Complex will be
depreciated over 40 years using the straight line method, unless certain
allocations are made. It is expected that most of the Operating Partnerships
will receive some form of Government Assistance, in addition to Tax Credits, for
the applicable Apartment Complexes.
The Fund and/or its Affiliates may arrange for the borrowing of funds by the
Fund from lending institutions for the purpose of acquiring previously specified
investments in Operating Partnerships after the minimum offering of 250,000 BACs
with respect to a particular series has been sold and before sufficient
additional Net Offering Proceeds have been raised in a particular series to make
such an investment. Any such loans shall be repaid, with interest, by the Fund
from the Net Offering Proceeds of such series. Any such reimbursement of
interest expense will be made (i) only from Net Offering Proceeds allocated to
the category of Acquisition Expenses as set forth in "Estimated Use of
Proceeds", and (ii) only in accordance with the applicable limitations on Front
End Fees as provided in the Prospectus. In the event the minimum offering with
respect to the particular series of BACs is sold and a sufficient number of BACs
to provide the Fund with sufficient funds to repay the loan(s) has not been sold
prior to the termination of the offering of such series of BACs, then the
General Partner and/or its Affiliates will purchase a sufficient number of BACs
to provide the Fund with funds to repay such loan(s). Such BACs will be
purchased on the same terms and conditions as other BAC Holders except the
General Partner will not pay Selling Commissions, the Dealer-Manager Fee, or
other Organization and Offering expenses otherwise payable to the Dealer-Manager
from the Fund.
The Fund may invest in Operating Partnerships which either own, or will be
organized to acquire, an Apartment Complex, which Apartment Complex may be: (i)
to undergo construction or renovation; (ii) undergoing construction or
renovation; or (iii) to be acquired by the applicable Operating Partnership (A)
after having completed construction or renovation, or (B) after having been
operated for a period of time and, after such acquisition, to undergo
substantial renovation, but in each case rendering such Apartment Complex
eligible for Federal Housing Tax Credits. In addition, the Fund may invest in
Operating Partnerships which either own or will own an interest in Apartment
Complexes eligible for Federal Housing Tax Credits, which have already completed
construction or renovation.
The Fund may invest in Operating Partnerships which intend to acquire existing
Apartment Complexes from tax-exempt organizations or governmental entities, with
the financing of such acquisition including the giving
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of a purchase money note by such Operating Partnership to the selling tax-exempt
organization or governmental entity. This method of financing could serve to
increase the amount of Federal Housing Tax Credits available with respect to
such Apartment Complex as, subject to certain conditions and limitations, the
purchase money financing could be included in the Federal Housing Tax Credit
basis. However, the inclusion of the purchase money financing in the Federal
Housing Tax Credit basis of the Apartment Complex could be challenged by the
Internal Revenue Service on one or more bases. (See "Federal Income Tax
Matters--Purchase of Existing Apartment Complexes From Tax-Exempt or
Governmental Entities.") Unless specifically stated in a supplement to this
Prospectus initially offering BACs with respect to any series, not more than 20%
of the Fund's investments in Operating Partnership Interests with respect to any
series will be comprised of acquisitions of Interests in Operating Partnerships
utilizing the form of acquisition financing described in this paragraph.
In no event will the investment in any Operating Partnership Interest acquired
by the Fund exceed 20% of the Gross Offering Proceeds of such series, based upon
the maximum amount of BACs offered with respect to such series, unless Investors
are informed of such proposed investment (i) by supplement to this Prospectus
during the offering of such series, or (ii) by a report sent to Investors within
45 days of the close of the quarter in which such investment is made, if a
reasonable probability that such investment will be made does not occur until
after the offering of such series has concluded. In addition, the Fund will not
invest in any Operating Partnership whose Operating General Partner is an
Affiliate of the General Partner. The Apartment Complexes which are owned by the
Operating Partnerships to be invested in by the Fund can be located anywhere in
the United States, its territories or possessions. However, it is the General
Partner's intent to seek as much diversity as reasonably possible in terms of
the locations and sizes of the Apartment Complexes.
Interests in Operating Partnerships will be acquired with a view toward
maximizing Tax Credits and other current tax benefits to a degree consistent
with the Fund's other investment objectives, including cash flow and long-term
appreciation considerations (except with respect to the Fund's investment in
certain Non-Profit Operating Partnerships), but not with a view to early resale.
The criteria for selecting particular Operating Partnerships for investment by
the Fund include, where applicable, capability of the development group,
including the history and performance of the sponsor, general contractor,
architect, managing agent and others associated with development and operation
of the Apartment Complex and their respective relationships with the Operating
General Partner(s); the financial strength of the Operating General Partner(s);
analysis of all data supplied by the Operating General Partner(s) to the
conventional lenders and/or applicable government agencies to obtain mortgage
loan commitments, with special attention to the cost of construction (including
provisions for assuring completion of construction of the Apartment Complex),
geographic distribution, proposed rents, and costs of property operations;
general rental market conditions in the area of the proposed Apartment Complex
(including vacancy rates); the operating expenses of comparable Apartment
Complexes; and in the case of existing Apartment Complexes, the history and
performance of the Apart-
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ment Complex. In addition, in the event the Fund proposes to invest in an
Operating Partnership which owns or expects to acquire and substantially
renovate an older (ten or more years) Apartment Complex, the General Partner
will investigate the condition of the Apartment Complex and, if it determines
that it is in the best interest of the Fund to do so, will obtain an engineering
report and/or an appraisal pursuant to section V.L. of the NASAA Guidelines. Any
appraisal obtained is only an estimate of value and should not be relied on as a
measure of realized value. The appraised value of prospective Apartment
Complexes will not be provided in supplements to the Prospectus.
The investment by the Fund in an Operating Partnership which owns an Apartment
Complex receiving Government Assistance from USHUD will require USHUD approval,
which could lengthen the acquisition process and/or could require compliance
with certain conditions in order to obtain such approval. Similar procedures are
required with respect to Apartment Complexes which have received RHS assistance.
Generally, the sale of the Fund's Interest in an Operating Partnership or the
sale by such an Operating Partnership of its Apartment Complex will be subject
to various restrictions including, but not limited to, the necessity of
obtaining the approval of any governmental agency(ies) providing Government
Assistance to the Apartment Complex, obtaining the consent of the Operating
General Partner(s) and the furnishing of various legal opinions. These
restrictions could lead to a longer holding period for certain Apartment
Complexes or a sale of such Apartment Complexes or Operating Partnership
Interests, as applicable, to purchasers subject to certain government
restrictions and/or conditions. The Fund will undertake to hold Operating
Partnership Interests for the initial 15-year Federal Housing Tax Credit
Compliance Period. The Fund currently anticipates undertaking to sell Operating
Partnership Interests (or the underlying Apartment Complexes) as soon as
practicable after such time, consistent with the terms of the applicable
Operating Partnership Agreements, the Fund Agreement, applicable governmental
restrictions and the best interests of the Investors. However, the continuing
restrictions and compliance requirements of the Federal Housing Tax Credit
program, as well as the uncertainty of a market for buildings such as the
Apartment Complexes, may make it impossible for the Fund to liquidate some of
its investments until well after the fifteenth year (even though Federal Housing
Tax Credits are available only for a ten-year period as to each Apartment
Complex).
The size of the tax credit base and the percentage interest to be acquired by
the Fund in each Operating Partnership will be important factors in determining
the acquisition price for each Operating Partnership Interest. The Fund will
generally attempt to acquire a 90%-99% interest in the Profits, Credits and
Losses and a 50%-99% interest in the distributable cash flow of each Operating
Partnership, with the balance remaining with the Operating General Partner(s).
In addition, the General Partner anticipates that the interest of the Fund in
Liquidation, Sale or Refinancing Proceeds of each Operating Partnership will be
between 50% and 95%, with the balance remaining with the Operating General
Partner(s). (See "Investment in Operating Partnerships.")
In order to preserve and protect the Fund's interest in the Profits, Credits and
Losses allocated, and the net cash flow distributed, by the Operating
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Partnerships, the Operating Partnership Agreement will contain provisions which
are intended to assure compliance with Section 704(b) of the Code and the
Regulations thereunder, and Counsel will advise the General Partner that it is
more probable than not that, assuming that the Capital Account balances of the
partners of the Operating Partnership are not significantly adjusted by reason
of capital contributions other than those provided for in provisions of the
Operating Partnership Agreement corresponding to Article IV of the Fund
Agreement, the distributive share of each partner of the Operating Partnership
of income, gain, credit, loss or deduction (or item thereof) will be determined
and allocated substantially in accordance with the initial intent of the
partners (including the Fund) of the Operating Partnership.
The Fund intends to invest in Operating Partnerships as described in
"Investment in Operating Partnerships."
In connection with any Apartment Complex as to which construction or renovation
has not been completed as of the date of the investment by the Fund in the
applicable Operating Partnership, the Fund will obtain from the Operating
General Partners certain assurances and financial guarantees intended to reduce
the risks inherent during the construction period. The Operating Partnership
Agreements will provide for construction completion assurances from the
Operating General Partners or their Affiliates whereby completion will be
substantially in accordance with the approved plans and specifications and all
requirements necessary to obtain the required certificates of occupancy for
dwelling units will be met within an agreed-upon period from the date of
commencement of construction. Such assurances are expected to be secured by one
or more of the following devices or other mechanisms for the benefit of the Fund
and the construction and/or permanent mortgage lender, and acceptable to the
General Partner, including but not limited to, payment and performance bonds, a
letter of credit for all or some portion of the guarantee or assurance, the
establishment of a reserve of funds held by an independent escrow agent or other
party acceptable to the General Partner, and the right of the Fund to withhold
funds payable by the Fund to the Operating Partnership or by the Operating
Partnership to the Operating General Partner or its Affiliates, and to apply
such funds to the completion of the Apartment Complex. The specific types of
security backing the construction guarantees will be negotiated with the
Operating Partnerships prior to the execution of definitive acquisition
agreements and will depend on the General Partner's determination as to the
relative financial strength of individual Operating General Partners and the
status of construction at the time of the signing of definitive acquisition
agreements. Such security arrangements may not be sufficient to provide security
for 100% of the Operating General Partner's obligations.
In addition, the General Partner will attempt to negotiate guarantees from the
Operating General Partners to cover debt service and operating expenses arising
from the operation of the applicable Apartment Complex. The amount of such
operating deficit guarantees may be limited to a specified term and/or dollar
amount. Throughout the Offering Period, this Prospectus will be supplemented to
set forth descriptions of any Operating Partnerships in which the respective
series has invested or in which the General Partner reasonably believes such
series will invest. The material terms of any operating deficit guarantee will
be disclosed in such a supplement. Each Operating Partnership will arrange for
comprehensive casualty
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insurance coverage which is customary for property similar to the applicable
Apartment Complex.
In the event that a particular series invests in Operating Partnerships with the
same or affiliated Operating General Partners representing in excess of 20% of
the Gross Offering Proceeds of a particular series, financial data for Operating
General Partners giving construction and/or operating deficit guarantees will be
provided to Investors in a supplement to the Prospectus.
It is anticipated that the Operating General Partner(s) of each Operating
Partnership will be obligated to repurchase the Operating Partnership Interest
of the Fund if the Operating Partnership (to the extent applicable) (i) fails to
receive State Designation in the year that the applicable Apartment Complex is
placed in service, (ii) fails to cause the applicable Apartment Complex to be
placed in service or to achieve certain occupancy levels by a date certain,
(iii) fails to achieve Permanent Mortgage Loan closing by a date certain, (iv)
fails to meet both the Minimum Set-Aside Test and the Rent Restriction Test
within 12 months of the date the Apartment Complex is placed in service, and/or
(v) fails to continue to meet the Minimum Set-Aside Test or the Rent Restriction
Test during the period when Capital Contributions of the Fund are due to such
Operating Partnership. Additionally, it is anticipated that, if any applicable
government agency disapproves, or fails to give any required approval of, the
admission of the Fund within 180 days of the admission of the Fund to an
Operating Partnership, then, unless the General Partner (on behalf of the Fund)
waives this requirement, the applicable Operating General Partner(s) will be
obligated to repurchase the Operating Partnership Interest of the Fund and to
refund to it the Installments of Capital Contribution which have been paid.
In addition, each Operating Partnership Agreement is expected to contain
adjuster provisions which will operate to reduce the amount of Capital
Contributions that the Fund is obligated to make to an Operating Partnership in
the event that, during the first several years of the Fund's investment but
generally not less than 60 months (the "Adjustment Period"), the Actual Credit
achieved by the Operating Partnership is less than 90%-100% of the Projected
Credit with respect to the Operating Partnership. Any such reduction in, or
return of, Capital Contributions to the Fund as described above will be
available for reinvestment within the time period(s) allowed for investment
described under "Unused or Returned Funds" below in this section; thereafter,
any such funds will be returned to the Investors on a pro rata basis as a return
of the Investor's money originally invested. It is also anticipated that the
Operating Partnership Agreements will provide that, in the event that any such
shortfall in the Projected Credit occurs after the Adjustment Period, the Fund
will be treated as having made a constructive advance to the Operating
Partnership with respect to such year (a "Credit Recovery Loan") as to a certain
percentage of the shortfall, plus the amount of any recapture, interest or
penalty payable as a result of the shortfall for such year which will be repaid
from Liquidation, Sale or Refinancing Proceeds with respect to such Operating
Partnership. The Credit Recovery Loan will bear interest at a rate to be
negotiated.
It is anticipated that the above-described repurchase provisions, which are
anticipated to apply with respect to Federal Housing Tax Credits expected to be
generated by each Operating Partnership, will not be applicable, or
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will be limited, with respect to Historic Tax Credits expected to be generated
by an Operating Partnership, if applicable. (See "Federal Income Tax
Matters--Historic Tax Credit.")
In determining whether or not to acquire an Interest in a particular Operating
Partnership, the Fund and/or the General Partner and/or its Affiliates may make,
or arrange for the making of loans or option or deposit payments to one or more
Operating Partnerships and/or the applicable Operating General Partner(s)
(including prospective Operating Partnerships not yet identified for possible
investment by the Fund, and/or the applicable Operating General Partner(s))
prior to the acquisition by the Fund of an Interest(s) therein. The Fund and/or
the General Partner and/or its Affiliate may also enter into purchase contracts
providing for a deposit.
Any such loan(s) would be structured to comply with the provisions set forth
under "Investment Objectives and Acquisition Policies--Borrowing Policies." Any
such loan(s) may be repaid, with or without interest thereon, by the applicable
Operating Partnership from Capital Contributions made by the Fund to such
Operating Partnership after the acquisition by the Fund of an interest therein
(or by the applicable Operating General Partner(s) from fees paid to it (them)
from such Operating Partnership, which in turn are paid from the Fund's Capital
Contributions to the Operating Partnership). In certain cases, the interest
expense incurred by the General Partner and/or its Affiliates in obtaining the
funds with which to make such loan(s), may be reimbursed to the applicable
entity by the Fund. In any such case, any such reimbursement of interest expense
by the Fund will be made (i) only after the acquisition by the Fund of an
Interest in the applicable Operating Partnership (or in the event the Fund is
unable or chooses not to invest in the Operating Partnership to which funds were
loaned, only after such determination not to invest is made), (ii) only from Net
Offering Proceeds allocated to the category of Acquisition Expenses, and (iii)
only in accordance with the applicable limitations on Front End Fees as set
forth in "Estimated Use of Proceeds." Any interest charged by, or paid or
reimbursed to, the General Partner and/or its Affiliate(s) in connection with
any such loan(s) will not exceed the interest cost to such entity(ies) in
obtaining the funds with which to make such loan(s). The amount paid for such an
option, or the amount of such a contract deposit, usually would not be returned
if the investment were not made, and normally would be credited against the
Fund's agreed-upon Capital Contributions to the applicable Operating Partnership
if the investment were made. The Fund also may incur other costs (such as
inspections, market studies, appraisals) which cannot be recouped if the Fund
determines not to invest in the particular Operating Partnership under study.
Consistent with the investment objectives of the Fund, the General Partner has
discretion to select Operating Partnerships which have structured the financing
of the applicable Apartment Complexes in any manner and from any source that the
applicable Operating General Partner(s) believe(s) is feasible for the property,
and that the General Partner believes is both (i) feasible for the particular
property and (ii) beneficial for the Investors. Such financing may include, but
is not limited to, tax-exempt bond financing, balloon mortgages, variable
interest rates, renegotiable interest rates, deferral or principal payments and
wraparound loans.
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It is anticipated that the Fund will make its Capital Contributions to each
Operating Partnership in approximately four installments, although the Fund may
pay its entire Capital Contribution to an Operating Partnership in full upon its
admission as a limited partner of such Operating Partnership. To the extent that
Capital Contributions to an Operating Partnership are made in multiple
Installments, such Installments are expected to be conditioned upon the
occurrence of certain events pertaining to qualifying for Tax Credits and/or to
construction or operation of the Apartment Complex. Such events are anticipated
to include (a) State Designation, (b) occupancy of dwelling units, (c) issuance
of certificates of occupancy, (d) Construction Loan closing, (e) admission of
the Fund to the Operating Partnership as a limited partner, (f) substantial
completion of construction or renovation of the Apartment Complex, (g) final
closing or funding of the Permanent Mortgage Loan, and (h) operation of the
Apartment Complex at a specified occupancy and/or at a net income level for a
specified period of time. The shorter the Installment period, the less
opportunity the Fund will have to condition its Capital Contributions to an
Operating Partnership and/or to currently reduce its Capital Contributions to an
Operating Partnership pursuant to the above-described reduction provisions.
As a condition to payment by the Fund of its initial installment of Capital
Contribution to an Operating Partnership, the Fund is expected to receive an
opinion from counsel to the Operating Partnership which is anticipated to state,
among other things, that the Interest of the Fund in the Operating Partnership
is the interest of a limited partner with no personal liability for the
obligations of such Operating Partnership, that the Operating Partnership has
good and marketable legal title to the Apartment Complex, and that the Operating
Partnership is duly formed under the laws of its state of origin as a limited
partnership. In addition, the Operating General Partners are expected to make
certain representations and warranties to the Fund regarding, among other
matters, compliance with requirements of obtaining and retaining Tax Credits,
the status of the Operating Partnership as a limited partnership in good
standing, the fact that there are no defaults existing or anticipated under any
material provisions of the project documents, the net worth of the Operating
General Partners, and adherence to certain standards with regard to the
construction, development and operation of the Apartment Complex. The Fund will
also require the delivery of the opinion of Counsel that, assuming qualification
for, and continuing compliance with the requirements of, Tax Credits, it is more
likely than not that an Investor will be entitled to his share (based on his
interest in the losses for tax purposes of the Fund) of the Fund's share (based
on the Fund's interest in losses for tax purposes of the Operating Partnership)
of Tax Credits generated by the Apartment Complex. (See "Federal Income Tax
Matters--Federal Housing Tax Credit.")
Unless it is deemed, under applicable state law, that the Fund is taking part in
the management or control of an Operating Partnership's business, the Fund will
not have any liability for obligations of an Operating Partnership beyond its
agreed-upon Capital Contributions to such Operating Partnership. Therefore, with
the objective of limiting the liability of the Fund in each Operating
Partnership to the amount of its Capital Contributions to such Operating
Partnership, it is anticipated that each Operating Partnership Agreement will
state that:
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(1) the Fund will have no right to take part in the management or control of
the business of such Operating Partnership, or to transact any business in the
name of such Operating Partnership; and
(2) the Fund will have certain rights under the terms of the Operating
Partnership Agreements, which are expected to include: (i) the right to
approve or disapprove any sale or refinancing of the applicable Apartment
Complex, (ii) the right to replace the applicable Operating General Partner(s)
on the basis of the performance and discharge of the Operating General
Partner(s)' obligations, (iii) the right to approve or disapprove the
dissolution of the applicable Operating Partnership, (iv) the right to approve
or disapprove amendments to the Operating Partnership Agreement materially and
adversely affecting the Fund's investment in the Operating Partnership and (v)
the right to direct the Operating General Partners to convene meetings and to
submit matters to a vote. In addition, the Fund and Investors are expected to
have access to the books and records of the Operating Partnerships and to
receive annual and quarterly reports. (See Section 5.13(b) of the Fund
Agreement.)
BCTC 94, Inc., a Delaware corporation, and an Affiliate of the General Partner,
may be a special limited partner in certain Operating Partnerships, with the
right to become a general partner under limited circumstances relating to the
Operating Partnership's or the applicable Operating General Partner's failure to
perform its obligations under the applicable Operating Partnership Agreement.
The Operating General Partners
Under the terms of an Operating Partnership Agreement, it is anticipated that
the Operating General Partner(s) will be required to assume responsibility for
(a) the achievement of Permanent Mortgage Loan funding as to the applicable
Apartment Complex, including the provision of all funds in excess of the
Construction Loan, the Permanent Mortgage Loan and net interim income necessary
to close, and obtain funding of, the applicable Permanent Mortgage Loan, (b) the
completion of the construction and development of the Apartment Complex owned by
such Operating Partnership, including the provision of all funds in excess of
proceeds of the Construction Loan and the Permanent Mortgage Loan, and other
funds available therefor, necessary to pay all costs of such construction or
renovation, and thereafter, (c) the management and operation of the Operating
Partnership, including the oversight of the rent-up and operational stages of
such Apartment Complex. However, the Operating Partnership Agreement also is
expected to provide for the withdrawal of an Operating General Partner from the
Operating Partnership upon the election of such Operating General Partner,
subject to certain conditions. Upon such withdrawal, a substitute general
partner (which may or may not be an Affiliate of the Operating General Partner)
may replace such Operating General Partner.
In consideration for their performance of various services to the Operating
Partnership, including the numerous obligations set forth above, the Operating
General Partner(s) or their Affiliates are expected to receive certain
Development Fees, incentive Operating Partnership Management Fees and, in
certain cases, other such fees for services. In addition, for their services to
an Operating Partnership, the Operating General Partners or their Affiliates
will receive a certain percentage of the cash flow from the operations
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of the Operating Partnership and/or available proceeds resulting from the sale
or refinancing of an Apartment Complex or the liquidation of such Operating
Partnership, after payment of certain priority items. Further, the Operating
General Partner(s) or their Affiliates may receive a real estate brokerage
commission and/or a Sales Preparation Fee in connection with the disposition of
an Apartment Complex by the Operating Partnership, which shall be limited to a
competitive real estate commission, in an amount not to exceed 6% of the
contract price for the sale of the Apartment Complex. Neither the General
Partner nor its Affiliates will receive any such real estate brokerage
commission or Sales Preparation Fee.
It is also anticipated that, as the Operating General Partners will have no
direct participation in the Fund or its affairs, including the Offering, the
Fund and/or the General Partner and/or its Affiliates may indemnify the
Operating General Partners against liabilities arising from the Offering and/or
the Fund's investment in an Operating Partnership, other than liabilities
arising from the Operating General Partners' negligence.
Regulatory Restrictions
Each of the Operating Partnerships will be restricted in the manner in which it
can operate the applicable Apartment Complex under the terms of the Permanent
Mortgage Loan documents and a Regulatory Agreement with the applicable state
agency allocating Federal Housing Tax Credits and/or any regulatory agency
providing Government Assistance. (See "Tax Credit Programs--The Federal Housing
Tax Credit" and "Government Assistance Programs.")
Unused or Returned Funds
Any portion of the Capital Contributions received from Investors with respect to
an applicable series of BACs available for the acquisition of Operating
Partnership Interests which has not been so utilized, or committed for
utilization, within 24 months from the date of commencement of such series
offering(s), subject to the Fund's authority to substitute Operating Partnership
Interests for previously identified Operating Partnership Interests as described
in "Investment in Operating Partnerships," shall be promptly returned to
Investors in such series. If subsequent series of BACs are offered, the funds
will be returned only to the Investors in that series in which the funds were
raised. The return of funds which were otherwise available for investment in
Operating Partnership Interests will include the return of funds used for any
Selling Commission, but will not include interest on such funds, as any such
interest will be distributed as part of the Fund's Net Cash Flow. Funds shall be
deemed committed for utilization if such funds are included in the Working
Capital Reserve or if written agreements in principle, commitment letters,
letters of intent or understanding, option agreements or any similar contracts
or understandings with respect to Operating Partnership Interests have been
executed, regardless of whether such acquisitions are consummated. If, for any
reason, including legislative changes in the tax laws, acquisition of Operating
Partnership Interests would no longer provide Tax Credits to the Investors, any
funds which have not been utilized for investment in Operating Partnership
Interests and which have not been deposited into the Fund Working Capital
Reserve will be promptly returned pro rata to Investors, less expenses of the
Fund. Any return of Capital Contributions previously made by the Fund to
Operating
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Partnerships during the first 24 months after the making of such Capital
Contributions, and any other funds which have been earned or returned to the
Fund with respect to Operating Partnership Interests and any Liquidation, Sale
or Refinancing Proceeds otherwise received within 36 months from the Fund's
acquisition of Operating Partnership Interests shall, in the discretion of the
General Partner, be invested in additional Operating Partnership Interests,
placed in the Working Capital Reserve or returned to the Investors in proportion
to their respective Capital Accounts as a return of the Investor's money
originally invested, provided that in no event shall the General Partner make
any reinvestments in Operating Partnership Interests later than 36 months from
the final Investment Date. Any such funds which are not so invested or placed in
the Working Capital Reserve within six months of the completion of the
construction period of all of the Apartment Complexes owned by the Operating
Partnerships, shall be returned to Investors, in proportion to their respective
Capital Accounts, as a return of the Investor's money originally invested;
provided, that a sufficient portion of such funds shall be distributed to
Investors to cover their estimated income tax liabilities, if any, arising out
of the receipt of such funds.
Preliminary Investments and Reserves
Until Investor funds are released by the Escrow Agent to the Fund, they will be
invested in short-term certificates of deposit or time or demand deposits in
commercial banks and in short-term government securities backed by the full
faith and credit of the United States Government. (See "The Offering.")
Thereafter, uninvested funds, otherwise available for investment in Operating
Partnership Interests, will be invested in Permitted Temporary Investments.
Permitted Temporary Investments are short-term, highly liquid investments,
including without limitation, money market funds which invest in investment
grade debt securities. The Fund will establish the Working Capital Reserve from
the proceeds of this Offering in an amount currently anticipated to be 4% of the
Gross Offering Proceeds; in no event will the Working Capital Reserve initially
be established in an amount less than 4% of the Gross Offering Proceeds. The
reserves may be used to cure any problems arising from the Apartment Complexes;
most Apartment Complexes will have their own additional reserve requirements.
Funds held in the Working Capital Reserve also may be used for options, loans
and/or other payments and interest expense incurred which may be necessary to
secure the acquisition of Operating Partnership Interests. The Fund reserves, to
the extent not needed for said purposes, will be utilized to pay Fund expenses,
including the annual Fund Management Fee, to the extent other Fund monies are
not available therefor.
Borrowing Policies
The Fund's investments will be financed entirely out of the Net Offering
Proceeds. However, the Fund is not prohibited from incurring indebtedness for:
(i) the acquisition of Operating Partnership Interests before sufficient Net
offering Proceeds have been raised as long as such loan(s) are repaid in their
entirety by the Fund from Net Offering Proceeds; (ii) the making of loans,
option, deposit or other payments to one or more Operating Partnerships and/or
the applicable Operating General Partner(s) necessary to secure the acquisition
of Operating Partnership Interests; (iii) working capital purposes; (iv) to
prevent default with respect to liens against the Apart-
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ment Complexes, if any; and (v) to discharge such liens entirely, or otherwise
to protect the Fund's investment in Operating Partnership Interests. The Fund
may, but does not presently intend to, borrow from the General Partner or its
Affiliates. Any such borrowing would be subject to the limitations set forth
under "Compensation and Fees."
Certain Other Policies
1. The Fund will not issue senior securities, invest in other issuers for the
purpose of exercising control unless such investments meet the criteria set
forth in "Risk Factors--Joint Investment" (other than as to the Operating
Partnerships), underwrite the securities of other issuers or offer BACs in
exchange for property.
2. It is possible that the Fund and/or the General Partner and/or its Affiliates
may agree to make, or the General Partner and/or its Affiliates may guaranty,
certain interim loans which may be made to certain Operating General Partners
and/or certain of the Operating Partnerships and/or prospective Operating
Partnerships not yet identified for possible investment by the Fund, and/or the
applicable Operating General Partner(s) ("Development Loans"), and these
Development Loans may be secured by payments of fees or installments of Capital
Contribution to be made to such Operating General Partners or Operating
Partnerships to the extent the Fund acquires an Operating Partnership Interest.
3. The Fund will not invest in Operating Partnership Interests jointly with
other programs, except as described in "The Offering--Issuance of BACs in
Series."
4. The Fund may not repurchase or otherwise reacquire BACs.
5. The Fund will distribute annually to Investors certain reports providing
information as to each series of BACs, including audited financial statements.
(See "Investor Reports.")
6. The Fund may not sell, lease or lend Fund property to the General Partner or
any Affiliate of the General Partner, or purchase or lease property from the
General Partner or its Affiliates, or acquire property from a program in which
the General Partner or its Affiliates have an interest.
7. The Fund will not invest in real estate mortgages. However, the Operating
Partnerships in which the Fund intends to invest will own Apartment Complexes
which are subject to mortgage indebtedness.
INVESTMENT IN OPERATING PARTNERSHIPS
The Fund anticipates acquiring Interests in Operating Partnerships which will
develop, or renovate or own an interest in Apartment Complexes generating Tax
Credits. The Operating Partnerships, the Apartment Complexes owned by the
Operating Partnerships, and the terms of the acquisitions, financing and
management are not presently known.
At such time during negotiations for any Operating Partnership Interest with
respect to any series, when, in the opinion of the General Partner, a reasonable
probability exists that the investment under negotiation will be made, this
Prospectus will be supplemented to describe the proposed
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investment and the anticipated terms of such investment. If, prior to the
acquisition of Operating Partnership Interests which are identified in a
supplement hereto, the real estate or economic conditions relevant to an
investment in such Operating Partnership Interests would not be in the best
interest of the Fund, or if particular Operating Partnership Interests cannot be
acquired on terms rendering them acceptable investments by the Fund, the General
Partner may substitute other Operating Partnership Interests, in lieu of the
Operating Partnership Interests which are not acquired, in all cases consistent
with the standards described in "Investment Objectives and Acquisition
Policies." Upon the termination of any Series Offering Period, no further
supplements to this Prospectus will be made to Investors in such series.
Investors will not have any right to vote on or otherwise approve or disapprove
any particular investment to be made by the Fund. Investors should not rely upon
the initial disclosure of any proposed investment as an assurance that the Fund
will ultimately consummate such proposed investment, or that any information
provided concerning a proposed investment, including its agreed-upon terms, will
not change between the date of such information and actual investment. Any
supplement to this Prospectus relating to the offering of subsequent series of
BACs will set forth any standards which will be applicable to substitution for
Operating Partnership Interests described therein, if any.
TAX CREDIT PROGRAMS
This section describes the Federal Housing Tax Credit program contained in
Section 42 of the Code, as originally authorized by the Tax Reform Act of 1986
(the "1986 Tax Act"), and as modified by certain provisions of the Technical and
Miscellaneous Revenue Act of 1988 (the "1988 Tax Act"), the Omnibus Budget
Reconciliation Act of 1989 (the "1989 Tax Act"), the Omnibus Budget
Reconciliation Act of 1990 (the "1990 Tax Act"), and the Omnibus Budget
Reconciliation Act of 1993 (the "1993 Tax Act"). The changes to the program
occasioned by the 1989 Tax Act and the 1990 Tax Act generally are effective only
with respect to apartment complexes which receive allocations of Federal Housing
Tax Credits after 1989 or 1990, respectively. Such apartment complexes are
hereinafter referred to as "New Projects." Except as noted below, the Federal
Housing Tax Credit may be used by the Operating Partnerships in conjunction with
other Government Assistance programs which are described in the section entitled
"Government Assistance Programs."
The Federal Housing Tax Credit
The 1986 Tax Act created a major government-assisted housing program with
respect to low-income housing that is constructed, rehabilitated or acquired
after December 31, 1986, by providing a tax credit to investors in certain
low-income housing projects (the "Federal Housing Tax Credit"). The Code
provides that the Federal Housing Tax Credit is to be allocated by states (or in
some cases local agencies) with a volume cap of $1.25 annually per resident of
the state for each year, but only the credit arising in the first year of an
apartment complex's credit allocation is counted against this limit. Once the
Federal Housing Tax Credit is allocated to a particular building, the building
owner does not need to reapply for the credit in later years, nor does the
aggregate amount of the credit allocated to such building for later years reduce
the amount of credits available for allocation to other
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apartment complexes in such later years. Properties financed with the proceeds
of tax-exempt bonds would fall outside of this allocation restriction if 50 per
cent or more of the costs of the property are so financed. Unlike other federal
housing programs which are administered by the U.S. Department of Housing and
Urban Development ("USHUD") or the Rural Housing Service of the U.S. Department
of Agriculture (formerly known as the Farmers Home Administration) ("RHS"), this
program is administered by the U.S. Department of the Treasury (the "Treasury
Department"). As of the date of this Prospectus, the Treasury Department has
issued regulations pertaining to a portion of the program; proposed regulations
covering other important programmatic aspects have not been published and it
cannot be predicted when such proposed regulations will be promulgated or what
specific subjects will be covered. Accordingly, the program description set
forth below is general and is based on the partial program regulations and
statutory text, as amplified by the legislative history published in conjunction
with the 1986 Tax Act, the 1988 Tax Act, the 1989 Tax Act, the 1990 Tax Act and
the 1993 Tax Act.
Summary of the Federal Housing Tax Credit Program
For a ten-year period (the "Credit Period") investors in a partnership which
owns an apartment complex providing low-income housing units, are eligible to
receive a credit against federal tax liability, i.e., a dollar-for-dollar
reduction in that liability. The annual amount of this Federal Housing Tax
Credit is determined by multiplying the annual credit percentage (the
"Applicable Percentage") by the basis of that portion of an apartment complex
which is occupied by certain low-income tenants (the "Qualified Basis,"
discussed below under "Eligible Basis and Qualified Basis").
The Applicable Percentage varies essentially according to two major factors--(1)
whether an apartment complex is newly constructed (which includes certain
substantially rehabilitated apartment complexes) or is an existing apartment
complex, and (2) whether or not an apartment complex is federally subsidized.
There are three basic Federal Housing Tax Credit categories:
1. Non-federally subsidized new construction or substantial rehabilitation
apartment complexes receive a Federal Housing Tax Credit in an amount up to a
present value over ten years of 70% of the Qualified Basis of the apartment
complex (the "70% Credit"). The 70% figure is the Applicable Percentage
expressed in present value terms assuming the credit is received over ten
years. The Treasury Department is required on a monthly interval to
re-determine the appropriate yearly percentage that will yield a 70% present
value over ten years, utilizing a prescribed discounting methodology based on
the applicable federal rate of interest in effect in such month; once
established in the month an apartment complex is placed in service, the
Applicable Percentage will apply to the entire Credit Period. For apartment
complexes placed in service in December 1997, for example, the annual credit
is equal to %. "Substantial rehabilitation" is defined in the Code as capital
expenditures in connection with rehabilitation of a building (but not the
acquisition costs) aggregated over a period of up to 24 months of at least
$3,000 per low-income unit or 10 per cent of the owner's basis in the
apartment complex, whichever is higher. The 70% Credit for substantial
rehabilitation may be utilized by an owner of an existing apartment complex
without any transfer of ownership, or it may be utilized by a new owner after
a change of
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ownership. The 1988 Tax Act permits the taxpayer to elect to use, in lieu of
the Applicable Percentage for the placed-in-service date, the Applicable
Percentage for the month in which a binding agreement as to the building's
credit allocation is entered into between the taxpayer and the appropriate
Credit Agency. In addition, if the building is financed by the proceeds of
tax-exempt bonds, the taxpayer may elect to utilize the Applicable Percentage
in effect for the month the bonds were issued.
2. Federally subsidized new construction or substantial rehabilitation
apartment complexes receive a Federal Housing Tax Credit in an amount up to a
present value over ten years of 30% of the Qualified Basis payable over ten
years (the "30% Credit"). As with the 70% Credit, the Treasury Department is
directed to determine the appropriate percentage for apartment complexes
placed in service in order to yield a Federal Housing Tax Credit with a 30%
present value; for example, for apartment complexes placed in service in
December 1997, the Applicable Percentage is %. For purposes of the Federal
Housing Tax Credit program, federal subsidies include only financing received
from the proceeds of tax-exempt bonds and financing from direct or indirect
federal loans with below market interest rates (such as the RHS Permanent
Mortgage Loans anticipated to be obtained with respect to certain of the
apartment complexes), the proceeds of which are or were used directly or
indirectly with respect to the apartment complex. (See "Government Assistance
Programs" for a discussion as to whether a particular program is considered
"federally subsidized" within the meaning of the Tax Reform Act of 1986.) In
some respects, the use of the term "federally subsidized" in Section 42 of the
Code is narrower than its customary definition. For example, subsidies under
the USHUD Section 8 Program and Community Development Block Grant funds are
not considered federal subsidies for purposes of the Federal Housing Tax
Credit.
An owner has the option of excluding federally subsidized loans from basis in
calculating the credit amount and then using the 70% Credit against the
remaining basis.
3. Existing apartment complexes are eligible to receive the 30% Credit upon
acquisition by new owners, provided however, that an owner must also
accomplish substantial rehabilitation, as described above in paragraph 1, in
order to receive the 30% acquisition credit. Existing apartment complexes are
not eligible for the 30% Credit if the apartment complex was transferred, or
if it underwent certain rehabilitation work, during the prior ten years,
although the Treasury Secretary may waive this rule with respect to certain
federally-assisted or federally-financed properties in order to avert certain
mortgage assignments or claims against federal mortgage insurance funds or in
certain other instances of financial distress. The 1989 Tax Act broadened this
waiver authority to include properties purchased from failed thrift
institutions, their receivers or conservators, or in order to preserve low
income occupancy for certain federally assisted properties, effective upon
enactment of the 1989 Tax Act. The owner of such an apartment complex also may
utilize the 70% Credit with respect to the expenditures incurred to perform
the required substantial rehabilitation, if such expenditures are not
federally subsidized.
In addition to the three basic credit percentages, an owner may elect to make
more of an apartment complex eligible for the Federal Housing Tax
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Credit after the ten-year Credit Period has already begun. The so-called
"addition to Qualified Basis" provides an additional credit equal to two-thirds
of the Applicable Percentage noted above, applied to the amount of such addition
to Qualified Basis; any such additional credits are to be claimed and such
credits are received over the remainder of the 15-year compliance period. Such
additional credits, under certain circumstances, are subject to the state credit
allocation described in "Tax Credit Programs--Credits Subject to State
Allocation," but are not subject to recapture. (See "Federal Income Tax
Matters--Recapture of Federal Housing Tax Credits.")
Qualified Apartment Complexes
The Federal Housing Tax Credit is available only with respect to buildings in
qualified low-income housing Apartment Complexes. Qualified low-income housing
apartment complexes are generally residential rental properties 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") and, in
either case, such units are rent-restricted. This requirement, referred to as
the "Minimum Set-Aside," must be met in order for any portion of the apartment
complex to qualify for Federal Housing Tax Credits. All low-income units must be
suitable for occupancy, must be used on a non-transient basis, and must be
offered to the general public. Once the Minimum Set-Aside has been satisfied,
all other low-income units meeting the Minimum Set-Aside will be taken into
account in determining the Qualified Basis and hence, the amount of Federal
Housing Tax Credits which are available. (See "Tax Credit Programs--Eligible
Basis and Qualified Basis.")
Additionally, the gross rent paid by tenants of qualified low-income units
cannot exceed 30% of the applicable qualifying income for a family of its size
(the "Rent Restriction Test"). The Rent Restriction Test is based on the number
of bedrooms in a unit, with an assumed number of occupants for each type of
unit. Thus, as an example, all two bedroom units in a given apartment complex
will have the same rent, based upon the assumption that three people occupy the
unit, regardless of the actual number of residents.
Gross rent for this purpose includes the cost of any utilities, other than
telephone. The Internal Revenue Service has issued a Notice (No. 89-6) stating
that owners must generally follow USHUD, RHS or local housing authority utility
allowances, depending on the type of building involved, and whether the tenant
directly pays the cost of any utilities (except telephone). Rental assistance
payments such as those under the USHUD Section 8, Rent Supplement or Rental
Assistance Payments Programs, described below in this section, and similar state
or local rental subsidy programs, are not included in gross rent and thus an
owner may receive a rental subsidy payment under such a program in addition to
the amount paid by the tenant.
The Internal Revenue Service has issued a Notice (No. 89-6) stating that the
cost of any services, such as meals or social services, which are paid by the
tenant on a mandatory basis, must be included in the gross rent. However, the
1989 Tax Act allows certain fees paid to owners by governmental
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agencies or non-profit organizations for support services to tenants (which
services allow residents to live independently) to be excluded from gross rent
with respect to New Projects.
Pursuant to Section 42(g)(3) of the Code an apartment complex must, in general,
meet the requirements with respect to the 20-50 Set-Aside Test or 40-60
Set-Aside Test, as well as the Rent Restriction Test, described below in this
section, not later than the end of the first year of the Credit Period. Special
rules are provided in the case of apartment complexes which consist of multiple
buildings.
The taxpayer 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. The apartment complex must remain in compliance
with the rules governing the Federal Housing Tax Credit program for a period of
fifteen years (the "Compliance Period"), commencing with the beginning of the
Credit Period, which is the first year the credit is taken with respect to a
building. 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
increased by the time differential between acquisition and the completion of
such substantial rehabilitation. With respect to New Projects, the Credit Period
for the 30% Credit for acquisition may not commence until the Credit for
substantial rehabilitation is allowed. The Fund intends to require the Operating
General Partners of each Operating Partnership in which the Fund invests to
represent that either the 20-50 Set-Aside Test or the 40-60 Set-Aside Test will
be met by the end of the first year of the Credit Period.
The 1989 Tax Act provides for an extension of the Compliance Period for New
Projects. Under this provision, the Credit Agency and owner must enter into an
agreement establishing an extended compliance period of at least 30 years.
However, the owner of a property may, one year prior to the end of the 15 year
Compliance Period, request that the Credit Agency present a contract to purchase
the apartment complex or the low-income portion of the apartment complex. The
purchase price would be equal to the sum of (i) the outstanding mortgage debt on
the property, (ii) the cash invested with respect to the apartment complex,
increased by a cost of living adjustment (not to exceed five per cent in any
year), plus (iii) other capital contributions, minus (iv) cash distributions
from (or available for distribution from) the apartment complex. In the event
that the apartment complex is not initially occupied entirely by low-income
tenants, this provision relates only to the low-income portion of the apartment
complex. If the Credit Agency does present such a contract to the owner, the
apartment complex can be sold for that price, but the apartment complex would
continue to be subject to the restrictions of the Federal Housing Tax Credit
program for at least a total of 30 years (including the initial 15 year
Compliance Period). If no contract is presented, then the owner may sell the
apartment complex at any price obtainable and without use restrictions or
convert it to market rate use, with the qualification that existing low-income
tenants may not be evicted (except for good cause) or have their rents raised
beyond amounts allowed under the Rent Restriction Test for a three year period
after the initial 15 year Compliance Period. Furthermore, the low-income
restrictions would terminate upon a foreclosure or deed-in-lieu of foreclosure.
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Eligible Basis and Qualified Basis
The "Qualified Basis" of a building within a qualified low-income housing
apartment complex is defined generally as the portion of the "Eligible Basis" in
a qualified building attributable to low-income rental 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 the residential rental
units (whether or not occupied) in the building.
In general, the "Eligible Basis" of a building within a low-income housing
apartment complex is its adjusted basis. With respect to new construction,
Eligible Basis will be the cost of new construction determined as of the end of
the first year of the credit period, under an amendment contained in the 1989
Tax Act (effective retroactively to 1987). For substantial rehabilitation,
Eligible Basis would be comprised of rehabilitation costs aggregated over a
period not exceeding 24 months, which expenditures meet the threshold levels
described under "Summary of the Federal Housing Tax Credit Program." No
acquisition credit is allowable in the absence of substantial rehabilitation.
Land costs may not be included in Eligible Basis. Because only the adjusted
basis of a building may be included in Eligible Basis, adjustments to basis
described under Section 1016 of the Code, except for depreciation, must be taken
into account. For example, the reduction in basis equal to any Historic Tax
Credit allowed with respect to an apartment complex would be taken into account
when computing Eligible Basis. However, the Federal Housing Tax Credit does not
reduce a building's basis.
Further, for purposes of determining Qualified Basis, the Eligible Basis
includes not only the adjusted basis of the residential rental units, but also
the adjusted basis of facilities and certain personal property (such as major
appliances) for use by the tenants, as well as other facilities reasonably
required by the apartment complex.
Residential rental property may qualify for the Federal Housing Tax Credit even
though a portion of the building in which the residential rental units are
located is available for commercial use. However, no portion of the cost of such
non-residential property may be included in the Eligible Basis. The Statement of
Managers of the 1986 Tax Act states the intention of the Congress that the costs
of such mixed use facilities would be allocated according to a reasonable method
that properly reflects proportionate benefit to be derived directly or
indirectly by the non-residential rental property and the residential units. The
portion of the cost of apartment complexes owned by Operating Partnerships
allocable to commercial space, if any, may be determined on a pro rata basis
using a ratio of the square footage of commercial space to the total square
footage of such apartment complex.
Eligible Basis may not include in any taxable year the amount of any federal
grant, regardless of whether such grant is includable in gross income. A federal
grant (as opposed to a loan or a rental subsidy) includes any grant funded in
whole or in part by the federal government, to the extent funded with federal
funds. Grants which may not be included in Eligible Basis include any Urban
Development Action Grants, Rental Historic Grants and Housing Development Action
Grants. (See "Government Assistance Programs.")
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Utilization of the Federal Housing Tax Credit
The Federal Housing Tax Credit is claimed by taxpayers owning an interest in a
qualified low-income apartment complex over a ten-year period. In the first year
the Federal Housing Tax Credit is claimed, the allowable Tax Credit amount is
determined using an averaging convention to reflect the number of months that
units comprising the Qualified Basis were occupied by low-income individuals
during the year and is reduced to reflect the period of time during the first
year that the Operating Partnership owned the building(s) in question. 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, the
allowable Tax Credit in the first year would reflect that these units were
occupied on average only two months or one-sixth of the year for a calendar year
owner. As another example, if an Operating Partnership purchased a fully
occupied building on July 1 and the building remained fully occupied throughout
that first year, the allowable Federal Housing Tax Credit to the applicable
Operating Partnership in that first year would be equal to one-half of the total
Federal Housing Tax Credit for which the building would be eligible for such
year. To the extent that there is such a reduction of the Federal Housing Tax
Credit amount in the first year, an additional Federal Housing Tax Credit in the
amount of such reduction is available in the eleventh taxable year. Furthermore,
a partner's allocable share of Tax Credit in the year in which that partner is
admitted or a year in which the partner disposes of his Interest will be
determined under general partnership allocation rules, according to the
legislative history accompanying the 1986 Tax Act. Thus, the amount of Federal
Housing Tax Credit available to an Investor will be affected not only by the
first year averaging convention described in this paragraph, but also by the
period of time an Investor holds an Interest in the Fund during any particular
year in the Credit Period. (See "Federal Income Tax Matters--Allocation of
Profits, Credits and Losses to BAC Holder in Year of Purchase of BACs" and
"--Allocation of Profits, Credits and Losses Upon Sale of BACs.")
In order to fully utilize the Federal Housing Tax Credit, a taxpayer who is an
individual, an "S" corporation or a "closely held corporation" (i.e., one in
which five (5) or fewer shareholders directly or indirectly own more than 50% of
the stock at any time during the last half of the year) other than a leasing
company, must be "at risk" with respect to his investment in such low-income
housing.
Generally, the qualified basis of any low-income housing apartment complex is
reduced for "at risk" purposes by the amount of any non-qualified nonrecourse
financing with respect to such property. Such a reduction would reduce a
partner's qualified investment in a low-income apartment complex and therefore,
directly reduce such partner's share of any Federal Housing Tax Credit.
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 the Federal Housing Tax Credit with respect to such
financing. For purposes of the Federal Housing Tax Credit, 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.
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A qualified person for purposes of the Federal Housing Tax Credit is a person
who is actively and regularly engaged in the business of lending money and who
is not (a) the 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.
Taxpayers cannot use the Federal Housing Tax Credit in an unlimited amount.
Generally, individuals can only utilize Federal Housing Tax Credits to offset
taxes on up to $25,000 of "non-passive" income. (See "Federal Income Tax
Matters--Federal Housing Tax Credit" and "--Passive Loss and Tax Credit
Limitations.")
Federal Housing Tax Credits are not a preference item for purposes of the
alternative minimum tax; however, they cannot be used to offset that tax.
Corporations, other than S corporations or personal service corporations can
generally use the credit against taxes on all income and can use losses to
reduce taxable income. However, closely held corporations cannot use the credit
against portfolio income. For a more complete discussion of these limitations on
the utilization of the Federal Housing Tax Credits, see "Federal Income Tax
Matters--Federal Housing Tax Credit" and "--Passive Loss and Tax Credit
Limitations."
Corporation taxpayers (other than personal service or closely held corporations)
are not subject to the passive loss and credit rules under Section 469 of the
Code. Such corporations may utilize Federal Housing Tax Credits and losses
generated by investments in rental real estate against taxes and income from
other sources. However, the Federal Housing Tax Credits may not be used against
alternative minimum tax liability. Furthermore, the rules applicable to other
business tax credits apply to the Federal Housing Tax Credit; a taxpayer may
reduce regular tax liability only by an amount equal to $25,000 plus 75% of
remaining taxes above $25,000. For a more complete discussion of these
limitations on the utilization of Federal Housing Tax Credits, see "Federal
Income Tax Matters--Passive Loss and Tax Credit Limitations."
Credits Subject to State Allocation
All buildings, except those financed through proceeds of tax-exempt bonds
subject to the tax-exempt bond limitation included in the Code, must be
allocated Federal Housing Tax Credit authority by the applicable state or local
credit agency (a "Credit Agency") in the jurisdiction in which the apartment
complex is located. The aggregate credit allocation for each year is $1.25 per
resident of each state, but only the credit arising in the first year of an
apartment complex's credit allocation is counted against this limit. The Fund
will only acquire Interests in Operating Partnerships owning apartment complexes
which have received a preliminary Federal Housing Tax Credit allocation by the
appropriate Credit Agency. Although an actual allocation of Federal Housing Tax
Credit authority may not be made until the year a building is placed in service,
Credit Agencies are permitted to enter into binding commitments to allocate
future credit authority. A provision contained in the 1988 Tax Act allows an
allocation to be made if an owner's basis in the apartment complex (including
the cost of land) at the close of the allocation year is more than 10% of the
reasonably anticipated basis in such apartment complex as of the close of the
second year after the allocation
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year, and the building is placed in service by the close of the second year
following the allocation.
Furthermore, the possibility exists that an existing building may receive an
allocation for a year but not meet the "10%" requirement described in the
immediately preceding paragraph and not be placed in service until the following
year, in which case under present law, the allocation would be lost and there is
no assurance that the Credit Agency will make credit available during the
following year. It is anticipated that each of the Operating Partnership
Agreements will provide that the Fund may require the Operating General
Partner(s) to repurchase the Fund's Interest in the Operating Partnership in the
event that the apartment complex is not placed in service in the year for which
the Federal Housing Tax Credit is allocated and does not meet the above
described 10% test. (See "Investment Objectives and Acquisition
Policies--Acquisition Policies" and "The Offering.") In addition, the Credit
Agency is required to reduce the Applicable Percentage and/or the Qualified
Basis from the amounts for which the apartment complex would otherwise be
eligible if the Credit Agency believes that the full amounts are not necessary
in light of other sources of assistance which are available to the apartment
complex.
Credit Agencies are required to publish, after public comment is received,
qualified allocation plans which set forth selection criteria to be used in
determining housing priorities of the Credit Agency. The 1989 Tax Act mandates
that, during the stage at which the Credit Agency is determining which apartment
complexes to select for an allocation, it give preference to apartment complexes
which serve the lowest income tenants for the longest periods of time. The
Credit Agencies must also take other criteria into account in selecting
apartment complexes for an allocation. The General Partner is unable to predict
what impact, if any, this entire provision will have with respect to any
apartment complex or the availability of apartment complexes for investment.
Furthermore, the 1989 Tax Act requires that for New Projects, Credit Agencies
evaluate certain financial information relating to apartment complexes and
allocate Federal Housing Tax Credits in an amount which does not exceed the
amount determined necessary for the financial feasibility and long-term
viability of the apartment complex. In making this determination, the Credit
Agency must consider the source and use of funds, total financing for the
apartment complex, proceeds expected to be generated as a result of tax benefits
and the percentage of Federal Housing Tax Credits used "for project costs other
than the cost of intermediaries." The General Partner is unable to predict how
this provision will affect any apartment complex or the availability of
apartment complexes for investment. However, each State Credit Agency has
adopted a qualified allocation plan and has procedures in place for analyzing
the amount of Federal Housing Tax Credits to be allocated, which plans and
procedures differ in many respects from each other. In addition, pursuant to the
1989 Tax Act, Credit Agencies have procedures in place to affirmatively monitor
compliance and to report any noncompliance with the Federal Housing Tax Credit
program to the IRS.
It is anticipated that each of the Operating Partnership Agreements will provide
for an adjuster to reduce the Capital Contributions of the Fund to the Operating
Partnership in the event that the Actual Credit is less than a specified
percentage (generally anticipated to be between 90% and 100%) of the
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Projected Credit for the applicable apartment complex. (See "Investment
Objectives and Acquisition Policies--Acquisition Policies.")
State Housing Tax Credit Programs
The Fund may offer one or more series of BACs exclusively to Investors of a
specific state and invest, through Operating Partnerships, exclusively in
apartment complexes which will generate both Federal Housing Tax Credits and
housing tax credits available under the laws of the state in which the apartment
complexes are located ("State Housing Tax Credits"). Such series could also
invest in apartment complexes in such state generating Historic Tax Credits. As
of the date of this Prospectus, Hawaii, Missouri and California are the only
states which have adopted legislation authorizing such State Housing Tax
Credits. The supplement to this Prospectus which offers any such series
investing in apartment complexes generating State Housing Tax Credits will
describe the applicable state program in detail.
Because of the ability of the California Housing Tax Credit program (and
potentially other State Housing Tax Credit programs) to generate a
proportionally greater amount of tax credits in the earlier years of a series'
investment than those which would be generated under the Federal Housing Tax
Credit program, the General Partner anticipates that any series which invests,
through Operating Partnerships, in apartment complexes qualifying for both
Federal and State Housing Tax Credits could realize a greater proportion of tax
credits in the earlier years of such series' investments than a series which
does not invest in apartment complexes qualifying for State Housing Tax Credits.
Similarly, it is anticipated that any series which invests, through Operating
Partnerships, in apartment complexes qualifying under such State Housing Tax
Credit programs could realize a different aggregate amount of tax credits than a
series which invests an equivalent amount of Net Proceeds in apartment complexes
which do not qualify for State Housing Tax Credits. Accordingly, the supplement
to this Prospectus which offers any series anticipated to generate both types of
tax credits will discuss the achievement of the Fund's business objectives in
terms of generating both Tax Credits and State Housing Tax Credits for the
benefit of the Investors in that particular series.
Historic Tax Credit
The Code also provides for a separate tax credit equal to 20% of qualified
rehabilitation expenditures for certified historic structures and certain other
buildings originally placed in service before 1936 (the "Historic Tax Credit").
Certain of the apartment complexes may qualify for this credit in addition to
the Federal Housing Tax Credit. A certified historic structure is defined as a
building which (i) is listed in the National Register of Historic Places, or
(ii) is located in a registered historic district and is certified by the
Secretary of the Interior as being of historic significance to the district.
Qualified rehabilitation expenditures are defined as amounts properly chargeable
to capital account, incurred for real property, and made in connection with a
qualified rehabilitated building. In general, a qualified rehabilitated building
is one which has been substantially rehabilitated. The rehabilitation must also
be "certified rehabilitation," which is rehabilitation certified by the
Secretary of the Interior as consistent with the historic character of the
property or the district in which the property is located. Costs of acquiring a
building, or enlarging it, are not qualified rehabilitation expenditures.
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The tax basis of a rehabilitated structure is reduced by 100% of the allowed
Historic Tax Credit. Accordingly, the basis of an apartment complex receiving
Historic Tax Credits could be reduced for purposes of computing the Federal
Housing Tax Credit for the year.
The use of the Historic Tax Credit by individuals, including shareholders of S
corporations or "closely held corporations" is limited by the amount that the
taxpayer has "at risk" with respect to the investment that generates the
Historic Tax Credit. In general, the taxpayer must satisfy the same "at risk"
requirements applicable to the Federal Housing Tax Credit. (See "Federal Income
Tax Matters--At Risk Limitations.") In addition, to be considered "at risk" with
respect to an investment which generates Historic Tax Credits, it is also
necessary that (a) the amount of any nonrecourse financing with respect to such
property not exceed 80% of the credit base of the property, and (b) that the
financing not be provided by a person who is related to the taxpayer.
The Fund may invest in an Operating Partnership that incurs rehabilitation
expenditures that will qualify for such Historic Tax Credit, which would then be
available to the BAC Holders to reduce their federal income taxes, but the
ability of BAC Holders to utilize such credits may be restricted by the passive
activity loss limitation rules in the same manner as such rules apply to the
Federal Housing Tax Credit. In addition, BAC Holders whose adjusted gross income
exceeds $200,000 will have their ability to use Historic Tax Credits phased out
until their adjusted gross income reaches $250,000, at which point no Historic
Tax Credits may be used to offset taxes on non-passive income. (See "Federal
Income Tax Matters--Passive Loss and Tax Credit Limitations.")
Historic Tax Credits utilized by BAC Holders are subject to full or partial
recapture by a BAC Holder who transfers one-third or more of his BACs within
five years of the date which the applicable apartment complex was placed in
service, in proportion to the percentage of BACs so transferred. In addition, if
an apartment complex is sold or otherwise disposed of during this five-year
period, the Historic Tax Credits will be recaptured in an amount which varies
depending on the date of sale or disposition. (See "Federal Income Tax
Matters--Recapture of Tax Credits.")
GOVERNMENT ASSISTANCE PROGRAMS
As noted above, the Federal Housing Tax Credit can be utilized in conjunction
with apartment complexes that are not government assisted as well as those that
receive assistance from federal, state or local governments. It is the intention
of the Fund to acquire Interests in Operating Partnerships owning apartment
complexes that are assisted by federal, state or local programs, although the
Fund may invest in non-assisted apartment complexes as well. Following is a
summary of various major government assistance programs now in existence which
can be utilized with the Federal Housing Tax Credit. This summary is not
intended to be all-inclusive. However, it should be noted that in order to
qualify for Federal Housing Tax Credits, an Operating Partnership and its
related apartment complex must meet the basic rules for the Federal Housing Tax
Credit program set forth in the Code in addition to the applicable
administrative rules for the housing assistance programs discussed in this
section. There are presently some inconsistencies between the Federal Housing
Tax Credit program requirements and cer-
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tain other government assistance program rules which will complicate or block
the full utilization of certain assistance programs. Although the following
discussion presents several examples of such inconsistencies, it is not
inclusive. At the present time, the procedures for the resolution of such
inconsistencies and the likelihood of favorable clarification are not clear.
Furthermore, there can be no assurance that the terms of such programs, or the
regulations governing them, will not change. The General Partner is unable to
predict at this time which of the Government Assistance Programs described below
will be utilized with respect to Apartment Complexes owned by the Operating
Partnerships in which the Fund may undertake to acquire Interests.
A. Rural Housing ("RHS") Programs
Section 515 of the Housing Act of 1949 authorizes the U.S. Department of
Agriculture to provide direct below-market-rate mortgage loans for rural rental
housing. As of May 1, 1995, the responsibility for administration of the Section
515 program has been reassigned to the Rural Housing Service ("RHS"). Such loans
are extended to qualified sponsors, organized exclusively for the purpose of
providing housing, in amounts up to 97% of the total development cost of the
applicable apartment complex, as determined pursuant to RHS regulations, and for
terms up to 50 years. In addition, RHS may provide an owner with mortgage
interest subsidies, which effectively lower the interest rate on a Permanent
Mortgage Loan made by RHS to 1% after the satisfactory completion of
construction of the apartment complex, the benefits of which the owner must pass
on to eligible tenants in the form of lower rents.
RHS regulations limit cash distributions to owners of apartment complexes which
it finances with both mortgage loans and interest subsidies to a maximum annual
return of 8% per annum, on a cumulative basis, on the required 3% to 5% equity
contribution. RHS 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. As of May 1, 1995, the Section 515 program
has lapsed but it may be renewed.
RHS approval is required if an owner wishes to sell the apartment complex. For
apartment complexes funded after December 21, 1979, applicable law and
regulations also require the owner to utilize the assisted housing for tenants
eligible under the Section 515 Program for the 20-year period following closing
of the RHS mortgage. With respect to apartment complexes funded before December
21, 1979, Congress, in the Housing and Community Development Act of 1987,
adopted a measure to preserve the low-income tenancy of the apartment complex by
requiring that the owner sell the apartment complex at its fair market value to
a non-profit organization rather than prepay the loan, or otherwise accept
incentives for the extension of low-income use restrictions, to the extent
available. On November 21, 1989, the Congress passed the Department of Housing
and Urban Development Reform Act of 1989 (the "1989 USHUD Act"). Pursuant to the
1989 USHUD Act, loans obligated after December 15, 1989, provide that the owner
cannot prepay during the 50-year term of the mortgage.
Although a RHS mortgage may not be prepaid during its 50-year term, an owner may
sell or otherwise transfer its apartment complex upon RHS approval, subject to
the mortgage. Furthermore, RHS approval is required before an owning
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partnership may encumber title to its apartment complex, admit or remove a
general partner thereof or permit a general partner thereof to maintain a
certain percentage interest in that operating partnership.
Section 515 apartment complexes are eligible only for the 30% Federal Housing
Tax Credit, because they are the beneficiaries of a federal below-market-rate
loan. It should be noted that presently there are inconsistencies between the
Federal Housing Tax Credit provisions in the Code and Title V of the Housing Act
of 1949 authorizing the Section 515 Program. For example, the Code places the
maximum tenant rent at 30% of the "qualifying income." Present RHS regulations
require a tenant to pay 30% of "family income" as rent, an amount which in some
cases can exceed 30% of the "qualifying income." The Housing and Community
Development Act of 1987 generally conforms RHS's Section 515 income limits to
those under the Federal Housing Tax Credit provisions of the Code. Thus, Federal
Housing Tax Credits are available only for those units in apartment complexes
financed under the Section 515 program with respect to which tenants meet the
Federal Housing Tax Credit qualifying income test.
The RHS Interest Credit Subsidy available to limited profit sponsors lowers the
interest rate on the Permanent Mortgage Loan to 1% per annum. Tenant eligibility
in the apartment complex is limited to families, senior citizens and handicapped
persons of low and moderate incomes.
In its application for interest credit subsidies, each owner of an apartment
complex participating in the RHS Interest Credit Program must submit to RHS
budgets for "market rentals" (rents required to operate on a limited profit
basis with mortgage payments based on the interest rate provided in the RHS
mortgage) and budgets for "basic rentals" (rents required to operate on a
limited profit basis assuming a mortgage bearing interest at 1%).
RHS also provides rent subsidies ("Rental Assistance Payments") to low-income
tenants in apartment complexes receiving direct loans from RHS pursuant to the
Section 515 Rural Rental Housing Program.
Tenants with an adjusted annual income at a level established from time to time
by RHS and contained in RHS regulations 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 reserved by RHS 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 RHS.
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, from the rental subsidy
funds paid by RHS.
RHS regulations limit the number of apartments eligible for Rental Assistance
Payments to 40% of the total number of units in an apartment complex. However,
all the units in an apartment complex for use solely by elderly or handicapped
persons may receive Rental Assistance Payments under most circumstances.
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In order to obtain Rental Assistance Payments for a newly-constructed or
substantially-rehabilitated apartment complex, the owner executes a rental
assistance agreement with RHS 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 for
assistance, if and to the extent that RHS funds are available.
B. Housing and Urban Development Grant Programs to Local Governments
The following United States Department of Housing and Urban Development
("USHUD")-administered grant programs can be utilized with respect to apartment
complexes eligible for the Federal Housing Tax Credit. As discussed above under
"The Federal Housing Tax Credit," however, the amount of any such grant must be
deducted from the Eligible Basis of the apartment complex. After the applicable
deduction is made, the remaining Qualified Basis of the apartment complex would
be eligible for the 70% Credit, assuming there were no other "federal subsidies"
within the meaning of Section 42 of the Code with respect to such apartment
complex. However, it may be possible to structure such grant assistance as a
true below-market loan, in which case an apartment complex owner has the option
of either deducting the loan amount from the basis and receiving a 70% Federal
Housing Tax Credit, or including the loan amount within the apartment complex
basis and receiving a 30% Federal Housing Tax Credit.
1. Community Development Block Grant ("CDBG") Program
The Community Development Block Grant program is authorized under Title I of the
Housing and Community Development Act of 1974, as amended. Approximately seventy
per cent of the program's allocation provides annual "entitlement" grants on a
formula basis to metropolitan cities and urban counties. The remaining 30% is
distributed to "small cities", either by states electing to administer their own
programs, or by USHUD on a competitive basis.
Grant Recipients must give the maximum feasible priority to CDBG activities
which either benefit low- and moderate-income persons, aid in the elimination of
slums and blight or address urgent needs of the community. Grant Recipients may
use CDBG funds for a wide range of activities. While rehabilitation, which may
be accomplished through grants, loans or guarantees to developers, is a
specifically-enumerated eligible activity, assistance to developers for new
housing construction (with the exception of "last resort" emergency housing) is
generally only eligible when undertaken with the participation of
neighborhood-based non-profit organizations, small business investment companies
or local development corporations. Construction-related activities, such as land
assembly, clearance and demolition, may be assisted without the participation of
such entities.
The terms and conditions of the grant, loan or loan insurance from CDBG funds by
a Grant Recipient to a developer will be negotiated between the Grant Recipient
and the developer. Assisted activities generally are subject to several federal
program requirements, including nondiscrimination, environmental review and, in
certain circumstances, payment of "Davis-Bacon" prevailing wage rates. The use
of a CDBG-financed loan to an apartment
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complex does not constitute a below market federal loan; thus, the apartment
complex still may qualify for the 70 per cent present value Federal Housing Tax
Credit. (See "Tax Credit Programs--Summary of the Federal Housing Tax Credit
Program.")
2. HOPE VI Program
In 1993, Congress enacted the Urban Revitalization Demonstration Program as part
of the 1993 Appropriations Act for the Departments of Veterans Affairs and
Housing and Urban Development, and Independent Agencies. This program is
commonly referred to as "HOPE VI - HOPE for the Residence of Severally
Distressed Public Housing." The program is targeted at the most seriously
distressed public housing projects around the country. Each participating public
housing authority submits an application to USHUD which contains the details of
its proposal for the use of the HOPE VI funds and identifies the proposed
development team, including all private sector partners/ joint venturers. USHUD
awards block grants to eligible applicants meeting the requirements set forth in
the applicable Notices Of Funding Availability and the grant application
guidelines.
There are two types of grants available under the HOPE VI Program: Planning
Grants, which are generally for predevelopment activities; and Implementation
Grants, which are used for construction and rehabilitation activities.
C. USHUD Mortgage Loan Insurance Programs and Insurance Subsidy Programs
The Fund may invest, through Operating Partnerships, in apartment complexes
having mortgage loans which are insured by USHUD. Such mortgage insurance by
itself is not considered a federal subsidy for purposes of the Federal Housing
Tax Credit program, and USHUD-insured apartment complexes having no other
federal subsidy would be eligible for the 70% Federal Housing Tax Credit.
However, the Fund currently anticipates that any USHUD-insured apartment
complexes invested in by the Fund would have additional federal, state or local
assistance, so that the applicable credit would be either the 30% or the 70%
Credit, depending upon the particular form of assistance. Other federal
insurance programs such as Section 236 and the below market interest rate
("BMIR") program under Section 221(d)(3) also provide subsidy assistance to an
apartment complex. The 236 and 221(d)(3) BMIR programs no longer funding new
projects, but the Fund may invest in existing apartment complexes having these
forms of assistance. The acquisition cost of such apartment complexes would
qualify for a 30% Federal Housing Tax Credit, although the Code would prohibit
any Federal Housing Tax Credit for acquisition costs unless substantial
rehabilitation also were undertaken. (See "The Federal Housing Tax Credit--
Summary of the Federal Housing Tax Credit Program.") If substantial
rehabilitation was to be performed for such an apartment complex, the applicable
rehabilitation costs would qualify for the 70% Federal Housing Tax Credit, if
the rehabilitation itself was not federally assisted.
1. Section 221(d)(4) Mortgage Insurance Program
Section 221(d)(4) of the National Housing Act of 1934, as amended, provides for
federal insurance of private construction and permanent mortgage loans to
finance new or rehabilitated rental apartment complexes containing five
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or more units. This program provides housing for families of moderate income,
families eligible for assistance under the USHUD Section 8 Program (described
below in this section), and families that have been displaced as a result of
urban renewal, government action or disaster.
Under USHUD regulations, the amount of any USHUD-insured mortgage loan cannot
exceed the lesser of the amount of the USHUD insurance commitment (as amended
from time to time) or 90% of the replacement cost of the apartment complex, as
determined by a certified public accountant following the accounting procedures
specified by USHUD. Under current regulations, the maximum interest rate that
may be charged on the mortgage loans insured by USHUD shall be at the rate
agreed to by the borrower and the lender. Further, USHUD must approve each
disbursement made from the construction loan, and determine when the apartment
complex is 100% complete.
A permanent mortgage loan insured under Section 221(d)(4) is to be repaid over a
term not to exceed 40 years from the final closing date. Payments of principal,
interest and USHUD mortgage insurance premiums are to be made in equal monthly
installments. Under the terms of USHUD-approved loan documents applicable to
this mortgage insurance program, neither an owning partnership nor any partner
of such partnership will have personal liability to repay the construction or
permanent mortgage loans or to pay the interest on such loans.
Under current USHUD regulations, up to 15% of the original principal amount of
the permanent mortgage loan may be prepaid at any time, in any one calendar
year, without penalty. A mortgage loan insured under Section 221(d)(4) may be
prepaid without the consent of USHUD. This prepayment right may be prohibited
by, or subject to the approval of, USHUD and the lender, in the case of
apartment complexes financed with tax-exempt bonds. In those cases when the
Government National Mortgage Association ("GNMA") is the "take-out" lender and
purchases the permanent mortgage loan from a private mortgagee at final closing,
GNMA imposes a 3% penalty (which penalty declines at the rate of one-eighth of
1% per year) which is charged for any prepayment made in excess of the allowable
15% in any year prior to the twenty-fourth anniversary of the date of the
mortgage note. In cases where the permanent mortgage loan is held by other
parties, a prepayment penalty also may apply.
At the initial closing of a USHUD-insured apartment complex mortgage loan, USHUD
and the apartment complex owner enter into a Regulatory Agreement. Operation and
sale, transfer or other disposition of the apartment complex, or change in the
ownership of the apartment complex, are governed by the terms of such Regulatory
Agreement.
Under current USHUD regulations, rental rates for an apartment complex are
initially determined by USHUD with the objectives of not exceeding apartment
complex rents for comparable units in the same market area at the estimated time
of occupancy and of providing some cash available for distribution after payment
of mortgage interest and principal, USHUD mortgage insurance premium, required
reserve fund deposits, and estimated operating expenses. All rent increases must
be approved by USHUD prior to their becoming effective unless, pursuant to USHUD
regulations effective in 1983, an owner has exercised its authority to establish
alternative rents
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and charges. Where an owner makes an election of deregulation of USHUD rent
procedures, local rent control may apply to the apartment complex.
In the event of a default by the mortgagor of a USHUD-insured mortgage loan,
which is not cured within 30 days or such extended time period to which USHUD
and the mortgage lender consent, the mortgage lender has the right to elect
either to foreclose upon the mortgage securing the loan, or to assign the loan
to USHUD in return for payment of its insurance benefits. If the loan is
assigned to USHUD, the owner retains legal title to the apartment complex.
However, if the default continues, USHUD may foreclose upon the mortgage and
become the legal owner.
2. Section 220 Mortgage Insurance Program
Section 220 of the National Housing Act, as amended, provides for federal
insurance of private mortgages in a similar manner to Section 221(d)(4), but is
restricted to residential property in certain urban areas which are in need of
revitalization. The requirements and conditions under Section 220 are otherwise
substantially as described above for the Section 221(d)(4) mortgage insurance
program.
3. Section 236 Mortgage Insurance and Subsidy Program
Section 236 of the National Housing Act, as amended, also provides for federal
insurance of private mortgages with terms of up to 40 years for up to 90% of the
replacement cost of apartment complexes. Rentals for applicable apartment
complexes were required to be initially established so that, at 95% occupancy,
after payment of mortgage interest and principal payments, reserves, and
operating expenses, the cash available for distribution to the owner would not
exceed a 6% return on its USHUD-determined equity investment in such apartment
complex, although shortfalls in any year may be paid in subsequent years.
Prepayment of the mortgage loan during the first twenty years is extremely
limited. In 1988, Congress enacted the Housing Preservation Act of 1988 and in
1990, the Congress passed the Low-Income Housing Preservation and Resident
Homeownership Act of 1990 (collectively, the "Preservation Acts"), which deals
with the preservation of apartment complexes financed with mortgage loans
insured under the Section 236 or Section 221(d)(3) programs (described in the
succeeding section). Basically, under the Preservation Acts, USHUD provides
incentives to owners to extend ownership together with the low-income occupancy
restrictions pertaining to such apartment complexes, or to provide for a fair
market sales price if the owner wishes to sell such an apartment complex, either
to its tenants or to a non-profit buyer or private entity, such as an Operating
Partnership in which the Fund has acquired an Interest. USHUD has terminated
processing under this program, with limited exceptions.
The Section 236 program also provides interest subsidies, which are interest
reduction payments from USHUD to the public or private lender, on behalf of the
apartment complex owner, in the amount of the difference between the payment
required for principal, interest and USHUD mortgage insurance premiums on the
Permanent Mortgage Loan, and that which would be required if the Permanent
Mortgage Loan carried an interest rate of 1% per year. The owner must pass on
the benefits of the interest rate subsidy to the eligible tenants in the form of
lower rents.
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Tenant eligibility for apartment complexes receiving interest reduction payments
under the Section 236 program is determined on the same basis as under the
Section 8 Program, described below in this section.
The level of subsidy established by the Section 236 program is fixed in amount
and, under existing legislation, cannot be increased to cover rising and often
inflationary increases in operating expenses, particularly utility costs. Such
increased operating expenses can be paid for only by the tenants through higher
"basic rents." The possible consequences of higher operating costs over the
operational years of an apartment complex assisted under the Section 236 program
could be (i) rent levels that do not keep pace with escalating operating costs,
thereby reducing or eliminating the cash flow from such apartment complex or
placing such apartment complex in a deficit cash position, or (ii) increased
rent levels that cause tenants to pay higher portions of their monthly incomes
for rent or that may cause tenants to leave such apartment complex, leading to
an increased vacancy rate among the complex's units. However, these consequences
are mitigated, in many cases, by the use of Section 8 housing subsidies for
units in the apartment complex, as well as special subsidies authorized by
Congress for use in Section 236 apartment complexes that enable tenants to pay
only 30% of their income for rent.
4. Section 221(d)(3) Mortgage Insurance Program and 221(d)(3) (BMIR) Subsidy
Program
Section 221(d)(3) of the National Housing Act, as amended, provides for federal
insurance of private mortgages in a manner similar to the Section 221(d)(4)
mortgage insurance program, but allows for insurance of 100% of the total
development cost of apartment complexes for non-profit and cooperative
mortgagors. In addition, the statutory maximum mortgage amount per dwelling unit
is less for Section 221(d)(3) than for Section 221(d)(4). Section 221(d)(3)
mortgage loan insurance may be obtained by public agencies, non-profit, limited
dividend or cooperative organizations, and private builders or investors who
sell apartment complexes to such organizations.
Formerly, apartment complexes financed under Section 221(d)(3) could qualify for
below-market interest rates (BMIR) (as low as 3%) and for rent supplement
assistance. Below-market interest rates and rent supplements are not presently
available under the Section 221(d)(3) program for newly-constructed apartment
complexes, although existing apartment complexes may still have such subsidies.
5. Section 223(f) Mortgage Insurance-Purchase and/or Refinancing of Existing
Apartment Complexes
Pursuant to Section 223(f) and Section 207 of the National Housing Act, as
amended, USHUD provides for federal insurance of private mortgage loans in
connection with the purchase and/or refinancing of existing apartment complexes.
This program is intended to provide for the preservation of existing housing and
neighborhoods through moderate rehabilitation of the property and improved
maintenance and management. If an apartment complex were "substantially
rehabilitated" under the Code definition using financing pursuant to the Section
223(f) program, the 70% Credit would be applicable with respect to the
rehabilitation expenditures.
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Under USHUD regulations, the apartment complex must be at least three years old,
consist of five or more dwelling units, generally, have attained an occupancy
level which produces rental income sufficient to pay operating expenses and
annual debt service, and have established a reserve fund for replacement.
Generally, a Section 223(f) insured mortgage loan cannot exceed 85% of the
USHUD-estimated value of the apartment complex, or 70% if the apartment complex
is to be refinanced without a change in ownership. The term of the mortgage loan
cannot be less than ten years nor greater than 35 years.
A mortgage loan insured under either Section 223(f) program contains provisions
restricting prepayment, except after a specified period or with approval of
USHUD. The mortgage may contain provisions for a prepayment charge.
D. USHUD Rental Assistance Programs
1. Section 8 Housing Assistance Payments Programs
Although the Section 8 Programs applicable to new construction and substantial
rehabilitation have been repealed, the Fund may invest in Operating Partnerships
which own apartment complexes that were originally assisted under these
programs. It should be noted that the definition of "federally assisted"
contained in Section 42 of the Code does not include the Section 8 Program.
Accordingly, a newly-constructed or substantially-rehabilitated apartment
complex receiving Section 8 subsidy assistance may be entitled to the 70% Credit
with respect to the entire Qualified Basis (if newly-constructed) or with
respect to the rehabilitation expenditures (if substantially-rehabilitated
within the meaning of Section 42 of the Code), if it is placed in service after
acquisition by the Fund of an Interest in the applicable Operating Partnership.
(a) The Section 8 New Construction and Substantial Rehabilitation Programs
The Section 8 Programs provide for monthly payments to apartment complex owners
on behalf of qualified tenants who are occupying the number of dwelling units in
the apartment complex agreed to between USHUD and the apartment complex owner as
being eligible for Section 8 payments. The Section 8 Programs do not provide
construction or permanent financing and are not mortgage insurance programs,
although apartment complexes assisted by the Section 8 Programs can be financed
by a USHUD-insured mortgage loan. (See "Government Assistance Programs--USHUD
Mortgage Insurance-221(d)(4) Program.") Payments to the apartment complex owner
under the Section 8 new construction or substantial rehabilitation programs are
made pursuant to the terms of a Housing Assistance Payments Contract ("HAP
Contract") for periods generally not exceeding 20 years, commencing when the
eligible dwelling units are completed, are ready for occupancy and have been
inspected by USHUD.
Generally, only "very low-income" families are eligible to rent units assisted
with Section 8 payments. "Very low-income" families or elderly or handicapped
persons must have annual incomes, determined pursuant to USHUD regulations, that
do not exceed 50% of the median income of the community, adjusted to reflect
family size as determined by published USHUD figures.
Tenants must, in most instances, pay rent to the apartment complex owner, plus a
USHUD-approved allowance for utilities if utilities are separately
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charged to the tenants, which together equals 30% of the tenant family's annual
income and does not exceed 50% of the median income of the community, adjusted
to reflect family size as determined by published USHUD figures.
USHUD establishes a "contract rent" for each unit in an apartment complex which
is equal to the total rental revenue that the apartment complex owner is to
receive for that unit. That part of the "contract rent" that is not covered by
the tenant's rent obligation is paid to the apartment complex owner under the
HAP Contract. If a tenant's annual income subsequently increases, the portion of
the rent he pays will increase and the corresponding Section 8 payments to the
owner will be reduced, assuming that the contract rent of the unit does not
increase. The 1988 Tax Act allows an owner to increase the rent of a Section 8
tenant whose income had increased in order to compensate for the decreased
Section 8 subsidy payment notwithstanding the Rent Restriction Test. (See
"Government Assistance Programs--The Federal Housing Tax Credit-Qualified
Apartment Complexes.") Rent subsidies, for these or any programs, may decrease
or be interrupted for the period a unit is unrented.
USHUD may cause the Section 8 payments for an apartment complex to cease if,
after due notice to the apartment complex owner and an opportunity to remedy the
situation, USHUD determines that the apartment complex owner is not providing
decent, safe and sanitary housing or is in default under any of its contractual
undertakings to USHUD.
Initially established prior to construction, contract rents (the "Contract
Rents") normally cannot be changed when the HAP Contract is executed.
Thereafter, however, the Contract Rents will be adjusted in accordance with
annual adjustment factors determined yearly by USHUD. While application of these
factors can either increase or decrease the Contract Rents (provided that they
cannot drop below the initially established Contract Rents), it is anticipated
that the Contract Rents will be increased each year. In addition, USHUD may
permit additional adjustments to the Contract Rents to reflect increases in the
actual and necessary expenses of owning and maintaining the units resulting from
substantial general increases in real property taxes, assessments, utility rates
or utilities not covered by regulated rates, if the owner can demonstrate that
such general increases have caused increases in operating costs not adequately
covered by the Contract Rent increase calculated by applying the annual
adjustment factors. Contract Rent adjustments generally, may not result in
material differences between the Contract Rents and the rents for comparable
unassisted units in the apartment complex or in the community. Pursuant to the
Housing and Community Development Act of 1987 and the Stewart B. McKinney
Homeless Assistance Amendments Act of 1988, USHUD may not reduce contract rents
in effect on April 15, 1987, unless the apartment complex's mortgage loan has
been refinanced.
One requirement imposed by USHUD regulations on apartment complexes with HAP
Contracts effective after November 1979 is to limit the amount of the owner's
annual cash distribution from operations to 10% of the owner's equity investment
in an apartment complex if the apartment complex is intended for occupancy by
families, and to 6% of the owner's equity investment in an apartment complex
intended for occupancy by elderly persons.
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The owner's equity investment in the apartment complex is 10% of the apartment
complex's replacement cost as determined by USHUD. If cash distributions in any
year are less than the established ceiling, the amount of the shortfall may be
paid out in a subsequent year without counting against that subsequent year's
established ceiling on cash distributions. The limitations on cash distributions
do not apply to non-elderly apartment complexes of 50 units or less, or to
apartment complexes where not more than 20% of the units are receiving Section 8
payments.
(b) The Section 8 Existing Housing Leasing Program
Under the Section 8 existing housing leasing program, operated through local
housing authorities ("PHAs"), tenants are given a housing certificate or voucher
which is used to pay a significant portion of the tenant's rent in the private
market. After the tenant obtains a certificate or voucher, the tenant is allowed
to search for housing available in the private market, subject to housing
quality and suitability standards. Although the certificate and voucher program
differ in certain key respects, they both are dependent on the availability of
an adequate stock in the existing rental market.
Pursuant to the Housing and Community Development Act of 1987 and the Stewart B.
McKinney Homeless Assistance Act of 1988, PHAs are provided authority to assign
up to 15% of the assistance which has been made available to that PHA to
particular structures for a period of five years, with options to renew for up
to an additional ten years, subject to the availability of funds for this
program.
(c) The Moderate Rehabilitation Program
The Moderate Rehabilitation Program provides project-based assistance for
moderately rehabilitated projects. Apartment Complexes must undergo at least
$1,000 per unit of rehabilitation. No new projects have been funded under this
program since 1989, with certain exceptions for homeless assistance and single
room occupancy projects pursuant to the Stewart B. McKinney Homeless Assistance
Act of 1988.
(d) HAP Contract Renewals
Many HAP Contracts are reaching expiration within the next several years. No
program has been established for the universal renewal of such contracts. All
project-based contracts expiring in fiscal year 1997 are renewable for one year
at current rents, up to 120 percent of fair market rents. USHUD is also
implementing plans for certain loans to be "marked-to-market". This entails
reducing payments under a project-based HAP Contract as part of a restructuring
of the project's USHUD-insured mortgage loan.
E. Rent Supplement Programs
Section 236(f)(2) of the National Housing Act, as amended, and Section 101 of
the Housing and Urban Development Act of 1965, as amended, each provide for the
making by USHUD of rent supplement payments to low-income tenants in apartment
complexes which receive other forms of federal assistance, such as Section 236
interest reduction payments. The payments for each tenant, made directly to the
owner of the apartment complex, generally will be in such amounts as to enable
the tenant to pay rent equal to 30% of adjusted family income. Generally,
20%-40% of the units in an apartment
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complex receiving other subsidy assistance are eligible for this additional
assistance.
USHUD has converted rent supplement assistance to assistance under the Section 8
program. Such Section 8 payments generally provide higher rents to owners than
rent supplement payments, but are paid only if a tenant is occupying the unit.
F. Transfer of Physical Assets Procedure
Federal regulations provide that certain types of transfers of ownership in
apartment complexes which receive USHUD mortgage insurance and/or subsidies must
be approved in advance by USHUD. This Transfer of Physical Assets process must
be pursued when there is a transfer of the partnership interests of a
partnership which affects or changes the control of the partnership
RHS also has instituted similar approval procedures for transfers of ownership
interests in RHS-assisted apartment complexes.
G. Government National Mortgage Association/Federal National Mortgage
Association
Government National Mortgage Association ("GNMA"), a governmental corporation
within USHUD, was established to provide a secondary market for certain
federally assisted or subsidized mortgages.
Under the tandem programs, no longer in effect, GNMA purchased mortgages from
primary lenders at prices favorable to the lenders, and then resold those
mortgages to the Federal National Mortgage Association ("FNMA") and others at
market prices, absorbing the difference as a subsidy. Mortgage loans eligible
for purchase were insured under certain USHUD programs, including Sections 220,
221(d)(3), 221(d)(4) and 236.
H. State and Local Financing 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. While the majority of HFAs are independent public
authorities governed by an appointed board of directors or commissioners,
certain HFAs have been established as agencies or departments of the applicable
state or local government.
HFAs are empowered by their enabling legislation 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. These obligations are sold in the tax-exempt municipal bond
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 multifamily apartment
complexes.
Several HFAs provide mortgage financing for multifamily housing developments
financed with USHUD-insured mortgage loans. Generally, in cases where the
mortgage loans of HFAs also are USHUD-insured, the underwriting and regulatory
standards and procedures of USHUD pursuant to the applicable USHUD mortgage
insurance program are employed, without any substantial additional requirements.
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<PAGE>
Most HFAs provide direct construction and permanent mortgage loans for
multifamily housing without USHUD mortgage insurance by "self-insuring" the
loans. In cases where the mortgage loans of HFAs are not USHUD-insured, the HFAs
generally undertake the processing and evaluation of the mortgage loan
application itself, review the loan application for economic feasibility, and
review the market need and demand for, and the architectural and construction
characteristics of, the multifamily apartment complex. In such cases, the HFAs
generally also monitor the construction progress, marketing, rent-up and
management of the apartment complex.
Although HFAs' criteria and requirements for non-USHUD insured direct
construction and permanent mortgage loans vary, generally such loans are
available to limited partnership private owners in an amount up to 90% of an
HFA's estimate of the total development cost of the housing development, and are
for terms of up to 40 years. The loans can finance newly-constructed or
substantially-rehabilitated multifamily rental housing intended for occupancy by
individuals and families, elderly individuals and handicapped individuals of low
and moderate income, and limit the amount of operating income from the apartment
complex which may be distributed to the owner annually. The HFAs' direct loan
programs frequently include requirements as to operating assurances, escrow,
working capital and other deposits which may be greater in amount and extend for
a longer period than similar such requirements under USHUD mortgage insurance
programs. 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.
In addition to the limitation on cash flow distributions from apartment complex
operations noted above, HFAs' direct mortgage loan programs generally impose
limitations on the prepayment of the mortgage loan and on the sale, refinancing
or change in use of the apartment complex. They also may require that a
restrictive covenant be placed on record prohibiting the use of the apartment
complex for any purpose other than rental housing. Further, they may require
approval of the sale of certain interests in an owning limited partnership.
HFA direct mortgage loan programs generally do not require an 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 multifamily housing also is assisted (as to at
least a portion of the dwelling units in each apartment complex) pursuant to one
or more other Government Assistance Programs.
In order to maintain the tax-exempt nature of obligations issued by HFAs, owners
must comply with restrictions in the Code. In this respect, the 1986 Tax Act
added certain restrictions on the use of tax-exempt financing by state and local
housing financing agencies under Section 103(b) of the Code that make this
program more restrictive. Before passage of the 1986 Tax Act, 20% of the units
were required to be rented to households with incomes at or below 80% of median
income, and there was no adjustment for the size of the family. Under the 1986
Tax Act, 20% of the units must be rented to households at 50% of median income,
or 40% of the units must be rented to households at 60% of area median income
(the same targeting as for the
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<PAGE>
Federal Housing Tax Credit) and adjustment for family size is required. In
addition, the low-income occupancy requirements must be met for at least a
15-year period. The amount of tax-exempt bond authority available to a state or
local agency is subject to a strict state bond cap.
The Federal Housing Tax Credit may be utilized with respect to apartment
complexes financed by tax-exempt bonds issued by state or local agencies. In
such cases, the credit allocation is not subject to the state credit cap, as the
bonds are subject to the state bond allocation cap. However, apartment complexes
financed through tax-exempt bond financing are considered "federally assisted",
and thus are only eligible for the 30% Credit.
I. HOME Program
The HOME Investment Partnership Act ("HOME") is authorized under Title II of the
Cranston-Gonzalez National Affordable Housing Act, enacted into law in 1990.
HOME is a formula-based federal housing program intended to support a wide
variety of state and local affordable housing programs, with an emphasis on
rental housing.
HOME funds, which are allocated by USHUD 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 match requirement is
currently 25 percent.
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 USHUD finds to be consistent with the purpose of
law. Any loan to a project with an interest rate below the applicable federal
borrowing rate, would be eligible only for the 30 per cent present value Federal
Housing Tax Credit because the project would be considered to be federally
subsidized. (See "Tax Credit Programs--The Federal Housing Tax Credit.")
However, apartment complexes receiving below market interest rate loans pursuant
to the HOME program which are newly-constructed or substantially-rehabilitated
could be eligible for the 70% Credit. In order to qualify for this treatment,
the owner must agree that not less than 40% of the dwelling units must be
occupied by individuals whose incomes are 50% or less of the area median gross
income for the area in which the property is located; in the case of properties
in New York City, 40% is reduced to 25%. Moreover, the increase in Eligible
Basis allowed for projects situated in "qualified census tracts" and "difficult
development areas" does not apply to properties subject to this provision. This
amendment is effective for loans made after August 10, 1993. (See "Tax Credit
Programs--The Federal Housing Tax Credit--Summary of the Federal Housing Tax
Credit--and--Eligible Basis and Qualified Basis.")
The amount of funds which a participating jurisdiction may invest on a per-unit
basis in an apartment complex may not exceed the per-unit limits established by
USHUD under Section 221(d)(3) of the National Housing Act. (See "Government
Assistance Programs--USHUD Mortgage Loan Insurance
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<PAGE>
Programs--USHUD Mortgage Loan Insurance Programs--Section 221(d)(3) Mortgage
Insurance.")
Generally, 90 percent of the families assisted under the HOME Program must have
incomes that do not exceed 60 percent of area median income, with the remaining
10 percent having incomes not exceeding 80 percent of 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 Federal
Housing Tax Credit program.
J. USHUD's Administrative Guidelines Limiting USHUD Housing Assistance with
Other Governmental Assistance.
On December 15, 1994, USHUD published in the Federal Register revised
administrative guidelines which would limit the amount of USHUD assistance which
can be granted after taking into account other forms of governmental assistance,
including the Federal Housing Tax Credit. These guidelines, which USHUD has been
utilizing, result from the passage of Section 102(d) of the Department of
Housing and Urban Development Reform Act of 1989 and Section 911 of the Housing
and Community Development Act of 1992, which provides that USHUD or a local HFA
must certify, in making USHUD housing program assistance available to an
apartment complex, that such assistance is not more than is necessary to produce
affordable housing in light of other forms of federal, state or local
assistance.
As a result of the implementation of these guidelines, USHUD has closely
reviewed applications for USHUD assistance, including applications for mortgage
insurance, when the affected apartment complex will also be eligible for Federal
Housing Tax Credits. These guidelines strictly limit the amount of fees, costs
and expenses that may be incurred with respect to such apartment complexes. The
process by which USHUD reviews such applications may add substantial time to the
process of securing USHUD assistance for projects. Although the General Partner
is unable to predict with certainty what impact these guidelines will have on
any particular apartment complex or on the supply of apartment complexes
suitable for investment, the result may be that fewer such suitable USHUD
assisted apartment complexes will be available for investment by the Fund.
MANAGEMENT
The General Partner
Boston Capital Associates IV L. P. ("BCA"), the General Partner of the
Partnership, is a Delaware limited partnership, the general partner of which is
Boston Capital Associates, a Massachusetts general partnership, whose only
partners are Herbert F. Collins and John P. Manning, the principals of Boston
Capital Partners, Inc. ("Boston Capital"). Mr. Collins and Mr. Manning have
equal rights and responsibilities with respect to Boston Capital Associates,
including equal rights to any compensation and/or distributions therefrom. The
limited partner of the General Partner is a general partnership whose partners
are certain officers and employees of Boston Capital and its Affiliates. The
General Partner has only a nominal net worth but Boston Capital Associates, the
general partner of the General Partner, has a net worth of not less than
$1,000,000. Boston Capital Associates has contingent liabilities with regard to
prior programs and investors are urged to review
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the audited Balance Sheet of Boston Capital Associates and the notes thereto,
which are incorporated herein by reference.
The Investment Committee of Boston Capital will have exclusive responsibility
for selecting and approving investments for the Fund. The Investment Committee
will initially be comprised of the persons identified below. In addition to
selecting and approving Fund investments, the Committee will establish the terms
and conditions pursuant to which such investments will be made.
The members of the Investment Committee are:
Herbert F. Collins Chairman, Boston Capital Partners, Inc.
John P. Manning President, Boston Capital Partners, Inc.
Richard J. DeAgazio President, Boston Capital Services, Inc.
Christopher W. Collins Executive Vice President, Boston
Capital Partners, Inc.
Boston Capital Partners, Inc. and its Affiliates
Boston Capital is the successor in interest through merger of Greater Boston
Development, Inc., which was founded in 1974 by Herbert F. Collins and John P.
Manning, Boston Capital's Chairman of the Board and President, respectively.
Boston Capital is an investment banking firm specializing in the equity
syndication of affordable residential properties through the use of public and
private limited partnerships.
Boston Capital Services, Inc., the Dealer-Manager and an Affiliate of Boston
Capital, was founded in 1982 by Messrs. Herbert F. Collins and John P. Manning,
and Richard J. DeAgazio, who is the President of the Dealer-Manager and an
Executive Vice President of Boston Capital. Messrs. Collins, Manning and
DeAgazio are the sole shareholders of the Dealer-Manager. The Dealer-Manager is
an SEC-registered soliciting dealer and a member of the National Association of
Securities Dealers, Inc.
Boston Capital Communications Limited Partnership ("Boston Capital
Communications") either manages directly or monitors the management of the
portfolio of real estate-based assets which Boston Capital has syndicated.
Boston Capital Communications' management responsibilities include the
collection, analysis and distribution of pertinent information to the investors
who have invested in the Boston Capital real estate portfolio.
Herbert F. Collins, age 67, is co-founder and Chairman of the Board of Boston
Capital Corporation. Nominated by President Clinton and confirmed by the United
States Senate, Mr. Collins served as the Republican private sector member of the
Thrift Depositor Protection Oversight Board. During 1990 and 1991 he served as
Chairman of the Board of Directors for the Federal Home Loan Bank of Boston, a
314-member, $12 billion central bank in New England. Mr. Collins is the
co-founder and past President of the Coalition for Rural Housing and
Development. In the 1980s he served as Chairman of the Massachusetts Housing
Policy Commission to evaluate current programs and recommend future housing
policy. Additionally, he served as a member of the Board of Directors of the
Metropolitan Boston Housing Partnership and on the Mitchell-Danforth Task Force,
which helped structure the 1990 federal Tax Credit legislation. Mr.
Collins also is a past Member of
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<PAGE>
the Board of Directors of the National Leased Housing Association and has served
as a member of the U.S. Conference of Mayors Task Force on "HUD and the Cities:
1995 and Beyond." Mr. Collins also is a member of the Fannie Mae Housing Impact
Advisory Council and is a member of the National Rural Housing Council. He is
Chairman of the Business Advisory Council, and a member of the National Council
of State Housing Agencies Tax Credit Commission. Mr. Collins graduated from
Harvard College and attended the Advanced Management Program, Harbridge House,
Boston. He is a leader in the civic community, serving on the Boards of
Youthbuild Boston, the Pine Street Inn and the I Have a Dream Foundation.
John P. Manning, is co-founder, President and Chief Executive Officer of Boston
Capital Corporation, where he is responsible for strategic planning, business
development and corporate investor relations. In addition to his
responsibilities at Boston Capital, Mr. Manning is a proactive leader in the
industry. He served in 1990 as a member of the Mitchell-Danforth Task Force, to
review and reform the Low Income Housing Tax Credit. He was the founding
President of the Affordable Housing Tax Credit Coalition, is a member of the
board of the National Leased Housing Association and sits on the Advisory Board
of the publication Housing and Development Reporter. During the 1980s he served
as a member of the Massachusetts Housing Policy Committee, as an appointee of
the Governor of Massachusetts. In addition, Mr. Manning has testified before the
U.S. House Ways and Means Committee and the U.S. Senate Finance Committee, on
the critical role of the private sector in the success of the Low Income Housing
Tax Credit Program. In 1996, President Clinton appointed him to the President's
Advisory Committee on the Arts at the John F. Kennedy Center for the Performing
Arts. Mr. Manning also is a leader in the civic community, serving on the Boards
of Youthbuild Boston and the Pine Street Inn. Mr. Manning is a graduate of
Boston College.
Richard J. DeAgazio, age 53, is Executive Vice President of Boston Capital
Partners, Inc., and is President of Boston Capital Services, Inc., Boston
Capital's NASD registered broker/dealer. Mr. DeAgazio formally served on the
national Board of Governors of the National Association of Securities Dealers
(NASD), was the Vice Chairman of the NASD's District 11 Committee, and served as
Chairman of the NASD's Statutory Disqualification Subcommittee of the National
Business Conduct Committee. He also served on the NASD State Liaison Committee
and the Direct Participation Program Committee. He is a founder and past
President of the National Real Estate Investment Association, past President of
the Real Estate Securities and Syndication Institute (Massachusetts Chapter) and
the Real Estate Investment Association. Prior to joining Boston Capital in 1981,
Mr. DeAgazio was the Senior Vice President and Director of the Brokerage
Division of Dresdner Securities (USA), Inc., an international investment banking
firm owned by four major European banks, and was a Vice President of Burgess &
Leith/ Advest. He has been a member of the Boston Stock Exchange since 1967. He
graduated from Northeastern University.
Christopher W. Collins, age 42, is an Executive Vice President and a principal
of Boston Capital Partners, Inc., and is responsible for, among other areas,
overseeing the investment portfolio of funds sponsored by Boston Capital and the
acquisition of real estate investments on behalf of such funds. Mr. Collins has
had extensive experience in real estate development
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<PAGE>
activities, having founded and directed the American Development Group, a
comprehensive real estate development firm, and has also had extensive
experience in the area of acquiring real estate investments. He is on the Board
of Directors of the National Multi-Housing Council and a member of the
Massachusetts Housing Finance Agency Multi-Family Advisory Committee. He
graduated from the University of New Hampshire.
Kenneth F. Unger, age 37, is Senior Vice President of Marketing and Sales and
National Sales Director of Boston Capital Services, Inc. Mr. Unger has had over
thirteen years of experience in real estate syndication and investment banking.
He is responsible for spearheading the marketing and sales effort of Boston
Capital's public and private offerings. Prior to joining Boston Capital in 1989,
Mr. Unger was a Vice President of Shearson Lehman Hutton, and prior to that a
Vice President of Connecticut Mutual Financial Services, the broker-dealer
affiliate of Connecticut Mutual Life Insurance Company. In addition to his sales
and marketing expertise Mr. Unger has been extensively involved with the
acquisition, financing and evaluation of real estate. He graduated with honors
from Cornell University.
Anthony A. Nickas, age 37, is Chief Financial Officer of Boston Capital
Partners, Inc. and serves as Chairman of the firm's Operating Committee. He has
fifteen years of experience in the accounting and finance field and has
supervised the financial aspects of Boston Capital's project development and
property management affiliates. Prior to joining Boston Capital in 1987, he was
Assistant Director of Accounting and Financial Reporting for the Yankee
Companies, Inc., and was an Audit Supervisor for Wolf & Company of
Massachusetts, P.C., a regional certified public accounting firm based in
Boston. He graduated with honors from Norwich University.
Kevin P. Costello, age 51, is Senior Vice President in charge of corporate
investments for Boston Capital Partners, Inc. and serves on the firm's Operating
Committee. He is responsible for all corporate investment activity and has spent
19 years in the real estate syndication and investment business. Mr. Costello's
prior responsibilities at Boston Capital have involved the management of the
Acquisitions Department and the structuring and distribution of conventional and
tax credit private placements. Prior to joining Boston Capital in 1987, he held
senior management executive positions in companies associated with real estate
syndication as well as in the medical electronics industry. Mr. Costello
graduated from Stonehill College and received his MBA with honors from Rutgers'
Graduate School of Business Administration.
Thomas F. Maxwell, age 45, is Senior Vice President for Acquisitions for Boston
Capital Partners, Inc., managing the investment structuring and due diligence
process for all tax credit properties for Boston Capital's corporate offerings.
Prior to joining Boston Capital in 1993, Mr. Maxwell was Vice President and
Acquisitions Officer for Property Capital Associates, a Boston-based
institutional real estate investment advisor with nearly $1 billion of assets.
He served as Director of Acquisitions for a major real estate investment firm
specializing in historic rehabilitation tax credits; as Director of Real Estate
Finance at Related Companies; and was involved in real estate acquisitions at
Aldrich, Eastman & Waltch, an investment advisory firm. He graduated from Case
Western Reserve University and received his MBA from Boston University.
Jeffrey H. Goldstein, age 36, is Senior Vice President of Real Estate for
Boston Capital Partners, Inc. Mr. Goldstein is a member of the Board of
Directors
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of the Council for Affordable and Rural Housing and formerly served as Chairman
of the Finance Committee. Prior to joining Boston Capital in 1990, Mr. Goldstein
was Manager of Finance for A.J. Lane & Co., a real estate development firm,
served as Manager for Homeowner Financial Services, a financial consulting firm,
and was an analyst responsible for budgeting and forecasting for the New York
City Counsel-Finance Division. He graduated from the University of Colorado and
received his MBA from Northeastern University.
A. Guy Hubschman, age 37, is Vice President of Sales of Boston Capital Services,
Inc. Prior to joining Boston Capital in 1990, Mr. Hubschman was founder and
President of Landmark Mortgage Inc., an independent mortgage origination firm
specializing in residential first mortgages and refinancing, and prior to that
was an Account Executive with Dean Witter Reynolds. He graduated with honors
from Northeastern University.
Marc N. Teal, age 33, is Vice President of Partnership Accounting of Boston
Capital Partners, Inc., overseeing the accounting and financial reporting for
all of Boston Capital's public, corporate, and private partnerships. Prior to
joining Boston Capital in 1990, Mr. Teal was a Senior Development Accountant for
Cabot, Cabot, & Forbes, a multifaceted real estate company and prior to that was
a Senior Partnership Accountant for Liberty Real Estate Corp. He graduated from
Bentley College and received a Masters in Finance from Suffolk University.
Eileen P. O'Rourke, age 41, is a Vice President and Director of Asset
Management and Tax for Boston Capital Partners, Inc. Prior to joining Boston
Capital in 1995, Ms. O'Rourke was the Partnership Tax Controller at First Data
Investor Services Group, Inc. Before that, she was a Senior Tax Accountant with
Culp, Elliott and Carpenter, P.C. and a Senior Auditor with the Internal
Revenue Service. Ms. O'Rourke graduated with honors from Russell Sage College
and is licensed as a Certified Public Accountant. She is a member of the
American Institute of Certified Public Accountants and New England Women in
Real Estate.
PRIOR PERFORMANCE OF THE GENERAL PARTNER AND ITS AFFILIATES
During the ten-year period from January 1, 1987 to December 31, 1996, Affiliates
of the General Partner and their respective predecessors in interest have served
as general partners of seven public limited partnerships and 33 private limited
partnerships including seven corporate limited partnerships for a total of 40
real estate programs. Of the 33 private limited partnerships, 1 is organized in
a single-tier structure and 32 in a two-tier structure. In a "single-tier
structure," investors directly acquire an interest in the limited partnership
which owns the particular real estate, while in a "two-tier structure,"
investors acquire an interest in a limited partnership (the "upper tier") which
in turn acquires a limited partnership interest in a limited partnership which
owns the real estate (the "lower tier"). A two-tier structure allows an investor
to indirectly own interests in more than one lower-tier limited partnership
through his investment in a single upper-tier partnership.
Affiliates of the General Partner and their respective predecessors in interest
raised $1,318,007,825 in subscriptions from 53,957 investors during this
ten-year period. A total of 1,259 properties(1), with a total development cost
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of $2,933,995,097 were acquired for the public and private limited partnerships.
These properties are geographically located 11% in the Northeast, 12% in the
Mid-Atlantic, 33% in the Southeast, 24% in the Midwest, 10% in the Southwest,
and 10% in the West.
The foregoing information covering the period from January 1, 1987 to December
31, 1996, can be summarized as follows:
<TABLE>
<CAPTION>
PROGRAMS PROPERTIES INVESTORS
- ---------------------- ------------------------- -------------------------
Total Average
Development Capital Invested
Type Number Number Cost Number Capital Per Property
- ------------- -------- -------- ---------------- -------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Public .... 7 876 $1,986,459,783 52,584 $ 800,478,958 $ 913,789
Private .... 33 383 $ 947,535,314 1,373 $ 517,528,867 $1,351,250
--- ------ --------------- ------- --------------- -----------
Total ...... 40 1,259 $2,933,995,097 53,957 $1,318,007,825 $1,046,869
</TABLE>
REGIONS
<TABLE>
<CAPTION>
Northeast Mid-Atlantic Southeast Midwest Southwest West
--------- ------------ --------- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Public.... 12% 11% 34% 24% 8% 11%
Private... 9% 15% 29% 24% 16% 7%
--- --- --- --- --- ---
Total..... 11% 12% 33% 24% 10% 10%
</TABLE>
Of these 40 prior limited partnerships, all have invested in Apartment Complexes
(or operating partnerships which owned such complexes) financed and/or operated
with one or more forms of government subsidy, primarily RHS. The states in which
these Apartment Complexes are located and the number of properties in each state
are as follows:(2)
Alabama ............ 25
Arizona ............ 16
Arkansas ............ 17
California .......... 64
Colorado ............ 13
Connecticut .......... 1
D.C. ................ 1
Delaware ............ 4
Florida ............ 67
Georgia ............ 70
Illinois ............ 10
Indiana ............ 13
Iowa ................ 20
Kansas .............. 16
Kentucky ............ 33
Louisiana .......... 63
Maine .............. 28
Maryland ............ 20
Massachusetts ...... 21
Michigan ............ 47
Minnesota .......... 25
Mississippi ........ 42
Missouri ............ 67
Montana ............ 4
Nebraska ............ 8
Nevada .............. 6
New Hampshire ...... 6
New Jersey .......... 6
New Mexico .......... 15
New York ............ 65
North Carolina ...... 53
North Dakota ........ 19
Ohio ................ 16
Oklahoma ............ 18
Oregon .............. 2
Pennsylvania ........ 44
Puerto Rico ........ 4
Rhode Island ........ 4
South Carolina ...... 33
South Dakota ........ 4
Tennessee .......... 24
Texas .............. 66
Utah ................ 7
Vermont ............ 4
Virginia ............ 57
Virgin Islands ...... 7
Washington .......... 2
West Virginia ...... 10
Wisconsin .......... 16
- ----------------
(1) Includes 63 properties which are jointly owned by two or more investment
partnerships or series within an investment partnership which represent a
total of 76 shared investments.
(2) The total number of properties by state does not reflect the 76 shared
investments of 63 operating partnerships. The net number of properties
reflected is 1,183.
The 40 government-assisted partnerships which invested in residential apartment
complexes accounted for 100% of the total development cost of all properties
acquired by all limited partnerships sponsored over the ten-year period. Of the
1,259 total properties acquired during this ten-year period, four properties
were refinanced.
Of the total offerings during the ten-year period, 40 invested in government-
assisted properties and had investment objectives which were similar to the
investment objectives of the Fund, to the extent that the limited partnerships
intended to provide, in order of priority, (1) certain tax benefits in the form
of tax losses or low-income housing and rehabilitation tax credits which each
such limited partnership's partners might use to offset income from
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other sources; (2) long-term capital appreciation through increases in the value
of each apartment complex; and (3) cash distributions through potential sale or
refinancing transactions. Distributions of current cash flow were not a primary
objective of these partnerships, in that the government agencies which provide
subsidies regulate both the amount of rent and the amount of cash distributions
which may be made to partners.
Information concerning the public limited partnerships organized between January
1, 1994 and December 31, 1996 is contained in Appendix I-Tabular Information
Concerning Prior Limited Partnerships.
Private Placements (with Similar Investment Objectives)
During the ten-year period ending December 31, 1996, interests in 33 of the
limited partnerships with similar investment objectives were sold to
approximately 1,373 investors in private offerings intended to be exempt from
the registration requirements of the Securities Act of 1933. A total of
$517,528,867 in subscriptions was raised. Interests were acquired in a total of
383 properties, with a total development cost of $947,535,314.
The private limited partnerships involved new construction or renovation of
apartment complexes, financed with mortgage indebtedness aggregating
approximately $519,382,536 in addition to the equity investment of the prior
limited partnerships of $517,528,867. The purchased properties equalled 100% of
the total development cost of all non-commercial and non-conventional properties
invested in by private limited partnerships.
Public Offerings
During the ten-year period ending December 31, 1996, interests in seven limited
partnerships with investment objectives similar to those of the Fund, were sold
to approximately 52,584 investors in public offerings registered under The
Securities Act of 1933. A total of $800,478,958 in subscriptions was raised. A
total of 876 properties were purchased at a total development cost of
$1,986,459,783.
Information regarding the public offerings is summarized as follows as of
December 31, 1996:
<TABLE>
<CAPTION>
Investors Properties Type of Properties
------------------------------- ----------------------- ---------------------------------
Total
Develop- Under Historic
ment Recently Con- Tax
Program Closed Number Capital Number Cost Completed struction Credit
- ----------------- -------- -------- ------------- -------- -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American
Affordable
Housing I
Limited
Partnership .. 1987 315 $ 2,779,000 3 $ 7,917,009 2 N/A 1
American
Affordable
Housing II
Limited
Partnership .. 1988 2,421 $26,501,000 50 $105,307,863 47 N/A 3
American
Affordable
Housing III
Limited
Partnership .. 1988 448 $ 4,425,000 4 $ 11,323,271 4 N/A N/A
Boston Capital
Tax Credit
Fund Limited
Partnership
(Series 1
through 6) .... 1989 7,623 $97,746,940 105 $273,896,723 95 N/A 10
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Investors Properties Type of Properties
-------------------------------- ----------------------- ---------------------------------
Total
Develop- Under Historic
ment Recently Con- Tax
Program Closed Number Capital Number Cost Completed struction Credit
- ------------------- -------- -------- -------------- -------- -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston Capital Tax
Credit Fund II
Limited
Partnership
(Series 7
through 14) .... 1991 12,135 $186,398,018 310 $546,079,186 299 N/A 11
Boston Capital Tax
Credit Fund III
L. P. (Series 15
through 19) .... 1993 14,583 $219,960,000 241 $550,956,681 229 N/A 12
Boston Capital Tax
Credit Fund IV
L. P. (Series 20
through 28) .... 1996 15,059 $262,669,000 163 $490,979,050 134 24 5
</TABLE>
During the four-year period ending December 31, 1996, Affiliates of the General
Partner sponsored two public investment limited partnerships with similar
investment objectives. These two public limited partnerships own interests in
272 operating partnerships which include 18 properties jointly owned by two or
more investment partnerships or series within an investment partnership,
representing a total of 18 shared investments. The total number of properties by
state does not duplicate the 18 shared investments. The net number of properties
reflected is 254 located in:
Alabama ............ 3
Arizona ............ 5
Arkansas ............ 4
California .......... 11
Colorado ............ 2
Delaware ............ 1
Florida ............ 9
Georgia ............ 19
Illinois ............ 3
Indiana ............ 1
Iowa ................ 6
Kansas .............. 3
Kentucky ............ 12
Louisiana .......... 19
Maine .............. 5
Maryland ............ 6
Massachusetts ...... 6
Michigan ............ 8
Minnesota .......... 2
Mississippi ........ 12
Missouri ............ 17
Montana ............ 1
Nebraska ............ 2
Nevada .............. 3
New Hampshire ...... 1
New Jersey .......... 4
New Mexico .......... 2
New York ............ 17
North Carolina ...... 11
North Dakota ........ 10
Ohio ................ 2
Oklahoma ............ 2
Pennsylvania ........ 6
Rhode Island ........ 1
South Carolina ...... 6
South Dakota ........ 1
Tennessee .......... 4
Texas .............. 11
Utah ................ 2
Virginia ............ 7
Virgin Islands ...... 3
Wisconsin .......... 4
All of the operating partnership acquisitions of the two public limited
partnerships involved new construction or renovation of existing Apartment
Complexes, financed with government-assisted mortgage indebtedness aggregating
approximately $421,963,211 in addition to the equity investment of the investing
partnerships of $389,631,000. These properties equalled 100% of the total
development cost of properties acquired by public limited partnerships in the
four-year period ended December 31, 1996.
Upon request, the most recent Form 10-K and Form 10-Q filed with the Securities
and Exchange Commission relative to the public offerings will be provided to
investors at no charge and the exhibits to each such Form 10-K and Form 10-Q
will be provided for a reasonable fee.
Table VI, included as an exhibit to the Registration Statement of which this
Prospectus forms a part, presents a more detailed description of certain of
these properties. The General Partner will provide Table VI to any prospective
Investor without fee upon request.
Any investor or prospective investor may obtain a copy of the most recent Form
10-K, Form 10-Q, or Table VI upon written request to Boston Capital
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Tax Credit Fund IV L.P. c/o Boston Capital Partners, Inc., One Boston Place,
Suite 2100, Boston, MA 02108-4406, Attn: Richard J. DeAgazio.
* * * * *
Since the inception of Boston Capital's predecessor in interest, Affiliates of
the General Partner and their respective predecessors in interest have raised
approximately $1.5 billion in equity from approximately 60,000 investors to
acquire interests in approximately 1,800 properties containing approximately
82,000 apartments units in 48 states, Puerto Rico, The Virgin Islands and
Washington, D.C., representing over $3.8 billion in total development cost.
SEE "TABULAR INFORMATION CONCERNING CERTAIN PRIOR LIMITED PARTNERSHIPS,"
APPENDIX I, FOR DETAILED INFORMATION CONCERNING THE ABOVE LIMITED PARTNERSHIPS.
THE INFORMATION SUMMARIZED IN SUCH TABLES IS NOT NECESSARILY INDICATIVE OF THE
RESULTS THAT MAY BE EXPERIENCED BY THE FUND. IT SHOULD NOT BE ASSUMED THAT
INVESTORS WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY
INVESTORS IN PRIOR PARTNERSHIPS. THE OPERATING HISTORY OF MANY OF SUCH PRIOR
PARTNERSHIPS IS BRIEF, AND TAX RETURNS AND FINANCIAL STATEMENTS FROM ONLY THE
INITIAL YEARS OF CERTAIN OF THESE LIMITED PARTNERSHIPS HAVE BEEN FILED.
DESCRIPTION OF BACs (BENEFICIAL ASSIGNEE CERTIFICATES)
The BACs
The BACs represent assignments of units of the beneficial interest of the
Limited Partnership Interest in the Fund issued to BCTC IV Assignor Corp., the
Assignor Limited Partner. Upon the termination of the Offering, the Assignor
Limited Partner will have issued and assigned units of beneficial interest equal
to the number of BACs purchased, up to the maximum of 65,000,000 BACs.
Accordingly, each BAC will represent a pro rata assignment of the beneficial
interest in the Limited Partnership Interest of the Assignor Limited Partner.
The Assignor Limited Partner does not retain any beneficial interest in its
Limited Partnership Interest, all of which has been assigned to the BAC Holders.
The BACs are non-assessable and will be transferable on the books of the Fund
(subject to the limitations described below under "Transfers"). All expenses of
BCTC IV Assignor Corp. will be reimbursed by the Fund, subject to the
limitations set forth under "Compensation and Fees."
The assignment of BACs to subscribers will occur on each Investment Date. The
General Partner anticipates delivering certificates evidencing such assignment
to BAC Holders with respect to each series upon request, as soon as practicable
after the termination of the offering of BACs with respect to the applicable
series. Each certificate representing the BACs of a particular series will be
appropriately marked to identify the series of BACs to which the BAC certificate
relates.
Under the Fund Agreement, all of the ownership attributes of Limited Partnership
Interests held by the Assignor Limited Partner are assigned to BAC Holders,
including the right to receive a percentage of the Fund's income, gain, credits,
losses, deductions, and distributions, as well as the right to
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take certain actions without the approval of the General Partner (see "Summary
of Certain Provisions of the Fund Agreement--Voting Rights and Meetings") and
the right to inspect the books and records of the Fund. (See "Summary of Certain
Provisions of the Fund Agreement--Books and Records.") All rights accorded
limited partners under the laws of the State of Delaware extend to the BAC
Holders under the terms of the Fund Agreement subject to the limitations set
forth under "Fiduciary Responsibility of the General Partner." BAC Holders of
different series will participate in different pools of Operating Partnership
Interests. The rights and ownership attributes of BAC Holders in all series will
be identical in all other respects, except with respect to voting rights and
accounting matters applicable to any particular series. (See "The
Offering--Issuance of BACs in Series.")
Transfers
The BACs of each series, as and when issued, will be in registered form only and
are anticipated to be transferable on the books of the Fund (subject to the
restrictions discussed below) 30 days after the issuance of the final BACs with
respect to the applicable series. To the extent that transfers are permitted,
transferees of BACs will be recognized as BAC Holders on the last business day
of the calendar month during which the Fund or its agent receives all necessary
documentation with respect to the transfer (unless such documentation is
received less than five business days prior to the last business day of a
calendar month, in which case the transferee will be recognized as the BAC
Holder on the last business day of the next calendar month following such
receipt). (See "Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow
and Residuals--Allocation of Profits, Credits or Losses and Cash Distributions
Upon Transfer of BACs.") Although the BACs are anticipated to be issued in a
form facilitating trading, there are currently limitations on the
transferability of BACs necessitated by the Federal Housing Tax Credit recapture
provisions in the Code. (See "Federal Income Tax Matters--Federal Housing Tax
Credit") While it is anticipated that the BACs will be freely transferable
(except as set forth below), the BACs of all series may be listed on a national
securities exchange or included for quotation on NASDAQ only if deemed by the
General Partner to be in the best interest of the Fund and the BAC Holders
(which is not currently anticipated). However, if, prior to permitting the free
transferability of BACs, interpretations of the Code, as amended by the 1987 Tax
Act, would indicate that such free transferability would cause the Fund to be
treated as a corporation for federal income tax purposes, transferability of
BACs will be restricted. Even if BACs are made freely transferable, in order to
avoid recapture of Tax Credits upon the transfer of BACs, no more than 50% of
the BACs will be permitted to be transferred in any 12-month period, as
discussed in greater detail below. No BACs will be listed for trading until
Counsel renders its opinion that it is substantially more likely than not such
listing will not cause the Fund to be treated as a corporation for federal
income tax purposes. Should listing occur, the General Partner has the authority
to make cash and property distributions and adjust Capital Accounts in order to
permit BACs to be economically equal for purposes of public trading.
Furthermore, there is no assurance that such exchange listing or inclusion on
NASDAQ will be accomplished or will be deemed by the General Partner to be in
the best interest of the Fund or the BAC Holders. Accordingly, there is no
assurance that the BACs will be freely transferable. Furthermore, even if such
trading
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<PAGE>
is not restricted, there is no assurance that a public trading market will
develop. (See "Risk Factors--Transferability" and "--Certain Federal Income Tax
Risks--Tax Treatment of Publicly Traded Partnerships.")
To the extent that transfers of BACs are otherwise permitted, neither a transfer
nor an assignment of BACs will be permitted if such transfer or assignment would
be in violation of any applicable federal or state securities laws, including
investor suitability requirements. (See "Suitability of an Investment in BACs.")
Such suitability requirements are not anticipated to be applicable in the event
that the BACs are listed on a national securities exchange. The General Partner
will be required to determine that transferees meet the then-applicable investor
suitability standards prior to permitting a transfer of BACs.
A transfer or assignment of BACs will be halted or deferred by the General
Partner if it could result in the transfer (as defined by the federal income tax
laws) of 50% or more of all Limited Partnership Interests in the Fund within a
12-month period, and the General Partner believes that the resulting termination
of the Fund for tax purposes would result in recapture of Tax Credits by certain
Investors or would otherwise adversely affect the economic interests of the
Investors. (See "Federal Income Tax Matters--Sale or Disposition of BACs.") In
the event of such suspension, the transferring or assigning Investor will be
notified and any deferred transfers or assignments will be effected (in
chronological order to the extent practicable), as of the first day of the next
succeeding period in which such transfers or assignments can be effected without
either premature termination of the Fund for tax purposes or any adverse effects
from such premature termination, as the case may be. In the event transfers or
assignments are suspended for the foregoing reasons, the General Partner will
give notice of such suspension to Investors as soon as practicable.
In addition, in its sole discretion, the General Partner may at any time (1)
halt trading in BACs, (2) fail to list and/or cause the delisting of BACs from
public trading markets, (3) cause each purchaser of BACs to be admitted to the
Fund as a beneficiary, (4) require the BAC Holders to become Limited Partners,
(5) restrict the circumstances under which BACs may be transferred, or (6) take
such other action as it may deem necessary or appropriate (including making any
amendments to the Fund Agreement in connection therewith) in order to preserve
the tax status of the Fund as a partnership, prevent the Fund's termination for
federal income tax purposes, prevent the recapture of Tax Credits, prevent
federal income tax treatment of the Fund as an association taxable as a
corporation, insure that BAC Holders will be treated as limited partners of the
Fund for federal income tax purposes or qualify the Fund as a pass-through
entity. (See "Federal Income Tax Matters--Classification of the Fund for Federal
Income Tax Purposes" and "--Fund Income.") Pursuant to the Fund Agreement, the
Fund may not redeem or repurchase any BACs.
BAC Holders who wish to exchange their BACs for Limited Partnership Interests
may do so after the termination of the applicable Series Offering Period by (i)
delivering such documents as may be required by the General Partner and (ii)
paying the Fund's expenses in accomplishing such exchange, currently estimated
to be $500. Such exchange will not be effective until the General Partner
consents thereto, which consent cannot be unreasonably withheld or delayed. A
holder of Limited Partnership Interests may not
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<PAGE>
reconvert his Limited Partnership Interests into BACs. Limited Partnership
Interests will not be transferable except by operation of law or with the
consent of the General Partner (which may be withheld in its sole discretion).
The Limited Partnership Interests are not liquid and will not be listed on any
national securities exchange and it is not anticipated that any trading market
will exist for such Limited Partnership Interests. Conversions of BACs into
Limited Partnership Interests shall be accomplished at such times as the General
Partner shall determine, but not less frequently than semiannually.
SHARING ARRANGEMENTS:
PROFITS, CREDITS, LOSSES, NET CASH FLOW AND RESIDUALS
"Profits" and "Losses" are not the same as cash distributions. Profits and
Losses are determined for federal income tax purposes and include certain
non-cash deductions allowable for federal income tax purposes such as
depreciation. Accordingly, the Fund Agreement provides separately for
allocations of Profit and Losses, Net Cash Flow from operations, and Sale or
Refinancing Proceeds. Allocations of profits, credits and losses and
distributions of cash will be made on two separate levels. First, Operating
Partnership allocations and distributions will be made between the applicable
Operating General Partners and the Fund. Second, allocations and distributions
so made to the Fund will be further allocated and distributed by the Fund
between the General Partner and the Investors. The following discussion
summarizes the provisions in the Fund Agreement and the expected provisions of
the Operating Partnership Agreements for the allocations of Profits, Credits and
Losses and for the distribution of Net Cash Flow, and Liquidation, Sale and
Refinancing Proceeds. Investors' Capital Accounts will be reduced by all
distributions made to them by the Fund. Accordingly, in order to assure proper
treatment of the Capital Accounts, the Capital Account of each Investor will be
increased by the amount of all profits of the Fund, and will be reduced by the
amount of all losses and certain credits of the Fund, in each case to the extent
allocated to such Investor. Provisions in the Fund Agreement relating to the
allocations of Profits, Credits and Losses also are summarized below.
The following allocations and distributions will be made by the Fund separately
for each series of BACs.
From the Fund to the Investors
1. Annual Cash Payments and Distributions from Normal Operations. Payments and
distributions are anticipated to be made annually from the Net Cash Flow of the
Fund available for distribution as follows. After reimbursement to the General
Partner and its Affiliates for expenses of preparing tax returns and for
Acquisition Expenses, and payment of the Fund Management Fee to the General
Partner or its Affiliate, the balance will be distributed 99% to the Investors
and 1% to the General Partner; provided, however, that the General Partner's 1%
distribution will be subordinated to the Priority Return. The General Partner
will receive certain fees and compensation for services prior to BAC Holders
receiving the Priority Return.
It is not anticipated that any significant amount of Net Cash Flow will be
distributed to the Investors on an annual basis.
2. Profits, Credits and Losses. The Profits, Credits and Losses from operations
of the Fund are to be allocated 99% to the Investors and 1% to the General
Partner.
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Gains and losses recognized by the Fund upon the sale, exchange or other
disposition of all or substantially all of the property owned by an Operating
Partnership or the Fund's Interest in an Operating Partnership shall be
allocated as follows. First, gains will be allocated to the Partners and BAC
Holders and the General Partner in the amount of their negative Capital
Accounts. Second, gain will be allocated to the BAC Holders in amounts equal to
any unreturned Capital Contributions. Lastly, gain will be allocated 99% to the
Investors and 1% to the General Partner. Any losses will be allocated first to
reduce any Partners' or BAC Holders' positive Capital Accounts in proportion to
their Interest in the Fund, second in the amount of any unreturned Capital
Contributions and thirdly, either to any Partners who bear(s) the economic risk
of any remaining losses, if any, or all in accordance with Fund Interests.
3. Distributions of Liquidation, Sale or Refinancing Proceeds. Liquidation, Sale
or Refinancing Proceeds received by the Fund are anticipated to be applied
and/or distributed as follows. All third party debts and liabilities of the Fund
will be paid, followed by the setting up of any necessary reserves, and
repayment of loans to the General Partner or Affiliates. Then, any unreturned
Capital Contributions will be distributed to the Partners and BAC Holders.
Finally, the remainder, if any, will be distributed 5% to the General Partner
(subordinated to the Priority Return) and 95% to the Investors. The General
Partner will receive certain fees and compensation for services prior to BAC
Holders receiving the Priority Return.
From the Operating Partnerships to the Fund
1. Annual Cash Payments and Distributions from Operations. Payments and
distributions are anticipated to be made annually from the net cash flow of each
Operating Partnership as follows, if and to the extent available and subject to
the restrictions which may be imposed by the Permanent Mortgage Loan documents
and by a Regulatory Agreement. After the payment of the Reporting Fee, repayment
of any Subordinated Loans and payment of any Operating Partnership Management
Fees, the balance will be distributed to the partners in accordance with their
Interests in the Operating Partnership (anticipated to be from 50% to 99% to the
Fund).
It is not anticipated that any significant amount of cash distributions will be
made to the Fund on an annual basis.
2. Profits, Credits and Losses. The Profits, Credits and Losses from normal
operations are anticipated to be allocated 90%-99% to the Fund and 1%-10% to the
Operating General Partner(s).
Gains and losses recognized by the Operating Partnership upon the sale, exchange
or other disposition of all or substantially all of its property are anticipated
to be allocated as follows. First, gains will be allocated to the partners in
the amount of their negative Capital Accounts. Second, gain will be allocated to
the partners in amounts equal to their unreturned Capital Contributions. Lastly,
gain will be allocated in accordance with the provisions of each Operating
Partnership Agreement, which is anticipated to result in an allocation to the
Fund of between 50% and 95%. Any losses will be allocated first to reduce any
partners' positive Capital Accounts in proportion to their Interests in the
Operating Partnership, second in the amount of any unreturned Capital
Contributions and thirdly, either to any partners
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who bear the economic risk of such losses, if any, or all in accordance with the
partners' Interests in the Operating Partnership.
3. Distributions of Liquidation, Sale or Refinancing Proceeds. Liquidation, Sale
or Refinancing Proceeds realized by any Operating Partnership on the sale of the
applicable Apartment Complex or the refinancing of the applicable Permanent
Mortgage Loan are anticipated to be applied and/or distributed as follows. All
third-party debts and liabilities of the Operating Partnership will be paid,
followed by the setting up of any necessary reserves, and payment of any unpaid
debts and liabilities owed to the partners of the Operating Partnership of any
Affiliates, including payment of any Sales Preparation Fee and repayment of any
loans (excluding any working capital loans attributable to Operating
Partnerships with RHS financing) then, any unreturned Capital Contributions will
be distributed to the partners (with a minimum of 5% of any proceeds going to
the Operating General Partner(s) in Operating Partnerships receiving RHS
financing). Finally, the remainder, if any, will be distributed in accordance
with the terms of the Operating Partnership Agreement (between 50% and 95%
anticipated to go to the Fund).
There can be no assurance that there will be any Liquidation, Sale or
Refinancing Proceeds with respect to any Apartment Complex available for
distribution to the Partnership.
Authority of the General Partner to Vary Allocations to Preserve and Protect
Partners' and BAC Holders' Intent
In order to preserve and protect the determinations and allocations provided for
in the Fund Agreement, the General Partner is authorized and directed to
allocate income, gain, loss, deduction, or credit (or item thereof) arising in
any year differently than otherwise provided for in the Fund Agreement to the
extent that allocating income, such items in the manner provided for in the Fund
Agreement, in the judgment of the tax advisors to the Fund, would cause the
determinations and allocations of each Partner's and BAC Holder's distributive
share of such items not to be permitted by Section 704(b) of the Code and
Treasury Regulations promulgated thereunder. No amendment of the Fund Agreement
or approval of any Partner or BAC Holder shall be required in connection with
any such new allocation. (See "Federal Income Tax Matters--Fund Allocations and
Distributions.")
An Operating General Partner of each Operating Partnership will have authority
identical to that described above.
Allocations of Profits, Credits and Losses and Cash Distributions Pending Final
Issuance of BACs
In the event that there is more than one date of issuance of BACs (an
"Investment Date"), any cash available for distribution, and all Profits,
Credits and Losses allocable to the BAC Holders as a class for the period
commencing with the first day following the previous Investment Date and ending
on the last day preceding the next succeeding Investment Date shall be
distributed or allocated solely to those Persons who held BACs as of or prior to
the Investment Date occurring within such period, on the basis of an interim
closing of the Fund's books on such dates.
Allocation of Profits, Credits and Losses and Cash Distributions Upon Transfer
of BACs
Subject to any restrictions on transferability of BACs, as discussed in
"Description of the BACs--Transfers," the Fund will recognize the trans-
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feree of a BAC as the BAC Holder on the Fund's books and records as of the last
business day of the calendar month during which the Fund or its agent receives
all necessary documentation with respect to the transfer (unless such
documentation is received less than five business days prior to the last
business day of a calendar month, in which case, the transferee will be
recognized as the BAC Holder on the last business day of the next calendar month
following such receipt) subject to the rules described below.
Profits, Credits and Losses will be allocated each month to the holder of record
of a BAC as of the last day of such month. Allocation of Profits, Credits and
Losses among Investors will be made in proportion to the number of BACs held by
each Investor.
Any distributions of Net Cash Flow or Liquidation, Sale or Refinancing Proceeds
will be made within 180 days of the end of the annual period to which they
relate. Distributions will be made to the holders of record of a BAC as of the
last day of each month in the ratio which (i) the BACs held by such Person on
the last day of the calendar month bears to (ii) the aggregate number of BACs
outstanding on the last day of such month.
For a discussion of how the allocations and distributions discussed above will
be applied if the BACs are issued in series, see "The Offering--Issuance of BACs
in Series."
FEDERAL INCOME TAX MATTERS
General Considerations
The following discussion is solely a discussion of the material federal tax
aspects of an investment in BACs by an Investor, and is not a comprehensive
treatment of all tax considerations affecting an investment in the Fund. In
addition, although this discussion addresses issues with respect to which the
Fund has obtained, and expects to obtain in connection with each Investment
Date, an opinion of Counsel, it also discusses certain matters for information
purposes only and other matters with respect to which Counsel does not or cannot
opine. The Fund does not anticipate requesting a ruling from the Internal
Revenue Service ("IRS") confirming any opinion of Counsel or with respect to any
aspect of this Offering, and Counsel's opinion is not binding on the IRS or on
any court.
The following statements, together with the opinions of Counsel referred to
below, are based upon the provisions of the Code, existing and proposed
regulations thereunder, current administrative rulings, and court decisions.
However, no assurance can be given that legislative or administrative changes or
future court decisions may not significantly modify the statements or opinions
expressed here. Any such changes may or may not be retroactive with respect to
transactions prior to the effective date of such changes. In particular, as a
result of the 1986 Tax Act, which significantly revised federal income tax law,
the Treasury Department has been given broad authority to promulgate regulations
implementing the provisions of the Code and subsequent amendments thereof.
Although the Fund will be guided by competent tax advisors, uncertainty exists
concerning certain tax aspects of the transactions being undertaken by the Fund.
The IRS has announced, and is implementing, policies and pro-
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cedures for the audit of tax shelter programs pursuant to which there is a
significant possibility that partnerships such as the Fund and/or the Operating
Partnerships, will be audited. Some of the tax positions being taken by the Fund
and/or the Operating Partnerships may be challenged by the IRS, and there is no
assurance that any such challenge will not be successful. Thus, there can be no
assurance that all of the anticipated tax benefits of a purchase of BACs will be
realized.
Counsel's overall evaluation regarding the availability to an Investor of the
material tax benefits from an investment in the Fund, in the aggregate, appears
on page 139.
The tax consequences of an investment in BACs will depend upon an Investor's own
personal tax and financial situation; therefore, each Investor is urged to
consult his own tax advisor with respect to the federal and state tax
consequences arising from the purchase of BACs.
Brief Overview of Federal Income Tax Considerations
This section briefly summarizes certain of the federal income tax considerations
associated with an investment in the Fund. Investors should read the sections
that follow this "Brief Overview of Federal Income Tax Considerations" for a
more detailed discussion of these federal income tax considerations.
Opinions of Counsel. Many tax issues involve rapidly evolving areas of the law
and are not free from doubt. In addition, many issues involve factual issues
that will depend on the individual circumstances present at the time an event
occurs and therefore cannot be opined upon at this time. (See "Opinions of
Counsel" below for a more complete discussion of these issues.)
Classification as a Partnership. The ability of the Fund and the Operating
Partnerships to pass through all income, credits, losses and deductions to the
Investors is dependent upon their being classified as partnerships for tax
purposes. The Fund does not plan to apply for a ruling from the IRS as to its
status or the status of the Operating Partnerships as partnerships for federal
income tax purposes, although the Fund will receive an opinion from Counsel that
the Fund will be treated as a partnership and not as an association taxable as a
corporation for federal income tax purposes. Prior to investing in any Operating
Partnership, the Fund will obtain an opinion of Counsel that such Operating
Partnership will be classified as a partnership for tax purposes. However, these
opinions are based on various assumptions and representations and will not be
binding on the IRS or the courts. If the Fund were determined to be a
corporation for tax purposes, the Fund would be taxed on its earnings at
corporate rates and any distributions to the Investors would be treated as
corporate distributions, which would be taxable as dividends to the extent of
the earnings and profits of the Fund and most importantly, the Tax Credits could
not be passed through at that level. If the Operating Partnerships are treated
as corporations for federal income tax purposes, similar consequences would
follow on the Operating Partnership level. (See "Classification as a
Partnership" below for a more complete discussion of these items.)
Investments in Operating Partnerships. The availability to prospective
Investors of the tax benefits that are anticipated to be derived from a
purchase
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of BACs is dependent, in the first instance, on the following general
principles of partnership taxation:
1. Each of the Operating Partnerships must be classified as a partnership for
federal income tax purposes.
2. The allocation of the items of income, gain, Tax Credits, loss and
deduction to the Fund by each Operating Partnership must have substantial
economic effect or otherwise be in accordance with the Fund's Interest in such
Operating Partnership.
3. The Fund's tax basis in each of the Operating Partnerships must exceed the
amount of losses allocated and cash distributed to the Fund from such
Operating Partnership.
4. The Fund's amount "at-risk" in each of the Operating Partnerships must
exceed the amount of losses allocated and cash distributed to the Fund from
such Operating Partnership.
5. The Fund's amount "at-risk" with respect to expenditures of each Operating
Partnership that qualify for Tax Credits must equal or exceed the amount of
such expenditures allocated to the Fund. (See "Classification as a
Partnership", "Calculation of Investor's Basis in the BACs", "Allocation of
Profits, Credits, Losses and Other Items in Accordance with the Fund
Agreements", and "At Risk' Limitation on Credits and Losses" below for a more
complete discussion of these issues.)
Tax Treatment of Electing Large Partnerships. The 1997 Taxpayer Relief Act made
certain changes in the reporting requirements of partnerships with over 100
partners which elect to be "large partnerships".
For example, limitations have been placed on miscellaneous itemized deductions
which may be taken. The 1997 Taxpayer Relief Act provides that 70% of
miscellaneous itemized deductions are disallowed at the partnership level,
thereby reducing the benefit of such deductions. The Fund does not presently
intend to elect to be a "large partnership" subject to these new requirements.
Limitations on Use of Credits and Losses. Several rules exist that may limit the
ability of an Investor to deduct his or her share of the Fund's deductions and
losses and utilize the Fund's Tax Credits. These limitations are:
(a) Passive Activity Loss and Credit Limitation. The Code divides income and
losses into three categories-active, passive, and portfolio, and divides Tax
Credits into two categories-active and passive. Except to the extent of the
exception described below, passive losses and credits can be applied to offset
a taxpayer's tax liability attributed to passive income, but cannot be used to
offset other types of income. These passive loss and credit limitations apply
to taxpayers who are individuals, personal service corporations, estates and
trusts. Regular "C" corporations which are not personal service corporations
are not subject to these rules, although closely-held corporations (defined as
a corporation in which 50% or more of the stock is held, directly or
indirectly, by five or fewer individuals) may use passive losses and credits
to offset active trade or business income and tax liability resulting
therefrom, but may not use passive losses and tax credits to offset portfolio
income or tax liability resulting therefrom.
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There is an exception to these passive activity rules which provides that Tax
Credits will be eligible to offset the amount of tax liability attributable to
up to $25,000 of non-passive income if the taxpayer is an individual, subject
to certain specific additional limitations (relating to the alternative
minimum tax and the rules governing general business credits). For example,
this $25,000 allowance permits the use of $9,900, $9,000, or $7,750 of tax
credits per year for individuals with at least $25,000 of income in the 39.6%,
36.0% or 31% marginal tax bracket, respectively. Taxpayers with income subject
to tax at lower rates, can use lesser amounts of Tax Credits (e.g., an
individual taxpayer with a full $25,000 of income in the 28% marginal tax
bracket could use $7,000 of Tax Credits per year, and an individual taxpayer
with $20,000 of income taxable at the minimum 15% rate would be able to use
$3,000 of Tax Credits to offset that tax liability), in each case subject to
the specific additional limitations referred to above.
The Fund is expected to be treated as a passive activity and therefore, the
profits and losses (other than the portfolio income) and Tax Credits will be
treated as derived from a passive activity. Counsel has rendered no opinion
regarding the manner in which the limitations on losses and credits from
passive activities will apply to any particular Investor, because these
limitations are applied to the particular Investor rather than at the Fund
level and will depend on the particular circumstances of each Investor. Each
Investor is strongly advised to consult his or her own tax advisor regarding
the effect on such Investor of the limitation on the allowance of passive
losses and credits. (See "Passive Loss and Tax Credit Limitations" below for a
more complete discussion of these issues.)
(b) Basis Limitation. For each year, an Investor may only take deductions and
losses from his or her taxable income to the extent those deductions and
losses do not exceed such Investor's basis in his or her BACs at the end of
such year. An Investor's tax basis for his or her BACs generally will be equal
to the Capital Contribution made plus his or her share of the Fund's
nonrecourse liabilities to the extent that they do not exceed the fair market
value of the assets subject thereto. Each year, such tax basis will be
increased by the amount of profits allocated, and decreased by the amount of
losses allocated, to the Investor, and decreased by the amount of cash
distributed to him or her. In addition, increases or decreases in an
Investor's share of nonrecourse debt will result in corresponding increases or
decreases in the Investor's tax basis. An Investor may carry forward any
disallowed deductions and losses and deduct them in later years when the
Investor's basis has increased (subject to application of the other
limitations). It is anticipated that each Investor will have sufficient basis
to claim all Fund deductions and losses. (See "Calculation of Investor's Basis
in BACs" below for a more complete discussion of these issues.)
(c) At-Risk Limitation. For each year, an Investor who is an individual or a
closely-held corporation may not deduct from taxable income his or her share
of the Fund's deductions and losses to the extent they exceed the Investor's
at-risk amount at the end of the year. An Investor will generally have an
initial at-risk amount equal to the purchase price of the BACs. This initial
at-risk amount will increase by (i) such Investor's share of the Fund's income
and gains and (ii) increases in such Investor's share of
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qualified nonrecourse debt and will decrease by (i) such Investor's share of
Fund deductions and losses, (ii) the amount of cash and other distributions
made to such Investor and (iii) decreases in such Investor's share of
qualified nonrecourse debt. The utilization of Tax Credits by an Investor who
is an individual or a closely-held corporation will also be subject to at-risk
limitations which provide that, in order to fully utilize the Tax Credits, the
Investor must be at-risk with respect to the Tax Credit property.
Based upon the anticipated investments of the Fund, the at-risk rules should not
limit the deductions or Federal Housing Tax Credit available to Investors. (See
"'At-Risk' Limitation on Credits and Losses" below for a more complete
discussion of these issues.)
Allocation of Fund Income, Gain, Credits and Loss. Allocations of a
partnership's income, gain, credits, loss or deduction under a partnership
agreement will be given effect for federal income tax purposes if the
allocations have "substantial economic effect" or are otherwise in accordance
with the partner's interest in the partnership, taking into account all facts
and circumstances. It is the opinion of Counsel that all Fund allocations will
be respected for tax purposes. The Fund will not invest in an Operating
Partnership without obtaining an opinion of Counsel that all allocations under
such Operating Partnership agreement will be respected for tax purposes. There
can be no assurance, however, that the IRS will not successfully challenge the
allocations of profits and losses or Tax Credits under the Fund Agreement or any
Operating Partnership Agreement.
Depreciation. In determining profits and losses for tax purposes, a
partnership's income for any year is reduced by deductions representing
depreciation of the partnership's assets. While deductions will be made on a
property-by-property basis, the Fund generally expects to claim straight line
depreciation over 27.5 or 40 years with regard to all depreciable real property
owned by the Operating Partnerships.
Historic Tax Credit and Its Recapture. In addition to the Federal Housing Tax
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, the taxpayer is entitled to a credit equal to 20%
of the expenditure against his or her income tax liability for that year.
The Fund may invest in Operating Partnerships that incur rehabilitation
expenditures that will qualify for such Historic Tax Credit, which would then be
available to the Investors to reduce their federal income taxes, but the ability
of an Investor to utilize such credits may be restricted by the passive loss and
credit limitation rules.
Any Historic Tax Credit taken for qualified rehabilitation expenditures is
subject to recapture in the event of early disposition of the property within
five years from the date it is placed in service. (See "Historic Tax Credit" and
"Recapture of Tax Credits" below for a more complete discussion of these
issues.)
Tax Treatment of Certain Partnership Expenses. The Fund and each Operating
Partnership may incur costs for which there is a conflict of authority
regarding deductibility or the timing of deductibility and there is no assur-
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ance that the IRS will not challenge certain claimed deductions. The tax
treatment of such items depends, to a significant extent, upon such factual
issues as the exact type and description of the services to be provided, whether
in fact the payments are made as compensation for such services or whether such
payments are actually cash distributions or syndication fees, whether the
services provided are ordinary and necessary to the business of the partnership
in question, and whether the amounts of the payments are reasonable. Since these
issues vary on a case by case basis, Counsel cannot render an opinion on these
issues. (See "Certain Fees and Expenses", below for a more complete discussion
of these issues.)
Sales or Disposition of Operating Partnership Property. Each Operating
Partnership's gain on a sale of property 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 property. Consequently, the
amount of tax payable by an Investor on his or her share of the Fund's allocable
share of such gain may in some cases exceed his or her share of the cash
proceeds therefrom.
Where a taxpayer disposes of his or her entire interest in a passive activity in
a transaction in which all of the gain or loss realized on such disposition is
recognized, any loss from that activity that was disallowed by the passive loss
rules will cease to be treated as a passive loss and any loss on such
disposition will not be treated as arising from a passive activity. Depending
upon the circumstances, the disposition of a property by an Operating
Partnership may be subject to these rules. (See "Sales or Other Disposition of
an Apartment Complex and Interest in Operating Partnerships" below for a more
detailed discussion of these issues.)
Sales or Disposition of BACs. Any gain realized on a sale of BACs by an Investor
who is not a "dealer" in the BACs or other similar securities generally will be
a capital gain. In determining the amount received upon the sale or exchange of
a BAC, an Investor must include, among other things, his or her allocable share
of the Fund's allocable share of each Operating Partnership's nonrecourse
indebtedness.
Where a taxpayer disposes of his or her entire interest in a passive activity in
a transaction in which all of the gain or loss realized on such disposition is
recognized, any loss from that activity that was disallowed by the passive loss
rules will cease to be treated as a passive loss and any loss on such
disposition will not be treated as arising from a passive activity. Depending
upon the circumstances, the disposition by an Investor of his or her BACs may
result in the application of this rule. (See "Sale or Disposition of BACs" for a
more complete discussion of these issues.)
Transferability--Termination of the Fund. The Code provides that if 50% or more
of the capital and profit interests in a partnership are sold or exchanged
within a single 12 month period, such partnership generally will terminate for
federal income tax purposes. Consequently, under the Fund Agreement, 50% or more
of the BACs may not be sold or exchanged within a single 12 month period.
Tax Rates and Capital Gains. The maximum individual tax rate is now 39.6% for
ordinary income. The 1997 Taxpayer Relief Act provides that capital gains income
is generally subject to a maximum marginal tax rate of 20% for indi-
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viduals. However, with regard to the sale or exchange of real property, capital
gains which represents the recapture of depreciation taken on such property
will be taxed at a maximum rate of 25%.
The maximum corporate tax rate is 35%, which commences at a taxable income of
over $10 million, income up to $10 million is taxed at 34%; income up to $50,000
is taxed at 15% and income between $50,000 and $75,000 is taxed at 25%, with the
benefits of these graduated rates phased out beginning at $100,000.
Alternative Minimum Tax. Noncorporate and corporate taxpayers, except for
certain qualifying small corporations, are subject to an alternative minimum
tax. Tax Credits cannot be used to offset alternative minimum tax liability.
(See "Certain Other Tax Considerations--Alternative Minimum Tax" below for a
more complete discussion.) Tax Credits which cannot be used because of the
alternative minimum tax restrictions, may be carried back 1 year or forward 20
years (with certain restrictions).
Tax Returns and Tax Information. Although partnerships are not subject to
federal income taxation, they must file annual partnership income tax returns.
For each taxable year, each Investor must report on his or her federal income
tax return his or her share of the Fund's income, gains, losses, deductions and
credits, regardless of whether he or she has received any cash distributions
from the Fund. The IRS is paying increased attention to the proper application
of the tax laws to limited partnerships whose interests are sold to a large
number of investors. As a consequence, IRS audits of the Fund's tax information
returns are likely. Investors should note that a federal income tax audit of the
Fund's tax information returns may result in an audit of the returns of some or
all of the Investors.
Tax Shelter Registration. The Code includes two special provisions with respect
to tax shelters. First, it requires the promoters of tax shelters to maintain
lists of investors and to make such lists available to the IRS. Second, it
requires that the tax shelter register with and furnish certain information to
the IRS. The Fund will be treated as a tax shelter for purposes of these
requirements.
Changes in Tax Law. There may be changes to the Code in future years (including
amendments having a retroactive effect) which could adversely affect an
investment in the Fund.
Opinions of Counsel
Counsel is of the opinion that, to the extent that the summary of federal income
tax consequences to the Investors set forth in this "Federal Income Tax Matters"
section and under the headings "Risk Factors--Federal Income Tax Risks" and
"Government Assistance Programs--Low Income Housing Tax Credit" involves matters
of law, such statements are accurate in all material respects under the Code,
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) the
Fund will be classified as a partnership and not as an association taxable as a
corporation, (ii) the Fund will not be treated as a publicly traded partnership
for purposes of Section 7704 or Section 469(k) of the Code, (iii) each BAC
Holder will be per-
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mitted to include in his or her tax basis his or her share of the non-recourse
liabilities of the Fund, including the Fund's share of such liabilities of each
Operating Partnership, (iv) it is more likely than not that profits and losses
and Tax Credits will be allocated among the BAC Holders substantially in
accordance with the Fund Agreement, and (v) the profits and losses (other than
the portion thereof classified as portfolio income) and Tax Credits of the Fund
will be treated as derived from a passive activity.
The Fund has not yet identified any particular investment in an Operating
Partnership, however, and the tax benefits available to BAC Holders necessarily
will depend in large part upon the characteristics of the particular investments
acquired. Prior to investing in any Operating Partnership, the Fund will obtain
an opinion of Counsel, which may be based on assumptions and on representations
from the General Partner and the general partners of such Operating Partnership,
and on certain opinions of counsel to such Operating Partnership, substantially
to the effect that for federal income tax purposes (i) the Operating Partnership
will be classified as a partnership and not as an association taxable as a
corporation, (ii) the Operating Partnership will be the owner of the relevant
Apartment Complex, (iii) it is more likely than not that profits and losses and
Tax Credits of the Operating Partnership will be allocated to the Partnership
substantially in accordance with the Operating Partnership Agreements, (iv) for
purposes of determining its tax basis and amount "at risk" for the Operating
Partnership, the Fund will be permitted to take into account its properly
allocable share of such Operating Partnership's nonrecourse liabilities, and (v)
assuming (a) that the Apartment Complex owned by the Operating Partnership
satisfies the income and rent restrictions applicable to Apartment Complexes
generating Federal Housing Tax Credits, (b) that the Apartment Complex receives
its State Designation and (c) continuing compliance with the income and rent
restrictions, it is more likely than not that a BAC Holder will be entitled to
his or her share (based on his or her interest in the losses of the Fund) of the
Fund's share (based on the Fund's interest in losses of the Operating
Partnership) of Federal Housing Tax Credits generated by an Apartment Complex.
No investment in any Operating Partnership will be made unless the opinion of
Counsel referred to in this paragraph is obtained. (See "Investment Objectives
and Acquisition Policies--Acquisition Policies".)
However, no legal opinion has been obtained, and it is not anticipated that an
opinion will be obtained in connection with an investment in an Operating
Partnership, regarding determinations, the correctness of which depends in
significant part on future factual circumstances, as to matters peculiar to
certain Investors or as to matters on which opinions are not customarily
obtained. Such determinations may include (i) 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; (ii) the characterization of various expenses and payments made to
or by the Fund or an Operating Partnership (for example, the extent to which
such payments represent deductible fees or interest); (iii) the portion of the
cost of any Apartment Complex that qualifies for the Tax Credits, including the
Federal Housing Tax Credit or the Historic Tax Credit; and (iv) the application
to any specific Investor of the limitation on the availability of passive
activity losses and credits. There can be no assurance, therefore, that some of
the deductions to be claimed by the Fund or the allocation of
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items of income, gain, credits, loss and deduction among the BAC Holders, 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 Fund to realize its investment objectives. (See also "Risk
Factors--Tax Risks Associated with the Fund's Investments.")
Tax Rates
The 1993 Tax Act established a new 36% marginal tax bracket for individual
taxpayers. This rate applies to taxable income above approximately $140,000 for
a joint return and $115,000 for a single person's return. In addition, the 1993
Tax Act applies a further surtax of 10% by applying a 39.6% rate to income in
excess of $250,000 for individuals and married taxpayers filing jointly. The
1997 Taxpayer Relief Act provides that capital gains income is generally subject
to a maximum marginal tax rate of 20% for individuals. However, with regard to
the sale or exchange of real property, capital gains which represents the
recapture of depreciation taken on such property will be taxed at a maximum rate
of 25%.
The 1993 Tax Act continued the 15%, 28% and 31% tax rates under prior law,
indexed for inflation. The 15% rate applies until income exceeds approximately
$36,900 on a joint return and $22,100 on a single return. From that point,
taxable income is taxed at a 28% rate up to $89,150 and $53,500 for joint and
individual returns. Then the 31% rate applies until the $140,000 and $115,000
thresholds (see above) for the 36% rate are met.
The Code provides for a graduated corporate tax rate. For corporations, taxable
income up to $50,000 will be taxed at 15%, taxable income over $50,000 but not
over $75,000 will be taxed at 25%, taxable income over $75,000 will be taxed at
34%, and taxable income over $10 million will be taxed at 35%. The benefit of
the graduated rates is gradually phased out for corporations with more than
$100,000 of taxable income. If for any year a corporation is subject to tax at
rates in excess of 35%, any net capital gain recognized by the corporation in
that year is taxed at 35%, and the remainder of the income is taxed at the
higher rate.
Classification as a Partnership
The availability of any tax benefits to an Investor is dependent upon the
classification of the Fund and the Operating Partnerships as partnerships,
rather than as associations taxable as corporations, for federal income tax
purposes.
The Fund does not intend to request a ruling from the IRS that it will be
classified as a partnership for federal income tax purposes. Counsel has
rendered, and in connection with each Investment Date, will render its opinion
that the Fund will be classified as a partnership for federal income tax
purposes. In addition, the Fund will require, in connection with its acquisition
of Interests in any Operating Partnership, that Counsel render an opinion to the
effect that the Operating Partnership will be classified as a partnership for
federal income tax purposes. The General Partner and Counsel are aware that the
IRS would not issue an advance ruling to the Fund or the Operating Partnerships
with respect to their classification as partnerships for federal income tax
purposes because, pursuant to its published procedures, the IRS will not issue
such an advance ruling where the general partners of a partnership are not
obligated to restore deficits in their capital
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accounts to the extent of 1% of the capital contributions to such partnership
of all limited partners.
The IRS has recently published new regulations that remove some of the
uncertainty regarding whether an entitity will be classified as a partnership.
These new regulations provide that entities that are not required to be treated
as corporations may now elect their tax classification. For domestic entities, a
newly created entity with at least two members will automatically be treated as
a partnership, unless it elects to be treated otherwise. Neither the Fund nor
the Operating Partnerships will make such an election.
If the IRS were to challenge the classification of the Fund or any of the
Operating Partnerships as "partnerships," Counsel is of the opinion that such
challenge would be unsuccessful. If, however, an IRS challenge were successful,
or if there is a material change in the law or the circumstances surrounding the
Fund or any of the Operating Partnerships, the Fund or any of the affected
Operating Partnership(s), might be treated as associations taxable as
corporations. In such event, the income of each such entity would be taxable
directly to such entity and any distributions to its partners would be treated
as dividends to the extent of current and accumulated earnings and profits of
the partnership. Moreover, Tax Credits and partnership losses (which include
depreciation) would then be reflected only on the partnership's tax return,
rather than being passed through to the Investors. This would eliminate
substantially all of the tax benefits of a purchase of BACs. Furthermore, such
change in the tax status of the Fund and/or any of the Operating Partnerships
could create tax liability for an Investor.
The 1987 Tax Act enacted new Code Section 7704, which provides that publicly
traded partnerships will be treated as corporations for federal income tax
purposes. A publicly traded partnership is a partnership in which interests are
traded on a securities exchange or on a secondary market or the substantial
equivalent thereof. The Report of the Senate-House Conference Committee
accompanying the 1987 Tax Act indicates that if interests in a partnership are
readily tradable, then even in the absence of any established market, if trading
in such interests occurs, interests in the partnership may be treated as
publicly traded. IRS regulations and a notice from the IRS (Advance Notice
88-75) provide guidance on the types of transfers that will result in a
partnership being deemed to be publicly traded. A partnership which is publicly
traded will not be treated as a corporation if at least 90% of its gross income
consists of qualifying "passive-type" income. This income includes interest,
dividends, rents from real property and gain from the sale of real property. The
General Partner has represented that at least 90% of the Fund's gross income
will consist of qualifying "passive-type" income. It is the opinion of Counsel
that, if the foregoing representation is correct, the Fund will not be treated
as a corporation pursuant to Section 7704 of the Code for federal income tax
purposes. There is limited guidance available for interpreting this provision of
the 1987 Tax Act, however, and no assurance can be given that the IRS will
concur with this view. In the event this passive income exception were not to
apply to the Fund, the Fund could be taxable as a corporation if it did not meet
one of the "safe harbors" in the above-referenced IRS regulations and notice. If
in the future the Fund becomes taxable as a corporation, under the Fund
Agreement the General Partner may take any and all such actions it may deem
necessary or appropriate to qualify the Fund (or a successor entity) for
taxation as a pass--
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through entity. Such action may include, but shall not be limited to, amending
the Fund Agreement, reorganizing the Fund into some other form of pass-through
entity, or imposing restrictions on the transferability of BACs. Some forms of
reorganization may cause the Fund (and therefore the Investors) to recognize the
appreciation in Fund assets as taxable income. The General Partner is required
to effectuate any such qualification, amendment or reorganization so that, to
the extent possible and legally permissible under the circumstances, the
respective interests of the Investors and the General Partner in the assets and
income of the Fund (or successor entity), immediately following such
qualification, amendment or reorganization, are substantially equivalent to such
interests immediately prior thereto.
Classification of BAC Holders as Partners for Tax Purposes
The availability of any tax benefits to a BAC Holder is also dependent on the
BAC Holder being treated as a limited partner of the Fund for federal income tax
purposes. Under Delaware law, BAC Holders will not be partners of the Fund.
Rather, BAC Holders will hold an assignment from the Assignor Limited Partner of
an interest in the Assignor Limited Partner's Limited Partnership Interest in
the Fund. Counsel is of the opinion, however, that BAC Holders will be treated
as partners of the Fund for federal income tax purposes, and that their payments
for BACs will be treated as direct Capital Contributions to the Fund in exchange
for such BACs. If BAC Holders were not considered to be partners of the Fund for
federal income tax purposes, ownership of BACs might be treated as the ownership
of an equity interest in the Assignor Limited Partner or the ownership of some
other contractual right against the Assignor Limited Partner, in which case none
of the profits, credits and losses of the Fund would be passed through to them
directly from the Fund. Such treatment might cause Fund distributions to be
included in the gross income of BAC Holders for federal income tax purposes.
Fund Allocations and Distributions
General. No federal income tax is paid by a partnership. The Fund will file an
information return with the IRS, however, and each Investor is required to
report on his own federal income tax return his allocable share of the income,
gains, credits, losses and deductions of the Fund, whether or not any cash
distribution was made to such Investor during such taxable year.
A partner is permitted to offset his allocable share of partnership losses in
any taxable year against his income from other sources, but only to the extent
of his adjusted basis for his interest in the Fund at the end of the partnership
year in which such losses occur. Any excess of such losses over such adjusted
basis may be deducted by a partner in subsequent tax years, to the extent that
such partner's adjusted tax basis at the end of any such year exceeds zero
before reduction by such loss in such year.
The Operating Partnerships are expected to incur certain tax credits and losses.
Counsel has advised the Fund that an Investor may report on his federal income
tax return his allocable share, as finally determined for federal income tax
purposes, of the Fund's share of such credits and losses incurred by each of the
Operating Partnerships. However, an opinion of counsel is not binding on the
IRS, and the Fund has not requested and will not receive an advance ruling
concerning whether such "pass-through" of profits, credits and losses will be
recognized for tax purposes. Were such "pass--
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through" to be denied, the tax benefits of a purchase of BACs would be very
substantially reduced.
In general, each Investor must treat Fund items on his return consistently with
the treatment of those items on the Fund return.
The Code imposes restrictions on the ability of individual taxpayers, personal
service corporations, estates and trusts to use credits and losses from
interests in activities in which the taxpayer does not materially participate
("passive activities"), such as limited partnership interests; such restrictions
will apply to BACs. With exceptions for special provisions applicable to Tax
Credits, such taxpayers can only use such credits and losses from such passive
activities to offset income or tax liability from passive activities, and may
not use such losses to offset active income or portfolio income (e.g. interest,
dividends, royalties).
These rules do not apply to most C corporations. Such corporations may use
losses from passive activities to offset any form of income. C corporations that
are closely held (5 or fewer shareholders owning more than 50% of corporate
stock) are subject to limited passive loss restrictions. Such corporations may
use passive losses to offset active income or tax liability, but not portfolio
income or tax liability. (See "Passive Loss and Credit Limitations" below in
this section.)
Calculation of Investor's Basis in his BACs. Subject to the "at risk" rules
discussed below, a partner's tax basis for his interest in a limited partnership
includes principally the amount of money he contributes to such partnership, his
allocable share of the partnership's recourse liabilities to the extent that he
bears the economic risk of loss for such liability, and his allocable share of
liabilities as to which neither the partnership nor any partner nor any person
related to any partner is personally liable ("Nonrecourse Liabilities"), to the
extent such liabilities (including interest that accrues with respect thereto
and effectively is added to principal) do not exceed the fair market value of
the property securing such liabilities. A partner's tax basis is increased by
his allocable share of any partnership income, and it is decreased (but not
below zero) by: (i) distributions received by him from the partnership
(including for this purpose his allocable share of a decrease in Nonrecourse
Liabilities), (ii) his allocable share of partnership losses, and (iii) his
allocable share of the partnership's share of any reduction in the basis of an
apartment complex attributable to Historic Tax Credits. However, no reduction in
a partner's tax basis is required as a result of the allocation of Federal
Housing Tax Credits.
The Fund will not itself directly own the Apartment Complexes but is to be a
limited partner in the Operating Partnerships which own the Apartment Complexes.
Counsel will render its opinion to the Fund that the tax basis of each Investor
will include his allocable share of the Fund's share of any mortgage and other
indebtedness incurred by the Operating Partnerships, provided that neither the
Operating Partnerships nor any partner therein has personal liability with
respect to such indebtedness. In giving its opinion, Counsel will be relying, in
part, on a published Revenue Ruling of the IRS. However, the Fund does not
intend to request an IRS advance ruling with respect to this issue, and such
opinion of Counsel is not binding on the IRS.
In certain circumstances, all or a portion of the debt incurred by an Operating
Partnership may be guaranteed by an Operating General Partner or
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a person related to an Operating General Partner. This would result in all or
portion of such debt being treated as recourse debt. The Fund, and thus the
Investors, would not be able to include any such guaranteed portion of such debt
in basis. (See "Allocation of Profits, Credits, Losses and Other Items in
Accordance With the Fund Agreements.")
The Fund will require, in connection with its acquisition of an Interest in any
Operating Partnership, that Counsel render an opinion to the effect that any
mortgage indebtedness incurred by the Operating Partnership constitutes a
nonrecourse liability (except to the extent of any guaranteed portion in the
circumstances described above) for federal income tax purposes. Such opinion of
Counsel will be based, and rely, upon an opinion of counsel to the Operating
Partnership that, under local law, no partner of the Operating Partnership has
or will have personal liability with respect to such mortgage indebtedness.
A partner's pro rata share of the Nonrecourse Liabilities includable in basis is
calculated in accordance with (1) such partner's share of the minimum gain of
the partnership and (2) such partner's proportionate share of the profits of the
partnership. If an Investor's share of the profits of the Fund were to be
challenged and successfully reallocated by the IRS (See "Allocation of Profits,
Credits, Losses and Other Items in Accordance with the Fund Agreements," below),
it could result in a reduction of such Investor's basis in the Fund. Since an
Investor cannot deduct losses in an amount greater than his adjusted tax basis
at the end of the Fund's tax year, any reduction in basis could have the effect
of limiting the ability of an Investor to deduct losses currently and could
consequently trigger gain. Unused losses may be carried forward and may be
deductible in subsequent years to the extent that such Investor has available
tax basis in such years.
Allocation of Profits, Credits, Losses and Other Items In Accordance With the
Fund Agreements. Section 704(b) of the Code provides that tax credits be
allocated in accordance with the respective partners' shares of losses or
deductions attributable to the expenditures that give rise to such credits.
Accordingly, Tax Credits will be allocated to the Fund by each Operating
Partnership, and to the Investors by the Fund, respectively, in accordance with
their respective shares of the losses of each Operating Partnership, and of the
Fund, respectively.
Regulations under Section 704(b) of the Code governing allocations of losses
attributable to guarantees of nonrecourse debt by affiliates of partners treat
any nonrecourse indebtedness of a partnership which is guaranteed or held in
whole or in part by a partner or "a person related to a partner" (as that term
is defined in the Code), as recourse indebtedness for purposes of allocating
profit and loss. This means that losses attributable to the deemed recourse
indebtedness, and associated credits, would be allocated to those partners who
bore the economic risks associated with the guarantee.
It is possible that, in certain circumstances, all or a portion of the debt
incurred by an Operating Partnership will be guaranteed by an Operating General
Partner or a person related to an Operating General Partner. This would result
in the guaranteed portion of the debt being treated as recourse debt.
Accordingly (except as described in the next sentence), losses attributable to
such debt would be allocated to such Operating General Partner, and Federal
Housing Tax Credits attributable to such losses would also be allocated to such
Operating
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General Partner, rather than to the Fund and the Investors. However, the
allocation of such credits and losses to any such Operating General Partner
would be required only to the extent that Capital Contributions of the Fund to
the applicable Operating Partnership were insufficient to offset fully the
losses allocable to it pursuant to the applicable Operating Partnership
Agreement. The General Partner anticipates that the Fund will only make
acquisitions of Interests in Operating Partnerships which will permit the
substantially full allocation (to the extent of the share of credits allocable
pursuant to the applicable Operating Partnership Agreement) of Federal Housing
Tax Credits to the Fund and, through it, to the Investors.
Section 704(b) of the Code provides that each partner's distributive share of
the profits, losses and other items of a partnership is determined in accordance
with the partnership agreement unless (a) the partnership agreement does not
provide for the allocation of each partner's distributive share of profits or
loss (or other item) or (b) the allocation to the partners under the partnership
agreement does not have "substantial economic effect," in which case allocations
will be made in accordance with such partners' interest in the partnership
(taking into account all facts and circumstances). Substantial economic effect
is generally recognized to exist where the allocation of taxable profits and
losses actually affects the partners' shares of economic income or loss
independent of tax consequences.
Regulations with respect to the determination of partners' distributive shares
of partnership items provide clarification of the two part test for substantial
economic effect: (i) that all allocations have economic effect and (ii) that
such effect must be substantial. With respect to the requirement of economic
effect, the Regulations provide, in general, that allocations have economic
effect if (a) the partners' capital accounts are maintained properly and
allocations of items are reflected in adjustments to capital accounts, (b)
liquidation proceeds are required to be distributed in accordance with the
partners' capital account balances, and (c) following the distribution of such
proceeds, partners are required to restore any deficits in their capital
accounts to the partnership. The determination of whether an allocation has
economic effect is made as of the end of the partnership's taxable year to which
the allocation relates. An allocation that does not satisfy requirement (c) may
nevertheless be deemed to have substantial economic effect if the partnership
agreement contains a "qualified income offset."
The Regulations state that a partnership agreement contains a "qualified income
offset" if and only if it provides that a partner who unexpectedly receives
certain types of adjustments, allocations, or distributions in connection with
transfers of partnership interests and distributions of partnership property
which cause or increase a deficit balance in his capital account will be
allocated items of income and gain in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible.
If an agreement satisfies the first two requirements above and has a "qualified
income offset" provision, then an allocation to a partner will have economic
effect to the extent such allocation (other than an allocation attributable to
nonrecourse debt) does not cause or increase a deficit in such partner's capital
account which is greater than such partner's obligation to contribute additional
capital to the partnership. In making this determination, the partner's capital
account must first be reduced to take into account
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certain allocations of loss or deduction and/or distributions which have not yet
occurred but which are reasonably expected to occur in the future.
With respect to the substantiality requirement, the Regulations generally state
that an allocation must have a reasonable possibility of affecting the dollar
amounts to be received by the partners independent of tax consequences in order
to be substantial. An allocation is insubstantial if, as a result of the
allocation, the after-tax economic consequences of at least one partner may be
enhanced while there is a strong likelihood that the after-tax economic
consequences of no partner will be diminished. Furthermore, the Regulations
provide that allocations are insubstantial if they merely shift tax consequences
within a partnership taxable year or are likely to be offset by other
allocations in subsequent taxable years.
Regulations with respect to allocations of loss and deductions attributable to
nonrecourse debt provide that allocations cannot have economic effect because it
is the creditor (rather than any partner) who bears the economic risk of loss
with respect to such indebtedness, but the Regulations provide that allocations
of loss and deductions attributable to such debt will be deemed to be made in
accordance with the partners' interests in the partnership if the following four
requirements are met: (a) partnership capital accounts are properly maintained
and liquidation distributions are made in accordance with capital account
balances; (b) the allocations of loss and deduction attributable to nonrecourse
debt are made in a manner that is reasonably consistent with some other
significant partnership item attributable to partnership property securing the
nonrecourse debt that has substantial economic effect; (c) the partnership
agreement must contain an obligation to restore deficit capital account balances
upon liquidation or a minimum gain chargeback; and (d) all other material
partnership allocations and capital account adjustments must have substantial
economic effect.
A minimum gain chargeback is a provision in a partnership agreement which
requires that, if there is a net decrease in partnership minimum gain during a
partnership taxable year, all partners with deficit capital account balances at
the end of such year (in excess of any amount which such partner is obligated to
restore upon liquidation and such partner's share of partnership minimum gain)
will be allocated, before any other allocations for such taxable year, items of
income and gain for such year (and, if necessary, for subsequent years) in the
amount and in the proportions needed to eliminate such deficits as quickly as
possible.
The amount of partnership minimum gain is computed with respect to each
nonrecourse liability of the partnership by determining the amount of gain which
would be realized by the partnership if it disposed of the partnership property
subject to such liability in full satisfaction thereof, and by then aggregating
the amounts so computed. Special rules are provided for cases where property is
subject to more than one liability, and where property is subject to a debt that
is partially recourse and partially nonrecourse.
Regulations under Section 704(b) of the Code also utilize a concept of partner
nonrecourse debt which includes indebtedness which is nonrecourse to the
partnership but with respect to which a partner or a related person is deemed to
bear the economic risk of loss. Such indebtedness is includable solely in the
tax basis of the partner or partners who bear the economic risk of loss, and any
allocations attributable to such indebtedness must be made to those partner(s)
who bear the economic risk of loss.
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The Regulations under Section 704(b) also require that to the extent the minimum
gain attributable to partnership nonrecourse debt or partner nonrecourse debt is
reduced, there must be a minimum gain chargeback (of income) to those partners
that had previously received allocations of losses or deductions attributable to
the minimum gain with respect to such debt.
In the case of the Fund, all allocations will result in adjustments in Capital
Accounts which will be maintained in accordance with the requirements of the
Regulations. Additionally, the Fund Agreement will contain a qualified income
offset provision, minimum gain chargeback provisions, and a provision stating
that liquidation proceeds will be distributed in accordance with each Partner's
Capital Account. Consequently, it is anticipated that the allocations provisions
of the Fund Agreement will meet the requirements of the Regulations.
Regulations issued under Section 704 of the Code provide that tax credits, other
than tax credits specifically subject to the Regulations under Section 46 of the
Code, are to be allocated in accordance with the allocation of the deductions
attributable to the expenditures relating to such credits. In the case of the
Federal Housing Tax Credits, the allocation would follow the allocation of
depreciation deductions of the Apartment Complex. Since expenditures relating to
the Federal Housing Tax Credits are expected to be funded with Investor Capital
Contributions and nonrecourse indebtedness, the allocation of Federal Housing
Tax Credits to BAC Holders should be permitted in the same ratio as the
deductions for depreciation, which should permit substantially all Federal
Housing Tax Credits to be allocated to the BAC Holders of the Fund. However, if
the Fund (as the limited partner of the Operating Partnership) Capital Account
has been reduced to zero at any time during which the Operating General Partner
has a positive Capital Account or has personal liability with respect to
Operating Partnership debt, then deductions (and hence Federal Housing Tax
Credits if during the credit period) would be allocated to the Operating General
Partner. It is possible that the Service may contend that an Operating General
Partner's obligation to fund operating deficits results in such Operating
General Partner having personal liability on an otherwise nonrecourse loan.
With respect to the allocation of Historic Tax Credits, Regulation Section
1.46-3(f) provides that, in the case of a partnership, each partner takes into
account his share of the credit basis as if he were the direct purchaser of that
share of the property. A partner's share of the credit basis is determined in
accordance with his share of partnership profits on the date on which the
property involved is placed in service by the partnership.
Finally, because of certain fees payable to the Operating General Partners or
their Affiliates by the Operating Partnerships, it is unlikely that the Fund
will receive any Cash Flow distributions from the Operating Partnerships for a
substantial period of time. On this basis, the Service could contend that the
Fund has no economic interest in the Operating Partnerships and therefore should
not be treated as a partner of such Operating Partnerships, and thus is not
entitled to allocations of profits, losses or Tax Credits of the Operating
Partnerships. However, the Fund is legally entitled to cash earnings of the
Operating Partnerships if cash earnings are available in excess of amounts
required to pay fees, and to cash benefits if an Apartment Complex is sold or
refinanced, and the Service has recognized the limited value of
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cash distributions in low-income housing investments in Revenue Ruling 79-300.
Accordingly, even though no Cash Flow is expected for a substantial period of
time, the Fund should still be treated as a partner in each of the Operating
Partnerships.
Upon review of the Fund Agreement and assuming the Fund Agreement will be
executed in substantially this form, it is the opinion of Peabody & Brown that
the allocations set forth in the Fund Agreement have "substantial economic
effect" and/or are in accordance with the interests of the Partners (and BAC
Holders) in the Fund and that, while the outcome of litigation cannot be
predicted with certainty, it is more likely than not that, if the issue were
litigated, a court would so hold. The Fund will obtain an opinion of Peabody &
Brown prior to making any investment in any Operating Partnership to the effect
that the allocations set forth in the Operating Partnership Agreement have
"substantial economic effect" and/or are in accordance with the interests of the
Partners in the Operating Partnership and that, while the outcome of litigation
cannot be predicted with certainty, it is more likely than not that, if the
issue were litigated, a court would so hold.
It is possible that in certain circumstances all or a portion of the debt
incurred by an Operating Partnership will be guaranteed by an Operating General
Partner or a person related to an Operating General Partner. This would result
in the guaranteed portion of the debt being treated as recourse debt.
Accordingly, losses attributable to such debt would be allocated to the
Operating General Partner and Federal Housing Tax Credits attributable to such
losses would also be allocated to the Operating General Partner, rather than to
the Fund and BAC Holders. However, the allocation of such losses and credits to
the Operating General Partner would be required only to the extent that Capital
Contributions of the Fund to the Operating Partnership were insufficient to
offset fully the losses allocable to it pursuant to the Operating Partnership
Agreement. The General Partner anticipates that the Fund will only make
acquisitions of Interests in Operating Partnerships which will permit the
substantially full allocation of Federal Housing Tax Credits to the Fund and the
Investors.
Counsel's opinion assumes that the Capital Account balances (as that term is
defined in the Fund Agreement and the Operating Partnership Agreements) of the
partners of the Fund, or the partners of an affected Operating Partnership, as
applicable, are not significantly adjusted by reason of a termination of the
Fund or an Operating Partnership, or by reason of capital contributions (such
as, for example, unanticipated advances of capital from general partners which
may be deemed for federal income tax purposes to be capital contributions),
other than the Capital Contributions provided for in the Fund Agreement and the
Operating Partnership Agreements. Counsel's opinion also assumes, in those
instances where there are guarantees of Operating Partnership debt by an
Operating General Partner or a person related to an Operating General Partner,
that the Capital Account balances of the Fund in such Operating Partnerships are
sufficient to permit the allocation of credits and losses to the Fund. If such
Capital Accounts are insufficient, Counsel would be unable to render such
opinion.
Because unanticipated circumstances may occur with respect to the Fund which
would affect the allocations of Profits, Credits and Losses, the Fund Agreement
provides, and the Operating Partnership Agreements will pro-
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vide, authority to the appropriate general partner, upon the advice of the tax
advisors to the applicable partnership, to vary the allocations of profits,
losses and credits, or any item thereof, from that contained in the partnership
agreements in any year in order to preserve and protect the allocations of
profits and losses to all partners (and BAC Holders) of the Fund and all
partners (including the Fund) of the Operating Partnerships. (See "Sharing
Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals--Authority
of General Partner to Vary Allocations to Preserve and Protect Partners' and BAC
Holders' Intent.")
If a court were to conclude that any of such allocations lack substantial
economic effect and are not in accordance with the partners' (and BAC Holders')
interests in the Fund or the applicable partners' interests in an Operating
Partnership, partnership income, gain, credit, loss or deduction (or items
thereof) could be reallocated to the Fund and/or its partners and BAC Holders in
a manner substantially less favorable than that set forth in the applicable
Operating Partnership Agreement and/or the Fund Agreement.
Advances Treated as Debt for Federal Income Tax Purposes. If a partnership
borrows funds and the terms of the loan, as well as other facts and
circumstances surrounding the loan, indicate that the funds may be in the nature
of an equity contribution rather than a loan, the IRS could contend that the
advance should not be treated as debt for federal income tax purposes. Advances
by partners or affiliates in the form of nonrecourse loans are particularly
susceptible to such a challenge. If such a challenge were successful, (a) no
interest deductions would be permitted with respect to the advance, (b) the
"lender" may be treated as a partner in the partnership entitled to a
distributive share of partnership items of income, gain, credit, loss or
deduction, and (c) the other partners would not be permitted to include the loan
as a partnership liability for purposes of computing their tax basis in their
partnership interests. If the lender is already a partner, and the funds were to
be treated as an additional equity contribution, the IRS might contend that such
partner is entitled to a greater share of the losses and credits of the
partnership than those allocated to the partner in the partnership agreement.
It is uncertain how the law in this area may be applied to particular facts.
Because of such uncertainty and because the terms and conditions of future
advances, if any, by either the applicable general partner(s) of an Operating
Partnership or of the Fund cannot be foreseen, Counsel is unable to predict at
this time the outcome of any challenge by the IRS to the Fund's or an Operating
Partnership's treatment of any such loans.
Allocation of Profits, Credits and Losses To BAC Holders in Year of Purchase of
BACs. Subject to the rules governing basis limitations and passive losses, a BAC
Holder will be entitled to deduct his pro rata share of the Fund's losses in the
year he purchases BACs, based upon the length of time that he is a BAC Holder
during the year. Although the Code does not specifically provide for any method
other than a daily allocation method, the legislative history of the 1984 Tax
Act indicates that until regulations are issued by the Treasury Department
providing for the appropriate method, a partner admitted to a partnership may be
permitted to receive his share of the partnership's profits and losses for the
entire month he is admitted to the Fund,
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regardless of what day in the month the admission occurs. The Treasury
Department has the authority to issue regulations which are more restrictive
than this monthly convention.
The legislative history of the 1986 Tax Act indicates that allocations of
Federal Housing Tax Credits to partners of partnerships should be determined in
accordance with the same rules as the general partnership profit and loss
allocation rules. The Fund intends to allocate such tax credits on the basis of
the interest in losses of a BAC Holder, or of the Fund in an Operating
Partnership, as applicable, beginning with the month in which such BAC Holder
purchases BACs, or the Fund acquires an Interest in an Operating Partnership, as
applicable.
The rules for allocating Historic Tax Credits are different than those rules for
Federal Housing Tax Credits discussed above, however, and provide that only
Investors who are admitted to the Fund on or prior to the date the building as
to which such tax credits are claimed is placed in service will be allocated
their share of the Historic Tax Credits; correspondingly, the Fund must have
acquired its Interest in the applicable Operating Partnership on or prior to the
date the applicable building is placed in service in order to receive any
allocation of the Historic Tax Credits.
With respect to Federal Housing Tax Credits, special rules for determining the
amount of credit that is available apply for the first year that a building is
occupied by low-income tenants. (See "Tax Credit Programs-The Federal Housing
Tax Credit-Utilization of the Federal Housing Tax Credit.")
Allocation of Profits, Credits and Losses Upon Sale of BACs. The Fund Agreement
provides that on the sale of BACs, the Fund's profits, credits and losses and
cash distributions during the year of the sale will be allocated and distributed
to the purchaser from and after the first day of the month following the
transfer, or by any other agreed upon method approved by the Fund's tax
advisors. There can be no assurance that the IRS would not challenge the use of
any such allocation other than a daily allocation method. (See "Sale or
Disposition of BACs" below in this section.)
Federal Housing Tax Credit
The Code provides for a tax credit for investments in low income housing
constructed, acquired or rehabilitated after 1986, as described under "Tax
Credit Programs--The Federal Housing Tax Credit."
The Fund will not acquire Interests in an Operating Partnership unless it
receives an opinion from Counsel that, assuming (a) that the Apartment Complex
owned by the Operating Partnership satisfies the income and rent restrictions
applicable to Apartment Complexes generating Federal Housing Tax Credits, (b)
that the Apartment Complex receives its State Designation and (c) continuing
compliance with the income and rent restrictions, it is more likely than not
that a BAC Holder will be entitled to his share (based on his interest in the
losses of the Fund) of the Fund's share (based on the Fund's interest in losses
of the Operating Partnership) of Federal Housing Tax Credits generated by an
Apartment Complex. However, because of the many factual issues, no opinion will
be rendered as to whether any particular Apartment Complex qualifies for the
Federal Housing Tax Credit. (See "Tax Credit Programs--The Federal Housing Tax
Credit.")
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State Designation of Apartment Complexes. All Apartment Complexes, except those
financed through the proceeds of tax-exempt bonds subject to the tax-exempt bond
limitation included in the Code, must be allocated Federal Housing Tax Credit
authority by the applicable state or local credit agency. Failure of an
Apartment Complex to receive State Designation or to meet initially the
applicable income and rent restrictions would result in the denial of all
Federal Housing Tax Credits with respect to an Apartment Complex. This would
materially reduce the tax benefits to an Investor of a purchase of BACs. At the
time the Fund is admitted to an Operating Partnership, it is possible that the
Operating Partnership will not yet have received its State Designation, or will
not have rented a sufficient number of units in the Apartment Complex to know
whether the income level and the rent restriction tests can be met. The
Operating Partnership Agreements are anticipated to provide for a repurchase of
the Fund's Interest by the Operating General Partners if, among other things, an
Apartment Complex does not receive its State Designation in the year in which
the Apartment Complex is placed in service or has not met both the income level
and rent restriction tests within 12 months after an Apartment Complex is placed
in service. (See "Investment Objectives and Acquisition Policies--Acquisition
Policies.") Although the General Partner will use its best efforts to reinvest
promptly any funds received on such a repurchase in Operating Partnerships
owning Apartment Complexes eligible for Federal Housing Tax Credits (subject to
the limitations set forth in "Investment Objectives and Acquisition
Policies--Acquisition Policies"), there is no assurance that the General Partner
will be able to reinvest the proceeds of such a repurchase in new Operating
Partnerships. Any reinvestment is likely to cause a delay in obtaining Tax
Credits. In addition, it is possible that the proceeds may be reinvested in
Operating Partnerships that have already begun the 10-year Federal Housing Tax
Credit period, which would result in a reduced amount of Federal Housing Tax
Credits. (See "Investment Objectives and Acquisition Policies--Unused or
Returned Funds.")
Historic Tax Credit
As described in "Tax Credit Programs--Historic Historic Tax Credit," the Code
provides for a separate tax credit equal to 20% of qualified rehabilitation
expenditures for certified historic structures. It is anticipated that a portion
of the net proceeds of the Offering may be used to invest in Operating
Partnerships owning Apartment Complexes eligible for Historic Tax Credits.
With respect to any Non-Profit Operating Partnership, an amount of otherwise
qualified rehabilitation expenditures equal to the tax-exempt entity's highest
proportionate share of any interest in an Apartment Complex will not be eligible
for Historic Tax Credits.
The entire Historic Tax Credit can be claimed only in the year in which the
property generating the credit is placed in service. Each BAC Holder would be
entitled to take into account separately his allocable share of the Historic Tax
Credit attributable to any qualified investment on the date the property is
placed in service. BAC Holders acquiring BACs after such date will not be
entitled to any portion of the Historic Tax Credit.
The use of the Historic Tax Credit is limited by the amount that the taxpayer
has "at-risk" with respect to the investment that generates the Historic Tax
Credit. In addition to the "at risk" requirements described in "Federal
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Income Tax Matters--"At Risk" Limitations", a taxpayer must be "at risk" for a
minimum of 20% of the credit base of the property. To the extent that a taxpayer
is protected against loss through guarantees, stop-loss agreements, or other
similar arrangement, a taxpayer may not be considered "at risk" with respect to
his investment. Capital Contributions made by the Fund to an Operating
Partnership may be subject to an adjuster, repurchase or other "stop loss"
provision. It is possible that the IRS will argue that BAC Holders will not be
deemed to be "at risk" with respect to their Capital Contributions until such
provision terminates, thus deferring their ability to utilize Tax Credits for
expenditures funded with their Capital Contributions. Based on the Proposed
Regulations under Section 465 of the Code, the determination of this issue would
likely depend upon whether any adjuster or repurchase provision would
effectively protect Investors against loss in all likely situations. It is
possible that the IRS will argue that an obligation given to the Fund by an
Operating Partnership to repurchase its Operating Partnership Interest or to
return its Capital Contributions will be treated as a guarantee or stop-loss
agreement. Given the lack of direct authority on this issue, Counsel is unable
to predict the outcome of any such challenge. If a court were to conclude that a
repurchase obligation provides protection against loss in a similar manner as a
guarantee or stop loss agreement, then the credit base for purposes of
determining Historic Tax Credits may be reduced in an amount equal to the Fund's
equity investment in the applicable Operating Partnership, resulting in a denial
of Historic Tax Credits.
Certain Operating Partnership Agreements could, but are not currently
anticipated to, provide for a repurchase of the Fund's Operating Partnership
Interest (or in certain circumstances a reduction in the Capital Contributions
of the Fund to the applicable Operating Partnership) in the event the Apartment
Complex does not receive certification from the United States Secretary of the
Interior within certain time limits, but only if the Fund receives an opinion of
Counsel that it is more likely than not that such repurchase and reduction
obligations would not be treated as a guarantee or stop-loss agreement. As of
the date of this Prospectus and based on current law, Counsel anticipates that
it will be unable to render a favorable opinion in such a situation. In the
event that such repurchase and reduction obligations are included in an
Operating Partnership Agreement and either of such events occurs, there is no
assurance that the General Partner will be able to reinvest the proceeds in
Operating Partnership Interests meeting the investment objectives of the Fund,
and any reinvestment would probably cause a delay in obtaining any Tax Credits,
and any such Tax Credits might or might not include Historic Tax Credits. (See
"Investment Objectives and Acquisition Policies.")
The Fund will not acquire Interests in an Operating Partnership owning an
Apartment Complex eligible for Historic Tax Credits unless it receives an
opinion of Counsel that assuming that (a) an Apartment Complex meets the
requirements for the Historic Tax Credit, and (b) the Fund has acquired its
Interest in the Operating Partnership at or prior to the time the Apartment
Complex owned by the Operating Partnership is placed in service, each BAC Holder
who acquired his BACs at or prior to the time the Apartment Complex is placed in
service will be entitled to his share (based on his interest in the profits of
the Fund) of the Fund's share (based on the Fund's share of profits in the
applicable Operating Partnership) of Historic Tax Credits generated by such
Apartment
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Complex. However, because of the many factual issues, no opinion will be
rendered as to whether any particular Apartment Complex qualifies for the
Historic Tax Credit.
Passive Loss and Tax Credit Limitations
Code Section 469 imposes limits on the ability of certain taxpayers as described
below 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.
With certain limited exceptions, a limited partner will not be treated as
materially participating in a limited partnership's activities. With the
exception of the portion of the partnership's income that is portfolio income,
based on the anticipated activities of the Fund, Counsel is of the opinion that
the profits, credits and losses of the Fund will be treated as derived from a
passive activity.
Portfolio income generally includes net 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, and 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. Although the matter is
not free from doubt due to the factual nature of the issue, it is anticipated
that the activities of the Fund will constitute the conduct of a trade or
business. Consequently the portfolio income of the Fund will primarily consist
of interest earned on its invested reserves, which could amount to a substantial
allocation of portfolio income. Prospective Investors should be aware that the
Department of Treasury has reserved the right to recharacterize other types of
income from passive activities as portfolio income, and that proposed
regulations have been issued which would recharacterize certain types of
"self-charged" interest income as passive activity income. Foreign tax credits
are not subject to the passive loss rules.
Individuals. Individual taxpayers may use Tax Credits from passive activities to
offset certain amounts of tax liability from non-passive sources. Individuals
can utilize Tax Credits to offset taxes on up to $25,000 of active or portfolio
income. Thus, an individual taxed at the 31% tax rate could use Tax Credits to
offset $7,750 (31% x $25,000) in taxes on such income, and an individual taxed
at a 36% or 39.6% tax rate could use Tax Credits to offset $9,000 and $9,900,
respectively, in taxes on such income. Married individuals filing separately may
each use Tax Credits to offset taxes on up to $12,500 of non-passive income, but
only if they have lived apart for the entire year. Otherwise, married
individuals filing separately may not utilize Tax Credits to offset taxes on
non-passive income.
Tax Credits in excess of the $25,000 limit are subject to the general rules
governing passive activities. Under these general rules in Code Section 469,
individual taxpayers generally are allowed to use credits or deduct losses
generated by passive activities only to the extent of income or tax liability
generated by passive activities. If an individual investor has no passive income
for a taxable year against which losses can be offset, or no passive income tax
liability against which passive credits may be used, any losses and credits
allocated to him will be carried forward to the succeeding tax-
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able year. Thus, Tax Credits in excess of the $25,000 limit can be used by such
taxpayers only against tax liability arising from passive activities or carried
forward pursuant to the passive activity loss limitation rules.
Losses of limited partners from limited partnerships owning apartment complexes
are not eligible for the $25,000 allowance. Thus, they are subject to the
general rules under Section 469 and can only be used against passive income or
be carried forward. Upon disposition of an Interest, any unused passive losses
that were carried forward by an Investor may be used without limitation, first
to offset any capital gain realized upon disposition and any remaining losses
may be used to offset any active income as directed by Section 469.
Notwithstanding the foregoing, Investors subject to the alternative minimum tax
would still have to take into account the alternative minimum tax passive loss
limitations.
For taxpayers with adjusted gross income of less than $150,000, and who actively
manage rental real estate properties, there is an exception to the general rule
which allows their losses from these properties to be eligible for up to a
$25,000 allowance each year. For taxpayers with adjusted gross income of between
$100,000 and $150,000 there is a gradual phaseout of the $25,000 yearly
allowance. However, the $25,000 amount each year is an aggregate allowance for
both credits and losses of the same taxpayer. Accordingly, if a taxpayer has
both eligible credits and losses, the losses from the active rental activities
must be used before the credits. In addition, credits other than Federal Housing
Tax Credits (such as Historic Tax Credits) must be used before Federal Housing
Tax Credits.
With respect to Historic Tax Credits only (and not with respect to Federal
Housing Tax Credits), individual taxpayers will have this special $25,000
exception phased out if their adjusted gross income is in excess of $200,000.
With respect to Federal Housing Tax Credits, pursuant to the Omnibus Budget
Reconciliation Act of 1989, the previously-existing $200,000-$250,000 adjusted
gross income limitation was repealed with respect to Federal Housing Tax Credits
generated by apartment complexes which are placed in service after 1989 and as
to which an interest is acquired after 1989.
Under the 1987 Tax Act, income, credits and losses of a partnership classified
as a publicly-traded partnership are also characterized as passive income,
credits and losses from a separate activity. Credits and losses from an
investment in a publicly-traded partnership can only be used as an offset
against income subsequently generated by the publicly-traded partnership, and
income from a publicly-traded partnership cannot be sheltered by losses from
other passive activities. Federal Housing Tax Credits or Historic Tax Credits
generated by a publicly-traded partnership must first be used to reduce the
income of the publicly-traded partnership before it may reduce income from other
sources. However, it is not anticipated that the Fund will be classified as a
publicly-traded partnership. (See "Classification as a Partnership" above in
this section.)
Corporations. Except as described below, corporations are generally not subject
to limitations on their use of passive credits and losses and can utilize such
credits and losses against any type of income or the tax liability attributable
to any type of income, except as provided below. Two types of corporations,
however, are subject to limitations: closely-held C corpora-
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tions and personal service corporations. Closely-held C corporations are those 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.
For the purposes of such a determination, stock held by related parties is taken
into account pursuant to special stock attribution rules. Members of a family
who are a spouse, a brother or sister, or an ancestor or lineal descendant of a
shareholder are counted together with that shareholder as a single shareholder.
Unlike regular C corporations, closely-held C corporations may not use passive
losses and credits to offset tax liability attributable to portfolio income.
Closely-held corporations which are not personal service corporations (as
discussed below) are allowed to utilize their passive activity losses and their
passive activity credits to offset their tax liabilities arising from net active
income. Generally this special exemption would allow such closely-held
corporations to shelter their taxable income from other sources, other than
portfolio income, with credits and losses from passive activities; however,
because of the "at risk" limitations discussed below, closely-held C
corporations could receive a lower yield on their investment than other
Investors if an Apartment Complex receives financing which is not qualified
nonrecourse financing for purposes of the "at risk" rules in sections 465 and 46
of the Code.
Personal service corporations are only allowed to use passive credits and
losses, including Tax Credits, to shelter passive income or tax liability
attributable to passive income. 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, and
such services are substantially performed by any employee who owns, on any day
during the year, any of the outstanding shares of such corporation. For this
purpose, stock held by related parties is taken into account pursuant to special
stock attribution rules generally similar to those described in the previous
paragraph for closely-held corporations. In general, if the compensation paid in
any manner to the shareholders of the corporation who perform such services is
more than 20% of the total compensation paid to all employees, the corporation
will be classified as a personal service corporation. Corporations, the
principal purpose of which is the performance of personal services, are strongly
advised to consult their professional advisors regarding their classification as
personal service corporations for this purpose.
Since a corporation subject to Subchapter S of the Code is treated as a
pass-through entity for federal tax purposes, each shareholder is generally
subject to the limitations on the use of Tax Credits and passive losses which
apply to individuals.
All Taxpayers. Notwithstanding the exemption from the passive activity
limitations for most C corporations, two other restrictions may prevent current
use of Tax Credits by all taxpayers. First, Tax Credits cannot be used to offset
tax attributable to the alternative minimum tax. Second, Tax Credits are subject
to the rules governing general business credits which limit the amount of tax
liability which may be offset by business credits in any one year. Under this
rule, the amount of tax credits which may be used is equal to $25,000 of regular
tax liability plus 75% of any remaining regular tax liability, subject to the
limits of the tentative minimum tax. Once Tax Credits have been made
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available under the $25,000 limitation, those Tax Credits are treated as credits
arising from an active, rather than a passive, activity. Tax Credits which
cannot be used because of the foregoing restrictions of the alternative minimum
tax and general business credit rules may be carried back 1 year or forward 20
years. For taxpayers subject to the passive loss rules, those taxpayers with tax
liabilities attributable to net passive income may use Tax Credits to offset
that tax, subject to the limitation on business credits described above and the
alternative minimum tax. Any excess passive Tax Credits may be carried forward
and used indefinitely, but not back, against tax liability attributable to net
passive income in future years, subject to the above limitations in those years.
"At Risk" Limitation on Credits and Losses
Sections 465 and 46 of the Code place limits on the amount of credits, and of
losses, that may be used by individuals and closely-held corporations, which
limits relate to the amount which any such taxpayer has "at risk". Generally,
partners will be deemed to be at risk for purposes of calculating credit base,
and of deducting losses, with respect to nonrecourse financing if it is
qualified nonrecourse financing.
Under Section 465 of the Code, the deduction of losses from an activity,
including real estate activities, is limited to the amount such a taxpayer has
at risk with respect to the activity. However, the Code provides an exemption
from the at risk rule for real property, if it is financed with certain
third-party nonrecourse debt.
Under Section 46 of the Code, the credit base for purposes of determining the
amount of available Tax Credits is limited to the basis of the property less any
nonqualified nonrecourse financing. In addition, with respect to Historic Tax
Credits, no more than 80% of the credit base for purposes of computing the
Historic Tax Credit may consist of nonrecourse financing, nor may the financing
be obtained from a related party. (See "Historic Tax Credit" above in this
section.)
It is anticipated that, in most instances, the Permanent Mortgage Loan obtained
by an Operating Partnership will be nonrecourse financing from third parties
unaffiliated with the Fund, the Operating Partnership or any partners, and that
such financing will qualify as qualified nonrecourse financing for purposes of
Section 465 and Section 46 of the Code.
In certain instances, however, all or a portion of otherwise nonrecourse debt
may be guaranteed by an Operating General Partner or a person related to an
Operating General Partner. This would result in the Fund and the Investors being
unable to include such financing in the basis for purposes of the at risk rules,
and could delay or prevent the allocation of losses, and credits attributable to
depreciation losses, to the Fund and the Investors, but would not adversely
affect the at risk basis for purposes of generating credits. Nonetheless, the
General Partner anticipates making acquisitions only in those Operating
Partnerships which will not limit the availability of credits. Assuming that the
Permanent Mortgage Loans are qualified nonrecourse financing, in the opinion of
Counsel it is more probable than not that the at risk rule will not limit the
availability to an Investor of credits, nor limit the deduction by an Investor
of losses, resulting from inclusion in basis of such Permanent Mortgage Loans.
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It is anticipated that the Operating Partnerships will pay Development Fees to
the Operating General Partner or its Affiliates and, in certain cases, to Boston
Capital. It is likely that such Development Fees will accrue in one taxable year
but be paid over a two to three year period. The Operating Partnerships intend
to include the full amount of such accrued Development Fees in Eligible Basis
for purposes of Federal Housing Tax Credits, and, where applicable, in basis for
purposes of computing Historic Tax Credits. The IRS may contend that any portion
of the Development Fee which will not be paid currently is not properly
includable in basis. If the IRS were successful, the amount of the Tax Credits
would be delayed or reduced. Because of the lack of judicial or regulatory
guidance with respect to this issue, Counsel is unable to predict the outcome of
such a challenge.
Purchase of Existing Apartment Complexes From Tax-Exempt or
Governmental Entities
For purposes of the at-risk rules, qualified nonrecourse financing includes any
loan from a federal, state or local government and certain financing from a
"qualified person." The definition of qualified person generally excludes the
person from whom the taxpayer acquired the property. Therefore, purchase money
indebtedness is generally excluded from the at-risk basis for purposes of the
Federal Housing Tax Credits. However, Section 42 of the Code provides an
exception to this rule for purchase money indebtedness from a qualified
nonprofit organization, which is generally defined to include tax-exempt
organizations, including governmental entities, engaged in fostering low-income
housing. If (a) no more than 60% of the tax credit basis represents such
purchase money indebtedness, (b) the interest rate on the indebtedness is not
lower than 1% less than the applicable federal rate, (c) the financing is
secured by the qualified low-income building (which in certain instances would
require prior approval of any government agency providing Government
Assistance), and (d) the financing will be repaid on or before the earlier of
maturity or the end of the initial 15-year Compliance Period, then the full
amount of such financing may be included in the Federal Housing Tax Credit
basis.
The Fund may acquire interests in Operating Partnerships which will use the
above described form of financing to purchase existing Apartment Complexes from
tax-exempt entities. It is anticipated that the sale by a tax-exempt entity of
an Apartment Complex to an Operating Partnership would be for a combination of
cash, assumption of any mortgage indebtedness and a purchase money note. It is
likely that in any such transaction, the tax-exempt entity will have recently
acquired the Apartment Complex from an unrelated taxable entity. Under such
circumstances, it is likely that the taxable entity sold the Apartment Complex
to the tax-exempt entity for a price below its fair market value, with the
difference between the sale price and fair market value being treated as a
charitable contribution. Such a transaction is known as a bargain sale.
If an Operating Partnership acquires an Apartment Complex from a tax-exempt
entity under such circumstances, the IRS may attempt to recharacterize the
transaction. The IRS may argue that the bargain sale to the tax-exempt entity by
the taxable entity and the subsequent resale to an Operating Partnership should
be ignored for tax purposes, and may seek to treat the transaction as a direct
purchase by the Operating Partnership from
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the taxable entity. If the IRS were successful, any purchase money indebtedness
would be excluded from the tax credit basis for the Apartment Complex, thus
materially reducing the tax benefits to Investors. Counsel is unable to predict
the outcome of any such challenge.
As a separate matter, even if the IRS were to respect the form of the
transaction, the IRS could challenge the value of an Apartment Complex acquired
with purchase money indebtedness notwithstanding the proper inclusion of such
indebtedness for "at risk" purposes. An owner of property may not include in
basis indebtedness deemed not to be bona fide indebtedness for federal income
tax purposes. Cases and rulings by the IRS have held that a nonrecourse purchase
money note may not be included in basis for federal income tax purposes unless
the fair market value of the property at least approximately equals the sum of
all indebtedness incurred in connection with the property.
If an Operating Partnership were to acquire an Apartment Complex using purchase
money indebtedness, an appraisal will be obtained from an independent qualified
appraiser supporting the purchase price of the Apartment Complex (and any
anticipated accrued but unpaid interest on indebtedness in connection with the
financing thereof). However, because the issue of fair market value is
essentially factual, and because such value is not presently ascertainable,
Counsel cannot predict the outcome if the value of such an Apartment Complex
were challenged by the IRS.
In any event, not more than 20% of the Fund's investment in Operating
Partnership Interests with respect to any series of BACs will be comprised of
acquisitions of Interests in Operating Partnerships using the form of
acquisition financing described above.
Investment by Tax-Exempt Entities
Investments in the BACs may be offered to tax-exempt entities which have and
expect to continue to have income subject to federal income taxation sufficient
to use the Tax Credits expected to be derived from an investment in the Fund.
Tax-exempt entities, such as pension funds and non-profit corporations,
generally are exempt from taxation except to the extent that "unrelated business
taxable income" ("UBTI") (determined in accordance with Sections 511-514 of the
Code) exceeds $1,000 during any fiscal year. A tax-exempt entity may have UBTI
from other businesses in which it owns an interest. In addition, it will have
UBTI if a partnership in which it has an interest either (i) is determined to be
a publicly traded partnership (see discussion under "Classification as a
Partnership" above in this section), or (ii) owns "debt-financed property", that
is, property in which there is "acquisition indebtedness" (in accordance with
Section 514(d) of the Code), and the partnership earns interest income from the
debt-financed property or realizes gains or losses from the sale, exchange or
other disposition of the debt-financed property.
The Code does not impose restrictions on the acquisition of interests in
partnerships such as the Fund by pension plans and non-profit corporations.
However, the application of the rules governing Federal Housing Tax Credits as
applied to tax-exempt entities is unclear. This is a complicated area and those
entities should consult their own tax advisors with regard to the tax aspects of
such investments.
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Persons maintaining pension plans should bear in mind that the tax attributes of
an investment in the Fund by such plans do not flow through to the individual
maintaining the accounts. Thus, for example, an individual beneficiary of a
pension plan that purchases BACs will not receive the tax benefit of credits or
deductions from the Fund because he cannot claim such credits or deductions on
his own individual income tax return and they are of no benefit to the
tax-exempt entity as long as it is exempt from tax.
The trustee or custodian of a pension plan which purchases BACs may be required
to file Form 990-T (Exempt Organization Business Income Tax Return) with the IRS
to report UBTI, if any, and to pay from the employee pension benefit plan the
tax on any such income in excess of $1,000.
Recapture of Tax Credits
An Investor who has received Federal Housing Tax Credits will be subject to the
recapture of a portion of such credits taken in prior years, plus interest, if
either (1) an Apartment Complex fails to remain in compliance with the income
and rent restrictions, or (2) the Fund disposes of its Interest in an Operating
Partnership, or (3) an Operating Partnership sells an Apartment Complex.
Generally, any change in ownership of a building during the Federal Housing Tax
Credit compliance period is an event of recapture, unless a bond is posted by
the seller with the Secretary of the Treasury in an amount satisfactory to the
Treasury, and it can be reasonably expected that the building will continue to
be operated as a qualified low-income building for the remainder of such
compliance period. Similarly, a disposition by the Fund of its Interest in an
Operating Partnership will result in recapture of the accelerated portion of the
Federal Housing Tax Credits taken with respect to the applicable Apartment
Complex unless the Fund posts a bond as described above. In either event-the
disposition of a building or the disposition of the Fund's Interest in an
Operating Partnership-the posting of the bond allows the Fund to avoid recapture
of any Federal Housing Tax Credits previously taken with respect to the
applicable Operating Partnership.
An Apartment Complex eligible initially to receive Federal Housing Tax Credits
must remain in compliance with the income and rent restrictions for a period of
15 years beginning with the first day of the first taxable year in which the
credit is claimed. Failure of an Apartment Complex to meet the income and rent
restrictions will result in a recapture of a portion of all of such credits
taken in prior years, plus interest, and will result in a disallowance of the
credit for the year of the recapture event. During the first 11 years of the
compliance period, if requirements are not met, one-third of the credits earned
up to that point are recaptured, plus interest; between years 11 and 15, the
recapture is phased out ratably so that in year 15 only 1/15 of previously taken
credits attributable to the non-complying dwelling units in the applicable
Apartment Complex would be recaptured, plus interest.
If there is a decrease in the Qualified Basis of an Apartment Complex, but the
Minimum Set-Aside Test and Rent Restriction Test are still being met with
respect to other units in the Apartment Complex, there would be a recapture
with respect to the decrease in Qualified Basis under the same formula as
described in the immediately preceding sentence. (See "Tax
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Credit Programs--The Federal Housing Tax Credit-Eligible Basis and Qualified
Basis.")
In addition to the recapture of previously taken Federal Housing Tax Credits,
failure to maintain the income and rent restrictions throughout the compliance
period would also result in loss of credits for future years. However,
correction of the noncompliance within a "reasonable" time period would prevent
the occurrence of a recapture event.
Recapture of prior years' credits and loss of future years' credits would
materially reduce the tax benefits to a BAC Holder and the recapture could have
significantly adverse tax consequences to a BAC Holder. No apartment complex
invested in by the Fund and its Affiliates has ever failed to meet the Federal
Housing Tax Credit Requirements.
Pursuant to Section 42(j)(5) of the Code, certain partnerships are deemed to be
"treated as the taxpayer" for purposes of the recapture, which means that
partners in such partnerships may transfer their interests without recapture and
without posting a bond. Such partnerships are those which have at least 35
partners. Because the Fund has at least that many BAC Holders, and because the
Fund does not intend to elect not to have Section 42(j)(5) apply, the Fund will
be treated as the taxpayer. Thus, no recapture will result to the transferor BAC
Holder on the disposition of BACs (as long as within a 12-month period at least
50% (in value) of the ownership is unchanged). However, if a recapture event
occurs during the period the transferee BAC Holder owns BACs, the transferee BAC
Holder will be required to recapture a portion of the Federal Housing Tax
Credits previously taken by the transferor BAC Holder. (See "Tax Credit
Programs--The Federal Housing Tax Credit.")
With respect to any Historic Tax Credits claimed, such credits will be
recaptured if a qualifying Apartment Complex is disposed of by an Operating
Partnership, or the Fund disposes of its Interest in an Operating Partnership,
prior to the expiration of five years from the date the rehabilitated Apartment
Complex was placed in service. For purposes of determining the recapture of
Historic Tax Credits, a disposition is deemed to occur upon any sale, exchange,
transfer, distribution, involuntary conversion, gift or lease of the property,
or the occurrence of any other event which causes the property to cease to
qualify for the Historic Tax Credit. The recapture amount would be equal to 100%
of the Historic Tax Credit if disposition occurs within the first year, phasing
down ratably to 20% of the credit in year five. In addition, even if the
Apartment Complex is not sold, or the Fund does not dispose of its Interest in
the Operating Partnership, recapture will be triggered if a Partner's or BAC
Holder's interest in profits is reduced to two-thirds or less of the interest in
profits that such partner held when the Apartment Complex was placed in service.
Once this threshold is met, the recapture amount is equal to the extent of the
reduction of the Partner's or BAC Holder's interest in profits. There is no
recapture after the Apartment Complex has been in service for 5 years.
If a taxpayer is subject to recapture, and is liable for any additional tax, no
unused credits may be used to offset that liability.
Depreciation
General. The Code permits owners of depreciable real and personal property to
take an annual deduction for depreciation based on the entire cost
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of such property (without regard to salvage value) over a statutorily determined
recovery period. Deductions for depreciation commence when depreciable property
is placed in service.
Depreciation of Real and Personal Property. The recovery period over which
depreciation deductions will be taken with respect to the real property of the
Apartment Complexes is 27-1/2 years using the straight line method, pursuant to
the provisions of the Code. However, with respect to any Non-Profit Operating
Partnership, an amount equal to the tax-exempt entity's highest proportionate
share of any interest in an Apartment Complex will be depreciated over 40 years
using the straight line method.
The Operating Partnerships also will use shorter recovery periods and the
accelerated depreciation methods prescribed by the Code for personal property
used in the Apartment Complexes. As a result of such election, most personal
property used in the Apartment Complexes, such as appliances, will be
depreciated over a 7-year period based on the 200% declining balance method,
switching to the straight line method at a time that will maximize the allowable
deductions.
Although the Code prescribes the recovery period which a taxpayer may use for
its depreciable assets, there are, however, still some issues relating to the
computation of depreciation with respect to which there may be uncertainty.
These include, for example, the allocation of costs among depreciable and
nondepreciable property and among different classes of depreciable property, the
inclusion of certain capitalized fees in the depreciable basis of the
property,and the proper time for commencing depreciation, that is, when the
improvements are first placed in service. Such issues are factual, and, for that
reason, Counsel cannot predict the outcome of a challenge with regard to them.
Construction Period Expenditures
Construction Period Interest and Taxes. Pursuant to the Code, construction
period interest and taxes must be capitalized. Accordingly, all construction
period interest and taxes attributable to the Apartment Complexes will be added
to the depreciable basis of the Apartment Complexes.
In addition, in the case of partnerships, except to the extent provided in yet
to be released regulations, this provision applies at the partner level to the
extent that any partnership debt is less than the total capitalized cost of
constructing an Apartment Complex. Although it is not yet entirely clear, to the
extent that a partner has interest expense attributable to a trade or business
unrelated to his interest in a partnership, it is possible that such interest
expense may be required to be capitalized.
For purposes of the Code, the relevant "construction period" is determined on a
building-by-building basis for each of the buildings in an apartment complex.
The construction period begins when the construction of each building commences
and ends when the building is ready to be placed in service. "Construction
period interest" includes interest accrued during the construction period on any
construction loan and interest on any deferred development fees payable to
general partners during this period.
Other Expenses Incurred During the Construction Period. Section 195 of the Code
classifies certain expenditures as start-up expenditures that must then be
permanently capitalized or, at the election of the taxpayer, amortized over
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a period of 60 months beginning with the month in which the active trade or
business begins. A start-up expenditure is defined to include an amount paid or
incurred in connection with "any activity engaged in for profit and for the
production of income before the day on which the active trade or business begins
in anticipation of such activity becoming an active trade or business," and
which would be otherwise allowable as a deduction if paid or incurred in
connection with an existing active trade or business. Under Code Section 195,
the Treasury Department is authorized to prescribe regulations which will
determine when an active trade or business begins. In light of its position in
certain litigation before the enactment of Code Section 195 in its current form,
the IRS is expected to take the position that a real estate partnership has not
begun carrying on an "active trade or business" until the dwelling units it is
constructing are ready for occupancy. Accordingly, each Operating Partnership
will treat that portion of the Operating Partnership's management fees, if any,
and other ordinary and necessary expenses incurred before its first dwelling
units are ready for occupancy as start-up expenses, to be amortized over a
period of 60 months.
Certain Fees and Expenses
Fees Paid from Capital Contributions or Fund or Operating Partnership Cash Flow.
The Fund intends to pay various fees to the General Partner and/or its
Affiliates, and the Operating Partnerships intend to pay the Operating General
Partner(s) and/or their Affiliates certain fees. The Fund will pay an
Acquisition Fee to Boston Capital, and certain other offering and syndication
fees to Affiliates of the General Partner, from the Capital Contributions of the
Investors, for services rendered to the Fund in acquiring and managing the
business and assets of the Fund. It is anticipated that the Operating
Partnerships will pay Development Fees to the Operating General Partners or
their Affiliates, from the Capital Contributions of the Fund to the applicable
Operating Partnership, for services rendered to the applicable Operating
Partnership in the development of the applicable Apartment Complex; in certain
circumstances an Operating Partnership may pay an Acquisition Fee and/or a
Development Fee (or a portion thereof) to Boston Capital. In addition, the Fund
will pay an annual Fund Management Fee to the General Partner or its Affiliates
from the cash flow of the Fund, and it is anticipated that the Operating
Partnerships will pay annual Reporting Fees to an Affiliate of the General
Partner, and annual partnership management fees and property management fees to
the Operating General Partners or Affiliates thereof, in each case from cash
flow of the applicable Operating Partnership.
The Fund and the Operating Partnerships will not deduct or amortize any amounts
relating to the above fees which are deferred until such amounts are paid,
unless specifically provided by the Code. Further, any portion of such fees
related to services performed in the acquisition of property used in an
Apartment Complex owned by an Operating Partnership will be amortized over
27-1/2 years. The Acquisition Fee will be amortized over a period roughly
corresponding to the depreciable life of the Apartment Complex (and a portion
over 40 years with respect to a Non-Profit Operating Partnership).
Offering expenses will be capitalized by the Fund and not deducted or amortized.
Fund organization expenses will be amortized over 60 months.
Under Section 267 of the Code, a partnership may not deduct unpaid amounts of
deductible business expenses accrued and owing to a cash
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basis partner (or any person related to that partner) until those amounts are
paid or taken into income. The Fund and the Operating Partnerships intend to
deduct all expenses in accordance with these provisions.
All fees attributable to the construction of the Apartment Complexes will be
capitalized in accordance with Section 263A of the Code.
All expenditures of the Fund and the Operating Partnerships must constitute
ordinary and necessary business expenses in order to be deducted when incurred,
unless the deduction of any such item is otherwise expressly permitted by the
Code (e.g., interest and certain taxes). In addition, the expenditures must be
reasonable in amount and be for services which do not represent an expense
required to be capitalized and which are performed during the taxable years in
which paid or accrued, rather than for future years. Any compensation paid to a
partner for services must be for services rendered other than in his capacity as
a partner or must be determined without regard to partnership income.
The payment of the various fees for services from Capital Contributions is not
determined by arm's length negotiations. Instead, the amounts of the payments
are determined on the basis of the experience of the General Partner and its
Affiliates in this area and on the basis of their (and in connection with the
Operating Partnerships, the Operating General Partners') judgment of the value
of the services provided. The General Partner believes that the fees described
above represent compensation for services rendered, and that such fees are
reasonable and comparable to the compensation that would be paid to unrelated
parties for similar services.
It is possible, however, that the IRS will challenge one or more of these
payments and contend that the amount paid for the services exceeds the
reasonable value of those services, in which case the IRS would seek to disallow
as a deduction that portion of the amount paid which is determined to be in
excess of the reasonable value of the services. (It is probable that an amount
disallowed as a deduction would be capitalized and amortized over some period of
years.) In addition, the IRS might accept the reasonableness of a fee, but
contend that the fee should be deducted in a later year, or be capitalized
rather than deducted, or be amortized over a period longer than the period
chosen by the Fund or an Operating Partnership. Because the issues of the
reasonableness of such fees, or the period to which such fees relate, are
factual, Counsel cannot predict the outcome in the courts of a challenge by the
IRS with respect to such issues. However, if in fact the payments are made as
compensation for services, if the services provided are ordinary and necessary
to the business of the Fund or an Operating Partnership, and if the amount of
any fee is determined to be reasonable, Counsel believes that it is more
probable than not that, if litigated, the treatment of such fee described above
would be upheld.
Sale or Disposition of BACs
Pursuant to the 1997 Taxpayer Relief Tax Act, gain or loss recognized by a BAC
Holder on the sale of BACs will generally be taxed at the same rate as the BAC
Holder's other ordinary income, except that for capital gains a ceiling on the
tax for individuals is set at 20% (except with regard to the sale or exchange of
real property, in which case the capital gains which represent the recapture of
depreciation taken on such property are taxed at
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a maximum rate of 25%) and for corporations at 35%. In computing such gain or
loss, the selling BAC Holder's allocable share of the Fund's share of any
existing nonrecourse liabilities of the Apartment Complexes is included in the
amount realized, and a BAC Holder may offset against any gain by the amount of
any suspended passive losses. A BAC Holder who does not have suspended passive
credits or losses to offset any gain may realize taxable gain and the sale may
not result in cash proceeds sufficient to pay the tax obligations arising from
such sale. BAC Holders may also be subject to recapture of a portion of prior
Tax Credits claimed if they sell or dispose of all or a portion of their BACs,
if such disposition, in connection with other dispositions of their Interests by
other BAC Holders, results in 50% or more of all Interests in the Fund being
disposed of within a twelve-month period. (See "Calculation of Investor's Basis
in his BACs," "Passive Loss and Tax Credit Limitations" and "Recapture of Tax
Credits" above.)
A gift of BACs may also have federal income and/or gift tax consequences. (See
"Certain Other Tax Considerations--Consequences of Gift or Death" below in this
section.)
Although it is unlikely that a market will develop, and therefore BAC Holders
may not be able to dispose of their BACs, the Fund anticipates issuing BACs in a
form permitting trading. (See "Description of BACs (Beneficial Assignee
Certificates)--Transfers.") If 50% or more of the total Interests in Fund
profits and capital (including BACs) are sold or exchanged within a 12-month
period, the Fund will terminate for federal income tax purposes. If a
termination occurs, the assets of the Fund will be deemed to be constructively
distributed to the Partners and then recontributed by them to the Fund. The
General Partner has the authority under the Fund Agreement to (1) halt trading
of the BACs, (2) fail to list and/or cause the delisting of BACs from public
trading markets, (3) cause each purchaser of BACs to be admitted to the Fund as
a Limited Partner, (4) require BAC Holders to become Limited Partners, or (5)
take such other action as may be necessary or appropriate in order to preserve
the status of the Fund as a partnership or to prevent certain other adverse
federal income tax consequences, however, no assurance can be given that such
action(s) could be taken prior to a deemed termination. A BAC Holder would not
realize gain upon the deemed distribution of the Fund's assets unless the
portion of the Fund cash constructively distributed to a BAC Holder exceeds his
adjusted basis in his BACs. The General Partner does not anticipate that
available cash would exceed the aggregate basis of the Investors' interests;
therefore, it is anticipated that no gain will be realized upon a termination.
Section 754 of the Code permits a partnership to elect to adjust the
transferee's share of basis of partnership property upon the transfer of an
interest in the partnership by the partner; this provision is equally applicable
to a transfer of BACs. The Fund does not currently intend to make such an
election.
Sale or Other Disposition of an Apartment Complex and Interests in Operating
Partnerships
In determining the amount received upon the sale, exchange or other disposition
of an Apartment Complex, an Operating Partnership must include, among other
things, the amount of any liability to which such Apartment Complex is subject
if the purchaser assumes, or takes the Apartment Complex subject to, such
liability. For these purposes, a foreclosure of a mortgage on an Apartment
Complex is deemed to be a disposition of the property.
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The amount of any outstanding nonrecourse mortgage indebtedness to which
transferred property is subject will be treated as money received by the seller,
even when the fair market value of the property in question is less than the
outstanding balance of the mortgage indebtedness secured by the property.
Accordingly, the unpaid principal balance of any mortgage loan indebtedness
discharged by foreclosure will reduce any loss which might otherwise result upon
foreclosure or could produce a taxable gain even though the Operating
Partnership receives no cash from the foreclosure.
To the extent that Fund assets sold constitute Section 1231 property, (i.e.,
real property used in a trade or business and held for more than one year and
depreciable personal property used in a trade or business and held for more than
one year), an Investor's share of the gains and losses would be combined with
any other Section 1231 gains or losses incurred by the Investor in that year and
the net Section 1231 gain or loss would be treated as long-term capital gain
(subject to depreciation recapture, if any) or ordinary loss, as the case may
be. See "Tax Rates" for a discussion of tax rates applicable to capital gains.
In the event that the Fund or an Operating Partnership sells any personal
property at a gain, 100% of all cost recovery allowances previously deducted are
subject to recapture as ordinary income.
An Apartment Complex may be sold under an installment plan. Gain from
installment sales by non-dealers of real property used in a taxpayer's trade or
business or held for the production of rental income can be reported in the year
payments are received from the purchaser in the profit ratio represented by each
payment. However, interest is required to be paid with respect to the deferred
tax liability attributable to an installment obligation that arises out of such
a sale during a year and is outstanding as of the close of the year if the face
amount of all such obligations that arise during a year and which are
outstanding at the close of the year for such taxpayer and certain related
taxpayers exceed $5 million. If interest is required to be paid with respect to
an obligation during the year in which the obligation arises, interest must be
paid for any remaining deferred tax liability in any subsequent taxable year if
any portion of the obligation is outstanding at the end of that year.
Section 42 of the Code permits, but does not require, the owner of an Apartment
Complex to grant to the tenants, a qualified nonprofit organization or a
governmental agency a right of first refusal to purchase the Apartment Complex
for an amount equal, at least, to the amount of the indebtedness secured by the
building and all taxes attributable to the sale. It is possible that some of the
Operating Partnerships may enter into such agreements. The Investors would be
taxed on the purchase price, including the amount attributable to the taxes on
the sale.
Excess Investment Interest Limitation
The deductibility of investment interest by a non-corporate taxpayer is subject
to substantial limitation by Section 163(d) of the Code. In the case of the
Fund, such limitation would be applied to each Investor individually rather than
to the Fund. Investment interest is interest incurred on funds borrowed to
acquire or carry property held for investment. Pursuant to the 1986 Tax Act and
subject to certain phase-in rules, excess investment interest
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is investment interest incurred in a year in excess of net investment income.
The excess is not deductible in the current year but the amount not deductible
in the current year may be deductible in subsequent years, subject to the same
limitation.
The 1986 Tax Act expanded the definition of investment interest to include all
interest expense of a limited partnership allocable to a limited partner.
However, interest incurred in connection with a "passive activity" that is
subject to the passive activity loss restriction is not subject to the
investment interest limitation. Since the Fund will be subject to the passive
activity loss restriction, most interest expense incurred by the Fund will not
be subject to the investment interest limitation. Interest expense, if any,
attributable to the production of portfolio income would be subject to the
investment interest limitation.
Certain Tax Elections
The Fund may make various elections for federal income tax reporting purposes
which could result in various items of Fund income, gain, credit, loss and
deduction being treated differently for tax and partnership purposes than for
accounting purposes. The Code provides for optional adjustments to the basis of
Fund property for measuring both depreciation and gain upon distributions of
Fund property (Section 734) and transfers of Fund interests (including BACs)
(Section 743), provided that a Fund election has been made pursuant to Section
754. The general effect of such an election is that transferees of Fund
Interests (including BACs) are treated, for purposes of computing depreciation
and gain, as though they had acquired a direct interest in the Fund's assets,
and the Fund is treated for such purposes, upon certain distributions to
Partners (including BAC Holders), as though it had newly acquired an interest in
the Fund assets and therefore acquired a new cost basis for such assets. A
Section 754 election will not affect the amount of Tax Credits available to any
Partner (or BAC Holder) or his transferee. Any such election, once made, is
irrevocable without the consent of the IRS. If the General Partner does not
agree to make such an election, any benefits which might be available to the BAC
Holders, by reason of such an adjustment to basis will be foreclosed. In
addition, if the election is not made, a BAC Holder may have greater difficulty
in selling his BACs, since a purchaser will obtain no current tax benefits from
his investment to the extent that such investment exceeds his allocable share of
the Fund's basis in its assets and since, upon a subsequent disposition of the
property by the Fund, such purchaser may be required to recognize taxable income
to the extent of such excess even though he does not realize any economic
profit.
IRS Audit Considerations
Fund Tax Returns and Audits. The IRS may audit the information returns filed by
the Fund. Such an audit could result, among other things, in the disallowance of
certain deductions. In addition, it could possibly lead to an audit of a BAC
Holder's tax return with respect to non-Fund items.
The IRS has audited 23 limited partnerships with which Affiliates of the General
Partner are associated. All of these audits have now been settled with the IRS
without material change.
Audit Procedures for Fund and Operating Partnership Tax Returns. The IRS is
paying increased attention to the proper application of the tax laws to lim-
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ited partnerships. As a consequence, audits by the IRS of the Fund's or
Operating Partnerships' information returns have become more likely. Investors
should note that a federal income tax audit of the Fund's or an Operating
Partnership's tax information return may result in an audit of the return of the
Investor, and that such an examination could result in adjustments both to items
that are related to the Fund and unrelated items. An audit of the Fund's return
will be a single proceeding at the Fund level. The General Partner, as to the
Fund, and an Operating General Partner, as to each Operating Partnership, will
be designated as the "tax matters partner" and will have considerable authority
to make decisions both during the audit and in subsequent administrative and
judicial proceedings that could affect all Investors. Moreover, the General
Partner, or the Operating General Partner, as applicable, has the right to
extend the statute of limitations for all partners with respect to the
assessment of tax involving Fund or Operating Partnership items, as applicable.
Penalties Due to Substantial Understatement of Tax Liability. Section 6662 of
the Code imposes a penalty on a taxpayer when there is a "substantial
understatement of income tax" liability on the income tax return of such
taxpayer. For this purpose, an understatement is the excess of the amount of tax
required to be shown in the return over the amount of tax in fact reported on
the return. There is "substantial understatement of income tax" if the amount of
the total understatement on the income tax return for the taxable year
attributable to income, gain, loss, deduction or credit from all sources exceeds
the greater of (a) $5,000 ($10,000 for corporations) or (b) 10% of the tax
liability required to be shown on the return. The penalty does not apply to the
extent that the understatement is attributable to (i) an item if there is or was
"substantial authority" for the tax treatment of such item or (ii) an item with
respect to which the relevant facts concerning the treatment of the item are
disclosed on the taxpayer's return.
Special rules apply, however, to items on the taxpayer's return that are
attributable to an investment in a "tax shelter" as that term is defined in
Section 6662 of the Code ("Section 6662 Tax Shelter"). Section 6662 of the Code
defines a tax shelter to mean a partnership or other entity (such as a
corporation or trust), an investment plan or arrangement, or any other plan or
arrangement if the principal purpose of the entity, plan, or arrangement, based
on objective evidence, is the avoidance or evasion of federal income tax. The
Regulations under Section 6662 state that the principal purpose of an entity,
plan, or arrangement is not the avoidance or evasion of federal income tax if
the entity, plan, or arrangement has as its purpose the claiming of exclusions
from income, accelerated deductions, or other tax benefits in a manner
consistent with Congressional purpose. Because it is anticipated that the
principal items of tax benefit resulting from an investment in the Fund will
include Tax Credits, depreciation deductions and interest on the mortgage
indebtedness of the Apartment Complexes, which are specifically provided for by
Congress, it is reasonable to anticipate that the Fund will not be considered to
be a Section 6662 Tax Shelter. However, because such Regulations are relatively
recent and because the definition of a Section 6662 Tax Shelter ultimately must
be determined by judicial decisions, there still remains considerable
uncertainty concerning the meaning of the term. Thus, Counsel is unable to
predict the outcome if the question of whether the Fund is a Section 6662 Tax
Shelter were to be litigated.
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If the Fund is determined to be a Section 6662 Tax Shelter, the penalty under
Section 6662 for a substantial understatement will not apply to the extent that
the understatement is attributable to an item if (a) there is or was
"substantial authority" for the treatment of the item and (b) the taxpayer
reasonably believed that the tax treatment of such item was more likely than not
the proper treatment.
The Secretary of the Treasury has promulgated regulations under Section 6662
that set forth his interpretation of the phrase "substantial authority," but
both because such regulations are relatively recent and because "substantial
authority" ultimately must be determined by judicial decisions, there still
remains considerable uncertainty concerning the meaning of that phrase. Thus, as
stated above, Counsel is unable to predict the outcome if the question of
whether there were substantial authority for certain material tax issues were to
be litigated, if the Fund or an Operating Partnership were determined to be a
Section 6662 Tax Shelter.
The penalty imposed by Section 6662 is equal to 20% of the amount of any
underpayment attributable to the understatement of tax (as reduced for items
described above), and it applies without regard to whether the taxpayer was
negligent or otherwise improperly prepared his return. The penalty is in
addition to any other penalties and any interest payable with respect to the
underpayment.
The IRS has the authority to waive all or any part of the penalty if there was
reasonable cause for the understatement and the taxpayer acted in good faith.
Penalties Due to Overstatement of Value
Under Section 6662 of the Code, a penalty is imposed where the value of
property, or the adjusted basis of property, claimed on a return exceeds 200% 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 correct price. The General Partner
does not anticipate that the determination of the value or adjusted basis of
Apartment Complexes, or payment for services, would give rise to such a penalty.
However, there can be no assurance that, for example, in the case of uncertainty
in the allocation of basis among personal property, depreciable real property
improvements and nondepreciable land, the IRS would not challenge the
determination of the value or adjusted basis of Apartment Complexes.
Interest on Underpayment of Tax. If it is finally determined that a taxpayer has
underpaid tax for any taxable year, the taxpayer must pay the amount of
underpayment, plus interest on the underpayment from the date the tax was
originally due. The interest rate is the federal short-term rate plus three
percentage points in the case of underpayments of tax, and the federal
short-term rate plus two percentage points in the case of overpayments.
Limitations for Deductions Attributable to Activities Not Engaged in for Profit
Section 183 of the Code provides limitations for deductions by individuals and S
corporations attributable to "activities not engaged in for profit." The term
"activities not engaged in for profit" means any activity other than one
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that (a) constitutes a trade or business or (b) is engaged in for the production
or collection of income, or for the management, conservation, or maintenance of
property held for the production of income. The determination of whether an
activity is engaged in for profit is based on all the facts and circumstances.
Where income for an activity exceeds the deductions from the activity for at
least three out of five consecutive years, there is a presumption that the
activity is engaged in for profit.
The test for whether an activity is engaged in for profit is normally determined
at the partnership level. However, it is possible that each Investor may have to
independently meet this test as well. Generally, an activity is engaged in for
profit if there is a bona fide objective of obtaining economic profit from the
activity. In determining whether this profit objective exists, the Regulations
under Section 183 list certain factors which, along with others, should normally
be taken into account, although the Regulations state that no one factor is
determinative. These factors include the manner in which the taxpayer carries on
the activity, the expertise of the taxpayer or his advisors, the time and effort
expended by the taxpayer in carrying on the activity, the expectation that
assets used in the activity may appreciate in value, success of the taxpayer in
carrying on other similar or dissimilar activities, the taxpayer's history of
income or losses with respect to the activity, the amount of profits, if any,
which are earned, the financial status of the taxpayer, and any elements of
personal pleasure or recreation.
The IRS has published a Revenue Ruling holding that the construction and
operation of an apartment complex for low- and moderate-income housing under
Section 236 of the National Housing Act is not an activity to which Section 183
of the Code applies. Consequently, the IRS has announced that it will not assert
the "not for profit" argument to any otherwise appropriate deductions. Although
few, if any, of the Apartment Complexes may be constructed or operated under
Section 236 of the National Housing Act, all of the Apartment Complexes will
constitute low or moderate income housing and will possess certain of the other
attributes which the Revenue Ruling recites as factors in the Services'
decisions. To the extent that the IRS relied in its Revenue Ruling on Congress'
intention that availability of tax benefits be allowed to encourage investment
in Apartment Complexes providing decent housing for low- or moderate-income
families, similar considerations are involved here. The Federal Housing Tax
Credits were specifically enacted in the 1986 Tax Act. In addition, the IRS has
recently issued regulations which state that Section 183 will not be applied to
Section 42. Accordingly, Counsel is of the opinion that it is more probable than
not that Section 183 would not be applied to disallow deductions arising from
the ownership of the Apartment Complexes.
Overall Evaluation of Tax Benefits
Assuming that the investment objectives and acquisition policies of the Fund are
substantially realized as set forth in this Prospectus, including, but not
limited to the qualification for, and continuing compliance of the Apartment
Complexes with the requirements for, Tax Credits, Counsel is of the opinion that
it is more likely than not that the material tax benefits in the aggregate (a
significant majority) of a purchase of BACs will be realized by qualified BAC
Holders (i.e., individual BAC Holders whose adjusted gross income does not
exceed the limits for Historic Tax Credits or who are not subject to the
alternative minimum tax).
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Counsel's opinion with respect to the aggregate of the tax benefits to be
realized by a qualified BAC Holder is based upon, and assumes the continuing
applicability to an investment in the Fund of, existing federal income tax law.
Counsel's opinion assumes that the Capital Account balances (as that term is
defined in the Fund Agreement and the Operating Partnership Agreements) of the
partners are not significantly adjusted by reason of a termination of the Fund
or the Operating Partnerships or by reason of capital contributions (such as,
for example, unanticipated advances of capital from the General Partner, or
working capital loans or operating deficit loans from the applicable Operating
General Partner(s), which may be deemed for federal income tax purposes to be
capital contributions), other than the Capital Contributions provided for in
Article V of the Fund Agreement and the corresponding section of the Operating
Partnership Agreements, and that in those instances where a portion of the debt
incurred by an Operating Partnership is recourse, that the Capital Accounts are
sufficient to allocate the losses to the Fund as provided for in the applicable
Operating Partnership Agreement. (See "Federal Income Tax Matters--Fund
Allocations and Distributions," "--Federal Housing Tax Credit" and "--Certain
Other Tax Considerations-Alternative Minimum Tax.")
Certain Other Tax Considerations
Certain other provisions of the Code should be considered by Investors in
determining whether to purchase BACs.
Alternative Minimum Tax. Individuals and corporations, except for certain
qualifying small corporations, are subject to an alternative minimum tax
("AMT"). The AMT tax base is (a) regular taxable income, (b) increased by
certain preference items, including the amount by which a corporate taxpayer's
income for financial reporting purposes exceeds its AMT income, (c) adjusted for
items requiring a substitute AMT method, such as depreciation on real and
personal property, and (d) reduced by an exemption amount of $45,000 for the
married filing jointly category, $33,750 for a single return and $22,500 for the
married filing separately category (phased out at the rate of $.25 cents for
each $1.00 that AMT income exceeds $150,000, $112,500 and $75,000,
respectively). Once AMT income is computed, a flat tax rate of 20% for
corporations and 26% for individuals with AMT income up to $175,000 and 28% on
amounts in excess of $175,000 is imposed that is payable to the extent it
exceeds the taxpayer's regular income tax liability.
Neither Federal Housing Tax Credits nor Historic Tax Credits can be used to
offset alternative minimum tax. Taxpayers subject to the alternative minimum tax
may be limited in the amount of Tax Credits that can be used in a tax year. In
addition, taxpayers not otherwise subject to the alternative minimum tax
nonetheless may be limited as to the amount of Tax Credits which can be used in
a tax year. The maximum amount of Tax Credits which a BAC Holder can use in a
tax year may not exceed the difference between regular income tax liability and
tentative minimum tax. Tax Credits which could not be utilized for the
applicable year, may be carried back 1 year or forward 20 years (subject to
limitations on carry-backs for certain taxpayers).
For taxpayers subject to the alternative minimum tax, the primary adjustments
and preferences applicable to a BAC Holder are likely to be (i) the adjustment
to taxable income for depreciation on real property, using a 40-
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year life and the straight-line method, and personal property, using the 150%
declining balance method, and (ii) for corporations, the addition to taxable
income of 75% of the amount by which adjusted current earnings exceeds
alternative minimum taxable income.
Interest on Debt Related to Purchasing or Carrying Tax Exempt Obligations.
Section 265(a)(2) of the Code disallows any deduction for interest paid by a
taxpayer on indebtedness incurred or continued for the purpose of purchasing or
carrying tax-exempt obligations. The Fund will not purchase or carry any such
obligations. However, such provision could apply to any BAC Holder who might own
or acquire tax-exempt obligations. The IRS has announced in a published Revenue
Procedure that the proscribed purpose will be deemed to exist with respect to
indebtedness incurred to finance a "portfolio investment." The Revenue Procedure
further states that, although a partnership's purpose in incurring indebtedness
will be attributed to its general partners, a limited partnership interest will
be regarded as a "portfolio investment." Therefore, in the case of a BAC Holder
owning tax-exempt obligations, the IRS might take the position that his
allocable portion of the interest paid by the Fund on its borrowings or any
interest paid by a BAC Holder in connection with the purchase of BACs should be
viewed as incurred to enable him to continue carrying tax-exempt obligations,
and that such BAC Holder should not be allowed to deduct his full allocable
share of such interest. The outcome of these issues would depend upon facts
concerning each BAC Holder, and Counsel will not render an opinion on this
issue. A BAC Holder who owns, or anticipates acquiring, tax-exempt obligations
should consult with his tax advisor as to the possible impact of Section
265(a)(2) of the Code.
Consequences of Gift or Death. Generally, no gain or loss is recognized for
income tax purposes as a result of a gift of property. Gifts of BACs may be
subject to a federal gift tax imposed pursuant to the rules generally applicable
to all gifts of property. A gift of BACs does not trigger suspended passive
losses or credits, and does not result in any recapture of credits previously
taken.
A gift of BACs may be treated as a sale of the BACs. For purposes of computing
gain or loss realized upon the gift, the amount realized would include the
donating BAC Holder's share of the nonrecourse liabilities from which the BAC
Holder is relieved. Consequently, a BAC Holder could recognize taxable income as
a result of making a gift of his interest.
In the event of the death of the owner of BACs, the fair market value of the
BACs as of the date of death (or as of the alternative valuation date provided
for in the federal estate tax law) will be included in the estate of the owner
for federal estate tax purposes. Generally, the owner's heirs will, for federal
income tax purposes, then take as their basis for the BACs the same fair market
values determined for federal estate tax purposes. If the BACs have appreciated
in value during the lifetime of the owner, his heirs will have the benefit of
this "stepped-up" basis when they sell or otherwise dispose of the BACs.
Suitability of an Investment in BACs
Tax-Exempt Entities. It is not likely that a tax-exempt entity would be able to
utilize Tax Credits, therefore an investment in BACs is not likely to be
suitable for a tax-exempt entity. However, if a tax-exempt entity has, and
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expects to continue to have, unrelated business taxable income ("UBTI"), Tax
Credits could be used to offset the federal tax on such income. (See "Federal
Income Tax Matters--Investment by Tax--Exempt Entities.")
Minor Children. Under the Code, unearned income of a child under 14 years of age
is taxed to the child at the parent's highest marginal tax rate. The child is
treated as a separate taxpayer from his parents and thus the limitation on the
use of Tax Credits to offset tax under the passive activity rules of Code
Section 469 is determined with regard to the child's adjusted gross income
rather than the parent's adjusted gross income. Thus, if the child's adjusted
gross income does not exceed $200,000 (with respect to Historic Tax Credits
only), Tax Credits generated by the ownership of BACs may be used to reduce the
child's taxes on up to $25,000 of income regardless of the parent's annual
adjusted gross income. However, the child will be subject to an alternative
minimum tax on his unearned income equal to the amount of alternative minimum
tax that would have been imposed on his parents had the child's unearned income
been included in the parent's alternative minimum taxable income.
Foreign Investors. The tax consequences of the purchase of BACs by a foreign
citizen or resident might differ significantly from those described in this
Prospectus. (See "Suitability of an Investment in BACs--Availability and
Applicability to Investors of Federal Income Tax Credits.")
"Tax Shelter" Registration
Section 6111 of the Code requires persons who organize offerings classified as
"tax shelters" (a "Registration Tax Shelter") (as defined therein for purposes
of this requirement) to register them with the IRS. When the Fund registered as
a Registration Tax Shelter with the IRS, it was given Registration Tax Shelter
identification number 93355000022, which BAC Holders must include on their tax
returns for the period of time in which they are BAC Holders. In addition, the
Fund will be required to keep a list of BAC Holders' names and addresses and
must furnish such list to the IRS upon request. The IRS Temporary and Proposed
Regulations provide that the following disclosure should be made:
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
Upon the sale or transfer of BACs, selling BAC Holders must provide the
purchaser with the tax shelter registration number (as well as the name, address
and taxpayer identification number) of the Fund, and inform the purchaser that
he must attach a Form 8271 to his tax return.
In addition, BAC Holders who transfer their BACs are required to maintain a list
of specific data concerning the purchaser (regarding his name, address, date of
purchase, and taxpayer identification number) and inform the purchaser of his
similar obligation.
Future Federal Income Tax Legislation and Regulations
Congress enacted comprehensive tax reform legislation in the 1986 Tax Act. No
assurance can be given that the current Congress or any future Congress will not
enact other federal income tax legislation that could adversely
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affect the tax consequences of ownership of BACs, or that the Treasury
Department will not promulgate new regulations with similar adverse effects.
ANY SUCH FUTURE LEGISLATION OR REGULATIONS ENACTED OR PROMULGATED PRIOR TO THE
ISSUANCE OF THE LEGAL OPINIONS ANTICIPATED TO BE RENDERED IN CONNECTION WITH THE
ASSIGNMENT OF BACs TO BAC HOLDERS MAY AFFECT THE ABILITY OF COUNSEL TO RENDER
SUCH OPINIONS.
State and Local Taxes
In addition to the federal income tax consequences described above, Investors
should also consider other potential state and local tax consequences of the
purchase of BACs, and should consult their tax advisor regarding state and local
tax consequences. Depending upon such factors as the state and local residence
or domicile of the Investor and applicable state and local laws, tax benefits
that are available for federal income tax purposes may not be available to
Investors for state or local income tax purposes and additional state and local
tax liabilities may be incurred. It is the responsibility of each Investor to
satisfy himself as to the consequences of any state or local income tax or other
tax to which he is subject by reason of his participation in the Fund.
Depending upon the state in which an Investor resides and the location and
eligibility therefor of one or more Apartment Complexes, a State Housing Tax
Credit may be available against the income tax payable in that state.
THE OFFERING
The Fund hereby is offering 65,000,000 BACs, in one or more series. Each series
will consist of at least 250,000 BACs and may consist of all BACs not
theretofore purchased by Investors. The minimum purchase for each Investor is
500 BACs ($5,000), except that employees of the General Partner or its
Affiliates, and/or previous investors in public limited partnerships sponsored
by Boston Capital, may purchase a minimum of 200 BACs ($2,000). Additional
investments must be made in multiples of 100 BACs ($1,000).
This offering is expected to continue until December 31, 1999, but the offering
could be concluded earlier or extended by the General Partner for an indefinite
period of time, and is subject to the condition that subscriptions for at least
250,000 BACs be accepted by the General Partner no later than 12 months from the
commencement of each series.
The offering of each series will not exceed 12 months, or such lesser period as
may be determined by the General Partner, in its sole discretion (a "Series
offering Period"). Only upon the expiration or termination of a Series Offering
Period may the Fund offer BACs of a new series, except that any series that will
be sold only to Investors in one specific state and which will invest at least
80% of its Net Offering Proceeds, through Operating Partnerships, in Apartment
Complexes which qualify for both Federal Housing Tax Credits and State Housing
Tax Credits provided for under the laws of such specified state may be offered
simultaneously with a series of BACs which will not invest in Apartment
Complexes generating any State Housing Tax Credits and/or with a series of BACs
which will invest exclusively in Apartment Complexes generating State Housing
Tax Credits from a different state(s).
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Subscription proceeds will be placed in an interest-bearing escrow account with
the Escrow Agent, and released to the Fund only on a Closing Date, as described
and defined below. Within 75 days after the end of the fiscal quarter following
a Closing Date, subscribers who were admitted as BAC Holders will be paid
interest accrued on their escrowed funds until the applicable Closing Date (less
any escrow fees and expenses). Subscriptions for BACs will be accepted or
rejected by the General Partner, in its sole discretion, within 30 days of
receipt, but the issuance of BACs to an Investor shall be subject to acceptance
of subscriptions for a sufficient number of BACs to effectuate a closing. If not
accepted or rejected within 30 days of receipt by the Fund, any subscriptions
shall be deemed to be accepted. The Fund will refund all monies paid on rejected
subscriptions within 10 days of such rejection without interest. Until
subscriptions for at least 250,000 BACs in any series are received, no
subscriber will be recognized as a BAC Holder and funds paid by the subscribers
will be deposited with the Escrow Agent. (See "Escrow Agreements" below.) No
BACs in any series will be sold unless subscriptions for at least 250,000 BACs
of such series are received and accepted by the General Partner prior to the
expiration or termination of the applicable Series Offering Period and, if
subscriptions for fewer than 250,000 BACs have been received and accepted from
qualified Investors by the expiration or termination of the applicable Series
Offering Period, no BACs of such series will be sold and all funds received from
subscribers will be refunded promptly, together with accrued interest thereon in
the case of subscribers whose subscriptions have been accepted. If, prior to the
expiration or termination of the applicable Series Offering Period,
subscriptions for at least 250,000 BACs have been received and accepted by the
General Partner, in its sole discretion, the subscription proceeds may be
released from escrow and the subscribers will be admitted as BAC Holders (the
"Initial Closing"). The date on which the Initial Closing takes place with
respect to any series pursuant to the foregoing provisions is referred to herein
as an "Initial Closing Date." After the Initial Closing and prior to the
expiration or termination of the applicable Series Offering Period, the General
Partner may, but is not required to, accept additional subscriptions for such
series in excess of 250,000 BACs (up to the total of authorized BACs not
theretofore purchased by Investors) and admit such subscribers as BAC Holders
with subscription proceeds being released from escrow (each an "Additional
Closing") and subscribers admitted as BAC Holders not later than the last day of
the calendar month following the date upon which their subscriptions were
accepted by the General Partner. The date on which an additional closing occurs
with respect to any series is referred to herein as an "Additional Closing Date"
and the Initial Closing Date and each Additional Closing Date is referred to
herein as a "Closing Date."
The General Partner and its Affiliates and employees of its Affiliates may
purchase BACs aggregating not more than 15% of the BACs authorized for sale in
any series, excluding BACs which comprise any part of the minimum offering of
250,000 BACs with respect to a particular series, but any BACs purchased by such
persons must be held by them for investment purposes only, and not for immediate
resale. Such persons will acquire BACs on the same terms and conditions as other
BAC Holders, except they will not pay Selling Commissions, the Dealer-Manager
Fee, the non-accountable expense allowance, nor the accountable due diligence
expense reimbursement otherwise payable to the Dealer-Manager from the Fund. The
Net
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Offering Proceeds to the Fund with respect to such purchases will be the same as
for BACs sold to nonaffiliated Investors.
BACs will only be sold to non-corporate Investors who meet the following
requirements: with respect to Investors who are natural persons, (a) a minimum
annual gross income of $45,000 and a net worth (excluding home, home furnishings
and personal automobiles) of not less than $45,000, or (b) a net worth (as
computed above) of not less than $150,000. Various states, however, have
established suitability standards for Investors which are different from those
established by the Fund and which must be met by Investors residing in any such
state.
Issuance of BACs in Series
Subject to the foregoing, the Fund will issue BACs in series. Prior to the
offering of BACs in any series, or prior to the offering of additional BACs in
an expanded series, this Prospectus will be supplemented to designate the number
of BACs being offered in such series and describe specific Operating Partnership
Interests and corresponding specific Apartment Complexes, if any, in which the
General Partner believes at such time that there is a reasonable probability of
investment with respect to such series. The rights and liabilities of BAC
Holders will be the same with respect to each series of BACs.
The offering amount of each series may be increased, in the sole discretion of
the General Partner, up to the total amount of authorized but unissued BACs at
any time prior to the expiration or termination of the applicable Series
offering Period.
The Fund will account for, and issue information with respect to, each series of
BACs separately. Organization and Offering Expenses, the Fund's Working Capital
Reserve and other general expenses of the Fund may be allocated pro rata among
the series based on the number of BACs in each series. It is expected that a
major portion of the Organization and Offering Expenses (except Selling
Commissions, the accountable due diligence expense reimbursement, the
non-accountable expense allowance and the Dealer-Manager Fee, otherwise payable
to the Dealer-Manager with respect to BACs sold in subsequent series) initially
will be paid from the proceeds of the sale of the first series of BACs. To the
extent that additional BACs are sold in additional series, each such series may
be required to reimburse the first series for its pro rata portion of
Organization and Offering Expenses. All operating expenses of the Fund
attributable to Operating Partnership Interests allocated to a particular series
of BACs will be charged to such series. The General Partner will apportion
operating expenses and other costs which are not specifically allocable to a
particular series among the appropriate series upon the advice of its
accountants. The allocations and distributions of Profits, Credits and Losses,
Net Cash Flow and Sale, Refinancing and Liquidation Proceeds, and all other
priorities and allocations set forth under "Sharing Arrangements: Profits,
Credits, Losses, Net Cash Flow and Residuals" will be separately determined for
each series of BACs. Voting rights with respect to matters that are only
applicable to a particular series of BACs will be exercisable only by BAC
Holders as to such series.
Each certificate representing the BACs of a particular series will be
appropriately marked to identify the series of BACs to which the BAC certificate
relates.
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All series of BACs will (i) have substantially identical investment objectives
in generating Tax Credits, and possibly State Housing Tax Credits, (ii) provide
for no duplication of property management or other fees, (iii) provide for
substantially identical compensation to the General Partner and its Affiliates,
and (iv) provide for investment in Operating Partnership Interests under
substantially the same terms and conditions. Additionally, Operating Partnership
Interests may be invested in jointly by series of BACs, or may be invested in
jointly by a series of BACs with another similar offering (series of BACs, or
offerings hereinafter referred to as a "Program"), provided that (1) the two
Programs have similar investment objectives, (2) there are no duplicate property
management or other fees, (3) the compensation to the sponsors of each Program
is substantially similar, (4) each Program will have a right of first refusal if
the other Program wishes to sell its Operating Partnership Interest (although
there is a risk that a Program may not have sufficient resources to accomplish
such purchase), and (5) the investment of each Program is on substantially the
same terms and conditions.
Investors are advised that there is a potential risk that investors in a series
of BACs may not acquire a controlling interest in a joint investment or, that if
an equal interest is acquired by each Program, there may be a potential risk of
impasse on decisions.
THE BACs OF DIFFERENT SERIES WILL SHARE IN DIFFERENT POOLS OF OPERATING
PARTNERSHIP INTERESTS AND, THEREFORE, BAC HOLDERS IN DIFFERENT SERIES MIGHT
RECEIVE DIFFERENT RETURNS ON THEIR INVESTMENTS.
Since each series of the Fund will be treated as though it was a separate
partnership sharing in a separate and distinct pool of Operating Partnership
Interests and since the purchase of BACs in any one series will not entitle an
investor to any interest in any other series of the Fund, historical financial
information regarding the Fund, which is comprised of prior series, are not
provided in this Prospectus. However, information regarding the prior
performance of each series within the Fund and their Affiliates is provided
under the section of this Prospectus entitled "Prior Performance of the General
Partner and its Affiliates" and "Appendix I--Tabular Information Concerning
Prior Limited Partnerships." In addition, audited financial information
regarding the General Partner and the Assignor Limited Partner is provided in
Appendix I. Any investor may obtain a copy of the Fund's most recent Form 10-K
and/or Form 10-Q at no charge upon written request to Boston Capital Tax Credit
Fund IV L.P., One Boston Place, Suite 2100, Boston, Massachusetts 02108,
Attention: Anthony Nickas.
Selling Arrangements
The BACs are being offered on a "best efforts" basis through Boston Capital
Services, Inc. (the "Dealer-Manager"). The Dealer-Manager is an Affiliate of the
General Partner. (See "Conflicts of Interest-Absence of Independent
Dealer-Manager.") The Dealer-Manager will receive as compensation Selling
Commissions of 7% of the public offering price of the BACs sold hereby ($.70 per
BAC) except that for purchases of more than 10,000 BACs ($100,000) the Selling
Commissions will be reduced as set forth in the table below. The incremental
reduction in Selling Commissions on purchases of more than 10,000 BACs will not
change the Net Proceeds to the Fund, but will be reflected by a reduction in the
price per BAC on such purchases as set forth in the table below.
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Number of BACs Selling Price
Purchased Commission Per BAC
- -------------------------------- ----------------- --------
First 10,000 BACs. ............ 7.0% ($0.70 per BAC) $10.00
Next 10,000 BACs .............. 6.5% ($0.65 per BAC) $ 9.95
Next 10,000 BACs .............. 5.5% ($0.55 per BAC) $ 9.85
Next 10,000 BACs .............. 4.5% ($0.45 per BAC) $ 9.75
Next 10,000 BACs .............. 3.5% ($0.35 per BAC) $ 9.65
Next 10,000 BACs and over ...... 2.5% ($0.25 per BAC) $ 9.55
Investors should note that reductions apply in a graduated manner, i.e., for
purchases above 10,000 BACs, Selling Commissions of $0.70 per BAC will
nonetheless be payable on the first 10,000 BACs purchased and, thereafter, $0.65
per BAC will be payable on each BAC purchased from 10,100 to 20,000 BACs; $0.55
per BAC will be payable on each BAC purchased from 20,100 to 30,000; $0.45 per
BAC will be payable on each BAC purchased from 30,100 to 40,000; $0.35 per BAC
will be payable on each BAC purchased from 40,100 to 50,000; and $0.25 per BAC
will be payable on each BAC purchased in excess of 50,100.
In order to purchase BACs, the subscriber must complete and properly execute,
or, to the extent permitted by applicable state law, have completed and executed
on his behalf by the Dealer-Manager or Soliciting Dealer, the Investor Form
attached hereto. Each subscription for BACs must be accompanied by tender of the
sum of $10 (less any applicable quantity discount) per BAC ($8.95 in the case of
the General Partner, its Affiliates and employees of its Affiliates). By
executing the Investor Form, or agreeing to have the Investor Form executed on
his behalf, the subscriber agrees to be bound by all the terms of the Fund
Agreement, which is set forth in full as Exhibit A hereto. Certain provisions
thereof are summarized under the caption "Summary of Certain Provisions of the
Fund Agreement."
The Dealer-Manager will also receive (i) an accountable due diligence expense
reimbursement in an amount up to 0.5% of the public offering price of the BACs
sold, (ii) a non-accountable expense allowance in an amount up to 1% of the
public offering price of the BACs sold, and (iii) a Dealer-Manager Fee in an
amount equal to 2% of the public offering price of the BACs sold, the aggregate
of which will be utilized for wholesaling expenses including reallowances.
Subject to the satisfactory completion of any regulatory reviews and
examinations which may be required, the rules of the NASD and approval by the
Dealer-Manager, the Dealer-Manager may establish sales incentive programs for
registered representatives of Soliciting Dealers or may reimburse the Soliciting
Dealers for sales incentive programs established by them. Sales incentives will
be deemed to be additional underwriting compensation. The aggregate value of
incentives paid directly to individual registered representatives will not
exceed $100.00. The Soliciting Dealers will have sole discretion as to how they
will distribute sales incentives to their respective registered representatives.
The value of any sales incentives will be included in total underwriting
compensation subject to the limitations set forth herein. The Dealer-Manager may
also pay cash compensation directly to the Soliciting Dealers with such payments
to be reflected on the books of those Soliciting Dealers as compensation in
connection with the Offering.
Investors who have engaged the services of a registered investment advisor may
agree with the participating Soliciting Dealer selling the BACs and the
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Dealer-Manager to reduce the amount of selling commissions payable with respect
to such sale to as low as zero. The Net Offering Proceeds to the Fund will not
be affected by such reduction and all such sales must still be made through
Soliciting Dealers. Neither the General Partner, the Dealer-Manager or its
Affiliates will directly or indirectly compensate any person engaged as an
investment advisor by a potential investor as an inducement for such investment
advisor to recommend an investment in the Fund.
At the sole discretion of each Soliciting Dealer, the Soliciting Dealers and
their employees may purchase BACs aggregating not more than 10% of the BACs
authorized for sale in any series on the same terms and conditions as other BAC
Holders, except they will not pay that portion of any Selling Commissions which
may otherwise be reallowed to the Soliciting Dealer by the Dealer-Manager. The
Net Offering Proceeds to the Fund of each such sale, however, will be the same
as for the BACs sold to the public. Any purchases of BACs by Soliciting Dealers
and their employees will not be considered in order to meet the minimum offering
of a particular series.
The General Partner has agreed to indemnify the Dealer-Manager and may
indemnify Soliciting Dealers against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended. (See "Fiduciary
Responsibility of the General Partner.")
Each subscriber will be required to comply with the minimum purchase requirement
and the more stringent of either (i) the investor suitability standards of his
state of residence or (ii) the investor suitability standards imposed by the
Fund. (See "Suitability of an Investment in BACs.")
The Dealer-Manager may reallow all or any portion of the 7% Selling Commissions,
2% Dealer-Manager Fee, 1% non-accountable expense allowance, and 0.5%
accountable due diligence expense reimbursement to Soliciting Dealers in respect
of any BACs sold through such Soliciting Dealer's efforts. Soliciting Dealers
may elect to pay their registered representatives any reallowed Selling
Commissions over a period of up to seven years. The aggregate compensation to be
paid to the Dealer-Manager and Soliciting Dealers from whatever source and at
all levels of sales will not exceed 10% of the offering proceeds plus a maximum
of one-half of one per cent for bona fide due diligence expenses.
The agreement to be entered into by the Fund and the General Partner with the
Dealer-Manager and the selling agreements between the Dealer-Manager and
Soliciting Dealers will contain cross-indemnity clauses for the benefit of the
Soliciting Dealers with respect to certain liabilities, including liabilities
under the Securities Act of 1933, as amended. The Dealer-Manager and the
Soliciting Dealers may be deemed "underwriters" as that term is defined in the
Securities Act of 1933, as amended.
Escrow Arrangements
All proceeds of the offering will be deposited and held in trust for the benefit
of the purchasers of BACs in an escrow account or accounts with the Escrow Agent
to be used only for the specific purposes set forth under "Estimated Use of
Proceeds." Such proceeds may be temporarily invested in bank time deposits,
certificates of deposit, bank money market accounts and government securities.
Subscription proceeds deposited may not be withdrawn by subscribers. An investor
should make the subscription check payable to "Wainwright Bank & Trust/BCTC IV
Escrow Account."
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Upon recognition as a BAC Holder, a subscriber for BACs will be entitled to
receive an amount equal to the amount of the interest earned on his subscription
proceeds held in the escrow account from the day after such proceeds were
received in the escrow account until but not including the Closing Date. Such
distribution will be made within 75 days of the end of the fiscal quarter
following the Closing Date, and will be made prior to, and without regard to,
any distributions from the Fund to which the BAC Holders are entitled as
described under "Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow
and Residuals."
SUMMARY OF CERTAIN PROVISIONS OF THE FUND AGREEMENT
BY TENDERING PAYMENT FOR BACS AND BY ACCEPTANCE OF THE CONFIRMATION OF PURCHASE
OR DELIVERY OF THE BENEFICIAL ASSIGNMENT CERTIFICATE, A BAC HOLDER SHALL BE
DEEMED TO HAVE ASSENTED TO BE BOUND BY ALL THE TERMS AND CONDITIONS OF THE FUND
AGREEMENT, THE FORM OF WHICH IS SET OUT IN ITS ENTIRETY AT THE END OF THIS
PROSPECTUS AS EXHIBIT A. THE BAC HOLDERS WILL BECOME ASSIGNEES OF THE ASSIGNOR
LIMITED PARTNER OF THE FUND AND AS SUCH, THEIR RIGHTS WILL ALSO BE GOVERNED BY
THE TERMS OF THE FUND AGREEMENT. AN INVESTOR EXECUTING AN INVESTOR FORM SHALL
HAVE ASSENTED TO BE BOUND BY ALL THE TERMS AND CONDITIONS OF THE FUND AGREEMENT.
Prospective Investors should study the form of Fund Agreement carefully before
subscribing for BACs. The following statements and the statements in this
Prospectus concerning the Fund Agreement and related matters are merely a
summary, do not purport to be complete and in no way modify or amend, and are
qualified in their entirety by reference to, the Fund Agreement.
Many of the principal provisions of the Fund Agreement have been summarized
elsewhere in this Prospectus under various headings. Certain other provisions of
the Fund Agreement are summarized below, but for complete information reference
is made to the Fund Agreement, which is a part of this Prospectus.
Withdrawal of the General Partner
Subject to the consent of a majority in Interest of the Limited Partners
(including the Assignor Limited Partner, voting as instructed by a majority in
interest of the BAC Holders) the General Partner may withdraw or sell, transfer
or assign its Interest upon giving 60 days notice to the Limited Partners of its
intention to withdraw upon admission of a substitute General Partner, who has
satisfied certain conditions, including, among other things, that such Person
agrees to and executes the Fund Agreement, Counsel or counsel for the Investors
renders an opinion that such Person's selection and admission is in accordance
with the Delaware Revised Uniform Limited Partnership Act, and that such Person
has sufficient net worth and meets all other requirements of the IRS necessary
for the Fund to continue to be classified as a partnership for federal income
tax purposes; and provided that the interests of the Investors are not adversely
affected thereby.
Subject to Section 6.02 of the Fund Agreement, the General Partner may designate
additional Persons to be General Partners, whose Interests shall be such as
shall be agreed upon by the General Partner and such additional General
Partners, provided that the Interests of the Investors shall not be adversely
affected thereby.
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Removal of the General Partner
A majority in Interest of the Limited Partners, including the Assignor Limited
Partner, voting as instructed by the BAC Holders, is entitled to remove the
General Partner from the Fund and elect a new General Partner.
Upon the removal of the General Partner, any rights (including, but not by way
of limitation, rights to its Fund Interest and fees) or liabilities of the
removed General Partner which matured prior to such removal will not be
affected. (See "Voting Rights and Meetings.")
Liability of Partners and Investors to Third Parties
The General Partner will be liable for all general obligations of the Fund to
the extent not paid by the Fund. The General Partner will not be liable for any
nonrecourse obligations of the Fund contracted for with third parties.
No Limited Partner or BAC Holder is personally liable for the debts,
liabilities, contracts or any other obligations of the Fund and a Limited
Partner and BAC Holder shall only be liable to pay his capital contribution as
and when due, unless, in addition to the exercise of his rights and powers as a
Limited Partner or BAC Holder, he takes part in the control of the business of
the Fund. However, the Act provides that if a Limited Partner receives a
distribution from the Fund at the time of such distribution that such
distribution was in violation of Section 17-607(a) of the Act or the Fund
Agreement, then such Limited Partner shall be liable to the Fund for the amount
of such distribution for a period of three years from the date of such
distribution. A distribution in violation of Section 17-607(a) of the Act is a
distribution where, after giving effect to the distribution, all liabilities of
the Fund (other than liabilities to Limited Partners on account of their Fund
interests, and nonrecourse liabilities) exceed the fair value of the assets of
the Fund (excluding that portion of the fair value subject to nonrecourse
liability). It is expected that similar liabilities would be applicable to BAC
Holders.
Withdrawal of Capital and Redemption of Investors' Interest
Each Investor may look solely to the assets of the Fund (or the assets of the
Fund attributable to his series of BACs, as the case may be) for any
distributions with respect to the Fund, and will have no recourse against any
other Investor or any Limited Partner of the Fund. No Limited Partner or BAC
Holder has the right to request withdrawal of his capital from the Fund, and as
set forth in Section 3.04(b) of the Fund Agreement, the General Partner has no
personal liability for the repayment of such capital. No Partner or Investor is
entitled to demand or receive any return of his Capital Contribution other than
from Liquidation, Sale or Refinancing Proceeds, to the extent available
therefor, as provided in the Fund Agreement, nor is any Limited Partner or BAC
Holder entitled to receive property other than cash upon dissolution and
termination of the Fund. (See "Sharing Arrangements: Profits, Credits, Losses,
Net Cash Flow and Residuals.") The Fund does not intend to purchase or redeem
the Interests of Limited Partners or BAC Holders. Nothing described above alters
the limitation on liability of the General Partner or its Affiliates pursuant to
Section 5.08(a) of the Fund Agreement.
Management of the Fund
The General Partner has the sole right to manage the business of the Fund.
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Mergers and Rollups
Section 10.02(h) of the Fund Agreement prohibits the merger or combination of
the Fund with any other entity.
Voting Rights and Meetings
BAC Holders have no right to participate in the management or control of the
Fund's business. The Fund Agreement provides, however, that the Assignor Limited
Partner will vote its limited partnership interest as directed by the BAC
Holders. Accordingly, the Limited Partners (including the Assignor Limited
Partner voting on behalf of and as instructed by the BAC Holders) owning a
majority in Interest of the Fund Interests will have the right to vote to:
(i) approve or disapprove the sale of all or substantially all of the assets
of the Fund at any one time by the General Partner, provided, however, only
Investors in a particular series will have the right to vote on the sale of
Operating Partnership Interests attributable to that series;
(ii) amend the Fund Agreement, except that, without the approval of any
Limited Partner affected thereby, no such amendment may alter the rights and
obligations of such Limited Partner under the Fund Agreement, modify the order
of distributions of cash or allocations of Profits, Credits and Losses to such
Limited Partner, or modify the method of determining distributions of cash and
allocations of Profits, Credits and Losses to such Limited Partner, and, (A)
without the consent of all Limited Partners and Investors, no such amendment
may allow the Investors to take part in the management or control of the
Fund's business or otherwise modify their limited liability;
(iii) remove a General Partner and elect a replacement therefor; or
(iv) dissolve the Fund.
Notwithstanding the foregoing, the General Partner may amend the Fund Agreement
without the consent of the Limited Partners with respect to certain matters
which are not adverse to the interests of the Investors. (See Section 12.02 of
the Fund Agreement.) The General Partner may at any time call a meeting of
Investors or call for a vote without a meeting of the Investors.
Under the Delaware Revised Uniform Limited Partnership Act, limited partners may
not take part in the control of the business of a partnership. Under Delaware
law presently applicable, a limited partner will not be deemed to be taking part
in the control of the business by voting on one or more of the following
matters: (a) sale of all or substantially all of the assets of the Fund, (b)
amendment to the partnership agreement, (c) change in the nature of its
business, (d) removal of a general partner, (e) dissolution of the partnership
and (f) admission of a general or a limited partner.
There will be no annual or other periodic meetings of the Investors. However,
meetings of the Investors for any purpose are required to be called by the
General Partner upon written request of Limited Partners (including the Assignor
Limited Partner voting on behalf of and as instructed by the BAC Holders) owning
in the aggregate 10% or more in Interests. In addition, the General Partner
shall, upon written request of Limited Partners owning in the aggregate 10% or
more in Interests, submit any matter (upon which they are entitled to vote)
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to the Limited Partners and BAC Holders for a vote without a meeting. The
Assignor Limited Partner will call for a meeting or a vote if so instructed by
the BAC Holders holding the requisite percentage of Fund Interests. With respect
to matters applicable to any particular series of BACs, the above-described
provisions will be applicable only to BAC Holders in such series.
Unlike shareholders of a corporation, Limited Partners (including the Assignor
Limited Partner acting on behalf of the Investors) will not have any appraisal
or dissenters' rights in the event that the Fund Agreement is amended against
their wishes.
Amendments to Fund Agreement
In addition to amendments to the Fund Agreement approved by a majority in
interest of the Limited Partners (including the Assignor Limited Partner acting
on behalf of the Investors) described above, the General Partner may amend the
Fund Agreement without the consent of the Limited Partners or BAC Holders to add
or substitute General Partners and Limited Partners if such addition or
substitution is in compliance with the provisions of the Fund Agreement, to add
to the General Partners' representations, duties or obligations or to surrender
any right or power granted to them, to cure any ambiguity in or correct or
supplement any provision that may be inconsistent with the manifest intent of
the Fund Agreement or the administrative efficiency of the Fund, or to comply
with the requirements of the staff of the Securities and Exchange Commission,
any state securities commission, any national securities exchange or NASDAQ.
None of the foregoing amendments may be adverse to the interests of the Limited
Partners or BAC Holders.
Dissolution and Liquidation
The Fund shall continue in full force and effect until December 31, 2043, or
until dissolution or adjudication of incompetence of a sole General Partner; the
passing of ninety (90) days after the sale of all of the Apartment Complexes or
Operating Partnership Interests, as applicable, or until such time as is
reasonably needed to wind up the Fund's affairs; the election by a majority in
Interest of the Limited Partners (including the Assignor Limited Partner voting
on behalf of and as instructed by the BAC Holders) to dissolve the Fund; or the
occurrence of any other event causing dissolution of the Fund under the laws of
the State of Delaware. The Fund would also be dissolved upon the removal or
withdrawal of the General Partner, unless the General Partner has been or is to
be replaced by a substitute General Partner designated by a vote of the
Beneficiaries (including the Assignor Limited Partner voting as instructed by
the BAC Holders).
In the event of the occurrence of the bankruptcy, death, dissolution,
withdrawal, removal or adjudication of incompetence of the General Partner, and
unless it is decided by vote of a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the BAC Holders)
to continue the Fund and designate a successor General Partner, the liquidator
shall liquidate the Fund assets and distribute the proceeds thereof in
accordance with the priorities set forth in the Fund Agreement.
Tax Election
Upon a transfer of one or more BACs or Limited Partnership Interests by the
Investors, the Fund is authorized, but does not intend, to make the elec-
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tion provided for under Section 754 of the Internal Revenue Code to adjust the
basis of the Fund property.
Tax Matters Partner Designation
Pursuant to Section 6231 of the Internal Revenue Code and the regulations
thereunder and Section 9.06 of the Fund Agreement, the General Partner shall
designate itself as the "tax matters partner" for purposes of federal income tax
audits of Fund income, gain, loss, deduction or credit. (See "Federal Income Tax
Matters--Fund Tax Returns and Audits.")
Books and Records
The fiscal year of the Fund will begin April 1st of each year.
The Fund will use the accrual method of accounting.
The books and records of the Fund shall include information relating to the
status of each Apartment Complex, information with respect to any sales of goods
or services by the General Partner or its Affiliates to the Fund, and a list of
the names and addresses of all Limited Partners and BAC Holders. The books and
records of the Fund shall be maintained at the office of the Fund located at One
Boston Place, Suite 2100, Boston, Massachusetts 02108. Such books and records
shall be available there for examination by any Limited Partner or Investor, or
his duly authorized representative, at any and all reasonable times. Any Limited
Partner or Investor, or his duly authorized representative, shall, upon paying
the costs of duplication and mailing, be entitled to a copy of audited financial
statements of Operating Partnership(s) as soon as practicable after receipt
thereof from the Operating Partnership(s) and of the most recently available
list of the names and addresses of the Limited Partners and Investors.
Successor in Interest
The provisions of the Fund Agreement are binding upon the Limited Partners and
BAC Holders, and are binding upon and inure to the benefit of their heirs,
executors, administrators, successors and assigns.
Power of Attorney
Each BAC Holder, by acquiring BACs, irrevocably appoints and empowers the
General Partner as his attorney-in-fact to execute, acknowledge and swear to all
instruments and file all documents requisite to carrying out the intention and
purpose of the Fund Agreement.
Applicable Law
The Fund Agreement shall be construed and enforced in accordance with the laws
of the State of Delaware provided, however, that causes of action for violations
of federal or state securities laws shall be governed by federal securities laws
or the laws of the appropriate state, as applicable.
SALES LITERATURE
In connection with the Offering made hereby, the Dealer-Manager and Soliciting
Dealers may make use of a brochure entitled "Boston Capital Tax Credit Fund IV"
and prepared by the Fund, which describes certain aspects of the Fund, the
General Partner and its Affiliates. In certain jurisdictions such supplemental
material may not be available. The offering of BACs will be made only by means
of this Prospectus. Although the information con-
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tained in the sales material will be consistent with the information contained
in this Prospectus, such information will not purport to be complete. Any such
sales material will not be part of this Prospectus and it should be read only in
conjunction with the Prospectus.
EXPERTS
The financial statements of the Fund, the Assignor Limited Partner, and the
General Partner included in this Prospectus have been so included in reliance on
the reports of Reznick Fedder & Silverman, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
The balance sheet of Boston Capital Associates included in this Prospectus has
been so included in reliance on the report of Kevin P. Martin & Associates,
P.C., independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.
The statements under the heading "Federal Income Tax Matters" have been reviewed
by Peabody & Brown in Washington, D.C., and have been included herein, to the
extent such statements constitute matters of law, in reliance upon the authority
of said firm as an expert thereon.
INVESTOR REPORTS
Financial information contained in all reports to Investors will be prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles and will include, where applicable, a reconciliation to information
furnished to Investors for income tax purposes (such income tax information will
be on the cash basis). The balance sheet, income statement and certain other
financial information in the annual report of the Fund will contain an opinion
of independent certified public accountants and will be furnished to Investors
within 120 days following the close of each fiscal year. The annual report will
contain a complete statement of compensation and fees paid by the Fund to the
General Partner and its Affiliates, together with a description of any new
agreements with Affiliates. The annual report will also summarize the Fund's
activities during the year.
The Fund's fiscal year will terminate on March 31, in each year. Tax information
will be provided to the Investors within 75 days following the close of each
calendar year. The Fund will distribute to the Investors, (i) within 45 days
after the end of each of the first three fiscal quarters of each year, certain
unaudited quarterly financial information with respect to the Fund, together
with a summary report of the Fund's quarterly operations, and (ii) within 120
days after the end of the fourth fiscal quarter of each year, audited financial
information with respect to the Fund and a statement of the services rendered to
the Fund by the General Partner and its Affiliates and the payments by the Fund
to them of fees and other compensation, reimbursed expenses and other cash
distributions during such fiscal period, and until all Operating Partnership
Interests have been acquired, a description of any new Operating Partnership
Interests and the related Apartment Complexes (other than those, if any,
described in this Prospectus) acquired during the fiscal period.
All reports will set forth required information for each series separately to
the extent applicable.
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LEGAL MATTERS
Certain legal matters in connection with the Offering of the BACs will be passed
upon by Peabody & Brown, 1255 23rd Street, N.W. Suite 800, Wash- ington, D.C.,
as counsel to the Fund. In addition, the description of federal income tax
consequences under the caption "Federal Income Tax Matters" was prepared by
Peabody & Brown in Washington, D.C.
REGISTRATION STATEMENT
A Registration Statement under the Securities Act of 1933 has been filed with
the Securities and Exchange Commission, Washington, D.C. with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part thereof.
This Prospectus contains a fair summary of the material terms of all of the
exhibits to the Registration Statement and the documents referred to herein. The
Fund has not knowingly made any untrue statement of a material fact or omitted
to state any fact required to be stated in the Registration Statement, including
this Prospectus, or necessary to make the statements therein not misleading.
GLOSSARY
The meanings of most of the capitalized terms used in this Prospectus are set
forth below. Additional definitions of capitalized terms can be found in Article
II of the Fund Agreement. Untrue statement of a material fact or omitted to
state any fact required to be stated in the Registration Statement, including
this Prospectus, or necessary to make the statements therein not misleading.
"Accountants" means Reznick Fedder & Silverman, of Bethesda, Maryland, or such
other firm of independent certified public accountants as may be engaged by the
General Partner on behalf of the Fund.
"Accounting Fee" means the fee paid to the Accountants for the preparation of
the Fund tax returns and the annual financial reports to the Limited Partners
and the Investors.
"Accounting Fee Advances" means any advances made by the General Partner to the
Fund for payment of all or part of any Accounting Fee pursuant to Section 5.14
of the Fund Agreement.
"Acquisition Fee" means the total of all fees and commissions paid by any party
in connection with the Fund's acquisition of Operating Partnership Interests
(including the Asset Acquisition Fee) and in connection with the Operating
Partnerships' acquisition of Apartment Complexes, but excluding a development
fee paid to a Person who is not an Affiliate of the General Partner in
connection with the actual development of an Apartment Complex by an Operating
Partnership. Included in the computation of such fees or commissions shall be
any real estate fee, selection fee, development fee, nonrecurring management fee
or any fee of a similar nature, however des-
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ignated. For the purposes of this definition, development fee shall mean a fee
for packaging of an Apartment Complex, including negotiating and approving
plans, and undertaking to assist in obtaining zoning and necessary variances and
necessary financing for a specific Apartment Complex, either initially or at a
later date.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as amended
from time to time during the term of the Fund.
"Actual Credit" means as of any point in time, the total amount of Tax Credits,
and State Housing Tax Credits if applicable, actually received by the Fund from
its investment in an Operating Partnership.
"Additional Right" means the right, exercisable by the General Partner and the
Dealer-Manager, to increase the maximum number of BACs offered pursuant to this
Offering from 2,500,000 BACs (the amount initially offered with respect to the
first series of BACs) to 65,000,000 BACs.
"Adjusted Capital Contribution" means the Capital Contribution of a Limited
Partner or BAC Holder, as the context may require, which for purposes of this
definition shall be deemed to be $10 per BAC reduced (but not below zero) by any
return of such Capital Contributions under Section 3.04(c) of the Fund Agreement
and by any Liquidation, Sale or Refinancing Proceeds which represent a return of
such Capital Contribution.
"Affiliate" means, when used with respect to a specified Person, (i) any Person
that directly or indirectly controls or is controlled by or is under common
control with the specified Person, (ii) any Person that is an officer of,
director of, partner in or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director, partner or trustee, or with respect to which the specified Person
serves in a similar capacity, (iii) any Person that, directly or indirectly, is
the beneficial owner of 10% or more of any class of equity securities of the
specified Person or of which the specified Person is directly or indirectly the
owner of 10% or more of any class of equity securities, (iv) any Person who is
an officer, director, general partner, trustee or holder of 10% or more of the
voting securities or beneficial interests of any of the foregoing or (v) any
Person treated as a controlling person for purposes of Section V.E.1(a) of the
NASAA Guidelines. For purposes of this definition, the term "Affiliate" shall
not be deemed to include any law firm (or member or associate thereof) providing
legal services to the Fund, the General Partner or any Affiliate of any of them.
"Aggregate Cost" means the sum(s) of (i) any capital contributions anticipated
to be made by the Fund to the Operating Partnerships plus (ii) the proportionate
amount of the mortgage loans on, and other debts related to, the Apartment
Complexes which proportionate amount is equal to the Fund's initial, pro rata
interest in the profits, losses and credit of the Operating Partnerships. The
amount of the "Aggregate Cost" will be determined after the completion of
investment of Net Proceeds in the Operating Partnerships in accordance with
Section 5.04(q) of the Fund Agreement.
"Apartment Complex" means the land and buildings comprising each of the
multifamily housing developments owned by the Operating Partnerships.
"Assignor Limited Partner" means BCTC IV Assignor Corp., a Delaware corporation
which is an Affiliate of the General Partner.
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"BAC" or "BACs" means a Beneficial Assignee Certificate(s) representing an
assigned beneficial interest in the beneficial interest in the Fund of the
Assignor Limited Partner.
"BAC Holder" means any Person who has been assigned one or more units of
beneficial interest in the Limited Partnership Interest by the Assignor Limited
Partner, which assignment is represented by a BAC, but who is not a Limited
Partner.
"Bankruptcy" or "Bankrupt" as to any Person means the filing of a petition for
relief as to any such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or like provision of law (except if such petition is contested by such
Person and has been dismissed within 60 days); insolvency of such Person as
finally determined by a court proceeding; filing by such Person of a petition or
application to accomplish the same or for the appointment of a receiver or a
trustee for such Person or a substantial part of his assets; or commencement of
any proceedings relating to such Person under any other reorganization,
arrangement, insolvency, adjustment of debt or liquidation law of any
jurisdiction, whether now in existence or hereinafter in effect, either by such
Person or by another, provided that if such proceeding is commenced by another,
such Person indicates his approval of such proceeding, consents thereto or
acquiesces therein, or such proceeding is contested by such Person and has not
been finally dismissed within 60 days.
"BCS" means Boston Capital Services, Inc., a Massachusetts corporation which is
the Dealer-Manager and an Affiliate of the General Partner.
"BCSG" means BCS Group, Inc., a Massachusetts corporation which is an Affiliate
of the General Partner.
"Boston Capital" means Boston Capital Partners, Inc., a Massachusetts
corporation and an Affiliate of the General Partner.
"Capital Account" means a separate account maintained and adjusted (i) for each
Limited Partner and the separate subaccount of the Capital Account of the
Assignor Limited Partner maintained and adjusted for each BAC Holder in
accordance with the terms of the Fund Agreement, and (ii) for each partner of an
Operating Partnership in accordance with the terms of the applicable Operating
Partnership Agreement.
"Capital Contribution(s)" means the total amount of money contributed to the
Fund (prior to the deduction of any Selling Commissions or Organization and
Offering Expenses) by all the Limited Partners or any class of Limited Partners
or by any one Limited Partner, as the context may require (or by the predecessor
holders of the Fund Interests of such Persons) and with respect to a BAC Holder,
the Capital Contribution of the Assignor Limited Partner made on behalf of such
BAC Holder, reduced, in the case of the Investors, by the amount of any funds
returned to them pursuant to Section 3.04(c) of the Fund Agreement. As the
context requires, "Capital Contribution" also means the total amount of capital
contributed or agreed to be contributed to an Operating Partnership by the Fund.
"Capital Transaction" means: (i) with respect to the Fund, the sale by the Fund
of all or part of its Interest in an Operating Partnership, or any other
transaction affecting the Fund, including the receipt by the Fund of its share
of the proceeds of a Capital Transaction as to an Operating Partnership,
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which is not in the ordinary course of its business; and (ii) with respect to an
Operating Partnership, any transaction the proceeds of which are not includable
in determining net cash flow of the Operating Partnership, including, without
limitation, the sale or other disposition of all or substantially all the assets
of such Operating Partnership and any refinancing of the applicable Permanent
Mortgage Loan, but excluding the payment to such Operating Partnership of
Capital Contributions.
"Code" means the Internal Revenue Code of 1986, as amended, or any corresponding
provision or provisions of succeeding law.
"Construction Loan" means with respect to an Operating Partnership, the
construction loan made or to be made to the Operating Partnership by a
construction lender for the financing of construction or renovation of an
Apartment Complex through completion thereof, and which will be secured by a
mortgage or deed of trust and other related security documents and financing
statements.
"Counsel" means Peabody & Brown in Washington, D.C. or such other counsel to
the Fund as may be engaged by the General Partner on behalf of the Fund.
"Credit Agency" means the state or local governmental agency authorized to
allocate Federal Housing Tax Credits for Apartment Complexes in any particular
jurisdiction.
"Credit Election" means the election pursuant to Section 42(j)(5) of the Code to
treat the Fund as the "taxpayer" for purposes of the Federal Housing Tax Credit
recapture rules.
"Dealer-Manager" means Boston Capital Services, Inc. ("BCS"), a Massachusetts
corporation which is an Affiliate of the General Partner.
"Dealer-Manager Fee" means the fee payable by the Fund to BCS for its services
as Dealer-Manager with respect to the Offering.
"Development Fee" means the fee to be paid by an Operating Partnership to the
respective Operating General Partners or their Affiliates in connection with the
development of the applicable Apartment Complex.
"Escrow Agent" means Wainwright Bank & Trust Company, Boston, Massachusetts, in
its capacity as such.
"Federal Housing Tax Credit" means the federal income tax credit allowed with
respect to low-income housing developments pursuant to Section 42 of the Code.
"Front End Fees" means fees and expenses paid by any party for any services
rendered during and in connection with the Fund's organizational or acquisition
phase, including other Acquisition Fees, Organization and Offering Expenses,
plus Selling Commissions and any other similar fees, although none are
anticipated, however, designated by the General Partner. For purposes of this
definition "Acquisition Fees" means the total of all fees and commissions paid
by any party in connection with the Fund's acquisition of Operating Partnership
Interests (including the Asset Acquisition Fee, payable by the Fund from Gross
Proceeds to the General Partner or its Affiliate(s) pursuant to Section 5.15 of
the Fund Agreement) and in connection with the Operating Partnerships'
acquisition of Apartment Complexes, but
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excluding development fees paid to Persons who are not Affiliates of the General
Partner in connection with the actual development of Apartment Complexes by
Operating Partnerships. Included in the computation of such fees or commissions
shall be any real estate fee, selection fee, nonrecurring management fee or any
fee of a similar nature, however designated. For purposes of this definition,
"Acquisition Expenses" means the total of all legal fees and expenses, travel
and communication expenses in connection with the negotiations, costs of real
estate consultants and appraisals, engineering and market studies, accountants'
fees, title and recording fees and miscellaneous expenses, associated with the
Fund's acquisition of Operating Partnership Interests and the Operating
Partnerships' acquisition of Apartment Complexes, whether or not acquired,
including any expenses that may have been paid by an Operating General Partner
that will be reimbursed by the Fund or included in the purchase price of the
Apartment Complexes or Operating Partnership Interests, to the extent such
expenses are not includable in the Fund's tax credit basis with respect to such
Apartment Complex.
"Fund" means the limited partnership formed as of October 5, 1993, under the
Delaware Revised Uniform Limited Partnership Act and known as Boston Capital Tax
Credit Fund IV L.P., as said limited partnership may from time to time be
constituted.
"Fund Agreement" means the Agreement of Limited Partnership of the Fund, as
amended and restated from time to time.
"Fund Management Fee" means the annual fee payable to the General Partner or its
Affiliate for managing and coordinating the activities of the Operating
Partnership as they relate to the Fund; the Fund Management Fee is defined in
the Fund Agreement as the "Partnership Management Fee".
"General Partner" means Boston Capital Associates IV L.P., a Delaware limited
partnership, in its capacity as the General Partner of the Fund, and/or any
other Person who becomes a general partner of the Fund.
"Government Assistance" means any form of local, state or federal assistance,
including without limitation mortgage insurance, rental assistance payments,
permanent mortgage financing, interest reduction payments, bond financing, Tax
Credits, State Housing Tax Credits or any other form of loan, grant, insurance
or guarantee.
"Gross Offering Proceeds" means the total amount of money contributed to the
Fund by the Assignor Limited Partner, which amount is equal to (i) $10 times the
aggregate number of BACs sold to BAC Holders other than (to the extent
applicable) the General Partner, its Affiliates and employees of its Affiliates
pursuant to the Offering, plus (ii) $8.95 times the aggregate number of BACs
sold to the General Partner, its Affiliates and employees of its Affiliates,
pursuant to the Offering.
"HAP Contract" means a Housing Assistance Payments Contract executed by an
Operating Partnership and USHUD or by a housing authority, setting forth the
terms of the Section 8 Payments for an Apartment Complex.
"Historic Tax Credit" means the historic rehabilitation tax credit allowed for
the rehabilitation of certified historic structures pursuant to Section 47 of
the Code.
"Installment" means, with respect to an Operating Partnership, an installment of
the Capital Contribution of the Fund to an Operating Partnership paid or payable
pursuant to an Operating Partnership Agreement.
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"Interest" or "Fund Interest" means the entire ownership interest of a Limited
Partner in the Fund at any particular time, including the right of such Limited
Partner to any and all benefits to which a Limited Partner may be entitled under
the Fund Agreement and the Act, together with the obligations of such Limited
Partner to comply with all the terms and provisions of the Fund Agreement.
Reference to a majority, or specified percentage, in interest of the Limited
Partners means (subject to the provisions of Section 12.11 of the Fund Agreement
with respect to matters applicable to any particular series of BACs) Limited
Partners whose combined Capital Contributions represent over 50%, or such
specified percentage, respectively, of the Capital Contributions of all Limited
Partners (the Assignor Limited Partner will vote Fund Interests on behalf of and
in accordance with the written directions of the BAC Holders). The term
"Interest" may also mean the beneficial interest of a BAC Holder in the Fund
Interest of the Assignor Limited Partner, if the context so requires. As the
context may require, the term "Interest" may also mean the limited partnership
interest of the Fund in an Operating Partnership.
"Investment Date" means any of the dates upon which BACs are issued to BAC
Holders.
"Investment in Properties" means the amount of Capital Contributions actually
paid or allocated to Operating Partnership Interests acquired by the Fund
(including the purchase of such properties), Working Capital Reserves allocable
thereto (except that Working Capital Reserves in excess of 5% shall not be
included), and other cash payments such as interest and taxes, but excluding
Front End Fees).
"Investor" means any BAC Holder. An Investor shall also mean, as the context
requires, any Person who has subscribed for BACs pursuant to this Prospectus,
and his successors and assigns, as well as any BAC Holder who has become a
Limited Partner of the Fund.
"Limited Partner" means any Person who is a limited partner of the Fund,
including the Assignor Limited Partner, in such Person's capacity as a Limited
Partner of the Fund or, as the context may require, any former General Partner
whose Fund Interest has been converted into a Limited Partnership Interest
pursuant to the Fund Agreement, as well as any BAC Holder who has become a
Limited Partner of the Fund, all as shown as such on the books and records of
the Fund.
"Limited Partnership Interest" means the Fund Interest held by a Limited
Partner, including the Fund Interests held by the Assignor Limited Partner and
assigned to BAC Holders.
"Liquidation, Sale or Refinancing Proceeds" means (a) as to an Operating
Partnership: (i) the gross proceeds resulting from (A) the liquidation of
Operating Partnership assets, (B) the gross proceeds resulting from any sale of
the applicable Apartment Complex or refinancing of the applicable Permanent
Mortgage Loan, and/or (C) any other Capital Transaction, less (ii) the expenses
of the Operating Partnership incident to such Capital Transaction (including in
the case of a refinancing the cost of retiring any existing mortgage or other
secured indebtedness), before any application or distribution of such proceeds
pursuant to the Operating Partnership Agreement; and (b) as to the Fund: (i) the
gross proceeds (A) resulting from the liquidation of
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Fund assets, (B) received by the Fund from an Operating Partnership as a result
of the occurrence of a Capital Transaction as to such Operating Partnership, (C)
resulting from any sale of the Interest of the Fund in any Operating
Partnership, and/or (D) resulting from any other Capital Transaction, less (ii),
in the case of (A), (C) and (D) immediately above, the expenses of the Fund
incident to such Capital Transaction, before any application or distribution of
such proceeds pursuant to the Fund Agreement.
"Management Agent" means an entity providing property management services to an
Operating Partnership with respect to an Apartment Complex and receiving a
management fee for such services pursuant to a management agreement with an
Operating Partnership.
"Minimum Set-Aside Test" means the set-aside test selected by an Operating
Partnership pursuant to Section 42(g) of the Code with respect to the percentage
of units in its Apartment Complex to be occupied by tenants with incomes equal
to no more than a certain percentage of area median income.
"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 Prospectus.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Net Cash Flow" means, with respect to any year or other applicable period, (a)
all revenues received by the Fund during such period, plus (b) any amounts which
the General Partner releases from the Working Capital Reserve (other than
amounts placed in the Working Capital Reserve from Net Offering Proceeds) as
being no longer necessary to hold as part of the Working Capital Reserve, less
(i) operating expenses of the Fund paid from Revenues during the period,
including any expenses paid to the General Partner, but not including such
amounts paid from the Working Capital Reserve, (ii) all cash payments made from
revenues of the Fund during such period to discharge Fund indebtedness, and
(iii) all amounts from revenues, if any, added to the Working Capital Reserve
during such period.
"Net Offering Proceeds" means the total amount of funds received by the Fund on
behalf of the Assignor Limited Partner from the BAC Holders in connection with
the Offering, exclusive of Selling Commissions, as described in "The
Offering-Selling Arrangements."
"Non-Profit Operating Partnership" means an Operating Partnership which has a
non-profit sponsor as its Operating General Partner, and as to which certain
limitations or restrictions on the distribution of cash flow and/or
Liquidation, Sale or Refinancing Proceeds may apply. (See "Investment
Objectives and Acquisition Policies.")
"Notice" means a writing containing the information required to be communicated
to a Person and sent to such Person at the last known address of such Person, as
required by the Fund Agreement or an Operating Partnership Agreement, as the
context requires. The date of personal delivery or the date of mailing thereof,
as the case may be, shall be deemed the date of receipt of such Notice.
"Offering" means the offering of BACs pursuant to the terms and conditions
described in this Prospectus.
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"Operating General Partner" means each of the general partners of an Operating
Partnership under the applicable Operating Partnership Agreement, and their
respective successors and assigns.
"Operating Partnership" means each of the limited partnerships or limited
liability companies owning an Apartment Complex and/or an interest in an
Apartment Complex in which the Fund invests as a limited partner or member, as
applicable, which Apartment Complexes are expected to be qualified pursuant to
Section 42(g) of the Internal Revenue Code of 1986, as amended.
"Operating Partnership Agreement" means the limited partnership agreement or
operating agreement, as applicable, of each of the Operating Partnerships, as
may be amended from time to time.
"Operating Partnership Interest" means the ownership interest of the Fund in an
Operating Partnership at any particular time, including the right of the Fund to
any and all benefits to which the Fund may be entitled as provided in the
applicable Operating Partnership Agreement.
"Operating Partnership Management Fee" means the fee paid to an entity providing
partnership management services to an Operating Partnership.
"Organization and Offering Expenses" means (a) an accountable due diligence
expense reimbursement to the Dealer-Manager in an amount up to $.05 per BAC
sold; (b) the Dealer-Manager Fee to the Dealer-Manager; (c) a non accountable
expense allowance to the Dealer-Manager in an amount up to $.10 per BAC sold;
(d) an accountable expense reimbursement to the General Partner and its
Affiliates; and (e) accountable expenses paid by the Fund directly or by the
General Partner and Affiliates in connection with the organization of the Fund,
the structuring of the Fund's investments and the offering of BACs, as more
specifically described under the caption "Compensation and Fees-Organization,
Offering and Acquisition Phase."
"Permanent Mortgage Loan" means with respect to an Operating Partnership, the
nonrecourse permanent mortgage loan to be made to the Operating Partnership by a
permanent mortgage lender, and which will be secured by a mortgage or deed of
trust and other related security documents and financing statements.
"Permitted Temporary Investments" means investments in short-term, highly liquid
investments, including without limitation money market funds which invest in
investment grade debt securities.
"Person" means any individual, partnership, corporation, joint venture, trust or
other legal entity.
"Priority Return" means an amount equal to the amount, if any, by which (i) the
Priority Return Base as to a particular series, exceeds (ii) the aggregate
amount of cash, Tax Credits and State Housing Tax Credits, where applicable,
actually distributed or allocated by the Fund to the BAC Holders and Limited
Partners as to such series, for each BAC assigned to the BAC Holders and Limited
Partners as to such series, in each case on a cumulative basis to the date of a
Capital Transaction as to such series of the Fund.
"Priority Return Base" means an aggregate amount of cash, Tax Credits and State
Housing Tax Credits, where applicable, to be distributed and allocated by the
Fund to the BAC Holders and Limited Partners as to a particular
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series, per year during the holding period(s) of the investments of such series,
for each BAC assigned to the BAC Holders and Limited Partners as to such series,
expressed as a percentage of the Capital Contributions of such BAC Holders and
Limited Partners as set forth in a supplement to this Prospectus at the time of
the applicable Series offering Period.
"Profits, Credits and Losses" means the income or loss of the Fund for federal
income tax purposes, including related tax items such as capital gains and
losses, Tax Credits, tax preferences and recapture, but excluding any gains or
losses arising from a Capital Transaction as to an Operating Partnership for the
Fund.
"Projected Credit" means the amount of Tax Credits, and State Housing Tax
Credits if applicable, which the Operating General Partner(s) of a particular
Operating Partnership have estimated, at the time of the acquisition of an
Operating Partnership Interest by the Fund in such Operating Partnership, to be
available to the Fund.
"Prospectus" means this prospectus, as is contained in the registration
statement filed with the Securities and Exchange Commission, File No. 33- , for
the registration of the offering of BACs under the Securities Act of 1933, in
the final form in which this prospectus is filed with said Commission and as
thereafter supplemented or amended pursuant to Rule 424 under said Act.
"Regulatory Agreement" means an agreement entered into between an Operating
Partnership and a federal, state or local agency or unit of general local
government, which agreement sets forth certain terms under which the applicable
Apartment Complex is to be developed and/or operated.
"Rent Restriction Test" means the test pursuant to Section 42 of the Code
whereby the gross rent charged to tenants of the low-income units in an
Apartment Complex must not exceed 30% of the applicable income standards.
"Reporting Fee" means a fee anticipated to be paid to an Affiliate of the
General Partner by each Operating Partnership for services in preparing reports
for such Operating Partnership.
"Repurchase Event" means an event pursuant to which an Operating General Partner
will be required, at the direction of the General Partner on behalf of the Fund,
to repurchase the Interest of the Fund in the applicable Operating Partnership.
"RHS" means the Rural Housing Service of the U.S. Department of Agriculture,
acting through any authorized representative.
"Sales Preparation Fee" means the fee payable by an Operating Partnership to an
Operating General Partner for its services in preparing an Apartment Complex for
sale, in an amount anticipated to be three per cent (3%) of the gross sales
price of the Apartment Complex.
"Secretary" means the Secretary of the U.S. Department of Housing and Urban
Development, acting through any authorized representative.
"Selling Commissions" means the selling commissions payable to the
Dealer-Manager, in connection with the Offering, all or a portion of which may
be reallowed to the Soliciting Dealers effecting sales of BACs.
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"Series Offering Period" means such period of time, not in excess of twelve
months, as shall be determined by the General Partner in its sole discretion for
the offering of a series of BACs.
"Service" means the Internal Revenue Service, acting through any authorized
representative.
"Soliciting Dealer" means any of the participating soliciting dealers assisting
the Dealer-Manager in the sale of BACs.
"State Designation" means, with respect to an Apartment Complex, allocation by
the Credit Agency of Federal Housing Tax Credits.
"State Housing Tax Credit" means a housing tax credit allowed against state
income tax liability pursuant to the applicable laws of a state.
"Subordinated Loan" means any loan made by an Operating General Partner to an
Operating Partnership, under terms and conditions as shall be set forth in the
applicable Operating Partnership Agreement.
"Tax Credits" means, collectively, the Federal Housing Tax Credit and, as
applicable, the Historic Tax Credit.
"Tax Matters Partner" means the General Partner or such other Persons as are
designated pursuant to the Code.
"USHUD" means the U.S. Department of Housing and Urban Development, acting
through any authorized representative.
"Working Capital Reserve" means funds of the Fund held in reserve, anticipated
to be initially established in an amount of four per cent (4%) of Gross offering
Proceeds, to be available for contingencies relating to the operation,
management and administration of the Apartment Complexes, the Operating
Partnerships, and the Fund, including the payment of the annual Fund Management
Fee. In addition, funds held in the Working Capital Reserve will also be
available for option and/or other payments which may be necessary to secure the
acquisition of Operating Partnership Interests. Amounts held in the Working
Capital Reserve may at any time, in the discretion of the General Partner, be
added to Net Cash Flow or Liquidation, Sale or Refinancing Proceeds.
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BOSTON CAPITAL ASSOCIATES IV L.P.
INDEPENDENT AUDITORS' REPORT
December 31, 1996
To the Partners of
Boston Capital Associates IV L.P.
We have audited the accompanying balance sheet of Boston Capital Associates IV
L.P. as of December 31, 1996. This balance sheet is the responsibility of the
partnership's management. Our responsibility is to express an opinion on this
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 balance sheet referred to above presents fairly, in all
material respects, the financial position of Boston Capital Associates IV L.P.
as of December 31, 1996, in conformity with generally accepted accounting
principles.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 18, 1997
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BOSTON CAPITAL ASSOCIATES IV L.P.
BALANCE SHEET
December 31, 1996
ASSETS
Investment in partnership (Note C) ...... $ 500
========
LIABILITIES
Subscription payable .................... $ 500
--------
Partner's equity (Note B)
General partner ........................ 100
Limited partner ........................ 1,400
--------
1,500
--------
Less: subscriptions receivable ........ (1,500)
--------
--
--------
$ 500
========
See notes to balance sheet
Note A--Organization
Boston Capital Associates IV L.P. (the "Partnership") was organized under the
laws of Delaware as of October 5, 1993, to act as the General Partner of, and to
acquire and hold a general partnership interest in, Boston Capital Tax Credit
Fund IV L.P.
Note B--Partners' Capital Contributions
The Partnership has one general partner--C&M Associates d/b/a Boston Capital
Associates and one limited partner--Capital Investment Holdings IV. As of
October 5, 1993, the general partner and the limited partner are obligated to
make capital contributions of $100 and $1,400, respectively. Under the terms of
the partnership agreement, the general partner has no obligation to make
additional capital contributions to the Partnership, except possibly upon
liquidation. There are no additional capital contributions due from the limited
partner.
Note C--Investment in Partnership
On October 5, 1993, the Partnership was admitted as the General Partner in
Boston Capital Tax Credit Fund IV L.P. The Fund was formed to invest in real
estate by acquiring, holding, and disposing of limited partnership interests in
operating partnerships which will acquire, develop, rehabilitate, operate and
own newly-constructed, existing or rehabilitated low-income apartment complexes.
I-2
<PAGE>
BCTC IV ASSIGNOR CORP.
INDEPENDENT AUDITORS' REPORT
December 31, 1996
To the Stockholder
BCTC IV Assignor Corp.
We have audited the accompanying balance sheet of BCTC IV Assignor Corp. as of
December 31, 1996. This balance sheet is the responsibility of the corporation's
management. Our responsibility is to express an opinion on this 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 balance sheet referred to above presents fairly, in all
material respects, the financial position of BCTC IV Assignor Corp. as of
December 31, 1996, in conformity with generally accepted accounting principles.
REZNICK, FEDDER & SILVERMAN
Bethesda, Maryland
March 18, 1997
I-3
<PAGE>
BCTC IV ASSIGNOR CORP.
BALANCE SHEET
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Investment in partnership (Note B) .................................. $ 100
========
LIABILITIES
Subscriptions payable ................................................ $ 100
Stockholder's equity
Common stock--1,000 shares authorized, issued and outstanding, $1 par
value per share .................................................. 1,000
Less: subscription receivable ........................................ (1,000)
--------
$ 100
========
</TABLE>
See notes to balance sheet
Note A--Organization
BCTC IV Assignor Corp. (the "Corporation") was organized on October 12, 1993,
under the laws of Delaware to act as the assignor limited partner of, and to
acquire and hold a limited partnership interest in, Boston Capital Tax Credit
Fund IV L.P. (the "Fund"). The Corporation will assign units of beneficial
interest in its limited partnership interest to persons who purchase Beneficial
Assignee Certificates (BACs), on the basis of one unit of beneficial interest
for each BAC. The Corporation will not have any interest in profits, losses or
distributions on its own behalf.
Note B--Investment in Partnership
On October 12, 1993, the Corporation was admitted as the assignor limited
partner in Boston Capital Tax Credit Fund IV L.P. The Fund was formed to invest
in real estate by acquiring, holding, and disposing of limited partnership
interests in operating partnerships which will acquire, develop, rehabilitate,
operate and own newly-constructed, existing or rehabilitated low-income
apartment complexes.
I-4
<PAGE>
KEVIN P. MARTIN & ASSOCIATES, P.C.
Certified Public Accountants
Business Consultants
KEVIN P. MARTIN, CPA SOUTH SHORE EXECUTIVE PARK
KEVIN P. MARTIN, JR., CPA, MST TEN FORBES WEST
------------------- BRAINTREE, MA 02184-2696
KENNETH J. DAVIN, CPA -------------------
GARRETT H. DALTON, III, CPA, MBA TELEPHONE (617) 380-3520
LISA A. MARTIN, CPA, MST FACSIMILE (617) 380-7836
EMAIL [email protected]
To The Partners
C & M Associates
d/b/a Boston Capital Associates
One Boston Place
Boston, MA 02108-4406
Independent Auditors' Report
We have audited the accompanying balance sheet of C & M Associates d/b/a Boston
Capital Associates (A Massachusetts General Partnership) as of December 31, 1996
and the related statements of income and expenses, partners' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C & M Associates d/b/a Boston
Capital Associates as of December 31, 1996 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Braintree, Massachusetts
January 17, 1997
I-5
<PAGE>
C & M ASSOCIATES
d/b/a/ BOSTON CAPITAL ASSOCIATES
(A MASSACHUSETTS GENERAL PARTNERSHIP)
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS:
Cash ........................................ $ 886,236
Service fees receivable (Notes 3 and 4) ...... 55,443
-----------
Total current assets ...................... 941,679
-----------
OTHER ASSETS:
Investments (Note 2) ........................ 81,973
-----------
$1,023,652
===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--affiliates (note 4) ...... $ 436
-----------
Total current liabilities .................. 436
-----------
PARTNERS' EQUITY ............................ 1,023,216
-----------
$1,023,652
===========
See accompanying notes.
I-6
<PAGE>
C & M ASSOCIATES
d/b/a BOSTON CAPITAL ASSOCIATES
(A MASSACHUSETTS GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. The following is a summary of
significant accounting policies:
Note 1--Summary of Significant Accounting Policies:
Nature of Business--C & M Associates was formed as a Massachusetts general
partnership pursuant to an agreement dated July 1, 1982 to derive acquisition,
consulting and management fees from various investment limited partnerships.
C & M Associates owns partnership interests in entities which own multiple
apartment complexes located in various states. The partnerships are subject to
long-term subsidy contracts, mortgage restrictions as to prepayments and
priority distributions to limited partners.
The Partnership derives various acquisition and consulting fees from investment
limited partnerships in connection with the negotiating and acquiring of
operating partnership interests, substantially all of which are in the real
estate sector and located throughout the United States. All accounts receivable
are due from such partnership interests.
Method of Accounting--The financial statements of the Partnership are prepared
on the accrual basis of accounting, and include only those assets, liabilities
and results of operations of the Partnership which relate to the business of C &
M Associates.
Revenue Recognition--The Partnership recognizes service fee income based upon
the specific performance method at the time of syndication and closing of
limited partnership investments. These fees usually are payable over a period of
more than one year.
No individual private limited partnerships were syndicated through C & M
Associates during 1996. However, C & M Associates continues to act as general
partner in various public individual and corporate private limited partnerships
which are syndicated through an affiliate.
Income Taxes--No provision for income taxes is made in the financial statements
of the Partnership since the individual partners, not the entity, are allocated
the tax effect of items of income, deduction and credits to be reported.
Bad Debts--No allowance for doubtful accounts has been provided as management
believes all accounts receivable as of December 31, 1996 are fully collectible.
Financial Instruments--All financial instruments in the financial statements are
nonderivative and unless otherwise noted, the fair value of financial
instruments is the carrying value.
Cash and Cash Equivalents--The Partnership considers all highly liquid
investments with a maturity of three months or less, when purchased, to be "cash
equivalents."
In addition, the Partnership maintains its cash balances in one financial
institution located in Boston, Massachusetts. The balances are insured by the
Federal Deposit Insurance Corporation up to $100,000.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statement and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 2--Investments--Investments consist of interests in limited partnerships
and are recorded at cost. Due to uncertainties in the market for investments in
limited partnerships, it is not practical to determine the fair value of the
investments.
C & M Associates holds a general partner interest in each limited partnership.
As a general partner, C & M Associates is responsible to meet all limited
partnership liabilities and obligations. These interests involve credit risk in
excess of the amount recognized on the balance
I-7
<PAGE>
sheet. Unless noted otherwise, C & M Associates does not require collateral or
other security to support financial instruments with credit risk.
Note 3--Line of Credit--The Partnership was co-maker with an affiliate on a bank
line of credit. Under the terms of the amended and restated loan agreement dated
June 17, 1996, the Partnership is no longer a co-maker under the line of credit.
The Partnership is a guarantor on a $10 million revolving bank line of credit of
another partnership, in which C & M Associates is affiliated as sponsor and
through common control. Under the terms of the loan agreement dated August 22,
1996, the loan bears interest at the prime rate in effect from time to time. The
Partnership has guaranteed 25% of the principal and 100% of the interest
outstanding. As of December 31, 1996, there is no outstanding liability of C & M
Associates under the line of credit. There is, however, $3,115,640 outstanding
to the affiliate.
Note 4--Transactions with Related Parties--Substantially all revenues are earned
from the providing of financial consulting advice regarding development and
syndication of partnership interests to partnerships in which C & M Associates
is the general partner. All service fees receivables at December 31, 1996 are
due from related parties.
Substantially all expenses of C & M Associates are paid to an affiliate, whose
shareholders are partners in C & M Associates, which is contracted to provide
consulting services. All accounts payable at December 31, 1995 are payable to
the related party.
Note 5--Commitments and Contingencies--C & M Associates has been named as a
co-defendant in a lawsuit and subsequent cross-complaint involving a former,
proposed real estate project. The complaint seeks unspecified damages.
Substantial discovery has not yet been completed and an estimate of the possible
loss or range of loss can not be made at this time.
I-8
<PAGE>
TABULAR INFORMATION CONCERNING PRIOR LIMITED PARTNERSHIPS
The information contained in the following Tables I, II, III, and III-A is
presented in conjunction with and as a supplement to the narrative summary
appearing elsewhere in this Prospectus under "Prior Performance of the General
Partner and its Affiliates" and is qualified in its entirety by the information
contained in such narrative summary.
These Tables include information for the three-year period beginning January 1,
1994, and ending December 31, 1996 (five-year period ending March 31, 1997 for
Table III) relating to public programs in the aggregate sponsored by the General
Partner and its Affiliates which had similar investment objectives to those of
the Fund. Programs deemed to have "similar investment objectives" are programs
receiving Government Assistance and originally intended to provide, generally
(1) tax benefits in the form of tax losses and low-income housing and
rehabilitation tax credits which could be used by limited partners to offset
income from other sources, (2) long-term capital appreciation through increases
in the value of the programs' investments, (3) cash distributions from the sale
or refinancing of the apartment complexes owned by the operating partnerships,
and (4) in some instances, limited cash distributions from operations.
Additionally, the programs which had similar investment objectives to those of
the Fund also involve material risks similar to those inherent in an investment
in the Fund. (See the section of the Prospectus entitled "Risk Factors.")
The programs listed in these Tables were organized by the General Partner and
its Affiliates generally in a two-tier structure. These two-tier programs
consist of one investment limited partnership (the "investment partnership")
which invested in a number of limited partnerships (the "operating
partnerships"), each of which owns an apartment complex for low- and
moderate-income persons, which receives Government Assistance. In the three-year
period ending December 31, 1996, the General Partner and its Affiliates,
sponsored one public partnership. The following table identifies the number of
operating partnership interests acquired in programs sponsored by the General
Partner and its Affiliates as of December 31, 1996, and emphasizes Boston
Capital's philosophy of broad diversification:
% Equity # of Operating Average Equity
Committed Partnerships Per Operating
Program at 12/31/96 Acquired # of States Partnership
- ------------------- ------------- ---------------- ------------- ---------------
Boston Capital Tax
Credit Fund IV
L.P.:
Series 20 ...... 100.0% 24 17 $1,611,170
Series 21 ...... 100.0% 14 12 $1,351,229
Series 22 ...... 98.0% 28 17 $ 897,879
Series 23 ...... 100.0% 22 15 $1,516,331
Series 24 ...... 94.2% 23 17 $ 888,676
Series 25 ...... 91.3% 20 14 $1,380,431
Series 26 ...... 51.1% 24 13 $ 851,119
Series 27 ...... 80.3% 7 7 $2,822,200
Series 28 ...... 1.1% 1 1 $ 338,396
Although the percent of Equity Committed as of December 31, 1996 for Series 22,
Series 24, Series 25, Series 26, Series 27 and Series 28 is 98.0%, 94.2%, 91.3%,
51.1%, 80.4% and 1.1%, respectively, properties have been identified for
acquisition to fully commit the equity raised for all of these Series.
In 1993, Affiliates of the General Partner formed Boston Capital Tax Credit Fund
IV L.P., which was registered under the Securities Act of 1933.
The primary investment objectives of these limited partnerships are the
preservation of the partnership's capital and the provision of current tax
benefits to investors in the form of Tax Credits and passive losses. Cash flow
distributions from the operating partnerships to the investment partnerships
were not an investment objective in these programs. The regulations of RHS and
other government subsidy programs limit the amount of rent which may be charged
to tenants and also limit the amount of cash flow which may be distributed, even
if greater amounts of cash flow are available.
Investors in the Fund will not have any interest in any of the prior limited
partnerships incorporated in the tables or in any of the apartment complexes
owned by these limited partnerships.
I-9
<PAGE>
It should not be assumed that Investors in the Fund will experience results
comparable to those experienced by investors in the programs incorporated in the
following Tables.
The Tabular Information Concerning Prior Limited Partnerships and accompanying
Notes are not covered by reports of independent certified public accountants.
Additional information regarding prior public programs can be obtained upon
written request to:
Boston Capital Tax Credit Fund IV L.P.
c/o Boston Capital Partners, Inc.
One Boston Place, Suite 2100
Boston, Massachusetts 02108-4406
Attn: Richard DeAgazio
I-10
<PAGE>
TABLE I EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
Table I includes information concerning the experience of the General Partner
and its Affiliates in raising and investing funds for public limited
partnerships having similar investment objectives to the Fund. Information is
included for the sole public offering organized between January 1, 1994 and
December 31, 1996, which invested in 163 operating partnerships. Table I
presents the dollar amount offered and raised, the percentage of the amount
raised which was used to pay offering costs and acquire investments, the
percentage of leverage used and the time frame for raising and investing funds.
Table I is presented as if all capital contributions were received and all
expenses and payments of capital were paid in the year in which the offering
closed, although such transactions occur over several years.
The Table should be read in conjunction with the introduction and accompanying
Notes.
January 1, 1994 Through December 31, 1996
<TABLE>
<CAPTION>
Public Offerings
------------------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 20) (Series 21) (Series 22)
1994 1994 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered (1) ........ $ 38,667,000 $ 18,927,000 $ 25,644,000
Dollar amount raised (100%) ...... 100% 100% 100%
Less: Offering expenses
Selling commissions and
reimbursements retained by
affiliates .................... 2.00% 2.00% 2.00%
Other selling commissions ...... 8.00% 8.00% 8.00%
Legal and organizational ........ 2.50% 2.50% 2.50%
------------ ------------ ------------
Total offering expenses .......... 12.50% 12.50% 12.50%
============ ============ ============
Amount available for investment
from limited partners .......... 87.50% 87.50% 87.50%
Acquisition fees (2) ............ 8.50% 8.50% 8.50%
Acquisition expenses (3) ........ 2.00% 2.00% 2.00%
Working capital reserves ........ 4.00% 4.00% 4.00%
Cash payments to operating
partnerships (4) .............. 73.00% 73.00% 73.00%
------------ ------------ ------------
Total acquisition costs .......... 87.50% 87.50% 87.50%
============ ============ ============
Mortgage financing .............. $ 46,781,034 $ 28,859,996 $ 35,398,520
Additional capital (5) .......... $ 874,687 $ 2,673,695 $ 861,753
------------ ------------ ------------
Total other sources .............. $ 47,655,721 $ 31,533,691 $ 36,260,273
Amount available for investment
from offering proceeds ........ $ 33,833,625 $ 16,561,125 $ 22,438,500
------------ ------------ ------------
Total development costs .......... $ 81,489,346 $ 48,094,816 $ 58,698,773
============ ============ ============
Percentage leverage (6) .......... 57.41% 60.01% 60.31%
Average length of offering
(days) ........................ 156 92 80
Months to invest 90% of amount
available ...................... 4 3 10
</TABLE>
I-11
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
January 1, 1994 Through December 31, 1996
<TABLE>
<CAPTION>
Public Offerings
------------------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 23) (Series 24) (Series 25)
1995 1995 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered (1) ........ $ 33,366,000 $ 21,697,000 $ 30,137,100
Dollar amount raised (100%) ...... 100% 100% 100%
Less: Offering expenses
Selling commissions and
reimbursements retained by
affiliates .................... 2.00% 2.00% 2.00%
Other selling commissions ...... 8.00% 8.00% 8.00%
Legal and organizational ........ 2.50% 2.50% 2.50%
------------ ------------ ------------
Total offering expenses .......... 12.50% 12.50% 12.50%
============ ============ ============
Amount available for investment
from limited partners .......... 87.50% 87.50% 87.50%
Acquisition fees (2) ............ 8.50% 8.50% 8.50%
Acquisition expenses (3) ........ 2.00% 2.00% 2.00%
Working capital reserves ........ 4.00% 4.00% 4.00%
Cash payments to operating
partnerships (4) .............. 73.00% 73.00% 73.00%
------------ ------------ ------------
Total acquisition costs .......... 87.50% 87.50% 87.50%
============ ============ ============
Mortgage financing .............. $ 30,684,244 $ 27,013,242 $ 28,680,479
Additional capital (5) .......... $ 488,129 $ 969,023 $ 292,328
------------ ------------ ------------
Total other sources .............. $ 31,172,373 $ 27,982,265 $ 28,972,807
Amount available for investment
from offering proceeds ........ $ 29,195,250 $ 18,984,875 $ 26,467,000
------------ ------------ ------------
Total development costs .......... $ 60,367,623 $ 46,967,140 $ 55,439,807
============ ============ ============
Percentage leverage (6) .......... 50.83% 57.52% 51.73%
Average length of offering
(days) ........................ 165 76 91
Months to invest 90% of amount
available ...................... 4 13 12
</TABLE>
I-12
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
January 1, 1994 Through December 31, 1996
<TABLE>
<CAPTION>
Public Offerings
--------------------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 26) (Series 27) (Series 28)
1996 1996 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Dollar amount offered (1) ........ $ 39,959,000 $ 24,607,000 $ 29,554,000
Dollar amount raised (100%) ...... 100% 100% 100%
Less: Offering expenses
Selling commissions and
reimbursements retained by
affiliates .................... 2.00% 2.00% 2.00%
Other selling commissions ...... 8.00% 8.00% 8.00%
Legal and organizational ........ 2.50% 2.50% 2.50%
------------ ------------ ------------
Total offering expenses .......... 12.50% 12.50% 12.50%
============ ============ ============
Amount available for investment
from limited partners .......... 87.50% 87.50% 87.50%
Acquisition fees (2) ............ 8.50% 8.50% 8.50%
Acquisition expenses (3) ........ 2.00% 2.00% 2.00%
Working capital reserves ........ 4.00% 4.00% 4.00%
Cash payments to operating
partnerships (4) .............. 73.00% 73.00% 73.00%
------------ ------------ ------------
Total acquisition costs .......... 87.50% 87.50% 87.50%
============ ============ ============
Mortgage financing .............. $ 21,492,640 $ 33,341,350 $ 1,092,702
Additional capital (5) .......... $ 405,990 $ 1,150,600 $ 83,263
------------ ------------ ------------
Total other sources .............. $ 21,898,630 $ 34,491,950 $ 1,175,965
Amount available for investment
from offering proceeds ........ $ 34,964,125 $ 21,531,125 $ 25,859,750
------------ ------------ ------------
Total development costs .......... $ 56,862,755 $ 56,023,075 $ 27,035,715
============ ============ ============
Percentage leverage (6) .......... 37.80% 59.51% 4.04%
Average length of offering
(days) ........................ 159 85 93
Months to invest 90% of amount
available ...................... N/A N/A N/A
</TABLE>
NOTES TO TABLE I
Note 1: The dollar amount offered and raised includes the entire amount of
investors' contributions paid.
Note 2: Acquisition fees are amounts paid to the general partners and affiliates
for selecting, evaluating, negotiating and closing the investment partnerships'
acquisition of operating partnership interests.
Note 3: Acquisition expenses consist of legal and accounting fees, travel,
market studies and other expenses to be paid to third parties.
Note 4: Cash payments to non-affiliated operating partnerships include capital
contributions. The amount shown for 1996 includes 22.08% of public partnerships'
funds committed but not yet invested.
Note 5: Additional capital represents funds contributed by the operating general
partners. Properties financed by RHS after 1987 require the operating general
partners to provide a minimum of 3% of the total development cost in equity.
Note 6: The leverage percentage equals the total amount of mortgage indebtedness
on the acquisition date or completion date divided by total development costs.
I-13
<PAGE>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
Table II sets forth the aggregate amount of all compensation earned by or paid
to the General Partner and its Affiliates between January 1, 1994 and December
31, 1996 for the programs included in Table I. None of the programs included in
this Table has been liquidated.
The Table should be read in conjunction with the introduction and accompanying
notes.
January 1, 1994 Through December 31, 1996
<TABLE>
<CAPTION>
Public Offerings
--------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 20) (Series 21) (Series 22)
1994 1994 1994
------------- ------------- ------------
<S> <C> <C> <C>
Dollar amount raised (1) .............. $38,667,000 $18,927,000 $25,644,000
Amounts paid and/or payable to
sponsor and affiliates from
proceeds (1):
Underwriting fees (2) ................ 1,353,345 662,445 897,540
Acquisition fees ...................... 3,286,695 1,608,795 2,179,740
Acquisition expense reimbursement ...... 773,340 378,540 512,880
Asset management fee .................. 1,021,187 673,150 483,381
Dollar amount of cash generated from
operating partnerships before
payments to sponsors (4) ............ 24 0 0
Amounts paid to sponsors from
operations (4) ...................... 0 0 0
</TABLE>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
January 1, 1994 Through December 31, 1996
<TABLE>
<CAPTION>
Public Offerings
--------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 23) (Series 24) (Series 25)
1995 1995 1995
------------- ------------- ------------
<S> <C> <C> <C>
Dollar amount raised (1) .............. $33,366,000 $21,697,000 $30,248,000
Amounts paid and/or payable to
sponsor and affiliates from
proceeds (1):
Underwriting fees (2) ................ 1,167,810 759,395 1,058,680
Acquisition fees ...................... 2,836,110 1,844,245 2,571,080
Acquisition expense reimbursement ...... 667,320 433,940 604,960
Asset management fee .................. 420,971 197,387 143,674
Dollar amount of cash generated from
operating partnerships before
payments to sponsors (3) ............ 378 0 0
Amounts paid to sponsors from
operations (4) ...................... 0 0 0
</TABLE>
I-14
<PAGE>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
January 1, 1994 Through December 31, 1996
<TABLE>
<CAPTION>
Public Offerings
--------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 26) (Series 27) (Series 28)
1996 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Dollar amount raised (1) .............. $39,959,000 $24,607,000 $29,554,000
Amounts paid and/or payable to
sponsor and affiliates from
proceeds (1):
Underwriting fees (2) .................. 1,398,565 861,245 1,034,390
Acquisition fees ........................ 3,396,515 2,091,595 2,512,090
Acquisition expense reimbursement ...... 799,180 492,140 591,080
Asset management fee .................. 97,385 59,255 0
Dollar amount of cash generated from
operating partnerships before
payments to sponsors (3) ............ 0 0 0
Amounts paid to sponsors from
operations (4) ...................... 0 0 0
</TABLE>
NOTES TO TABLE II
Note 1: Table II is presented as if all capital contributions were received and
all fees payable from offering proceeds to the General Partner, its Affiliates,
and their predecessors in interest were paid in the year in which the offerings
were completed; such transactions actually occur over several years.
Note 2: Underwriting fees include non-accountable expense allowances, research
report fees, due diligence fees, selling commissions, purchaser representative
fees, and capital commitment fees. These amounts do not include commissions paid
to an affiliated dealer-manager which were subsequently paid to non-affiliated
brokers. These fees are paid over one to three years.
Note 3: The dollar amount of cash generated from operating partnerships is the
total amount of cash distributions received by the investment partnerships
during the three-year period. For example: 1996 would include 1994-1996 cash
distributions for the partnership organized in 1994. Historically, cash flow
from government-subsidized apartment complexes is generated by the second full
year of operations, yet cash flow is not disbursed until financial statement
analyses are complete.
Note 4: If cash flow is unavailable to pay investment partnership operating
expenses, then expenses are either accrued until cash flow is available in
future years to repay such expenses or the sponsor pays these operating expenses
as they become due and subsequently receives reimbursement when cash flow is
available.
I-15
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
Table III summarizes the operating results of prior partnerships having similar
investment objectives to the Fund which were closed between April 1, 1992 and
March 31, 1997. In 1993, 1 public investment partnership was closed; and in
1993, one public investment partnership was organized and is currently being
offered. The public investment partnerships own interests in 290 operating
partnerships.
The information is presented in accordance with generally accepted accounting
principles ("GAAP") except with respect to the information presented in the
tables labeled "Tax & Distribution Data Per $1000 invested on a Tax Basis",
which is presented on the tax basis method of accounting.
Significant differences can occur in operating results accounted for on a tax
versus GAAP basis. Some differences, but not all, are due to depreciation
methods and depreciable lives, and treatment of capitalized construction period
interest and expenses. The usual effect of these differences is that taxable
losses under GAAP would have been less than the taxable losses. Both GAAP and
tax losses are reported in the table.
The Table should be read in conjunction with the introduction and accompanying
Notes.
I-16
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1993
BOSTON CAPITAL TAX CREDIT FUND III L.P. (Series 17)
<TABLE>
<CAPTION>
For the Financial Statement period ended March 31,
1993 1994 1995 1996 1997
----------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ................ 15,671 760,875 511,745 85,172 43,090
Profit on sale of properties .. 0 0 0 0 0
Less:
Losses from operating
partnerships (1) ............ 0 (1,050,293) (2,744,283) (3,144,888) (3,504,918)
Operating Expenses (3) ........ (3,740) (532,872) (769,308) (656,306) (698,661)
Interest Expense .............. 0 0 0 0 0
Depreciation (2) .............. 0 (36,167) (39,729) (55,408) (55,279)
Net Income--GAAP Basis ........ 11,931 (858,457) (3,041,575) (3,771,430) (4,215,768)
Taxable Income
from operations (4) .......... 0 (438,751) (2,196,498) (3,317,529) (4,225,626)
gain on sale .................. 0 0 0 0 0
Cash generated from
operations (6) .............. (67,817) 77,060 102,182 85,170 (35,198)
Cash generated from sales ...... 0 0 0 0 0
Cash generated from
refinancing .................. 0 0 0 0 0
Cash generated from
operations, sales and
refinancing .................. (67,817) 77,060 102,182 85,170 (35,198)
Less: Cash distributions to
investors from operating
cash flow .................... 0 0 0 0 0
from sales and refinancing ... 0 0 0 0 0
from other .................... 0 0 0 0 0
Cash generated (deficiency)
after cash distributions .... (67,817) 77,060 102,182 85,170 (35,198)
Less: Special items (not
including sales and
refinancing) ................ 0 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items ................ (67,817) 77,060 102,182 85,170 (35,198)
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period Ended
Tax & Distribution Data Per $1,000 December 31,
invested on a Tax Basis (7) 1992 1993 1994 1995 1996
------ --------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 24 83 134 140
State Credit ................ 0 0 0 0 0
Ordinary Income (loss) ...... 0 (9) (44) (66) (87)
from operations ............ 0 (9) (44) (66) (87)
from recapture ............ 0 0 0 0 0
Capital gain (loss) ........ 0 0 0 0 0
Amount remaining invested in
program properties .......... 98.58%
</TABLE>
I-17
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1993
BOSTON CAPITAL TAX CREDIT FUND III L.P. (Series 18)
<TABLE>
<CAPTION>
For the Financial Statement period ended March 31,
1994 1995 1996 1997
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Revenues .................... 401,039 509,945 139,504 46,186
Profit on sale of properties ...... 0 0 0 0
Less:
Losses from operating
partnerships (1) ................ (183,664) (1,201,623) (2,451,672) (2,594,599)
Operating Expenses (3) .......... (230,286) (541,876) (470,468) (445,136)
Interest Expense ................ 0 0 0 0
Depreciation (2) ................ (8,588) (30,673) (42,298) (42,167)
Net Income--GAAP Basis ............ (21,499) (1,264,227) (2,824,934) (3,035,716)
Taxable Income
from operations (4) .............. 65,999 (804,258) (2,392,927) (3,154,406)
gain on sale .................... 0 0 0 0
Cash generated from
operations (6) .................. (32,403) 548,415 (87,238) (119,175)
Cash generated from sales ........ 0 0 0 0
Cash generated from
refinancing .................... 0 0 0 0
Cash generated from
operations, sales and
refinancing .................... (32,403) 548,415 (87,238) (119,175)
Less: Cash distributions to
investors
from operating cash flow ........ 0 0 0 0
from sales and refinancing . 0 0 0 0
from other ...................... 0 0 0 0
Cash generated (deficiency)
after cash distributions ........ (32,403) 548,415 (87,238) (119,175)
Less: Special items (not
including sales and
refinancing) .................... 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items .................. (32,403) 548,415 (87,238) (119,175)
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period Ended
Tax & Distribution Data Per $1,000 December 31,
invested on a Tax Basis (7) 1993 1994 1995 1996
------ ------ ------ --------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 73 127 133
State Credit ................ 0 0 0 0
Ordinary Income (loss) ...... 0 (22) (66) (89)
from operations ............ 0 (22) (66) (89)
from recapture ............ 0 0 0 0
Capital gain (loss) ........ 0 0 0 0
Amount remaining invested in
program properties ........ 99.29%
</TABLE>
I-18
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1993
BOSTON CAPITAL TAX CREDIT FUND III L.P. (Series 19)
<TABLE>
<CAPTION>
For the Financial Statement period ended March 31,
1994 1995 1996 1997
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Revenues .................... 191,686 663,275 490,352 221,224
Profit on sale of properties ...... 0 0 0 0
Less:
Losses from operating
partnerships (1) ................ (3,858) (1,115,590) (1,858,752) (2,861,140)
Operating Expenses (3) .......... (152,566) (728,647) (550,424) (527,872)
Interest Expense ................ 0 0 0 0
Depreciation (2) ................ (5,350) (27,291) (50,726) (51,011)
Net Income--GAAP Basis ............ 29,912 (1,208,253) (1,969,550) (3,218,799)
Taxable Income
from operations (4) .............. (4,184) (468,951) (3,017,243) (3,085,516)
gain on sale .................... 0 0 0 0
Cash generated from
operations (6) .................. (140,802) (517,316) 37,527 (44,125)
Cash generated from sales ........ 0 0 0 0
Cash generated from
refinancing .................... 0 0 0 0
Cash generated from
operations, sales and
refinancing .................... (140,802) (517,316) 37,527 (44,125)
Less: Cash distributions to
investors from operating
cash flow ...................... 0 0 0 0
from sales and refinancing . 0 0 0 0
from other ...................... 0 0 0 0
Cash generated (deficiency)
after cash distributions ........ (140,802) (517,316) 37,527 (44,125)
Less: Special items (not
including sales and
refinancing) .................... 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items .................. (140,802) (517,316) 37,527 (44,125)
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period Ended
Tax & Distribution Data Per $1,000 December 31,
invested on a Tax Basis (7) 1993 1994 1995 1996
------ ------ ------ --------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 18 101 124
State Credit ................ 0 0 0 0
Ordinary Income (loss) ...... 0 (11) (73) (97)
from operations ............ 0 (11) (73) (97)
from recapture ............ 0 0 0 0
Capital gain (loss) ........ 0 0 0 0
Amount remaining invested in
program properties ........ 97.62%
</TABLE>
I-19
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1994
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 20)
<TABLE>
<CAPTION>
For the Financial Statement period ended March 31,
1994 1995 1996 1997
----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Revenues .................... 8,065 231,414 151,206 41,051
Profit on sale of properties ...... 0 0 0 0
Less:
Losses from operating
partnerships (1) ................ 0 (544,795) (2,804,393) (2,941,378)
Operating Expenses (3) .......... (5,561) (483,018) (438,912) (396,611)
Interest Expense ................ 0 0 0 0
Depreciation (2) ................ 0 (15,470) (23,285) (23,285)
Net Income--GAAP Basis ............ 2,504 (811,869) (3,115,384) (3,320,223)
Taxable Income
from operations (4) .............. 0 (399,908) (3,063,829) (2,569,647)
gain on sale .................... 0 0 0 0
Cash generated from
operations (6) .................. (753,574) (608,238) 87,374 90,782
Cash generated from sales ........ 0 0 0 0
Cash generated from
refinancing .................... 0 0 0 0
Cash generated from
operations, sales and
refinancing .................... (753,574) (608,238) 87,374 90,782
Less: Cash distributions to
investors from operating
cash flow ...................... 0 0 0 0
from sales and refinancing . 0 0 0 0
from other ...................... 0 0 0 0
Cash generated (deficiency)
after cash distributions ........ (753,574) (608,238) 87,374 90,782
Less: Special items (not
including sales and
refinancing) .................... 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items .................. (753,574) (608,238) 87,374 90,782
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
Tax & Distribution Data Per $1,000 December 31,
invested on a Tax Basis (7) 1993 1994 1995 1996
------ ------ ------ --------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 20 83 132
State Credit ................ 0 0 0 0
Ordinary Income (loss) ...... 0 (10) (78) (68)
from operations ............ 0 (10) (78) (68)
from recapture ............ 0 0 0 0
Capital gain (loss) ........ 0 0 0 0
Amount remaining invested in
program properties ........ 99.69%
</TABLE>
I-20
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1994
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 21)
<TABLE>
<CAPTION>
For the Financial
Statement period ended March 31,
1995 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
Gross Revenues .................... 77,548 109,287 63,343
Profit on sale of properties ...... 0 0 0
Less:
Losses from operating
partnerships (1) ................ (277,472) (902,586) (2,109,014)
Operating Expenses (3) .......... (179,938) (295,327) (296,809)
Interest Expense ................ 0 0 0
Depreciation (2) ................ (5,395) (16,968) (18,957)
Net Income--GAAP Basis ............ (385,257) (1,105,594) (2,361,437)
Taxable Income
from operations (4) .............. (55,555) (563,052) (1,286,281)
gain on sale .................... 0 0 0
Cash generated from
operations (6) .................. (1,071,123) 828,821 55,158
Cash generated from sales ........ 0 0 0
Cash generated from
refinancing .................... 0 0 0
Cash generated from
operations, sales and
refinancing .................... (1,071,123) 828,821 55,158
Less: Cash distributions to
investors ........................
from operating cash flow ........ 0 0 0
from sales and refinancing . 0 0 0
from other ...................... 0 0 0
Cash generated (deficiency)
after cash distributions ........ (1,071,123) 828,821 55,158
Less: Special items (not
including sales and
refinancing) .................... 0 0 0
Cash generated (deficiency)
after cash distributions and
special items .................. (1,071,123) 828,821 55,158
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1,000 1994 1995 1996
invested on a Tax Basis (7) --------- ------ --------
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 34 91
State Credit ................ 0 0 0
Ordinary Income (loss) ...... (3) (29) (72)
from operations ............ (3) (29) (72)
from recapture ............ 0 0 0
Capital gain (loss) ........ 0 0 0
Amount remaining invested in
program properties ........ 96.22%
</TABLE>
I-21
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1994
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 22)
<TABLE>
<CAPTION>
For the Financial
Statement period ended March 31,
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross Revenues .............................. 25,984 93,986 80,225
Profit on sale of properties ................ 0 0 0
Less:
Losses from operating partnerships (1) ...... (62,112) (1,155,551) (1,817,108)
Operating Expenses (3) ...................... (93,965) (312,736) (309,421)
Interest Expense ............................ 0 0 0
Depreciation (2) ............................ (4,295) (12,538) (12,538)
Net Income--GAAP Basis ...................... (134,388) (1,386,839) (2,058,842)
Taxable Income
from operations (4) ........................ (36,367) (1,179,491) (1,796,994)
gain on sale ................................ 0 0 0
Cash generated from operations (6) .......... (3,300,628) 3,087,382 121,376
Cash generated from sales .................... 0 0 0
Cash generated from refinancing .............. 0 0 0
Cash generated from operations, sales and
refinancing ................................ (3,300,628) 3,087,382 121,376
Less: Cash distributions to investors
from operating cash flow .................... 0 0 0
from sales and refinancing .................. 0 0 0
from other .................................. 0 0 0
Cash generated (deficiency) after cash
distributions .............................. (3,300,628) 3,087,382 121,376
Less: Special items (not including sales and
refinancing) .............................. 0 0 0
Cash generated (deficiency) after cash
distributions and special items ............ (3,300,628) 3,087,382 121,376
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1,000 1994 1995 1996
invested on a Tax Basis (7) --------- ------ --------
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 46 100
State Credit ................ 0 0 0
Ordinary Income (loss) ...... (1) (45) (75)
from operations ............ (1) (45) (75)
from recapture ............ 0 0 0
Capital gain (loss) ........ 0 0 0
Amount remaining invested in
program properties ........ 98.68%
</TABLE>
I-22
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1995
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 23)
<TABLE>
<CAPTION>
For the Financial
Statement period ended March 31,
1995 1996 1997
------------ ------------- ---------------
<S> <C> <C> <C>
Gross Revenues .............................. 9,097 395,171 190,215
Profit on sale of properties ................ 0 0 0
Less:
Losses from operating partnerships (1) ...... (18,054) (483,614) (1,847,436)
Operating Expenses (3) ...................... 0 (447,957) (326,623)
Interest Expense ............................ 0 0 0
Depreciation (2) ............................ 0 (9,804) (13,072)
Net Income--GAAP Basis ...................... (8,957) (546,204) (1,996,916)
Taxable Income
from operations (4) ........................ 0 (348,385) (2,316,483)
gain on sale ................................ 0 0 0
Cash generated from operations (6) .......... 11,841 (410,825) (266,198)
Cash generated from sales .................... 0 0 0
Cash generated from refinancing .............. 0 0 0
Cash generated from operations, sales and
refinancing ................................ 11,841 (410,825) (266,198)
Less: Cash distributions to investors
from operating cash flow .................... 0 0 0
from sales and refinancing .................. 0 0 0
from other .................................. 0 0 0
Cash generated (deficiency) after cash
distributions .............................. 11,841 (410,825) (266,198)
Less: Special items (not including sales and
refinancing) .............................. 0 0 0
Cash generated (deficiency) after cash
distributions and special items ............ 11,841 (410,825) (266,198)
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1, 1994 1995 1996
invested on a Tax Basis (7) ------ ------ --------
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 0 31 90
State Credit ................ 0 0 0
Ordinary Income (loss) ...... 0 (13) (76)
from operations ............ 0 (13) (76)
from recapture ............ 0 0 0
Capital gain (loss) ........ 0 0 0
Amount remaining invested in
program properties ........ 98.76%
</TABLE>
I-23
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1995
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 24)
<TABLE>
<CAPTION>
For the Financial
Statement period ended
March 31,
-----------------------------
1996 1997
<S> <C> <C>
Gross Revenues ................................................ 139,594 193,065
Profit on sale of properties .................................. 0 0
Less:
Losses from operating partnerships (1) ........................ (149,023) (797,796)
Operating Expenses (3) ........................................ (128,659) (310,902)
Interest Expense .............................................. 0 0
Depreciation (2) .............................................. (5,769) (12,980)
Net Income--GAAP Basis ........................................ (143,857) (928,613)
Taxable Income
from operations (4) .......................................... (205,977) (1,059,389)
gain on sale .................................................. 0 0
Cash generated from operations (6) ............................ 102,553 (293,553)
Cash generated from sales ...................................... 0 0
Cash generated from refinancing ................................ 0 0
Cash generated from operations, sales and refinancing .......... 102,553 (293,553)
Less: Cash distributions to investors ..........................
from operating cash flow ...................................... 0 0
from sales and refinancing .................................... 0 0
from other .................................................... 0 0
Cash generated (deficiency) after cash distributions .......... 102,553 (293,553)
Less: Special items (not including sales and refinancing) ...... 0 0
Cash generated (deficiency) after cash distributions and
special items ................................................ 102,553 (293,553)
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1, 1995 1996
invested on a Tax Basis (7) --------- --------
<S> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 11 50
State Credit ................ 0 0
Ordinary Income (loss) ...... (8) (56)
from operations ............ (8) (56)
from recapture ............ 0 0
Capital gain (loss) ........ 0 0
Amount remaining invested in
program properties ........ 99.37%
</TABLE>
I-24
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1995
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 25 and 26)
<TABLE>
<CAPTION>
For the Financial Statement period ended March 31,
-----------------------------------------------
1996 1997
----------------------- -----------------------
Series 25 Series 26 Series 25 Series 26
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Gross Revenues .......................... 130,046 8,666 442,637 962,666
Profit on sale of properties ............ 0 0 0 0
Less:
Losses from operating
partnerships (1) ...................... 22,315 0 (767,183) (493,405)
Operating Expenses (3) .................. (109,194) (35,876) (425,636) (665,060)
Interest Expense ........................ 0 0 0 0
Depreciation (2) ........................ (2,622) 0 (10,488) (14,198)
Net Income--GAAP Basis .................. 40,545 (27,210) (760,670) (209,997)
Taxable Income ............................
from operations (4) .................... 10,287 0 (453,738) (760,605)
gain on sale ............................ 0 0 0 0
Cash generated from operations (6) (177,485) (13,967) 74,185 63,427
Cash generated from sales ................ 0 0 0 0
Cash generated from refinancing .......... 0 0 0 0
Cash generated from operations,
sales and refinancing .................. (177,485) (13,967) 74,185 63,427
Less: Cash distributions to investors .
from operating cash flow ................ 0 0 0 0
from sales and refinancing .............. 0 0 0 0
from other .............................. 0 0 0 0
Cash generated (deficiency) after
cash distributions .................... (177,485) (13,967) 74,185 63,427
Less: Special items (not including
sales and refinancing) ................ 0 0 0 0
Cash generated (deficiency) after
cash distributions and special
items .................................. (177,485) (13,967) 74,185 63,427
</TABLE>
I-25
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 27, 28 and 29)
<TABLE>
<CAPTION>
For the Financial Statement
period ended March 31, 1997
--------------------------------------
Series 27 Series 28 Series 29
----------- ----------- ----------
<S> <C> <C> <C>
Gross Revenues .................................. 269,562 254,197 1,992
Profit on sale of properties .................... 0 0 0
Less:
Losses from operating partnerships (1) ........ (9,016) (1,567) 0
Operating Expenses (3) ........................ (277,112) (155,959) (1,058)
Interest Expense .............................. 0 0 0
Depreciation (2) .............................. (7,761) (5,081) 0
Net Income--GAAP Basis .......................... (24,327) 91,590 934
Taxable Income
from operations (4) ............................ (177,866) (15,956) 0
gain on sale .................................. 0 0 0
Cash generated from operations (6) .............. (118,251) (142,303) 96,625
Cash generated from sales ...................... 0 0 0
Cash generated from refinancing ................ 0 0 0
Cash generated from operations, sales and
refinancing .................................. (118,251) (142,303) 96,625
Less: Cash distributions to investors
from operating cash flow ...................... 0 0 0
from sales and refinancing .................... 0 0 0
from other .................................... 0 0 0
Cash generated (deficiency) after cash
distributions ................................ (118,251) (142,303) 96,625
Less: Special items (not including sales
and refinancing) (identify and quantify) ...... 0 0 0
Cash generated (deficiency) after cash
distributions and special items .............. (118,251) (142,303) 96,625
</TABLE>
I-26
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1997
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 25, 26, 27 and 28)
<TABLE>
<CAPTION>
For the Tax period ended December 31,
1996
-------------------------------------------------------
Tax & Distribution Data Per $1,0
invested (7) Series 25 Series 26 Series 27 Series 28
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .......... 13 21 8 0
State Credit ................ 0 0 0 0
Ordinary Income (loss) ...... (23) (25) (9) (2)
from operations ............ (23) (25) (9) (2)
from recapture .............. 0 0 0 0
Capital gain (loss) .......... 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) ...... 0 0 0 0
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 ...................... 0 0 0 0
Amount remaining invested in
program properties .......... 99.87% 99.99% 100.00% 100.00%
</TABLE>
I-27
<PAGE>
NOTES TO TABLE III
Note 1: This figure represents the GAAP income (loss) allocable to the public
investment partnerships from their investment in operating partnerships. The
GAAP income (loss) is gross rental income less ordinary operating expenses,
interest expense, depreciation and certain non-recurring fees, such as loan
guarantee fees, lease-up fees and partnership management fees paid by the
operating partnerships.
Note 2: This figure represents the amortization by the investment partnerships
of its organization expense over a 60-month period commencing in the month
initial investor admission occurs. For some series it also represents
amortization by the investment partnership of acquisition expenses over a 380
month period commencing April 1, 1996.
Note 3: Operating expenses consist of investor service costs and legal and
accounting fees of the investment partnerships and expenses paid from equity
which includes partnership management fees, initial investor service fees and
capital commitment fees reported on an accrual basis.
Note 4: The taxable income (losses) for the investment partnerships represent
losses from Operating Partnerships which in turn consist substantially of
depreciation and mortgage interest.
Note 5: Federal credits include low-income housing tax credits and historic tax
credits.
Note 6: Cash generated from operations is the net income (loss), net of non-cash
expenses, adjusted for changes in accounts receivable and payable and
distributions received from the operating partnerships.
Note 7: Federal low-income housing tax credits and historic tax credits and
taxable income (loss), per $1,000 invested represents the limited partners'
allocable share of such items divided by the capital contributed by the limited
partners divided by $1,000. This information is presented on a Tax basis and not
a GAAP basis.
I-28
<PAGE>
TABLE III-A
Table III-A summarizes the actual Tax Credit results during the period January
1, 1987 through December 31, 1996, of the 7 public partnerships sponsored by
Affiliates of the General Partner.
<TABLE>
<CAPTION>
Final Actual Tax Credits (%)3&4
Closing ----------------------------------------------------------------------
Program Equity Raised Date 1987 1988 1989 19901 1991 1992 1993 1994 1995 1996
- ---------------- --------------- ------------ ------ ------ ------ ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAH I ........ $ 2,779,000 Dec. 1987 14.2 12.8 14.3 21.6 13.3 13.3 13.3 13.3 10.8 9.6
AAH II ........ 26,501,000 Sep. 1988 5.2 11.7 20.9 13.2 13.2 13.2 13.2 11.5 13.1
AAH III (CA)2 .. 4,425,000 Sep. 1988 5.6 20.5 30.2 23.8 15.9 12.8 11.6 11.3 11.1
BCTC 1 ........ 12,999,000 Dec. 1988 .9 11.0 22.0 14.2 14.2 14.2 14.2 14.2 14.2
BCTC 2 (CA)2 .. 8,303,000 Apr. 1989 4.2 24.8 29.5 27.0 17.1 11.1 10.5 10.2
BCTC 3 ........ 28,822,000 May 1989 12.0 18.5 12.9 12.9 12.9 12.9 12.9 12.9
BCTC 4 ........ 29,788,160 Jun. 1989 7.8 17.4 13.9 12.6 12.6 12.4 12.4 12.4
BCTC 5 (CA)2 .. 4,899,000 Jul. 1989 7.0 24.1 25.2 21.5 15.2 11.1 10.7 10.4
BCTC 6 ........ 12,935,780 Sep. 1989 2.9 15.3 14.9 13.5 13.1 13.0 13.0 13.0
BCTC II 7 .... 10,361,000 Dec. 1989 6.2 11.9 17.1 11.9 12.1 12.2 12.2 12.2
BCTC II 9 .... 41,574,018 May 1990 9.3 11.6 11.9 12.5 13.5 13.7 13.8
BCTC II 10 .... 24,288,998 Aug. 1990 3.1 10.4 12.0 14.1 14.6 14.8 14.7
BCTC II 11 .... 24,735,003 Dec. 1990 4.5 7.9 12.3 12.8 13.3 13.3 13.3
BCTC II 12 .... 29,710,003 May 1991 4.7 11.0 12.1 14.3 14.8 14.7
BCTC II 14 .... 55,728,996 Dec. 1991 3.8 9.1 12.5 14.0 14.4 14.5
BCTC III 15 .. 38,705,000 Jun. 1992 3.1 9.2 13.4 14.4 14.8
BCTC III 16 .. 54,293,000 Dec. 1992 1.4 4.4 8.6 13.9 14.2
BCTC III 17 .. 50,000,000 May 1993 3.2 8.3 13.6 14.1
BCTC III 18 .. 36,162,000 Oct. 1993 .1 7.3 12.8 13.4
BCTC III 19 .... 40,800,000 Dec. 1993 1.8 10.2 12.6
BCTC IV 20 .... 38,667,000 Jun. 1994 2.3 8.4 13.4
BCTC IV 21 .... 18,927,000 Sept. 1994 3.5 9.2
BCTC IV 22 .... 25,644,000 Dec. 1994 4.6 10.4
BCTC IV 23 .... 33,366,000 Jun. 1995 3.1 9.1
BCTC IV 24 .... 21,697,000 Sept. 1995 1.7 5.1
BCTC IV 25 .... 30,248,000 Dec. 1995 1.4
BCTC IV 265 .... 39,959,000 Jun. 1996 2.6
BCTC IV 275 .. 24,607,000 Sept. 1996 0.9
-------------
TOTAL .......... $770,924,858
<CAPTION>
Overall Tax
Cumulative time Credit
Program Cumulative invested thru 1996 Objective
- ---------------- ------------ ------------------- ------------
<S> <C> <C> <C>
AAH I ........ 136.5 9 yrs. 130-150
AAH II ........ 115.2 8 yrs. 3 mos. 130-150
AAH III (CA)2 .. 142.8 8 yrs. 3 mos. 170
BCTC 1 ........ 119.1 8 yrs. 130-150
BCTC 2 (CA)2 .. 134.4 7 yrs. 8 mos. 170
BCTC 3 ........ 107.9 7 yrs. 7 mos. 130-150
BCTC 4 ........ 101.5 7 yrs. 6 mos. 130-150
BCTC 5 (CA)2 .. 125.2 7 yrs. 5 mos. 150-170
BCTC 6 ........ 98.7 7 yrs. 3 mos. 130-150
BCTC II 7 .... 95.8 7 yrs. 130-140
BCTC II 9 .... 86.3 6 yrs. 7 mos. 130-150
BCTC II 10 .... 83.7 6 yrs. 4 mos. 130-150
BCTC II 11 .... 77.4 6 yrs. 130-150
BCTC II 12 .... 71.6 5 yrs. 7 mos. 140-160
BCTC II 14 .... 68.3 5 yrs. 140-160
BCTC III 15 .. 54.9 4 yrs. 6 mos. 140-160
BCTC III 16 .. 42.5 4 yrs. 140-160
BCTC III 17 .. 39.2 3 yrs. 7 mos. 140-160
BCTC III 18 .. 33.6 3 yrs. 2 mos. 140-160
BCTC III 19 .... 24.6 3 yrs. 140-160
BCTC IV 20 .... 24.1 2 yr. 6 mos. 130-150
BCTC IV 21 .... 12.7 2 yr. 3 mos. 130-150
BCTC IV 22 .... 15.0 2 yrs. 130-150
BCTC IV 23 .... 12.2 1 yr. 6 mos. 130-150
BCTC IV 24 .... 6.8 1 yr. 3 mos. 130-150
BCTC IV 25 .... 1.4 1yr. 130-150
BCTC IV 265 .... 2.6 6 mos. 120-140
BCTC IV 275 .. 0.9 3 mos. 120-140
TOTAL ..........
</TABLE>
I-29
<PAGE>
NOTES TO TABLE III-A
(1) The 1990 results reflect, where applicable, the election available to
partnerships owning interests in properties qualifying for Federal Housing
Tax Credits pursuant to the 1990 Omnibus Budget Reconciliation Act which
enables individual investors who held an interest in those partnerships
prior to October 31, 1990, to utilize only in 1990 up to 150% of the annual
Federal Housing Tax Credit, otherwise allowable for 1990. Where this
election was made, the annual Federal Housing Tax Credit for 1990, 1991 and
1992 has been reduced by the 50% bonus ratably and will continue to be
reduced over the remaining years of the credit period.
(2) These programs offered both California and Federal Housing Tax Credits.
(3) Each investor's first year yield may vary slightly based upon actual date of
investor admission.
(4) The only material benefit from these programs may be Tax Credits which may
mean that a material portion of each Tax Credit may represent a return of
the money originally invested if there is not enough money from the sale or
refinancing of the respective apartment complexes to return each investor's
capital contribution.
(5) As with all programs less than one year old, these returns are for a partial
year.
AAH is American Affordable Housing.
BCTC is Boston Capital Tax Credit Fund.
BCTC II is Boston Capital Tax Credit Fund II.
BCTC III is Boston Capital Tax Credit Fund III.
BCTC IV is Boston Capital Tax Credit Fund IV.
I-30
<PAGE>
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BOSTON CAPITAL TAX CREDIT FUND IV L.P.
AGREEMENT OF LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 16, 1993
<PAGE>
[This page intentionally left blank]
<PAGE>
TABLE OF CONTENTS
AGREEMENT OF LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM ........................ A-1
1.01 Continuation of Partnership ............................................ A-1
1.02 Name, Place of Business and Name and Address of Resident Agent ........ A-1
1.03 Purpose ................................................................ A-1
1.04 Term .................................................................... A-2
ARTICLE II
DEFINED TERMS .................................................................. A-2
2.01 Defined Terms .......................................................... A-2
ARTICLE III
PARTNERS AND CAPITAL ............................................................ A-13
3.01 General Partner ........................................................ A-13
3.02 Limited Partner ........................................................ A-13
3.03 Assignees .............................................................. A-13
3.04 Partnership Capital .................................................... A-15
3.05 Liability of Partners and Assignees .................................... A-17
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS, CREDITS AND LOSSES .............. A-17
4.01 Allocations of Profits, Credits and Losses and Distributions of Cash
Available for Distribution ............................................ A-17
4.02 Distributions of Liquidation, Sale or Refinancing Proceeds ............ A-18
4.03 Allocation of Gains and Losses ........................................ A-19
4.04 Determination of Allocations and Distributions Among Partners and
Assignees .............................................................. A-20
4.05 Capital Accounts ...................................................... A-21
4.06 Authority of General Partners to Vary Allocations to Preserve and Protect
Partners' Intent ...................................................... A-22
4.07 Allocations Between and Among Series .................................. A-22
4.08 Special Allocations .................................................... A-23
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER .......................... A-24
5.01 Management of the Partnership .......................................... A-24
5.02 Authority of the Managing General Partner .............................. A-26
5.03 Authority of General Partner and Its Affiliates to Deal with Partnership
and Operating Partnerships .............................................. A-29
5.04 General Restrictions on Authority of General Partner .................... A-31
5.05 Management Obligations .................................................. A-33
5.06 Delegation of Authority ................................................ A-35
5.07 Other Activities ...................................................... A-35
5.08 Limitation on Liability of General Partner and Assignor Limited Partner;
Indemnification ........................................................ A-35
5.09 Tax Status of Partnership .............................................. A-37
5.10 Fiduciary Duty; Derivative Action ...................................... A-37
5.11 Agency Agreement ...................................................... A-37
5.12 Restrictions on Authority to Deal with General Partner and Affiliates .. A-37
5.13 Additional Restrictions on the General Partner ........................ A-37
5.14 Accounting Fee Advances ................................................ A-38
5.15 Asset Acquisition Fee .................................................. A-39
5.16 Partnership Management Fee ............................................ A-39
ARTICLE VI
CHANGES IN GENERAL PARTNERS .................................................... A-39
6.01 Withdrawal of the General Partner ...................................... A-39
6.02 Admission of a Successor or Additional General Partner ................ A-40
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
6.03 Consent of Assignees and Limited Partners to Admission of Successor or
Additional General Partner ............................................ A-40
6.04 Removal of a General Partner .......................................... A-41
6.05 Effect of Removal, Bankruptcy, Death, Withdrawal, Dissolution or
Incompetency of a General Partner .................................... A-41
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNERS' INTERESTS AND TRANSFERABILITY
OF BACS .......................................................................... A-42
7.01 Assignments of the Interest of Assignor Limited Partner .............. A-42
7.02 Conversion of BACS .................................................... A-42
7.03 Assignees of Limited Partners; Substitute Limited Partners ............ A-43
7.04 Joint Ownership of Interests .......................................... A-43
7.05 Assignability of BACs ................................................ A-44
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP .................................... A-45
8.01 Events Causing Dissolution ............................................ A-45
8.02 Liquidation .......................................................... A-46
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING REPORTS, TAX MATTERS ................................ A-47
9.01 Books and Records .................................................... A-47
9.02 Accounting Basis and Fiscal Year ...................................... A-48
9.03 Bank Accounts ........................................................ A-48
9.04 Reports ................................................................ A-48
9.05 Section 754 Elections ................................................ A-49
9.06 Designation of Tax Matters Partner .................................... A-49
9.07 Duties of Tax Matters Partner ........................................ A-49
9.08 Authority of Tax Matters Partner ...................................... A-50
9.09 Expenses of Tax Matters Partner ...................................... A-51
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS AND ASSIGNEES ...................... A-51
10.01 Meetings .............................................................. A-51
10.02 Voting Rights of Limited Partners and Assignees ...................... A-52
10.03 Voting by the Assignor Limited Partner on Behalf of BAC Holders ...... A-54
10.04 Management of the Partnership ........................................ A-55
10.05 Other Activities ...................................................... A-55
ARTICLE XI
ASSIGNMENT OF BENEFICIAL INTERESTS TO ASSIGNEES AND RIGHTS
OF ASSIGNEES .................................................................... A-55
11.01 Assignment of Beneficial Interests to Assignees ...................... A-55
11.02 Rights of Assignees of the Assignor Limited Partner .................. A-56
11.03 Fiduciary Duty of Assignor ............................................ A-56
11.04 Preservation of Tax Status and Preservation of Partnership Status .... A-56
ARTICLE XII
MISCELLANEOUS PROVISIONS .......................................................... A-57
12.01 Appointment of Managing General Partner as Attorney-in-Fact .......... A-57
12.02 Signatures; Amendments ................................................ A-58
12.03 Ownership by Limited Partners or Assignees of General Partners or their
Affiliates ............................................................ A-59
12.04 Binding Provisions .................................................... A-59
12.05 Applicable Law ........................................................ A-59
12.06 Counterparts .......................................................... A-59
12.07 Separability of Provisions ............................................ A-59
12.08 Captions .............................................................. A-59
12.09 Disallowance of Expenses .............................................. A-60
12.10 Entire Agreement ...................................................... A-60
12.11 Series Treated as Separate Partnerships; Exceptions .................. A-60
</TABLE>
ii
<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
AGREEMENT OF LIMITED PARTNERSHIP
RECITALS
Whereas, as of October 1, 1993, Boston Capital Associates IV L.P., a Delaware
limited partnership (the "General Partner"), as the General Partner, executed a
Certificate of Limited Partnership (the "Certificate") forming a limited
partnership under the Delaware Revised Uniform Limited Partnership Act known as
Boston Capital Tax Credit Fund IV L.P. (the "Partnership"), which Certificate
was filed with the Delaware Secretary of State on October 5, 1993;
Whereas, the Partners of Boston Capital Tax Credit Fund IV L.P. desire to (i)
set forth additional terms and conditions with respect to the Partnership, (ii)
set forth in full the terms and conditions of their agreements and
understandings in a single instrument, and (iii) continue the Partnership.
Now, Therefore, in consideration of the mutual promises made herein, the
parties, intending to be legally bound, agree to continue Boston Capital Tax
Credit Fund IV L.P. as follows:
ARTICLE I
CONTINUATION, NAME, PLACE OF BUSINESS,
PURPOSE AND TERM
1.01. Continuation of Partnership.
The undersigned hereby continue Boston Capital Tax Credit Fund IV L.P. as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
(6 Del. C. (S) 17-101 ct seq.). To the extent that the laws of other
jurisdictions shall be applicable to the operations of the Partnership, the
Partnership is intended to be qualified as a foreign limited partnership or a
partnership in commendam under such laws.
1.02. Name, Place of Business and Name and Address of Resident Agent.
The name of the Partnership is Boston Capital Tax Credit Fund IV L.P. The
address of the principal place of business and office of the Partnership is c/o
Boston Capital Partners, Inc., One Boston Place, Suite 2100, Boston,
Massachusetts 02108. Notification of any change in the Partnership's place of
business and principal office shall be given to the Limited Partners and
Assignees.
The address of the registered office and the name and address of the registered
agent for service of process is The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware.
1.03. Purpose.
The purpose of the Partnership is to invest in real estate by acquiring,
holding, and disposing of limited partnership interests in Operating
Partnerships which will acquire, develop, rehabilitate, operate and own newly--
A-1
<PAGE>
constructed, existing or rehabilitated Apartment Complexes and to engage in
other activities necessary or appropriate to the foregoing in order to:
(1) provide tax benefits in the form of Federal Housing Tax Credits and
Rehabilitation Tax Credits which may be applied, subject to certain strict
limitations, against federal income tax liability from active, portfolio
and/or passive income; provided, however, that with respect to any series of
BACs which will invest in Operating Partnerships generating State Housing Tax
Credits, the Partnership's objective will be to provide current tax benefits
in the form of Federal Housing Tax Credits, Rehabilitation Tax Credits and
State Housing Tax Credits;
(2) provide tax benefits in the form of passive losses which may be applied to
offset passive income (if any); and
(3) preserve and protect the Partnership's capital and provide capital
appreciation and cash distributions from a Capital Transaction as to the
Partnership; and
1.04. Term.
The Partnership began as of October 5, 1993, and shall continue in full force
and effect until December 31, 2043, or until dissolution prior thereto pursuant
to the provisions hereof, and upon the filing of a Certificate of Cancellation
with the Delaware Secretary of State in accordance with Article VIII.
ARTICLE II
DEFINED TERMS
2.01. Defined Terms.
The defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article II. The singular shall
include the plural and the masculine gender shall include the feminine and
neuter, and vice versa, as the context requires.
"Accountants" means Reznick Fedder & Silverman, of Bethesda, Maryland, or such
other nationally recognized firm of independent certified public accountants as
shall be engaged from time to time by the Managing General Partner on behalf of
the Partnership.
"Accounting Fee" means the fee paid to the Accountants for the preparation of
the Partnership tax returns and the annual financial reports to the Partners.
"Accounting Fee Advances" means any advances made by the General Partner to the
Partnership for payment of all or part of any Accounting Fee, as set forth in
Section 5.14.
"Acquisition Expenses" means including but not limited to, the total of all
legal fees and expenses, travel and communication expenses in connection with
negotiations, costs of real estate consultants and appraisals, engineering and
market studies, accountants' fees, title and recording fees, and miscellaneous
expenses, associated with the Partnership's acquisition of Operating Partnership
Interests and the Operating Partnerships' acquisition of Apartment Complexes,
whether or not acquired, including any expenses
A-2
<PAGE>
that may have been paid by an Operating General Partner that will be reimbursed
by the Partnership or included in the acquisition price of the Apartment
Complexes or Operating Partnership Interests.
"Acquisition Fees" means the total of all fees and commissions paid by any party
in connection with the Partnership's acquisition of Operating Partnership
Interests (including the Asset Acquisition Fee) and in connection with the
Operating Partnerships' acquisition of Apartment Complexes, but excluding a
development fee paid to a Person who is not an Affiliate of the General Partner
in connection with the actual development of an Apartment Complex by an
Operating Partnership on or after acquisition of the Apartment Complex by the
Operating Partnership. Included in the computation of such fees or commissions
shall be any real estate fee, selection fee, development fee, nonrecurring
management fee or any fee of a similar nature, however designated. For the
purposes of this definition, development fee shall mean a fee for packaging of
an Apartment Complex, including negotiating and approving plans, and undertaking
to assist in obtaining zoning and necessary variances and necessary financing
for a specific Apartment Complex, either initially or at a later date.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as amended
from time to time during the term of the Partnership.
"Adjusted Capital Contribution" means the Capital Contribution of a Partner or
Assignee, as the context may require, which for purposes of this definition
shall be deemed to be $10 per BAC or Limited Partnership Interest reduced (but
not below zero) by any return of such Capital Contributions under Section
3.04(c) and Section 3.04(d) and by any distribution of Liquidation, Sale or
Refinancing Proceeds which represent a return of such Capital Contribution.
"Affiliate" means, when used with reference to a specified Person, (i) any
Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person, (ii) any Person that is an officer of,
director of, partner in or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director, partner or trustee, or with respect to which the specified Person
serves in a similar capacity, (iii) any Person that, directly or indirectly, is
the beneficial owner of 10% or more of any class of equity securities of the
specified Person or of which the specified Person is directly or indirectly the
owner of 10% or more of any class of equity securities, (iv) any Person who is
an officer, director, general partner, trustee or holder of 10% or more of the
voting securities or beneficial interests of any of the foregoing or (v) any
Person treated as a Controlling Person. An Affiliate of the Partnership or of a
General Partner does not include a Person who is a partner in a partnership or
joint venture with the Partnership or any other Affiliate of the Partnership if
such Person is not otherwise an Affiliate of the Partnership or a General
Partner. For purposes of this definition, the term "Affiliate" shall not be
deemed to include any law firm (or member or associate thereof) providing legal
services to the Partnership, the Managing General Partner or any Affiliate of
any of them.
"Aggregate Cost" means the sum(s) of (i) any capital contributions anticipated
to be made by the Partnership to the Operating Partnerships, plus (ii) the
proportionate amount of the mortgage loans on, and other debts related
A-3
<PAGE>
to, the Apartment Complexes, which proportionate amount is equal to the
Partnership's initial, pro rata interest in the profits, losses and credits of
the Operating Partnerships. The amount of the "Aggregate Cost" will be
determined after the completion of investment of Net Proceeds in the Operating
Partnerships in accordance with Section 5.04(q).
"Agreement" means this Agreement of Limited Partnership, as originally executed
and as amended from time to time.
"Apartment Complex" means the land and buildings comprising each of the
multifamily housing developments owned by the Operating Partnerships.
"Asset Acquisition Fee" means the fee payable by the Partnership from Gross
Proceeds to the General Partner or its Affiliate(s) pursuant to Section 5.15,
for analyzing and evaluating potential investments in Operating Partnerships,
negotiating the terms of such investments and any miscellaneous activities
related to the selection of and investment in Operating Partnership Interests.
"Assignee" means any Person who has been assigned one or more units of
beneficial interest in the Limited Partnership Interest of the Assignor Limited
Partner, which assignment is represented by a BAC, but which Person is not a
Limited Partner.
"Assignment Agreement" means an agreement pursuant to which the Assignor Limited
Partner assigns units of beneficial interest in its Limited Partnership Interest
to Assignees.
"Assignor Limited Partner" means BCTC IV Assignor Corp., a Delaware corporation
which is an Affiliate of the General Partner.
"BAC" means the beneficial interest of an Assignee in the Limited Partnership
Interest of the Assignor Limited Partner, attributable to an original Capital
Contribution of $10.00 ($8.95 in the case of the General Partner, its Affiliates
and employees of its Affiliates).
"BAC Holder" means any Person who has been assigned one or more units of
beneficial interest in the Limited Partnership Interest of the Assignor Limited
Partner, which assignment is represented by a BAC, but which Person is not a
Limited Partner.
"Bankruptcy" or "Bankrupt" as to any Person means the filing of a petition for
relief as to any such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or like provision of law (except if such petition is contested by such
Person and has been dismissed within 60 days); insolvency of such Person as
finally determined by a court proceeding; filing by such Person of a petition or
application to accomplish the same or for the appointment of a receiver or a
trustee for such Person or a substantial part of his assets; or commencement of
any proceedings relating to such Person under any other reorganization,
arrangement, insolvency, adjustment of debt or liquidation law of any
jurisdiction, whether now in existence or hereinafter in effect, either by such
Person or by another, provided that if such proceeding is commenced by another,
such Person indicates his approval of such proceeding, consents thereby or
acquiesces therein, or such proceeding is contested by such Person and has not
been finally dismissed within 60 days.
"BCS" means Boston Capital Services, Inc., a Massachusetts corporation which is
the Dealer-Manager and an Affiliate of the General Partner.
A-4
<PAGE>
"BCSG" means BCS Group, Inc., a Massachusetts corporation and an Affiliate of
the General Partner.
"Boston Capital" means Boston Capital Partners, Inc., a Massachusetts
corporation and an Affiliate of the General Partner.
"Capital Account" means the separate capital account maintained and adjusted for
each Partner and the separate subaccount of the Capital Account of the Assignor
Limited Partner maintained and adjusted for each Assignee in accordance with the
terms of Section 4.05.
"Capital Contribution" means the total amount of money contributed to the
Partnership (prior to the deduction of any selling commissions or expenses) by
all the Partners or any class of Partners, or by any one Partner, as the context
may require (or the predecessor holders of the Interests of such Persons or
Person), and with respect to the Assignees, the Capital Contribution of the
Assignor Limited Partner made on behalf of the Assignees.
"Capital Transaction" means the sale by the Partnership of all or part of its
Interest in an Operating Partnership, or any other transaction affecting the
Partnership, including the receipt by the Partnership of its share of the
proceeds of a Capital Transaction as to an Operating Partnership, which is not
in the ordinary course of the Partnership's business. As the context may
require, the term "Capital Transaction" shall, as to an Operating Partnership,
mean any transaction the proceeds of which are not includable in determining net
cash flow of the Operating Partnership, including, without limitation, the sale
or other disposition of all or substantially all the assets of such Operating
Partnership and any refinancing of the applicable Permanent Mortgage Loan, but
excluding the payment to such Operating Partnership of capital contributions of
the Partnership.
"Cash Available for Distribution" means, with respect to any period, Net Cash
Flow less any amounts set aside from Net Cash Flow for deposit into the Working
Capital Reserve.
"Cash Flow" means Net Cash Flow plus amounts available each year for payment of
Accounting Fees, Accounting Fee Advances, reimbursement for Acquisition Expenses
and payment of the Partnership Management Fee, as set forth in Section
4.01(a).
"Cause" means, with respect to Section 5.08 and Section 5.13 hereof only,
conduct which constitutes fraud, bad faith, negligence, misconduct or breach of
fiduciary duty.
"Code" means the Internal Revenue Code of 1986, as amended, or any corresponding
provision or provisions of succeeding law.
"Consent" means either the consent given by vote at a meeting called and held in
accordance with the provisions of Section 10.01 hereof or the prior written
consent, as the case may be, of a Person to do the act or thing for which the
consent is solicited, or the act of granting such consent, as the context may
require, subject to the provisions of Section 12.11.
"Construction Fee" means a fee or other remuneration for acting as general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or to provide major repairs or rehabilitation with respect
to an Apartment Complex.
A-5
<PAGE>
"Controlling Person" means any Person, whatever his title, who performs
functions for a General Partner or any Affiliate of a General Partner similar to
those of the Chairman or member of the Board of Directors, or executive officer
such as the President, Executive Vice President or Senior Vice President,
Corporate Secretary, or Treasurer, or any Person holding a 5% or more equity
interest in any General Partner, or any Person having the power to direct or
cause the direction of a General Partner, whether through the ownership of
voting securities, by contract or otherwise.
"Dealer-Manager" means Boston Capital Services, Inc. ("BCS"), a Massachusetts
corporation which is an Affiliate of the General Partner.
"Dealer-Manager Fee" means the fee payable by the Partnership to the
Dealer-Manager for its services with respect to the Offering.
"Development Fee" means a fee for packaging of an Apartment Complex, including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and necessary financing for a specific Apartment
Complex, either initially or at a later date.
"Escrow Agent" means Wainwright Bank & Trust Co., Boston, Massachusetts, in its
capacity as such.
"Federal Housing Tax Credit" means the low-income housing tax credit allowed for
low-income housing developments pursuant to Section 42 of the Code.
"Front End Fees" means fees and expenses paid by any party for any services
rendered during and in connection with the Partnership's organi- zational or
acquisition phase, including Acquisition Fees, Acquisition Expenses,
Organization and Offering Expenses, plus Selling Commissions and any other
similar fees, although none are anticipated, however designated by the General
Partner. For purposes of this definition, "Acquisition Fees" means the total of
all fees and commissions paid by any party in connection with the Partnership's
acquisition of Operating Partnership Interests (including the Asset Acquisition
Fee, payable by the Partnership from Gross Proceeds to the General Partner or
its Affiliate(s) pursuant to Section 5.15 hereof) and in connection with the
Operating Partnerships' acquisition of Apartment Complexes, but excluding
development fees paid to Persons who are not Affiliates of the Sponsor in
connection with the actual development of Apartment Complexes by Operating
Partnerships. Included in the computation of such fees or commissions shall be
any real estate fee, selection fee, nonrecurring management fee or any fee of a
similar nature, however designated. For purposes of this definition,
"Acquisition Expenses" means including but not limited to, the total of all
legal fees and expenses, travel and communication expenses in connection with
the negotiations, costs of real estate consultants and appraisals, engineering
and market studies, accountants' fees, title and recording fees and
miscellaneous expenses, associated with the Partnership's acquisition of
Operating Partnership Interests and the Operating Partnerships' acquisition of
Apartment Complexes, whether or not acquired, including any expenses that may
have been paid by an Operating General Partner that will be reimbursed by the
Partnership or included in the purchase price of the Apartment Complexes or
Operating Partnership Interests.
"General Partner(s)" means Boston Capital Associates IV L.P., or, as applicable,
any Person(s) who, at the time of reference thereto, has been admit-
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ted as a successor to its Partnership Interest or as an additional General
Partner, in each such Person's capacity as a General Partner. During such time
as Boston Capital Associates IV L.P., or any successor to the Interest of Boston
Capital Associates IV L.P., shall be the sole general partner of the
Partnership, the terms "General Partner(s)" and "Managing General Partner" shall
be deemed to be identical in meaning and may be employed interchangeably in this
Agreement.
"Government Assistance" means any form of local, state or federal assistance,
including, without limitation, mortgage insurance, rental assistance payments,
permanent mortgage financing, interest reduction payments, bond financing, Tax
Credits, State Housing Tax Credits or any other form of loan, grant, insurance
or guarantee.
"Gross Proceeds" means the total amount of money contributed to the Partnership
by the Assignor Limited Partner, which amount will be equal to (i) $10 times the
aggregate number of BACs sold to BAC Holders other than (to the extent
applicable) the General Partner, its Affiliates and employees of its Affiliates
pursuant to the Offering, plus (ii) $8.95 times the aggregate number of BACs
sold to the General Partner, its Affiliates and employees of its Affiliates
pursuant to the Offering.
"Interest" or "Partnership 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 under this
Agreement and the Delaware Revised Uniform Limited Partnership Act, 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, subject to the provisions of Section 12.11 with
respect to matters applicable to any particular series of BACs, the Limited
Partners (including the Assignor Limited Partner) whose combined Capital
Contribution represents over 50%, or such specified percentage, respectively, of
the Capital Contribution of all Limited Partners. The ownership interests of the
Limited Partner(s) in the Partnership are sometimes referred to herein as
"Limited Partnership Interest(s)."
"Investment in Properties" means the amount of Capital Contributions actually
paid or allocated to Operating Partnership Interests acquired by the Partnership
(including the purchase of such properties, Working Capital Re serves allocable
thereto (except that Working Capital Reserves in excess of 5% shall not be
included), and other cash payments such as interest and taxes, but excluding
Front-End Fees).
"Investment Date" means the date or dates, from time to time, when the proceeds
of the Offering are released from the Escrow Agent to the Partnership through
the Assignor Limited Partner (on behalf of the Assignees) and upon the
satisfaction of the conditions described in Sections 3.02 and 3.03.
"Limited Partner" means any Person who is a Limited Partner, whether the
Assignor Limited Partner, a Substitute Limited Partner, or a former Assignee or
General Partner whose Partnership Interest has been converted into a Limited
Partnership Interest, at the time of reference thereto, in such Person's
capacity as a Limited Partner of the Partnership.
"Limited Partnership Interest" means the Interest held by a Limited Partner,
including the Interest held by the Assignor Limited Partner the beneficial
interest of which is assigned to the Assignees.
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"Liquidator" means the General Partner, or, if there is none at the time in
question, such other Person who may be appointed in accordance with applicable
law who shall be responsible to take all action related to the winding up and
distribution of assets of the Partnership.
"Liquidation, Sale or Refinancing Proceeds" means (a) the gross proceeds (i)
resulting from the liquidation of Partnership assets, (ii) received by the
Partnership from an Operating Partnership as a result of the occurrence of a
Capital Transaction as to such Operating Partnership, (iii) resulting from any
sale of the Interest of the Partnership in any Operating Partnership, and/or
(iv) resulting from any other Capital Transaction, less (b) in the case of (i),
(ii) and (iii) immediately above, the expenses of the Partnership incident to
such Capital Transaction, before any application or distribution of such
proceeds pursuant to this Agreement.
"Managing General Partner" means Boston Capital Associates IV L.P., in its
capacity as a General Partner, so long as it shall be a General Partner, or any
successor to the Interest of Boston Capital Associates IV L.P., or a General
Partner who becomes Managing General Partner pursuant to Section 8.01(a) upon
the removal of the former Managing General Partner. During such time as Boston
Capital Associates IV L.P., or any successor to the Interest of Boston Capital
Associates IV L.P., shall be the sole general partner of the Partnership, the
terms "Managing General Partner" and "General Partner(s)" shall be deemed to be
identical in meaning and may be employed interchangeably in this Agreement.
"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 Prospectus.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Net Cash Flow" means, with respect to any year or applicable period, (a) all
Revenues received by the Partnership during such period (not including
depreciation), plus (b) any amounts which the Managing General Partner releases
from the Working Capital Reserve (other than amounts placed in the Working
Capital Reserve from Net Offering Proceeds) as being no longer necessary to hold
as part of the Working Capital Reserve, less (i) cash funds used to pay
operating expenses of the Partnership paid from Revenues during the period,
including any expenses paid to the Managing General Partner, but not including
such amounts paid from the Working Capital Reserve, (ii) all cash payments made
from Revenues during such period to discharge Partnership indebtedness, and
(iii) all amounts from Revenues, if any, added to the Working Capital Reserve
during such period.
"Net Proceeds" means the Gross Proceeds less expenses incurred by the
Partnership in connection with its organization and the offering and sale of
BACs, including Selling Commissions.
"Non-Profit Operating Partnership" means an Operating Partnership which has a
non-profit sponsor as its Operating General Partner, and as to which certain
limitations or restrictions on the distribution of Cash Flow and/or Liquidation,
Sale or Refinancing Proceeds may apply.
"Notice" means a writing, containing the information required by this Agreement
to be communicated to any Person, personally delivered to such Per-
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son 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
receipt of Notice.
"Offering" means the offering of BACs by the Partnership pursuant to the terms
and conditions described in the Prospectus.
"Operating Expenses" means, with respect to any period, except to the extent
paid with cash withdrawn from the Working Capital Reserve therefor, the amount
of expenses incurred by the Partnership in such period in the ordinary course of
the Partnership's business for all expenses, including, but not by way of
limitation, computer costs, advertising, promotion, management, salaries,
insurance, brokerage fees, taxes, accounting, bookkeeping, legal, travel and
telephone. Operating Expenses may include reimbursement to the General Partner
and its Affiliates for the administrative services necessary to the prudent
operation of the Partnership and the management of its investments, provided
that any such reimbursement shall be at the lower of the General Partner's
actual cost or the amount the Partnership would be required to pay to
independent parties for comparable administrative services in the same
geographic location; provided, however, that the General Partner or its
Affiliates may not be reimbursed for rent or depreciation, utilities, capital
equipment, other administrative expenses or salaries or fringe benefits incurred
by or allocated to any of their controlling persons (as defined in Section
V.E.1. of the NASAA Guidelines).
"Operating General Partner" means with respect to an Operating Partnership, the
general partner(s) under its Operating Partnership Agreement.
"Operating Partnership" means each of the limited partnerships or limited
liability companies owning an Apartment Complex in which the Partnership invests
as a limited partner or member, as applicable, which Apartment Complexes are
expected to be qualified pursuant to Section 42(g) of the Code.
"Operating Partnership Agreement" means the limited partnership agreement or
operating agreement, as applicable, of each of the Operating Partnerships, as
amended from time to time.
"Operating Partnership Interest" means the ownership interest of the Partnership
in an Operating Partnership at any particular time, including the right of the
Partnership to any and all benefits to which the Partnership may be entitled as
provided in the applicable Operating Partnership Agreement.
"Operating Partnership Management Fee" means the fee paid to a Person providing
partnership management services to an Operating Partnership.
"Organizational and Offering Expenses" means those expenses incurred in
connection with or related to the formation and qualification of the
Partnership, the structuring of the Partnership's investments, the registration
and qualification of the BACs under applicable federal and state laws and the
marketing, advertising, distribution, sale and processing of the BACs including
without limitation: (a) the costs of preparing, printing, filing and delivering
a registration statement with respect to the BACs, the Prospectus (including any
amendments thereof or supplements thereto), a "Blue Sky Survey" and all
underwriting and sales agreements, including the cost of all copies thereof
supplied to the Dealer-Manager and the Soliciting Dealers, (b) the cost of
preparing and printing this Agreement, other solicitation material and
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related documents and the cost of filing and recording such certificates or
other documents as are necessary to comply with the laws of the State of
Delaware for the formation of a limited partnership and thereafter for the
continued good standing of a limited partnership, (c) the cost of any escrow
arrangements, including any compensation to the Escrow Agent, (d) filing fees
payable to the Securities and Exchange Commission, to state securities
commissions and to the National Association of Securities Dealers, Inc., (e)
fees of the Partnership's counsel and Accountants, and (f) the Dealer-Manager
Fee, a non-accountable expense allowance of up to $0.10 per BAC and an
accountable due diligence expense reimbursement of up to $0.05 per BAC, payable
to the Dealer-Manager.
"Partner" means any General Partner or any Limited Partner.
"Partnership" means the limited partnership formed as of October 5, 1993, under
the Act and known as Boston Capital Tax Credit Fund IV L.P., as said limited
partnership may from time to time be constituted.
"Partnership Management Fee" means the annual fee for Partnership management
services payable pursuant to Section 5.16 to the General Partner or its
Affiliate; the Partnership Management Fee is defined in the Prospectus as the
"Fund Management Fee".
"Permanent Mortgage Loan" means with respect to an Operating Partnership, the
permanent mortgage loan to be made to the Operating Partnership by a permanent
mortgage lender, and which will be secured by a mortgage or deed of trust and
other related security documents and financing statements.
"Permitted Temporary Investments" means investments in short-term, highly liquid
investments, including, without limitation, debt securities or money market
funds which invest in debt securities.
"Person" means any individual, partnership, corporation, joint venture, trust or
other legal entity.
"Purchase Price" means the price paid upon the purchase or sale of a particular
property, including the amount of Acquisition Fees and all liens and mortgages
on the property, but excluding points and prepaid interest.
"Priority Return" means an amount equal to the amount, if any, by which (i) the
Priority Return Base as to a particular series, exceeds (ii) the aggregate
amount of cash, Tax Credits and State Housing Tax Credits, where applicable,
actually distributed or allocated by the Partnership to the Assignees and
Limited Partners as to such series, for each BAC as signed to the Assignees and
Limited Partners as to such series, in each case on a cumulative basis to the
date of a Capital Transaction as to such series of the Partnership.
"Priority Return Base" means an aggregate amount of cash, Tax Credits and State
Housing Tax Credits, where applicable, to be distributed and allocated by the
Partnership to the Assignees and Limited Partners as to a particular series, per
year during the holding period(s) of the investments of such series, for each
BAC assigned to the Assignees and Limited Partners as to such series, expressed
as a percentage of the Capital Contributions of such BAC Holders and Limited
Partners, as set forth in a supplement to the Prospectus at the time of the
commencement of the applicable Series Offering
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Period. The Priority Return Base shall never be less than 6%, the calculation of
which shall commence no later than the end of the calendar quarter in which a
Capital Contribution is made.
"Profits, Credits and Losses" means the income or loss of the Partnership for
federal income tax purposes, as computed in accordance with the requirements of
Section 704(b) of the Code, including related tax items such as tax credits,
capital gains and losses, tax preferences and recapture, but excluding any gains
or losses arising from a Capital Transaction as to an Operating Partnership or
the Partnership.
"Prospectus" means the prospectus contained in the registration statement File
No. 33-99602, filed with the Securities and Exchange Commission for the
registration of BACs and/or Limited Partnership Interests under the Securities
Act of 1933, in the final form in which said prospectus is filed with said
Commission and as thereafter supplemented pursuant to Rule 424 under said Act.
"Regulations" means the regulations promulgated by the U.S. Department of the
Treasury pursuant to the Code.
"Rehabilitation Tax Credit" means the historic rehabilitation tax credit allowed
for the rehabilitation of certified historic structures pursuant to Section 47
of the Code.
"Reporting Fee" means the fee to be paid to an Affiliate of the General Partner
by the Operating Partnerships for services in connection with preparing reports
regarding the Operating Partnerships.
"Repurchase Event" means an event pursuant to which an Operating General Partner
will be required, at the direction of the General Partner on behalf of the
Partnership, to repurchase the Interest of the Partnership in the applicable
Operating Partnership.
"Revenues" means all cash receipts of the Partnership during any period except
for Capital Contributions, Liquidation Sale or Refinancing Proceeds or the
proceeds of any loan to the Partnership.
"Roll-Up" means (i) a transaction involving the acquisition, merger, conversion,
consolidation, or reorganization of the Fund and the issuance of securities of a
Roll-Up Entity; or (ii) any change in the rights, preferences or privileges of
Partners or BAC Holders in the Fund; or any change that would have the effect
of:
A) materially changing the amount, terms or conditions of promoter or
General Partner compensation;
B) amending the voting rights of the BAC Holders;
C) listing the Fund on a national securities exchange, or on the Automated
Quotation System of the National Association of Securities Dealers;
D) changing the fundamental investment objectives of the Fund; or
E) materially altering the duration of the Fund.
"Roll-Up Entity" means a limited partnership, real estate investment trust,
corporation, business trust, or other entity that would be created or would
survive after the successful completion of a proposed Roll-Up transaction.
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"Schedule A" means the schedule(s), as may be amended from time to time, of
Partners' names, addresses, Capital Contributions and Interest (expressed as a
percentage of all Partners' Interests), which schedule, in its initial form, is
attached hereto and made a part hereof.
"Selling Commissions" means the selling commissions payable to the
Dealer-Manager, in connection with the Offering, all or a portion of which may
be reallowed to the Soliciting Dealers.
"Soliciting Dealer" means any of the participating soliciting dealers assisting
the Dealer-Manager in the sale of the BACs.
"Sponsor" means any Person directly or indirectly instrumental in organizing,
wholly or in part, the Partnership, and any Affiliate of such Person, but does
not include (a) any Person whose only relationship with the Partnership or the
General Partner is that of an independent property manager whose only
compensation from the Partnership is in the form of fees for the performance of
property management services, or (b) wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation from the
Partnership is for professional services rendered in connection with the
Offering or the operations of the Partnership. A Person may also be a Sponsor
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 and
property; (iii) having a substantial number of relationships and contacts with
the Partnership; (iv) possessing significant rights to control the Partnership's
properties; or (v) receiving fees for providing services to the Partnership
which are paid on a basis that is not customary in the industry.
"Substitute Limited Partner" means any Person admitted to the Partnership as a
Limited Partner pursuant to the provisions of Section 7.03.
"State Housing Tax Credit" means a low-income housing tax credit allowed against
state income tax liability pursuant to the applicable laws of a state.
"Tax Credit" means the Federal Housing Tax Credit and, as applicable, the
Rehabilitation Tax Credit.
"Tax Matters Partner" means the Partner designated as the Tax Matters Partner of
the Partnership by the Managing General Partner pursuant to the provisions of
Section 9.06.
"Working Capital Reserves" means funds held in reserve, anticipated to be
initially established in an amount of 4% of Gross Offering Proceeds, to be
available for contingencies relating to the operation, management and
administration of the Apartment Complexes, the Operating Partnerships, and the
Partnership, including payment of the annual Partnership Management Fee. In
addition, funds held in the Working Capital Reserve will also be available for
option and/or other payments which may be necessary to secure the acquisition of
Operating Partnership Interests. Amounts held in the Working Capital Reserve may
at any time, in the discretion of the General Partner, be added to Net Cash Flow
or Liquidation, Sale or Refinancing Proceeds.
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ARTICLE III PARTNERS AND CAPITAL
3.01. General Partner.
The General Partner is Boston Capital Associates IV L.P. The name, address and
Capital Contribution of the General Partner is as set forth in Schedule A. The
General Partner shall not be required to make any additional Capital
Contributions to the Partnership. The Interest of the General Partner is 1%.
3.02. Limited Partner.
The Assignor Limited Partner is BCTC IV Assignor Corp. The name, address and
Capital Contribution of the Assignor Limited Partner is as set forth in Schedule
A. The Interest of the Assignor Limited Partner is 99%.
On the first Investment Date of the first series of BACs, the Partnership shall
redeem the initial Capital Contribution of the Assignor Limited Partner and the
Assignor Limited Partner shall make a Capital Contribution to the Partnership
equal to the proceeds from the issuance of the BACs closed and released on such
Investment Date.
The Managing General Partner and the Assignor Limited Partner shall authorize
and cause the Escrow Agent to transfer to the Partnership all proceeds (less a
Dealer-Manager Fee in the amount of 2% of Gross Proceeds, an accountable due
diligence expense reimbursement to the Dealer-Manager in the amount of up to
0.5% of Gross Proceeds, a non-accountable expense allowance to the
Dealer-Manager in the amount of up to 1% of Gross Proceeds and Selling
Commissions to the Dealer-Manager and/or other selected broker-dealers in the
amount of 7% of Gross Proceeds (less any applicable quantity discount with
respect to the Selling Commissions), which Dealer-Manager Fee, due diligence
reimbursement, expense allowance and Selling Commissions shall not be payable by
the General Partner or its Affiliates or employees of its Affiliates with
respect to BACs purchased by them) received from Persons who purchased BACs
pursuant to the Offering, and all such proceeds transferred by the Assignor
Limited Partner shall be treated as Capital Contributions to the Partnership
made by the Assignor Limited Partner on behalf of, and as nominee for, the
Assignees. The Assignor Limited Partner shall make additional Capital
Contributions on each Investment Date thereafter (if any) equal to the
additional proceeds from the issuance of BACs released on each applicable
Investment Date. The Assignor Limited Partner shall not be required to make any
additional Capital Contribution to the Partnership. Other than to serve as
Assignor Limited Partner, the Assignor Limited Partner has no other business
purpose and will not engage in any other activity or incur any debts. The
Assignor Limited Partner may not withdraw from the Partnership without the
Consent of all Persons who are then Assignees.
3.03. Assignees.
(a) On each Investment Date, the Assignor Limited Partner is authorized and
directed to issue BACs to the Assignees representing the assignment of
beneficial interests in the Limited Partnership Interest of the Assignor Limited
Partner to the Assignees, provided, however, that not fewer than 250,000 BACs
and not more than 50,000,000 BACs (including all BACs previously sold
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in any series as of such Investment Date) may be issued and sold. Any BACs sold
to the General Partner and/or its Affiliates shall not be included in the
calculation of the minimum amount of BACs in any series. It is hereby understood
and agreed that the Assignor Limited Partner shall assign such BACs to other
Persons, as may be provided in an Assignment Agreement executed among the
Partnership, the Managing General Partner, and the Assignor Limited Partner on
its own behalf and on behalf of the Assignees, in connection with the Offering.
A Person shall be eligible to become an Assignee at such time as he has (1)
agreed to purchase a minimum investment of 500 or more BACs, (2) paid the sum of
$10.00 in cash (less any applicable quantity discount with respect to the
Selling Commission) for each BAC purchased ($8.95 in the case of the General
Partner, its Affiliates and employees of its Affiliates), and (3) obtained the
consent of the Managing General Partner or its designee to such purchase and
assignment, the granting or denial of which shall be within the absolute
discretion of the Managing General Partner. Each BAC shall represent one Unit of
beneficial interest in the Limited Partnership Interest of the Assignor Limited
Partner. Purchasers of certain numbers of BACs may receive quantity discounts
with respect to Selling Commissions. The offering of BACs in each series will
not exceed 12 months, or such lesser period as may be determined by the General
Partner, in its sole discretion.
(b) Payment for all orders for BACs shall be received by the Partnership in
trust and deposited in an escrow account with the Escrow Agent. Upon acceptance
by the Managing General Partner of orders for at least 250,000 BACs, the Escrow
Agent shall release Gross Proceeds (less Selling Commissions and other
compensation payable to the Dealer-Manager), to the Partnership, and the Persons
whose payments have been so closed and released shall become Assignees no later
than the next business day after the date of such release. Such funds as shall
be received by the Partnership shall be contributed to the capital of the
Partnership and the Capital Account of the Assignor Limited Partner (and
therefore, the subdivided Capital Accounts of the Assignees). Thereupon, the
Assignees shall be credited on the books and records of the Partnership with
such Capital Contributions. The Persons holding such BACs shall be recognized as
Assignees with all the rights attendant thereto under this Agreement no later
than the next business day after the date of release of funds from the escrow
account.
After the initial Investment Date, prospective Assignees whose orders or
subscriptions are approved by the Managing General Partner shall, to the extent
feasible, be treated as Assignees as of the close of business on the business
day following the day the Partnership receives such Person's Capital
Contribution. All monies paid by Persons whose orders are rejected by the
Managing General Partner shall be returned by the Escrow Agent to such
subscribers, without interest, within 10 days after such rejection. In any
event, prospective Assignees shall be treated as Assignees not later than the
last day of the calendar month following the date upon which their subscriptions
were accepted by the General Partner. The Managing General Partner shall have
thirty (30) days to accept the subscription of any Person.
The aggregate interest of the Assignees (through the Assignor Limited Partner)
shall be 99% of the Partnership Interests. The aggregate interest of each
Assignee in the Partnership shall be determined in accordance with a ratio which
shall be multiplied by 99%. That ratio shall be determined as
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follows: the numerator shall be the number of BACs owned by each Assignee; the
denominator shall be the total number of BACs owned by all Assignees.
(c) The Managing General Partner is hereby authorized to do all things necessary
to accomplish the purpose of this Section 3.03, including, but not limited to,
registering the BACs under the Securities Act of 1933, as amended, pursuant to
the rules and regulations of the Securities and Exchange Commission, qualifying
the BACs for sale with state securities regulatory authorities, perfecting
exemptions upon such terms and conditions as the Managing General Partner may
deem advisable, and entering into an agency agreement with the Dealer-Manager on
behalf of the Partnership.
(d) Immediately upon the release by the Escrow Agent of funds of prospective
Assignees and the delivery of such funds to the Partnership, the Assignor
Limited Partner shall be credited on the books and records of the Partnership
with additional Capital Contributions in the amount of such orders, and its
initial Capital Contribution will be returned. On each Investment Date, an
Assignment Agreement between the Partnership and the Assignor Limited Partner
(as a Limited Partner of the Partnership and on behalf of the Assignees) shall
be executed to reflect the number of BACs purchased by Assignees. The Assignor
Limited Partner's rights and interest in such Limited Partnership Interests
shall be deemed to have been transferred and assigned to the Assignees in
accordance with Section 11.01.
(e) The name, address and Capital Contribution of any Limited Partner (other
than the Assignor Limited Partner) shall be set forth in a schedule to this
Agreement at such times as such other Limited Partners may be admitted hereto
pursuant to Sections 7.02, 7.03 or 11.04.
(f) A creditor who makes a nonrecourse loan to the Partnership shall not have or
acquire at any time, as a result of making the loan, any direct or indirect
interest in the profits, capital or property of the Partnership, other than as a
creditor or secured creditor, as the case may be.
(g) The Partnership may sell BACs aggregating not more than 15% of the total
BACs authorized for sale in any series directly to either the General Partner or
any Affiliate of the General Partner or employees of such Affiliates. Any BACs
acquired by the General Partner or its Affiliates will be on the same terms and
conditions as other Investors, except that they will not pay the 7% Selling
Commissions, the 2% Dealer-Manager Fee, the non-accountable expense allowance of
up to 1% or the accountable due diligence expense reimbursement of up to 0.5%
otherwise payable to the Dealer-Manager.
(h) All interest income earned on Offering proceeds prior to the date the
Offering proceeds are released to the Partnership on behalf of the Assignor
Limited Partner pursuant to this Section 3.03 shall be allocated and paid solely
to Assignees, within 75 days of the end of the fiscal quarter following the
applicable Investment Date, in the amount earned by their respective shares of
Offering proceeds, less any escrow fees and expenses, and the General Partner
shall not receive any portion of such interest income.
3.04. Partnership Capital.
(a) No Partner or Assignee shall be paid interest on any Capital Contribution;
provided, however, that if no assignments are made from the Assignor Lim-
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ited Partner to the Assignees, subscription proceeds shall be returned to the
Assignees with a pro rata portion of any interest earned thereon.
(b) The Partnership shall not redeem or repurchase any Partnership Interest or
BAC, and no Partner or Assignee shall have the right to withdraw, or receive any
return of, his Capital Contribution, except as specifically provided herein. No
Capital Contribution may be returned in the form of property other than cash or
cash equivalents. The General Partner shall have no personal liability for the
repayment of the Capital Contribution of any Limited Partner or Assignee.
Nothing in this Section 3.04 shall alter the limitation on liability of the
General Partner or its Affiliates pursuant to Section 5.08(a).
(c) Any portion of the Capital Contributions of the Assignees with respect to
the first series of BACs (except for any amounts utilized to pay Partnership
Operating Expenses, or Organizational and Offering Expenses, or any amounts set
aside for the Working Capital Reserve) which is not invested or committed for
investment in Operating Partnership Interests within 24 months from the date the
Prospectus is declared effective by the Securities and Exchange Commission (or,
with respect to Capital Contributions of the Assignees of subsequent series of
BACs, if any, 24 months from the commencement of such series offering(s))
(subject to the Partnership's authority to substitute Operating Partnership
Interests for previously-committed investments in Operating Partnership
Interests) shall be distributed to the Assignees by the Partnership as a return
of capital, without reduction for any Selling Commission paid with respect to
such Capital Contributions by the Partnership to the Dealer-Manager or the
Soliciting Dealers and subject to the provisions of Section 5.15 of this
Agreement relating to the return of a pro rata portion of the Asset Acquisition
Fee. For the purpose of this Agreement, funds will be deemed to have been
committed for investment in Operating Partnership Interests and will not be
returned to the Assignees to the extent such funds are deposited in the Working
Capital Reserve or to the extent that written agreements in principle,
commitment letters, letters of intent or understanding, option agreements or any
similar contracts or understandings with respect to such investments shall be at
any time executed, and as to which some portion of the funds have been invested.
Any return of Capital Contributions previously made by the Partnership to the
Operating Partnerships during the first 24 months after the making of such
Capital Contributions, and any other funds which have been earned or returned to
the Partnership with respect to Operating Partnership Interests and any
Liquidation, Sale or Refinancing Proceeds otherwise received within 36 months
from the Partnership's acquisition of Operating Partnership Interests shall, in
the discretion of the Managing General Partner, be invested in additional
Operating Partnership Interests, placed in the Working Capital Reserve or
returned to the Assignees in proportion to their respective Capital Accounts as
a return of capital, provided that in no event shall the Managing General
Partner make any reinvestments in Operating Partnership Interests later than 36
months from the final Investment Date. Any such funds which are not so invested
or placed in the Working Capital Reserve as permitted by the preceding sentence
within six months of the completion of the construction period of all of the
Apartment Complexes owned by the Operating Partnerships shall be returned to
Assignees in proportion to their respective Capital Accounts as a return of
capital; provided, further, that a sufficient portion of such funds shall be
distributed to Assign-
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ees and Limited Partners to cover their estimated income tax liabilities, if
any, arising out of the receipt of such funds.
(d) Any return of capital under this Section 3.04 shall be deemed to be a
compromise within the meaning of Section 17-502(b) of the Delaware Revised
Uniform Limited Partnership Act and Assignees receiving any such return shall
not be obligated to return any such money to the Partnership or a creditor of
the Partnership.
3.05. Liability of Partners and Assignees.
The liability of each Limited Partner or Assignee for the losses, debts,
liabilities and obligations of the Partnership shall be limited to his Capital
Contribution (or, in the case of Assignees, the Capital Contribution made on his
behalf) and his share of any undistributed profits of the Partnership; provided,
however, that under applicable law a Limited Partner or Assignee may be liable
to the Partnership to the extent of previous distributions made to him, with
interest, if the Partnership does not have sufficient assets to discharge its
liabilities. No Limited Partner or Assignee shall be required to lend any funds
to the Partnership or, after his Capital Contribution (or, in the case of
Assignees, the Capital Contribution made on his behalf) has been paid pursuant
to Section 3.03, to make any further Capital Contribution to the Partnership. It
is the intent of the Partnership that, for purposes of establishing liability of
the Limited Partners and Assignees as discussed in this Section 3.05, no
distribution (or any part of any distribution) made to any Limited Partner or
Assignee pursuant to Section 4.01 of this Agreement shall be deemed a return or
withdrawal of capital, and that no Limited Partner or Assignee shall be
obligated to pay any such amount to or for the account of the Partnership or any
creditor of the Partnership. If any court of competent jurisdiction holds,
however, that, notwithstanding the provisions of this Agreement, any Limited
Partner or Assignee is obligated to make any such payment, such obligation shall
be the obligation of such Limited Partner or Assignee and not of the General
Partner. To the extent that the Assignor Limited Partner is required to return
any distributions or repay any amount by law or pursuant to this Section 3.05,
each Assignee who has received any portion of such distribution agrees, by
virtue of accepting such distribution, to pay his proportionate share of such
amount to the Assignor Limited Partner immediately upon Notice by the Assignor
Limited Partner to such Assignee. To the extent that any Limited Partner or
Assignee fails to return such distribution to the Partnership, the Managing
General Partner may withhold further distributions to such Limited Partner or
Assignee as an offset. In the event that the Assignor Limited Partner is
determined to have unlimited liability for the debts of the Partnership, nothing
set forth herein shall be construed to require Assignees to assume any portion
of such liability.
ARTICLE IV.
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS,
CREDITS AND LOSSES
4.01. Allocations of Profits, Credits and Losses and Distributions of Cash
Available for Distribution.
(a) Prior to the initial Investment Date, any Profits, Credits and Losses and
any Cash Available for Distribution will be specially allocated to the General
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Partner, determined on the basis of an interim closing of the Partnership's
books on that date. Thereafter, all Profits, Credits and Losses and all Cash
Available for Distribution, after payment of Accounting Fees, reimbursement to
the General Partner of payments to the Accountants for the preparation of
Partnership tax returns and other reports, reimbursement to the General Partner
and its Affiliates for any unreimbursed Acquisition Expenses, and payment of the
Partnership Management Fee, shall be allocated and distributed 99% to the
Assignees and Limited Partners as a group, and 1% to the General Partner,
annually; provided that the distributions of cash to the General Partner
pursuant to this subparagraph (a) shall be subordinated to the Priority Return.
(b) Distributions of Cash Available for Distribution, if any, shall be made
annually, within 180 days after the end of the annual period to which they
relate every calendar year.
(c) In the event that the deduction of all or a portion of any fee paid or
incurred out of Cash Flow or Net Cash Flow by the Partnership to a Partner or an
Affiliate of a Partner is disallowed for federal income tax purposes by the
Internal Revenue Service with respect to a taxable year of the Partnership, the
Partnership shall then allocate to such Partner an amount of gross income of the
Partnership for such year equal to the amount of such fee as to which the
deduction is disallowed.
(d) In accordance with Section 704(c) of the Code (relating to allocations with
respect to appreciated contributed property) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Partnership shall be allocated, solely for tax purposes,
among the Partners and Assignees 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 fair market value. Any elections or other decisions relating to
such allocations shall be made by the General Partner in any manner that
reasonably reflects the purpose and intention of this Agreement.
4.02. Distributions of Liquidation, Sale or Refinancing Proceeds. (a) Except as
may be required by Section 8.02(c), all Liquidation, Sale or Refinancing
Proceeds shall be applied and distributed in the following amounts and order of
priority:
(i) to the payment of debts and liabilities of the Partnership (including any
expenses of the Partnership incident to any such liquidation, sale or
refinancing of an Apartment Complex or of the Partnership's interest in an
Operating Partnership), excluding loans or other debts and liabilities of the
Partnership to the General Partner or any Affiliate (such debts and
liabilities, in the case of a nonliquidating distribution, to be only those
which are then required to be paid or, in the judgment of the Managing General
Partner, required to be provided for);
(ii) to any additions to the Working Capital Reserve or other reserves as the
Managing General Partner deems reasonably necessary for contingent, unmatured
or unforeseen liabilities or obligations of the Partnership;
(iii) to the repayment of any unrepaid loans theretofore made by the General
Partner and/or any Affiliates to the Partnership for Partnership obligations
and to the payments of any unpaid amounts owing to the General
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Partner and/or its Affiliates under this Agreement, including repayment of any
Accounting Fee Advances and payment of any unpaid Partnership Management Fees;
and
(iv) the balance, 95% to the Assignees and Limited Partners and 5% to the
General Partner; provided that the distribution to the General Partner
pursuant to this subparagraph (iv) shall be subordinated to a return of all of
the Assignees' and Limited Partners' Capital Contribution and to the Priority
Return.
(b) If there are insufficient funds to make payment in full of all amounts under
any subsection of Section 4.02(a), the funds then available for payment shall be
allocated proportionately among the Persons entitled to payment pursuant to such
subsection; provided, however, that within any subsection, funds shall be
distributed in the order of any priority specifically stated therein.
(c) Subject to the provisions of Section 3.04(c), distributions of Liquidation,
Sale or Refinancing Proceeds, if any, shall be made quarterly, within 45 days
after the end of each calendar quarter to which such proceeds relate.
4.03. Allocation of Gains and Losses.
(a) All gains (but not losses) arising from the sale, exchange or other
disposition of all or substantially all the property owned by an Operating
Partnership or the Partnership's interest in an Operating Partnership shall be
allocated in the following manner:
(i) First, that portion of gains (including any profits treated as ordinary
income for federal income tax purposes) shall be allocated to the Partners or
Assignees who have negative Capital Account balances in an amount equal to and
in proportion to such balances; provided that no gain shall be allocated to a
Partner or Assignee under this Section 4.03(a)(i) once such Partner's or
Assignee's Capital Account is brought to zero;
(ii) Second, gain in excess of the amount allocated under Section 4.03(a)(i)
shall be allocated to the Partners and Assignees in the amount and to the
extent necessary to increase their Capital Accounts so that the proceeds
distributed under Section 4.02(a)(iv) will be distributed in accordance with
the positive balance in the Partners' and Assignees' respective Capital
Accounts.
(b) All losses shall be allocated as follows:
(i) First, an amount of loss to the Partners and Assignees to the extent and
in such proportions as the respective balances in all Partners' and Assignees'
Capital Accounts; and
(ii) Second, any remaining loss to the Partners and Assignees in accordance
with the manner in which they bear the economic risk of loss or, if none, in
accordance with their Interests.
(c) Each Partner shall retain his respective Interest in the Partnership
attributable to property described in Section 751(a) of the Code ("interest in
Section 751 property") for so long as such Partner has an Interest in the
Partnership. Accordingly, any portion of the gains which are allocated pursuant
to Section 4.03(d) above, and which are treated as ordinary income for federal
income tax purposes under Section 1245 and 1250 of the Code, shall be allocated
to those Partners who have an interest in Section 751
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property, in proportion to the amounts of such Partners' respective interests in
Section 751 property.
(d) Notwithstanding any other provision of this Agreement to the contrary that
may be expressed or implied herein, the Interests of the General Partners, in
the aggregate, in each item of Partnership income, gain, loss, deduction or
credit will be equal to at least 1% of each of those items at all times during
the existence of the Partnership.
4.04. Determination of Allocations and Distributions Among Partners and
Assignees.
(a) Except as provided in Sections 4.04(d) and 4.04(e), all Profits, Credits and
Losses allocable to the Limited Partners and Assignees and all Cash Available
for Distribution and all Liquidation, Sale or Refinancing Proceeds distributable
to the Limited Partners and Assignees shall be allocated or distributed, as the
case may be, to each Limited Partner and Assignee entitled to such allocation or
distribution in the ratio which the BACs or Limited Partnership Interests owned
by such Limited Partner or Assignee bears to the total BACs and Limited
Partnership Interests owned by all Limited Partners and Assignees entitled to
such allocation or distribution; provided, however, that any distribution
pursuant to Section 4.02(a)(iv) shall be made to each Limited Partner or
Assignee entitled to such distribution in the ratio which the positive balance
in such Limited Partner's or Assignee's Capital Account bears to the total
positive balances in the Capital Accounts of all Limited Partners and Assignees
entitled to such distribution as of the date of the Liquidation, Sale or
Refinancing.
(b) Except as provided in Section 4.04(c), all Profits, Credits and Losses
allocable to the Limited Partners and Assignees, as a group, shall be allocated,
and all Cash Available for Distribution distributable to the Limited Partners
and Assignees, as a group, shall be distributed, as the case may be, to the
Persons recognized by the Partnership as the holders of record of BACs or
Limited Partnership Interests as of the last day of the calendar month for which
such allocation or distribution is to be made.
(c) All Profits, Credits and Losses for a Partnership year allocable to any BACs
or Limited Partnership Interests which has been transferred during such year
shall be allocated between the transferor and the transferee based upon the
number of monthly periods on the last day of which each was recognized (in
accordance with Section 7.02(b)) as the holder of record of the BACs or Limited
Partnership Interests for purposes of this Section, without regard to the
results of Partnership operations during particular monthly periods of such year
and without regard to whether cash distributions were made to either the
transferor or transferee.
(d) All Profits, Credits and Losses arising from an event giving rise to
Liquidation, Sale or Refinancing Proceeds allocable to the Limited Partners and
Assignees shall be allocated, and all Liquidation, Sale or Refinancing Proceeds
arising from such Liquidation, Sale or Refinancing distributable to the Limited
Partners and Assignees shall be distributed, as the case may be, to the Persons
who are holders of record of BACs or Limited Partnership Interests as of the
date of such Liquidation, Sale or Refinancing, or on a different record date as
may be established by the Managing General Partner within ten days thereof. All
Profits, Credits and Losses and all Liquidation,
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Sale or Refinancing Proceeds which are attributable to a Liquidation, Sale or
Refinancing but which are not received by the Partnership as cash upon a
Liquidation, Sale or Refinancing but which will be received later by the
Partnership as a result of an installment or other deferred sale shall be
allocated or distributed, as the case may be, to the Persons recognized (in
accordance with Sections 7.03(e) and 11.01(a) in the case of a transfer of BACs
or Limited Partnership Interests) as the holders of BACs or Limited Partnership
Interests as of the date such Liquidation, Sale or Refinancing Proceeds are
received by the Partnership or on a different record date within ten days
thereof as may be established by the Managing General Partner.
(e) In the event that there is more than one Investment Date with respect to any
series, (i) all Cash Available for Distribution, and all Profits, Credits and
Losses allocable to the Limited Partners and Assignees in such series as a class
for the period commencing with the first day following the previous Investment
Date and ending on the last day preceding the next succeeding Investment Date
shall be distributed or allocated solely to those Persons who held BACs or
Limited Partnership Interests as of or prior to the Investment Date occurring
within such period, on the basis of an interim closing of the Partnership's
books on such dates. In the event that the BACs are listed on a national
exchange or included for quotation on NASDAQ, the General Partner is authorized
to allocate Profits, Credits and Losses and to make distributions of cash or
other property, so as to equalize the BACs on an economic basis and to equalize
any differences in Capital Accounts attributable to multiple Investment Dates.
(f) Any portion of the gains treated as ordinary income for federal income tax
purposes under Section 1245 and 1250 of the Code ("Recapture Amount") shall be
allocated on a dollar for dollar basis to those Partners and Assignees to whom
the items of Partnership deduction or loss giving rise to the Recapture Amount
had been previously allocated.
(g) Subject to the requirements of Section 469 of the Code, if any, in the event
that there is a determination that any provision of the Code requiring
imputation of interest is applicable to the Capital Contributions of any Partner
or Assignee or any loan between a Partner or Assignee and the Partnership, any
income or deduction attributable to such Capital Contribution or loan (whether
stated or unstated) shall be allocated solely to such partner. The amount of any
imputed interest attributable to Capital Contribution of a Partner or Assignee
shall not be included in such Partner's or Assignee's Capital Account to the
extent previously included as capital.
(h) Notwithstanding any other provision in this Agreement, income, gain, loss
and deduction with respect to property which has a variation between its basis
computed in accordance with Treasury Regulation Section 1.704-1(b) and its basis
computed for Federal income tax purposes shall be shared among Partners so as to
take account of such variation in a manner consistent with the principles of
Section 704(c) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
4.05. Capital Accounts.
A separate Capital Account shall be maintained and adjusted for each Partner in
accordance with the Code and the Regulations. There shall be cred-
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ited to each Partner's Capital Account the amount of his capital contributed
(including the Capital Contributions of the Assignor Limited Partner on behalf
of the Assignees), the fair market value of any property contributed to the
capital of the Partnership (net of any liabilities secured by such property),
such Partner's distributive share of the Profits, Credits and Losses of the
Partnership, and such Partner's share of any tax-exempt income of the
Partnership; and there shall be charged against each Partner's Capital Account
the amount of all Cash Available for Distribution distributed to such Partner,
all Liquidation, Sale or Refinancing distributed to such Partner, the fair
market value of any property distributed to such Partner (net of any liabilities
secured by such property), such Partner's distributive share of the Losses of
the Partnership, and allocations to such Partner of expenditures of the
Partnership described in Section 705(a)(2)(B) of the Code. Each Partner's
Capital Account shall be maintained and adjusted in accordance with the Code and
Treasury Regulations thereunder, including expressly, but not by way of
limitation, the adjustments to Capital Accounts under Section 704(b) of the Code
and the Treasury Regulations thereunder. The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Treas. Reg. (S)1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. It is the intent of the
Partners that the Capital Accounts maintained under this Agreement be determined
and maintained throughout the full term of this Agreement in accordance with the
accounting rules of Treas. Reg. (S)1.704-(b)(2)(iv). The Assignor Limited
Partner's Capital Account shall be subdivided into separate Capital Accounts for
each Assignee and shall be maintained and adjusted for each Assignee in
accordance with the foregoing.
4.06. Authority of General Partners to Vary Allocations to Preserve and Protect
Partners' Intent.
It is the intent of the Partners that each Partner's or Assignee's distributive
share of income, gain, loss, deduction, or credit (or item thereof) shall be
determined and allocated in accordance with this Article IV to the fullest
extent permitted by Section 704(b) of the Code. The General Partner is
authorized and directed to allocate income, gain, loss, deduction, or credit (or
item thereof) arising in any year differently than otherwise provided for in
this Article IV to the extent that, allocating income, gain, loss, deduction, or
credit (or item thereof) in the manner provided for in this Article IV in the
opinion of tax advisors to the Partnership would cause the determinations and
allocations of each Partner's or Assignee's distributive share of income, gain,
loss, deduction, or credit (or item thereof) not to be permitted by Section
704(b) of the Code and Treasury Regulations promulgated thereunder. Any
allocation made pursuant to this Section 4.06 shall be deemed to be a complete
substitute for any allocation otherwise provided for in this Article IV in the
opinion of tax advisors to the Partnership and no amendment of this Agreement or
approval of any Partner or Assignee shall be required.
4.07. Allocations Between and Among Series.
To the extent that BACs are issued in series, allocations and distributions of
each item set forth in this Article IV shall be made and accounted for
separately for each series of BACs.
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4.08. Special Allocations.
(a) Notwithstanding any other provision of this Agreement, if there is a net
decrease in Partnership Minimum Gain during a Partnership taxable year, each
Partner or Assignee shall be specially allocated, before any other allocation is
made under this Agreement, items of income and gain for such year (and, if
necessary, for subsequent taxable years) in amounts equal to the greater of (i)
the amounts needed to eliminate any deficit Capital Account balance (reduced by
the portion of such deficit balances (A) that must be restored upon liquidation,
if any, and (B) that would be eliminated under Treas. Reg. (S)1.704-2(b) if the
Partnership were liquidated at such time, and increased by the items described
in Treas. Reg. (S)1.704-1(b)(2)(ii)(d)(4), (5) and (6)), or (ii) the portion of
each such Partner's share of the net decrease in Partnership Minimum Gain during
such year (as specified in Treas. Reg. 1.704-2(b) and (d)) that is allocable to
the disposition of Partnership property subject to one or more nonrecourse
liabilities of the Partnership. The items so allocated shall be determined in
accordance with Treas. Reg. (S)1.704-2(b), (g) and (j). This provision is
intended to comply with the minimum gain chargeback requirement of the Treasury
Regulations under Section 704(b) of the Code and shall be interpreted
consistently therewith.
(b) Except as provided in Section 4.08(a) hereof, in the event any Partner or
Assignee unexpectedly receives any adjustments, allocations or distributions
described in Treas. Reg. (S)1.704-1(b)(2)(ii)(d)(4), (5) or (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
Regulations under Code Section 704(b)) the deficit balance in each such
Partner's or Assignee's Capital Account as quickly as possible, provided that an
allocation pursuant to this Section 4.08(b) shall be made only if and to the
extent that such Partner or Assignee has a deficit Capital Account balance in
excess of such sum after all other allocations provided for in this Section 4
have been tentatively made, as if this Section 4.08(b) were not in this
Agreement.
(c) In the event that a Partner or Assignee has a deficit Capital Account
balance at the end of any Partnership year that exceeds the sum of (i) the
amount that such Partner or Assignee must repay to the Partnership upon
liquidation, if any, and (ii) the amount that such Partner or Assignee is deemed
to be obligated to restore under Treas. Reg. (S)1.704-2(g), such Partner or
Assignee shall be allocated items of Partnership income in the amount of such
excess as soon as possible, provided that an allocation pursuant to this Section
4.08(c) shall be made only if and to the extent that such Partner or Assignee
has a deficit Capital Account balance in excess of such sum after all other
allocations provided for in this Section 4 have been tentatively made, as if
this Section 4.08(c) were not in this Agreement.
(d) The allocations set forth in this Section 4.08 (the "Regulatory
Allocations") are intended to comply with certain requirements of Treas. Reg.
(S)1.704-1(b) and Treas. Reg. (S)1.704-2. Notwithstanding any other provisions
of this Article IV (other than the Regulatory Allocations), the Regulatory
Allocations shall be taken into account in allocating other profits, losses and
items of income, gain, loss and deduction among the Partners or Assignees so
that, to the extent possible, the net amount of such allocations of other
profits, losses and other items and the Regulatory Allocations to each Partner
or Assignee shall be equal to the net amount that would have been
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allocated to each such Partner if the Regulatory Allocations had not occurred.
(e) If there is a net decrease in Partner Non-Recourse Debt Minimum Gain during
a Partnership taxable year, then each Partner with a share of the minimum gain
attributable to such debt at the beginning of such year will be allocated items
of income and gain for such year (and, if necessary, subsequent years) in
proportion to, and to the extent of, an amount equal to such Partner's share of
the net decrease in Partner Non-Recourse Debt Minimum Gain during the year. A
Partner is not subject to this Partner Non-Recourse Debt Minimum Gain chargeback
to the extent that any of the exceptions provided in Treas. Reg.
(S)1.704-2(i)(4) applied consistently with Treas. Reg. (S)1.704-2(f)(2)-(5)
apply. Such allocations shall be made in a manner consistent with the
requirements of Treas Reg. (S)1.704-2(i)(4) under Section 704 of the Code.
ARTICLE V.
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
5.01. Management of the Partnership.
(a) The General Partner, within the authority granted to it under this
Agreement, shall have full, complete and exclusive discretion to manage and
control the business of the Partnership to the best of its ability and to use
its best efforts to carry out the purpose of the Partnership. In so doing, the
General Partner shall take all actions necessary or appropriate to protect the
interests of the Limited Partners and the Assignees. The General Partner shall
devote such time as is necessary to the affairs of the Partnership. The General
Partner shall not receive compensation therefor from the Partnership other than
as expressly provided herein. The General Partner shall have fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the General Partner's possession or control, and
it shall not employ such funds or assets in any manner except for the exclusive
benefit of the Partnership.
(b) Subject to the other provisions of this Agreement, Boston Capital Associates
IV L.P. shall be the Managing General Partner. All decisions made for and on
behalf of the Partnership by the Managing General Partner shall be binding upon
the Partnership. Except as expressly otherwise set forth elsewhere in this
Agreement, the Managing General Partner (acting for and on behalf of the
Partnership), in extension and not in limitation of the rights and powers given
by this or by the other provisions of this Agreement shall, in its sole
discretion, have full and entire right, power and authority in the management of
the Partnership business to do any and all things necessary to effectuate the
purpose of the Partnership. Without limiting the foregoing grant of authority
but subject to the other provisions of this Agreement, the Managing General
Partner, in its capacity as General Partner shall have the right, power and
authority, acting for and on behalf of the Partnership, to do all acts and
things set forth in Section 5.02. No Person dealing with the Managing General
Partner shall be required to determine its authority to make any undertaking on
behalf of the Partnership or to determine any facts or circumstances bearing up
on the existence of such authority.
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(c) The Managing General Partner shall, after the release from escrow of orders
for BACs pursuant to Section 3.03, establish the Working Capital Reserve out of
Capital Contributions in an amount of not less than 4% of the Gross Proceeds.
The Working Capital Reserve may be increased or reduced by the Managing General
Partner as it deems appropriate under the circumstances from time to time.
(d) All of the Partnership's Operating Expenses shall be billed to and paid by
the Partnership. In the event that legitimate Partnership expenses are billed by
its creditors to the Managing General Partner rather than the Partnership,
subject only to the limitations herein which apply generally to the
Partnership's expenses, such expenses shall be paid by the Partnership. The
Operating Expenses to be paid by the Partnership in connection with the
Partnership's business include without limitation: (i) all costs of personnel
employed by the Partnership and involved in the business of the Partnership,
except as prohibited pursuant to Section 5.01(e) below, (ii) all costs of
borrowed money, taxes and assessments applicable to the Partnership (including
interest or other changes on loans or letters of credit by or obtained by the
General Partners or their Affiliates), (iii) legal, audit, accounting and
appraisal fees, (iv) printing, engraving and other expenses and taxes incurred
in connection with the issuance, distribution, transfer, registration and
recording of documents evidencing ownership of an Interest in the Partnership or
in connection with the business of the Partnership, (v) fees and expenses paid
to independent contractors, mortgage bankers, finders, brokers and servicers,
consultants, real estate brokers, and other agents, (vi) expenses in connection
with the acquisition, sale, exchange or other disposition and financing of the
Operating Partnership Interests, (vii) expenses of organizing, revising,
amending, converting, modifying or terminating the Partnership, and (viii) costs
incurred in connection with any litigation or regulatory proceeding in which the
Partnership is involved except as may be prohibited by Section 5.08.
(e) Reimbursements to the General Partner or any of its Affiliates shall not be
allowed, except for reimbursement of (i) Organizational and Offering Expenses,
(ii) the actual cost to the General Partners or such Affiliates of goods and
materials supplied by unaffiliated parties used for or by the Partnership, or in
the case of any goods and materials purchased from the General Partner or its
Affiliates, 90% of the competitive price of such goods and materials, and (iii)
the direct expenses, including, but not limited to, travel and telephone, of
them or their employees on Partnership business, and direct out-of-pocket
expenses incurred in rendering legal, accounting, bookkeeping, computer,
printing, public relations and any other administrative services necessary to
the prudent operation of this Partnership, which services could be performed by
independent parties. Reimbursement of expenses shall not exceed the lesser of
the cost of such expenses or the amount which an independent party would charge
for such services. Notwithstanding the foregoing, the General Partner and its
Affiliates (including the Assignor Limited Partner) may be reimbursed for the
administrative services necessary to the prudent operation of the Partnership,
provided that any such reimbursement shall be at the lower of the General
Partner's actual cost or the amount the Partnership would be required to pay to
independent parties for comparable administrative services in the same
geographic location. No reimbursement shall be permitted for services for
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which the General Partner is entitled to compensation by way of a separate fee.
The General Partner or its Affiliates may not be reimbursed for general overhead
expenses in connection with the ongoing administration of the Partnership during
its operational phase, such as rent, depreciation, utilities, capital equipment
and other administrative expenses, or the salaries, fringe benefits, travel
expenses and other administrative items incurred by or allocated to any of their
Controlling Persons.
The amount of Organization and Offering Expenses are estimated to be 5.5% of the
Gross Proceeds applicable to the first 250,000 BACs issued, and may be
proportionally more if fewer than 250,000 BACs are issued and proportionally
less with respect to the issuance of additional BACs. Subsequent series (if
applicable) may therefore be required to reimburse the first series for that pro
rata share of such items.
Notwithstanding the terms and conditions of Sections 5.01(d) and (e) above, if
Front End Fees exceed the percentage of Gross Proceeds (after investment in
Invested Properties and deposit into the Working Capital Reserve) allowable
therefor pursuant to Section IV.C.2. of the NASAA Guidelines, the excess will be
paid by the General Partner and not the Partnership.
The annual report of the Partnership will include a breakdown of the amounts
actually reimbursed to the General Partner and its Affiliates. The Accountants
for the Partnership will certify that the amounts actually reimbursed were costs
incurred in the management of the Partnership. The methods of verification used
by the Accountants will be in accordance with generally accepted auditing
standards and other auditing procedures which the Accountants consider
appropriate, including but not limited to, review of the time records of the
employees of the General Partner and its Affiliates, and review of the nature of
the tasks performed by such employees for which the General Partner is
reimbursed.
The method of verification shall at minimum provide: (a) a review of the time
records of individual employees, the cost of whose services were reimbursed; and
(b) a review of the specific nature of the work performed by each such employee.
The additional costs of such verification will be itemized by said Accountants
on a program-by-program basis and may be reimbursed to the General Partner by
the Partnership in accordance with this provision only to the extent that such
reimbursement, when added to the cost for administrative services rendered, does
not exceed the competitive rate for such services as determined above.
5.02. Authority of the Managing General Partner.
(a) Subject to Sections 5.03 and 5.04, the Managing General Partner for, and in
the name and on behalf of, the Partnership is hereby authorized, without
limitation:
(i) to negotiate for and enter into agreements to acquire, hold, encumber,
sell, dispose of and otherwise manage the Operating Partnership Interests, at
such price and upon such terms, as it deems to be in the best interests of the
Partnership, the Limited Partners and Assignees;
(ii) to give the consent of the Partnership in its capacity as a limited
partner of an Operating Partnership to any action proposed to be taken by such
Operating Partnership which, under the provisions of its Operating
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Partnership Agreement, requires the consent of the Investment Partnership,
including the sale or refinancing of any Apartment Complex;
(iii) to waive any condition precedent to the making of an installment of
capital contributions to an Operating Partnership or to waive any material
default by an Operating General Partner in the performance of his obligations
under any Operating Partnership Agreement;
(iv) to designate, on the behalf of the Investment Partnership, a successor
Operating General Partner, to the extent so provided in any Operating
Partnership Agreement;
(v) to require the applicable Operating General Partner(s) to repurchase an
Operating Partnership Interest upon the occurrence of a repurchase event under
the applicable Operating Partnership Agreement;
(vi) to execute any applicable documents which the General Partner deems
necessary or appropriate in connection with the development and financing of
any Apartment Complex in which the Partnership acquires an interest;
(vii) to acquire by purchase, lease, exchange or otherwise, any real or
personal property;
(viii) to borrow money and issue evidences of indebtedness, and to secure the
same by mortgage, deed of trust, pledge or other lien on any Operating
Partnership Interest or other assets of the Partnership;
(ix) 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;
(x) 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;
(xi) to determine the appropriate accounting method or methods to be used by
the Partnership (the Partnership intends to utilize the accrual method of
accounting);
(xii) to cause the Partnership to make or revoke any of the elections referred
to in Sections 195, 709, 732, 754, or 1017 of the Code or any similar
provisions enacted in lieu thereof or any other elections beneficial to the
Assignees and the Partners of the Partnership;
(xiii) to allocate income, gain, loss, deduction, or credit (or item thereof)
in accordance with Article IV of this Agreement;
(xiv) to establish and maintain the Working Capital Reserve, originally in the
amount of not less than 4% of Gross Proceeds, and thereafter in such amounts
as it deems appropriate from time to time;
(xv) to amend this Agreement to reflect the substitution of Limited Partners,
and to amend this Agreement as provided for in Section 12.02;
(xvi) to invest all funds not immediately needed in the operation of the
business, including, but not limited to (A) the Net Proceeds prior to
investment in and allocation to specific Operating Partnerships, (B) the Net
Proceeds allocated for subsequent investment in a particular Operating
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Partnership, or (C) the Working Capital Reserve, in Permitted Temporary
Investments;
(xvii) to 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 or who may in the future provide
services to, lend money to, sell to or purchase property from such parties;
(xviii) to obtain loans for the Partnership from the General Partner or any
Affiliate of the General Partner in accordance with the requirements of
Section 5.03;
(xix) to prepare and file with the Securities and Exchange Commission a
registration statement with respect to the Offering and take all actions
necessary or desirable to cause such registration statement to be declared
effective by the Securities and Exchange Commission; to prepare and
distribute, or cause to be distributed, the Prospectus; and to take any and
all other actions to effectuate the Offering;
(xx) to cooperate with the Assignor Limited Partner to facilitate the issuance
of one or more series of BACs;
(xxi) to take such actions as are necessary and appropriate to permit or
restrict the transfer of BACs, including the listing of the BACs on, and/or
the delisting of the BACs from (pursuant to Section 11.04), public trading
markets or include the BACs for quotation on the National Association of
Securities Dealers Automated Quotation System; provided that the General
Partner may not take such actions to list the BACs for quotation or trading
until counsel to the Partnership has rendered its opinion that it is
substantially more likely than not that listing the BACs will not cause the
Partnership to be treated as a corporation for federal income tax purposes;
(xxii) to deal with, delegate, enter into an agreement, agreements, or
contracts with a financial institution or other entity to conduct, on its
behalf, transfers of BACs, including correspondence with the Assignees,
preparing, transmitting and doing all other necessary actions to effect
transfers, assignments or other dispositions of BACs as requested by Assignees
and to do all other acts authorized hereunder in connection with such
administrative activities relating to the Assignees; provided however, that
except as set forth in Sections 7.03(c) and 7.05(c), the cost of such services
shall be borne by the Partnership for ordinary and necessary business expenses
with respect to the provision of services to the Partners and Assignees.
Further, any contractual arrangement between the Partnership and the transfer
agent with respect to the BACs shall not relieve the Managing General Partner
of its fiduciary duties hereunder; and/or
(xxiii) to engage in any kind of activity and to perform and carry out
contracts of any kind necessary to, or in connection with, or incidental to
the accomplishment of the purposes of the Partnership.
(b) With respect to all of its obligations, powers and responsibilities under
this Agreement, the Managing 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.
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(c) All series of BACs will (i) have substantially identical investment
objectives in generating Tax Credits, and possibly State Housing Tax Credits,
(ii) provide for no duplication of property management or other fees, (iii)
provide for substantially identical compensation to the General Partner and its
Affiliates, and (iv) provide for investment in Operating Partnership Interests
under substantially the same terms and conditions. Additionally, Operating
Partnership Interests may be invested in jointly by series of BACs only in
accordance with the conditions set forth in Section 5.05(c).
5.03. Authority of General Partner and Its Affiliates To Deal With Partnership
and Operating Partnerships.
(a) The General Partner and its Affiliates may not be an Operating General
Partner, unless there has been a material and adverse breach of the Operating
Partnership Agreement by the unaffiliated Operating General Partner. In such
instance, the affiliated Operating General Partner shall fully comply with all
provisions of Section V.H.6 of the NASAA Guidelines. An Affiliate of the General
Partner may, and shall have the right to, act as management agent of any
Apartment Complex on terms and conditions permitted by any applicable
governmental regulations or any applicable requirements of any lender and as set
forth in Section 5.03(b).
(b) (i) Except in extraordinary circumstances, the General Partner or any
Affiliate shall not have the right to contract or otherwise deal with any
Operating Partnership for the sale of goods or services or the lending of money
to an Operating Partnership or the Operating General Partners, except for: (i)
Apartment Complex management services, the fee for which shall be as set forth
in Section 5.03(b)(ii) hereof; (ii) loans made by, or guaranteed by, the General
Partner or its Affiliates, and (iii) for those dealings, contracts or provision
of services described in this Agreement. Extraordinary circumstances shall only
be presumed to exist where there is an emergency situation requiring immediate
action and the services required are not immediately available from unaffiliated
parties. All services rendered shall be rendered pursuant to a written contract
which shall contain a clause allowing termination without penalty on sixty (60)
days Notice. Goods and services will be provided at the lesser of actual cost or
the price charged for such goods or services by independent parties. Any payment
made to the General Partner or any Affiliate for such goods, services or loans
shall be fully disclosed to all Assignees and Limited Partners in the reports
required hereunder. Neither the General Partner nor any Affiliate shall, by the
making of lump sum payments to any other Person for disbursement by such other
Person, circumvent the provisions of this Section 5.03(b).
(ii) Property management, rent-up or leasing fees shall be paid to the General
Partner or any of its Affiliates only for services actually rendered and shall
be in an amount equal to the lesser of (i) fees competitive in price and terms
with those of non-Affiliated Persons rendering comparable services in the
locality where the Apartment Complex is located and which could reasonably be
available to the Partnership, or (ii) 5% of such Apartment Complex's gross
revenues. No duplicate property management fees or other fees shall be paid to
any Person.
(c) In the event extraordinary circumstances arise, the General Partner and its
Affiliates may provide construction services. The General Partner or its
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Affiliates shall not provide such services to the Partnership unless it believes
that it has an adequate staff to do so and unless such provision of goods and
construction services is part of its ordinary and ongoing business in which it
has previously engaged, independent of the activities of the Partnership. Such
services being provided shall be reasonable for and necessary to the
Partnership, shall be actually furnished to the Partnership and, shall be
provided at the lower of 100% of the construction contract rate with respect to
the applicable Apartment Complex or 90% of the competitive price charged for
such services by independent parties for comparable goods and services in the
same geographic location (except that in the case of transfer agent, custodial
and similar banking-type fees, and insurance fees, the compensation, price or
fee shall be at the lesser of cost or the compensation, price or fee of any
other Person rendering comparable services as aforesaid). Cost of services as
used herein means the pro rata cost of personnel, including an allocation of
overhead directly attributable to such personnel, based on the amount of time
such personnel spent on such services, or other method of allocation acceptable
to the Partnership's Accountants. The costs of verification of costs reimbursed
to the General Partner or its Affiliates contained in the annual report may be
reimbursed only to the extent, when added to the costs of such goods or services
rendered, that the sum does not exceed the competitive rate for such services.
(d) All services provided by the General Partner or any Affiliates pursuant to
Section 5.03(c) shall be rendered pursuant to this Agreement or a written
contract, which contract precisely describes the services to be rendered and all
compensation to be paid and shall contain a clause allowing termination without
penalty on 60 days Notice to the General Partner by the vote of the majority in
Interest of the Limited Partners and the BAC Holders (the Assignor Limited
Partner acting according to the direction of the BAC Holders). The General
Partner and its Affiliates shall not have the right to contract or otherwise
deal with the Partnership for the sale of goods or services, except for those
dealings, contracts or provision of services on terms described in this
Agreement.
(e) The following prohibitions shall apply with respect to the General Partner
and its Affiliates: (i) neither the General Partner nor any such Affiliate shall
be given an exclusive right to sell, or exclusive employment to sell, any
Apartment Complex; (ii) the Partnership shall not lend money to the General
Partner or any Affiliate of the General Partner; (iii) neither the General
Partner nor any Affiliate of the General Partner shall make any loan to the
Partnership if such loan provides for a prepayment penalty or the interest rates
and other finance charges and fees in connection with such loan are in excess of
the rate or fees at which the Partnership could have borrowed from an
independent bank under comparable circumstances or, if lower, the rate which the
General Partner or such Affiliate paid to obtain the funds to make the loan to
the Partnership compounded monthly; and (iv) no compensation or fees may be paid
by the Partnership or an Operating Partnership to the General Partner or its
Affiliates except as described in this Agreement or in the Prospectus, and in no
event shall the aggregate compensation payable to the Partnership, the General
Partner or its Affiliates exceed the amounts permitted under Section IV of the
NASAA Guidelines.
(f) Notwithstanding any provisions of this Section 5.03, neither the General
Partner nor any of its Affiliates shall:
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(i) receive any rebate or give-up, or participate in any reciprocal
arrangement, of which would circumvent the provisions of the Partnership
Agreement;
(ii) receive any compensation for providing insurance brokerage services to
the Partnership, unless such services and compensation are provided in
compliance with Section 5.03(b), and (x) the cost of providing such services
is no greater than the lowest quotes obtained from two unaffiliated insurance
agencies and the coverage and terms are comparable, and (y) at least 75% of
the insurance brokerage service gross revenues of the General Partner or its
Affiliates are derived from other than insurance brokerage services provided
to Affiliates;
(iii) provide "financing" to the Partnership, as that term is defined in
Section I.B.17. of the NASAA Guidelines as the indebtedness encumbering
program properties, the principal amount of which is scheduled to be paid over
a period of not less than 48 months, and not greater than 50 percent of the
principal amount of which is scheduled to be paid during the first 24 months.
Nothing in this definition shall be construed as prohibiting a bonafide
prepayment provision in the financing agreement;
(iv) charge the Partnership for, or take from any other Person, any property
management fee with respect to Partnership property or assets, except as
provided in Section 5.03(b); or (v) pay or award, directly or indirectly, any
commission or other compensation (other than normal sales commissions and
reimbursement of expenses payable to registered broker-dealers which may
include cash incentives under a program submitted for review and approval by
the National Association of Securities Dealers, Inc. ("NASD") in accordance
with Section 5(f) of Appendix F to Section 34 of the NASD Rules of Fair
Practice) to any Person engaged by a potential investor for investment advice
as an inducement to such advisor to advise such investor to purchase BACs.
(g) Notwithstanding any provision in this Agreement, in no event shall the
General Partner or its Affiliates provide services or receive compensation other
than as allowed by Sections V.E.2 and V.J. of the NASAA Guidelines.
5.04. General Restrictions on Authority of General Partner.
In exercising management and control of the Partnership, the General Partner, on
behalf of the Partnership and in furtherance of the business of the Partnership,
shall have the authority to perform all acts which the Partnership is authorized
to perform. However, the General Partner shall not have any authority to:
(a) perform any act in violation of this Agreement or any applicable law or
regulation thereunder;
(b) do any act required to be approved or ratified in writing by all Limited
Partners (including the Assignor Limited Partner voting as instructed by the
Assignees) under the Act, unless the right to do so is expressly otherwise
given in this Agreement;
(c) without the Consent of a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the
Assignees), sell or otherwise dispose of all or substantially all of the
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assets of the Partnership in a single sale or disposition or in a series of
contemporaneous sales or dispositions with a view towards distribution;
(d) borrow from the Partnership;
(e) elect to dissolve the Partnership without the Consent of a majority in
Interest of the Limited Partners (including the Assignor Limited Partner
voting as instructed by the Assignees) (unless a greater number of Limited
Partners is then required under the Act);
(f) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(g) confess a judgment against the Partnership;
(h) possess Partnership property, or assign its rights in specific Partnership
property, for other than a Partnership purpose;
(i) admit a Person as a General Partner, except as provided in this Agreement;
(j) knowingly perform any act that would subject any Assignee to liability as
a general partner in any jurisdiction;
(k) invest Partnership funds in junior trust deeds, land sale contracts or
similar obligations;
(l) invest in or underwrite the securities of other issuers, except as
provided in Sections 5.02(a)(xvi) or 9.03; provided, however, that the General
Partner may temporarily invest Partnership funds in money market funds or
other suitable investments (other than funds organized as limited
partnerships);
(m) invest Partnership funds in investments organized and/or operated by its
Affiliates other than as set forth in Sections 5.03(a) and 5.05(c) hereof;
(n) allocate any income, gain, loss, deduction, or credit (or any item
thereof) to any Partner or Assignee if, and only to the extent that, such
allocation will cause the determinations and allocations of income, gain,
loss, deduction, or credit (or any item thereof) provided for in Article IV
hereof not to be permitted by Section 704(b) and the Treasury Regulations
promulgated thereunder;
(o) issue senior securities or offer BACs or Partnership Interests in exchange
for property other than cash;
(p) utilize Net Proceeds for any purpose other than as set forth in this
Agreement and in the Prospectus;
(q) utilize for Investment in Properties less than the greater of (i) 82.5% of
the Gross Proceeds reduced by 0.1625% for each 1% of financing encumbering the
Apartment Complex; or (ii) 69.5% of the Gross Proceeds. To calculate the
percentage of financing encumbering the Apartment Complex, divide the amount
of financing by the Purchase Price, excluding Front End Fees and multiply the
quotient by .1625% to determine the percentage deducted from 82.5%;
(r) make loans to the Partnership or accept loans on behalf of the Partnership
from any Affiliate of the General Partners that do not comply with Section
5.03(e)(iii);
(s) utilize any Liquidation, Sale or Refinancing Proceeds to acquire
additional Operating Partnership Interests, except that with respect to each
series of BACs, any return of Capital Contributions received by the Part-
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nership from any Operating Partnership during the first 24 months after
acquisition of such Operating Partnership Interests and any Liquidation, Sale
or Refinancing Proceeds otherwise received within 36 months from the
Partnership's acquisition of Operating Partnership Interests may, in the
discretion of the General Partner, be invested in additional Operating
Partnership Interests, placed in the Working Capital Reserve, or refunded to
Investors in such series, provided that in no event shall the General Partner
make any reinvestments in Operating Partnership Interests with respect to a
particular series of BACs later than 36 months from the final Investment Date
with respect to such series; provided, further, that (i) a sufficient portion
of such funds shall be distributed to BAC Holders to cover their estimated
income tax liabilities, if any, arising out of the receipt of such funds, and
(ii) any compensation to the General Partner and/or its Affiliates in the
event of a reinvestment is subject to the limitations set forth in Sections
5.03, 5.04(q), 5.15 and 5.16 of this Agreement;
(t) invest in limited partnership interests of programs other than programs
which own and operate a property to be qualified pursuant to Section 42(g) of
the Code;
(u) invest in Operating Partnership Interests jointly with other programs,
except in accordance with the conditions set forth in Section 5.05(c);
(v) sell, lease or lend Partnership assets to the General Partner or any
Affiliate of the General Partner or purchase or lease property from the
General Partner or its Affiliates, or acquire property from a program in which
the General Partner or its Affiliates have an interest, or sell or lease an
Apartment Complex to an Operating Partnership;
(w) reinvest Net Cash Flow (excluding Liquidation, Sell or Refinancing
Proceeds) in Operating Partnership Interests;
(x) incur Partnership indebtedness exceeding 85% of the value of the
Partnership's assets; or
(y) take any action to merge or Roll-Up the Partnership with or into any other
entity.
5.05. Management Obligations.
In conducting the business of the Partnership, the General Partners shall be
bound by the following:
(a) The Partnership's interest in any Operating Partnership shall not be
acquired with a view to resale and shall be acquired for long-term
appreciation.
(b) The Partnership shall normally seek to minimize depreciation recapture and
to defer capital gain taxes by not selling any interest in any Operating
Partnership, or by not causing, or consenting to, the sale of any Apartment
Complex unless proceeds arising from such sale are likely to be sufficient to
meet the federal tax liabilities at the then maximum rate of the Assignees or
the Limited Partners arising from such sale.
(c) Operating Partnership Interests may be invested in jointly by series of
BACs, or may be invested in jointly by a series of BACs with another
publically registered program (either of such parties referred to as a
"Program"), provided that any joint investment in Operating Partnership
Interests will satisfy the following conditions:
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(i) the two Programs have substantially identical investment objectives;
(ii) there are no duplicate property management or other fees;
(iii)the compensation to the sponsor of each Program is substantially
identical in each Program;
(iv) each Program will have a right of first refusal if the other Program
wishes to sell its Operating Partnership Interest; and
(v) the investment of each Program is on substantially the same terms and
conditions.
(d) Operating Partnership Interests may also be invested in jointly with an
affiliated Program which is not publicly registered if in addition to the
requirements set forth in Section 5.05(c), such investment is necessary to
relieve the Sponsor from any commitment to purchase an Operating Partnership
Interest in compliance with this Agreement prior to the closing of the
Offering.
(e) The completion of any Apartment Complex which is under construction at the
time of the acquisition of an Operating Partnership Interest by the
Partnership shall be secured by a completion bond in the amount of the
contract price or other satisfactory security, which may include, but is not
limited to, the following:
(i) A written guarantee of completion by a Person, supported by financial
statements demonstrating sufficient net worth or adequately collateralized
by other real or personal properties or other Persons' guarantees; and/or
(ii) A retention of a reasonable portion of the capital contributions to the
Operating Partnership and/or fees to the Operating General Partner(s) as a
potential offset in the event the Operating General Partner does not perform
in accordance with the Operating Partnership Agreement.
(f) All acquisitions by the Partnership of Operating Partnership Interests in
Operating Partnerships owning Apartment Complexes must be supported by either
(i) an appraisal prepared by a competent, independent appraiser or (ii) FmHA
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 any successor or FmHA or HUD form, any comparable form 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 figures. The
appraisal or governmental form(s) shall be maintained in the Partnership's
records for at least five years, and shall be available for inspection and
duplication by any Partner or Assignee. Such appraisal or governmental form(s)
shall demonstrate that the total amount of indebtedness incurred by the
Operating Partnerships shall not exceed the sum of 85% of the Aggregate Cost
of all Apartment Complexes which have not been refinanced, and 85% of the
aggregate fair market value of all refinanced Apartment Complexes, as
determined by the lender as of the date of refinancing. Notwithstanding the
foregoing, however, to the extent any Apartment Complexes are financed by (i)
loans insured or guaranteed by the full faith and credit of the United States
government, or of a state or
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local government, or by an agency or instrumentality of any of the foregoing,
and/or (ii) loans received by any of the foregoing, following termination of
the Offering, the total amount of indebtedness incurred by the Operating
Partnerships with respect to such Apartment Complexes shall not exceed the sum
of 100% of the Aggregate Cost of all such Apartment Complexes which have not
been refinanced, and 100% of the aggregate fair market value of all such
refinanced Apartment Complexes, as determined by the lender as of the date of
refinancing.
5.06. Delegation of Authority.
Subject to the provisions of this Article V, the General Partner may delegate
all or any of its powers, rights and obligations hereunder, and may appoint,
employ, contract or otherwise deal with any Person for the transaction of the
business of the Partnership, which Person may, under supervision of the General
Partner, perform any acts or services for the Partnership as the General Partner
may approve.
5.07. Other Activities.
The General Partner and any Affiliate may engage in or possess interests in
other business ventures of every kind and description for its own account,
including, without limitation, serving as general partner of other partnerships
which own, either directly or through interests in other partnerships, apartment
complexes similar to the Apartment Complexes. Neither the Partnership nor any of
the Partners shall have any rights by virtue of this Agreement in or to such
other business ventures or to the income or profits derived therefrom.
5.08. Limitation on Liability of General Partner and Assignor Limited Partner;
Indemnification.
(a) Neither the General Partner, its Affiliates nor the Assignor Limited Partner
shall be liable, responsible or accountable in damages or otherwise to the
Partnership or to any of the Limited Partners or BAC Holders for any act or
omission performed or omitted by such General Partner or Assignor Limited
Partner if the General Partner determines in good faith, that the act or
omission was in the best interests of the Partnership, provided that such
General Partner's or Assignor Limited Partner's conduct did not constitute
Cause. Notwithstanding the foregoing, the General Partner shall be liable to the
Partnership, Limited Partners, or BAC Holders for violations of federal
securities laws for which lack of Cause is not a defense. The Partnership shall
indemnity and hold harmless the General Partner and its Affiliates, including,
the Assignor Limited Partner against and for any loss, liability or damage
incurred by any of them or the Partnership by reason of any act performed or
omitted to be performed by them in good faith, in connection with the business
of the Partnership including all judgments, costs and attorneys' fees (which
costs and attorneys' fees may not be paid as incurred, except as provided in
Section 5.08 (c)) and any amounts expended in settlement of any claims of
liability, loss or damage, provided that the indemnified Person's conduct did
not constitute Cause if the General Partner determines, in good faith, that such
course of conduct was in the best interests of the Partnership. The satisfaction
of any indemnification obligation shall be from and limited to Partnership
assets, and no Limited Partner or BAC
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Holder shall have any personal liability on account thereof. Notwithstanding any
provision of this subsection to the contrary, the General Partner shall be
presumed to be personally liable to creditors for the debts of the Partnership.
(b) Notwithstanding anything to the contrary contained in paragraph (a) above,
neither the General Partner, its Affiliates nor the Assignor Limited Partner,
any Person acting as a broker-dealer or the Partnership shall be indemnified
with regard to any liability, loss or damage incurred by them in connection with
any claim or settlement involving allegations that federal or state securities
laws, rules or regulations were violated by the General Partner or by any such
above listed Persons unless: (A) (i) the General Partner or other Persons
seeking indemnification are successful in defending such action on the merits of
each count involving such violation and the court approves indemnification of
the litigation costs, (ii) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction and the court approved
indemnification of the litigation costs, or (iii) a court of competent
jurisdiction approves a settlement of such claims and finds that indemnification
of the settlement and related costs should be made; and (B) such indemnification
is specifically approved by a court of law which shall have been advised as to
the then current position of the Securities and Exchange Commission, the
Massachusetts Securities Commission, the Missouri Securities Commission,
Tennessee Securities Division and other applicable state securities laws
administrators regarding indemnification for violations of securities laws.
Notwithstanding the provisions of Section 5.08(a), the Assignor Limited Partner
shall not be indemnified by the Partnership against any loss, damage or
liability and related expenses (including attorneys' fees) incurred by reason of
any action or inaction performed or omitted to be performed by the Assignor
Limited Partner in connection with activities of the Assignor Limited Partner
acting exclusively in its capacity as Assignor Limited Partner on behalf of the
BAC Holders. Further, to the extent the Assignor Limited Partner otherwise would
be entitled to indemnification pursuant to Section 5.08(a), indemnification
shall be provided only so long as the Assignor Limited Partner is an Affiliate
of the General Partner.
(c) The General Partner, its Affiliates, including the Assignor Limited Partner
may receive advances from the Partnership for payment of their costs and
attorneys' fees as incurred only if each of the following three conditions are
satisfied: (A) the legal action relates to the performance of duties or services
by the General Partner or its Affiliates on behalf of the Partnership; (B) the
legal action is initiated by a third party who is not a Partner or BAC Holder;
and (C) the General Partner, its Affiliates, including the Assignor Limited
Partner undertake to repay the advanced funds to the Partnership in cases in
which they are not entitled to indemnification pursuant to Section 5.08(a).
(d) The Partnership shall not incur the cost of liability insurance which
insures any party for any liability as to which such parties are prohibited from
being indemnified under this Section 5.08.
(e) For purposes of Sections 5.08(a), (b) and (c) only, "Affiliates" shall be
defined to mean any Person (A) performing services on behalf of the Partnership
who (1) directly or indirectly controls or is controlled by or is under common
control with the specified Person, (2) is an officer of, director of, partner in
or trustee of, or serves in a similar capacity with respect to, the
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specified Person or of which the specified Person is an officer, director,
partner or trustee, or with respect to which the specified Person serves in a
similar capacity, (3) directly or indirectly is the beneficial owner of 10% or
more of any class of equity securities of the specified Person or of which the
specified Person is directly or indirectly the owner of 10% or more of the
voting securities of the specified Person, or (4) is an officer, director,
general partner, trustee or holder of 10% or more of the voting securities of
any of the foregoing, and (B) acting in a manner within the scope of authority
granted to a General Partner by this Agreement.
5.09. Tax Status of Partnership.
The General Partner shall use its best efforts to meet such requirements of the
Code, including any net worth requirements, as interpreted from time to time by
the Internal Revenue Service, any other agency of the federal government, or the
courts, necessary to assure that the Partnership will be classified as a
partnership for federal income tax purposes.
5.10. Fiduciary Duty; Derivative Action.
The General Partner owes the same fiduciary duty to the BAC Holders as the
General Partner owes to the Limited Partners. An Assignee may bring a derivative
action to enforce a right of the Partnership to recover a judgment to the same
extent as a Limited Partner has such a right. No BAC Holder or Limited Partner
may alter, by means of contract, the fiduciary duty owed to him by the General
Partner under common law.
5.11. Agency Agreement.
The Partnership shall execute an Agency Agreement with the Dealer-Manager
pursuant to which said firm will assist the Partnership in the sale of BACs, be
paid Selling Commissions, accountable and non-accountable due diligence expense
reimbursements and a Dealer-Manager Fee therefor, all as described in Section
3.02, and be indemnified by the General Partner against certain liabilities.
Neither the General Partner nor the Assignor Limited Partner shall directly or
indirectly pay or award any commissions or other compensation to any Person
engaged by a potential Assignee for investment advice as an inducement to such
advisor to advise the purchaser of BACs; provided, however, that notwithstanding
the preceding sentence, sales commissions payable to a registered broker-dealer
or other properly licensed person shall not be prohibited.
5.12. Restrictions on Authority to Deal with General Partner and Affiliates.
Other than as specifically authorized in this Agreement or with respect to other
transactions unrelated to this Partnership, the Managing General Partner is
prohibited from entering into any agreements, contracts or arrangements on
behalf of the Partnership with any General Partner or any Affiliate of any
General Partner.
5.13. Additional Restrictions on the General Partner.
(a) If any public offering is made by the General Partner or any of its
Affiliates of interests in a partnership or of beneficial assignee interests in
a partnership, which partnership intends to invest in investments which would
satisfy
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the same criteria and standards of investments to be made by the Partnership,
the following criteria will be followed with respect to determining which entity
should acquire such investments: The General Partner and its Affiliates will
review the investment portfolio of each such entity (including any series being
offered by each such partnership) and will in their sole determination decide
which such entity will acquire the investment on the basis of various factors
such as the amount of funds available and the length of time such funds have
been available for investment; the cash requirements of each such entity; and
the effect of the acquisition on each such entity's portfolio. If funds should
be available to two or more public limited partnerships to purchase a given
investment and all factors have been evaluated and deemed equally applicable to
each entity (including any series being offered by each such partnership), then
the General Partner and its Affiliates will acquire such investments for the
entities on a basis of rotation with the order of priority determined by the
dates of formation of the entities (including any series being offered by each
such partnership).
(b) No investment in any Operating Partnership will be made unless the General
Partner or its designee, exercising the rights of the Partnership (or such
designee) as a limited partner in an Operating Partnership, and in any event
acting on behalf of the Partnership, is provided certain rights under the terms
of the Operating Partnership Agreement substantially similar to the rights set
forth below:
(i) the right to remove and replace the applicable Operating General
Partner(s) on the basis of the performance and discharge of the Operating
General Partner(s) obligations constituting Cause;
(ii) the right to approve or disapprove of certain transactions not in the
ordinary courses of business, including the right to approve or disapprove
any sale or refinancing of an Apartment Complex;
(iii)the right to receive information and/or reports with regard to the
financial and physical condition of an Apartment Complex owned by an
Operating Partnership;
(iv) the right to approve or disapprove the dissolution of the applicable
Operating Partnership;
(v) the right to direct an Operating General Partner to convene meetings and
to submit matters to a vote;
(vi) the right to approve or disapprove amendments to the applicable
Operating Partnership Agreement materially and adversely affecting the
Partnership's investment in the Operating Partnership; and
(vii)the right to have access, inspect and copy the books and records of the
applicable Operating Partnership.
(c) Neither the General Partner nor its Affiliates (except the Partnership)
shall become a limited partner in an Operating Partnership whose Operating
General Partner is an Affiliate of the General Partner.
5.14. Accounting Fee Advances.
In the event that the Partnership does not have sufficient funds in 1993 to pay
the fee to the Accountants for the preparation of Partnership tax returns and
other reports (the "Accounting Fee"); the General Partner shall advance up to
$5,000 to the Partnership to pay the Accounting Fee incurred with
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respect to such year. Thereafter, the General Partner may, but shall not be
obligated to, advance funds to enable the Partnership to pay the Accounting Fee.
Any amounts so advanced (the "Accounting Fee Advances") shall be repaid by the
Partnership from the Cash Flow of the Partnership or, if applicable, from
Liquidation, Sale or Refinancing Process.
5.15. Asset Acquisition Fee.
The General Partner or its Affiliates shall receive from the Partnership an
Asset Acquisition Fee for the services of the General Partner and/or its
Affiliate(s) in connection with selecting, evaluating and negotiating the terms
of investments in Operating Partnership Interests. The amount of the Asset
Acquisition Fee shall be equal to 8.5% of the Gross Proceeds, reduced by any
Acquisition Fees paid to the General Partner or its Affiliates by the Operating
Partnerships or Operating General Partners. A pro rata portion of such fee will
be refunded to the Partnership to the extent that investments in Operating
Partnership Interests are not made. Notwithstanding the foregoing, payment of
the Asset Acquisition Fee described therein shall be payable only for services
actually rendered.
5.16. Partnership Management Fee.
The Partnership shall pay the General Partner or an Affiliate thereof an annual
Partnership Management Fee commencing in 1993 of 0.5% of the Aggregate Cost of
the Apartment Complexes then held by the Operating Partnerships. The Partnership
Management Fee shall be payable, on a cumulative basis, solely from Cash Flow of
the Partnership, or from the proceeds of a Capital Transaction as provided in
Section 4.02. The Partnership Management Fee shall be prorated in 1993 based on
the number of months remaining in the year after the initial Investment Date. In
the event a reporting fee is paid to an Affiliate of the General Partner by an
Operating Partnership for services in preparing reports for such Operating
Partnership, the annual Partnership Management Fee will be reduced by the amount
of any such reporting fee to the extent the combined amounts of both fees exceed
0.5% of the Aggregate Cost of the Apartment Complexes on an annual basis.
ARTICLE VI.
CHANGES IN GENERAL PARTNERS
6.01. Withdrawal of the General Partner.
(a) Except in the event of the Bankruptcy or dissolution of the General Partner
as provided in Section 6.05, without the prior Consent of a majority in Interest
of the Limited Partners (including the Assignor Limited Partner voting as
instructed by the Assignees), Boston Capital Associates IV L.P. shall not be
entitled to withdraw from the Partnership or to sell, transfer or assign its
Interest as General Partner. Upon such withdrawal by Boston Capital Associates
IV L.P. and subject to the Consent of such number of Limited Partners (if any)
as are then required under the Delaware Revised Uniform Limited Partnership Act
(including the Assignor Limited Partner voting as instructed by the Assignees),
Boston Capital Associates IV L.P. may substitute as General Partner in the
Partnership any entity which has, by merger, consolidation or otherwise,
acquired substantially all of its assets.
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(b) In the event that Boston Capital Associates IV L.P. withdraws from the
Partnership or sells, transfers or assigns its entire Interest, it shall be and
shall remain liable for all obligations and liabilities incurred by it as
General Partner before such withdrawal, sale, transfer or assignment shall have
become effective, but shall be free of any obligation or liability incurred on
account of the activities of the Partnership from and after the time of such
withdrawal, sale, transfer or assignment shall have become effective.
(c) The General Partner may at any time designate additional Persons to be
General Partners, whose Interest(s) in the Partnership shall be such as agreed
upon by the General Partner and such additional General Partners, provided that
the Interests of the Assignees shall not be affected thereby.
Such additional Persons shall become additional General Partners only upon
meeting the conditions provided in Section 6.02.
6.02. Admission of a Successor or Additional General Partner. A Person shall be
admitted as a General Partner of the Partnership only if the following terms and
conditions are satisfied:
(a) except as permitted in Section 6.01(a), the admission of such Person shall
have been Consented to, or ratified, by not less than a majority in Interest
of the Limited Partners (including the Assignor Limited Partner voting as
instructed by the Assignees) voting together as a class or by such greater
number of Limited Partners (including the Assignor Limited Partner) as are
then required under the Act to Consent to, or ratify, the admission of a
general partner;
(b) such Person shall have accepted and agreed to be bound by the terms and
provisions of this Agreement, by executing a counterpart hereof, and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner shall have been filed
for recording, and all other actions required by law in connection with such
admission shall have been performed;
(c) if such Person is a corporation, it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of its authority to
become a General Partner and to be bound by the terms and provisions of this
Agreement;
(d) counsel for the Partnership or the Limited Partners and Assignees, as the
case may be, shall have rendered an opinion to the Partnership that the
admission of such Person is in conformity with the Act and that none of the
actions taken in connection with the admission of such Person are in violation
of the Act, will impair the limited liability of the Assignees, will cause the
termination or dissolution of the Partnership or will cause the Partnership to
be classified other than as a partnership for federal income tax purposes; and
(e) the interests of the Assignees are not affected thereby.
6.03. Consent of Assignees and Limited Partners to Admission of Successor or
Additional General Partner.
Unless otherwise prohibited under the Act at the time that such Consent is
necessary, each of the Assignees by the execution of this Agreement by
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the Assignor Limited Partner Consents to the admission of any Person as a
successor or additional General Partner to which at the time there has been
given the express Consent of a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the Assignees).
Upon receipt of such Consent of a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the Assignees),
such admission shall, without any further Consent or approval of the Limited
Partners or the Assignees, be the act of all the Limited Partners and Assignees.
6.04. Removal of a General Partner.
Subject to Section 10.02, a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the Assignees),
without the Consent or other action by the General Partner may remove any
General Partner and elect a replacement therefor.
6.05. Effect of Removal, Bankruptcy, Death, Withdrawal, Dissolution or
Incompetency of a General Partner.
(a) In the event of the Bankruptcy of a General Partner or the withdrawal, death
or dissolution of a General Partner or an adjudication that a General Partner is
incompetent (which term shall include, but not be limited to, insanity) the
business of the Partnership shall be continued with Partnership property by the
other General Partners (and the other General Partners, by execution of this
Agreement and/or an amendment hereto, as applicable, expressly so agree to
continue the business of the Partnership); provided, however, that if the
withdrawn, Bankrupt, deceased, dissolved or incompetent General Partner is then
the sole General Partner, the provisions of Section 8.01 shall be applicable.
(b) Upon the removal, withdrawal, Bankruptcy, death, dissolution or adjudication
of incompetency of a General Partner such General Partner shall immediately
cease to be a General Partner. The value of the General Partner's interest is to
be determined by agreement between the General Partner so removed and the
Partnership, or in the absence of such agreement, by arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association.
The expense of arbitration shall be borne equally by the General Partner so
removed and the Partnership. If a General Partner is removed for cause, it shall
be required to sell its General Partner's interest at one-half its value to a
substitute General Partner. Any method of payment to a General Partner
involuntarily removed may be an interest bearing promissory note with a term of
no less than five years with equal annual installments bearing interest at the
Prime Rate; provided that such note will become due and payable when
Liquidation, Sale or Refinancing Proceeds with respect to the last Operating
Partnership Interest held by the Partnership are received. Any method of payment
to a General Partner that voluntarily withdraws from the Partnership will be in
the form of a non-interest bearing unsecured promissory note with principal
payable, if at all, from distributions which the withdrawing General Partner
otherwise would have received under this Partnership Agreement had it not
withdrawn. Nothing in this Section 6.05(b) shall affect any rights or
liabilities of the Bankrupt, deceased, dissolved or incompetent General Partner
which matured
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prior to the Bankruptcy, death, dissolution or incompetence of such General
Partner.
(c) If, at the time of withdrawal, removal, Bankruptcy, death, dissolution or
adjudication of incompetence of a General Partner, the withdrawn, removed,
Bankrupt, deceased, dissolved or incompetent General Partner was not the sole
General Partner of the Partnership, the remaining General Partner or Partners
shall immediately (i) give Notice to the Limited Partners and Assignees of such
withdrawal, removal, Bankruptcy, death, dissolution or adjudication of
incompetence and (ii) prepare such amendments of this Agreement and execute and
file for recording such amendments or documents or other instruments necessary
to reflect the assignment, transfer, termination or conversion (as the case may
be) of the Interest of the withdrawn, removed, Bankrupt, deceased, dissolved or
incompetent General Partner.
(d) All parties hereto hereby agree to take all actions and to execute all
documents necessary or appropriate to effect the foregoing provisions of this
Section 6.05.
ARTICLE VII.
TRANSFERABILITY OF LIMITED PARTNERS'
INTERESTS AND TRANSFERABILITY OF BACS
7.01. Assignments of the Interest of the Assignor Limited Partner.
(a) Pursuant to Section 11.01(a), the Assignor Limited Partner shall assign
units of beneficial interest in its Limited Partnership Interest to each Person
purchasing BACs pursuant to Section 3.03, each of which is equivalent to the
number of BACs so purchased. The Partnership shall recognize as an Assignee each
Person to whom the Assignor Limited Partner assigns such beneficial interests as
of such dates as provided in Section 3.03, provided that the Partnership has
received from each such Assignee proceeds in the amount of $10.00 (subject to
quantity discounts with respect to selling commissions) per BAC ($8.95 in the
case of the General Partner, its Affiliates and employees of its Affiliates) for
a minimum of 500 BACs.
(b) The Assignor Limited Partner shall remain an Assignor Limited Partner on the
books and records of the Partnership notwithstanding the assignment of all of
the beneficial interest in its Limited Partnership Interest until such time as
the Assignor Limited Partner transfers its position as the Assignor Limited
Partner to another Person or Persons.
(c) All Persons becoming Assignees shall be bound by the terms and conditions
of, and shall be entitled to all rights of, Limited Partners under this
Agreement.
(d) Other than pursuant to this Section and Section 11.01(a), the Assignor
Limited Partner may not transfer or assign a beneficial interest in its
Partnership Interest without the prior written Consent of the Managing General
Partner or its designee.
7.02. Conversion of BACs.
After the termination of the offering with respect to any series of BACs, on at
least a semi-annual basis, any BAC Holder who desires to convert his
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BACs into Limited Partnership Interests may do so by fulfilling the requirements
of Section 7.03 for the admission of Substitute Limited Partners and the payment
of the legal and administrative costs and recording fees (currently estimated to
be $500). Persons who effect such conversion will receive one Limited
Partnership Interest for each BAC they convert and shall not thereafter be
permitted to re-exchange their Limited Partnership Interests for BACs. The
Capital Account of the Assignor Limited Partner shall be reduced by an amount
equal to the Capital Account of such former BAC Holder and such amount will be
credited to such BAC Holder's account as a Substitute Limited Partner. BACs
which have been converted into Limited Partnership Interests will be cancelled
and will not be reissued. Persons who convert BACs into Limited Partnership
Interests may request and receive from the Partnership certificates representing
such Limited Partnership Interests.
7.03. Assignees of Limited Partners; Substitute Limited Partners.
(a) The Partnership need not recognize for any purpose any assignment or
transfer of all or any fraction of the Partnership Interest of a Limited Partner
admitted to the Partnership pursuant to Sections 7.02, 10.02(b) or 11.04 unless
(i) the Partnership shall have received a fee in the amount established by it
from time to time sufficient to reimburse it for all its actual costs (currently
estimated to be $500) in connection with such assignment or transfer (applicable
only to transfers of Limited Partners admitted pursuant to Section 7.04); (ii)
the Partnership shall have received such evidence of the authority of the
parties to such assignment or transfer, including, but not by way of limitation,
certified corporate resolutions and certificates of fiduciary authority, as its
counsel may request; and (iii) there shall have been filed with the Partnership
and recorded on the Partnership's books a duly executed and acknowledged
counterpart of the instrument making such assignment or transfer, and such
instrument evidences the written acceptance by the assignee of all of the terms
and provisions of this Agreement, represents that such assignment or transfer
was made in accordance with all applicable laws and regulations (including
investor suitability requirements) and in all other respects is satisfactory in
form and substance to the General Partners. Except as provided in Section
4.04(d), Substitute Limited Partners shall be recognized as such no later than
on the first day of the calendar month following the month in which the
Partnership receives the instrument of assignment provided in this Section 7.02.
(b) Any Limited Partner who shall assign all his Partnership Interest shall
cease to be a Limited Partner of the Partnership, except that unless and until a
Substitute Limited Partner is admitted in his stead, such Limited Partner shall
retain the statutory rights of an assignor of a limited partnership interest
under the Delaware Revised Uniform Limited Partnership Act.
7.04. Joint Ownership of Interests.
(a) Subject to the other provisions of this Agreement, Limited Partnership
Interests or BACs may be acquired by two or more individuals, who shall, at the
time they acquire such Limited Partnership Interests or BACs, indicate to the
Partnership whether the Limited Partnership Interests or BACs are being held by
them as joint tenants with the right of survivorship, as tenants-in-common or as
community property. In the absence of any such desig-
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nation, they shall be presumed to hold such Limited Partnership Interests or
BACs as tenants-in-common. Any Consent of the Limited Partners and Assignees
shall require the action or vote of all owners of any such jointly held Limited
Partnership Interests or BACs.
(b) Upon Notice to the Managing General Partner from all owners of any jointly
held Limited Partnership Interests or BACs and the submission of such
documentation as may be required, the General Partner shall (unless otherwise
instructed by the owners) cause the Limited Partnership Interests or BACs to be
divided into two or more equal portions, except that there may be no partial
Limited Partnership Interests or BACs in any such portion, which shall
thereafter be owned separately by each of the former owners.
7.05. Assignability of BACs.
Subject to the provisions of this Agreement, including Section 11.04, the
General Partner in its discretion may cause the BACs to be freely transferable
by an Assignee to a Person who shall become a substitute Assignee. To the extent
such transfers are permitted, they will be subject to the following limitations:
(a) No transfer shall be permitted if it would result, when considered with
all other transactions in BACs and Partnership Interests within the previous
twelve months, in the Partnership being considered to have been terminated
within the meaning of Section 708 of the Code;
(b) No transfer shall be permitted if such transfer of BACs would be in
violation of any applicable federal or state securities law (including any
investor suitability requirements);
(c) No transfer fee shall be imposed by the Partnership for the transfer of
BACs;
(d) Any attempted transfer of BACs in contravention of the provisions of this
Section shall not be recognized by the Partnership;
(e) The Partnership shall recognize the transferee of a BAC as the BAC Holder
on the Partnership's books and records as of the last business day of the
calendar month during which the Partnership or its agent receives all
necessary documentation with respect to the transfer (unless such
documentation is received less than five business days prior to the last
business day of a calendar month, in which case the transferee will be
recognized as the BAC Holder on the last business day of the next calendar
month following such receipt);
(f) In order to record a trade on its books, the Partnership is under no
obligation to, but may require such evidence of transfer or assignment and
authority of the transferor or assignor (including signature guarantees), an
opinion of counsel to the effect that there has been no violation of federal
or state securities laws in the assignment or transfer, as the Managing
General Partner may determine; and
(g) In order to record a trade on its books, the Partnership will require
evidence of the transferee's suitability under state securities laws and the
Code, as the Managing General Partner may determine.
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ARTICLE VIII. DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
8.01. Events Causing Dissolution.
(a) The Partnership shall dissolve upon the happening of any of the following
events:
(i) the Bankruptcy, death, dissolution, withdrawal, removal or adjudication of
incompetence of a General Partner who is at that time the sole General
Partner;
(ii) the passage of ninety (90) days after the Liquidation, Sale or
Refinancing of all Apartment Complexes and/or Operating Partnership Interests,
as applicable and this sale or other disposal substantially all other tangible
assets of the Partnership;
(iii) the vote by a majority in Interest of the Limited Partners, or such
greater number as are then required under the Delaware Revised Uniform Limited
Partnership Act (including the Assignor Limited Partner voting as instructed
by the Assignees), pursuant to Section 10.02(a)(ii) to dissolve the
Partnership;
(iv) the expiration of the term of the Partnership specified in Section 1.04;
or
(v) any other event causing the dissolution of the Partnership under the laws
of the State of Delaware.
Notwithstanding the foregoing, the Partnership shall not be dissolved upon the
occurrence of the Bankruptcy, death, dissolution, withdrawal, removal or
adjudication of incompetence of a General Partner if (a) all of the remaining
General Partners, if applicable, elect within 30 days after such an event to
continue the business of the Partnership; or (b) within 90 days, after the
withdrawal of a General Partner, all of the remaining Partners (including the
Assignor Limited Partner voting as instructed by a majority in Interest of the
Assignees or such greater number as is then required under the Act) agree in
writing to continue the business of the Partnership, and, if the General Partner
who became Bankrupt, died, dissolved, withdrew or was removed or adjudicated
incompetent was the sole General Partner, designates a substitute General
Partner. If all of the remaining General Partners elect to continue the
Partnership pursuant to (a) in the preceding sentence, and if the General
Partner who became Bankrupt, died, dissolved, withdrew or was removed or
adjudicated incompetent was the Managing General Partner, all of the rights and
obligations of the Managing General Partner hereunder shall be assumed by a
General Partner selected by the remaining General Partners or, if there is only
one remaining General Partner, by such sole remaining General Partner.
(b) 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 a Certificate of Cancellation shall be filed with the Delaware
Secretary of State and the assets of the Partnership shall have been distributed
as provided in Section 8.02. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, the business of the Partnership and
the affairs of the Partners and Assignees shall continue to be governed by this
Agreement.
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8.02. Liquidation.
(a) Upon dissolution of the Partnership, the Managing General Partner or other
liquidator (the "Liquidator") shall liquidate the assets of the Partnership,
apply and distribute the proceeds thereof as contemplated by this Section 8.02
and cause the cancellation of the Partnership's certificate of limited
partnership.
(b) After payment of liabilities owing to creditors of the Partnership, the
Managing General Partner or the Liquidator shall set aside as a reserve such
amount as it deems reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership. Said reserve may be paid over by
the Managing General Partner or the Liquidator to a bank, to be held in escrow
for the purpose of paying any such contingent or unforeseen liabilities or
obligations and, at the expiration of such period as the Managing General
Partner or the Liquidator may deem advisable, the amount in such reserve shall
be distributed to the Partners and Assignees in the manner set forth in Section
8.02(c).
(c) After paying such liabilities and providing for such reserves, the Managing
General Partner or the Liquidator shall cause the remaining assets of the
Partnership to be distributed to the Partners or Assignees. All distributions to
the Partners or Assignees upon liquidation of the Partnership, shall be deemed
to be distributions arising from Liquidation, Sale or Refinancing and shall be
made as distributions of Liquidation, Sale or Refinancing Proceeds in accordance
with Section 4.02.
It is the intent of the Partners and Assignees that, upon liquidation of the
Partnership, all distributions to the Partners or Assignees be made in
accordance with the Partners' or Assignees' respective Capital Account balances
and the Partners and Assignees believe that distributions in accordance with
Section 4.02 will effectuate such intent. In the event that, upon liquidation,
there is any conflict between distributions pursuant to the Partners' or
Assignees' respective Capital Account balances and the intent of the Partners
and Assignees with respect to distributions as provided in Section 4.02, the
Liquidator shall, notwithstanding the provisions of Sections 4.01, 4.03 and
4.04, allocate the Partnership's gains and losses in a manner that will cause
the distribution of Liquidation, Sale or Refinancing Proceeds to the Partners or
Assignees to be in accordance with the Partners' or Assignees' respective
Capital Account balances. After paying such liabilities and providing for such
reserves, the Managing General Partner shall cause the remaining assets of the
Partnership to be distributed to the Partners or Assignees. All distributions to
the Partners or Assignees upon liquidation of the Partnership shall be deemed to
be distributions arising from a Liquidation, Sale or Refinancing and shall be
made as distributions of Liquidation, Sale or Refinancing Proceeds in accordance
with Section 4.02.
(d) If the Managing General Partner shall determine that an immediate sale of
part or all of the Partnership's assets would cause undue loss to the Partners
or Assignees, the Managing General Partner may, after having given Notice to all
the Limited Partners and Assignees, to the extent not then prohibited by any
applicable law of any jurisdiction in which the Partnership is then formed or
qualified 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. No distributions in kind shall be made.
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(e) Upon dissolution of the Partnership, if there is no Managing General
Partner, such other Person who may be appointed in accordance with applicable
law shall be responsible to take all action related to the winding up and
distribution of assets of the Partnership and shall perform the actions of the
Managing General Partner described in this Section 8.02.
(f) Each Limited Partner or Assignee shall look solely to the assets of the
Partnership for all distributions with respect to the Partnership and his
Capital Contribution thereto and his share of Cash Available for Distribution,
Liquidation, Sale or Refinancing Proceeds, and Profits, Credits and Losses, and
shall have no recourse therefor, upon dissolution, or otherwise, against any
General Partner or Limited Partner or Assignee. No Partner or Assignee shall
have any right to demand or receive property other than cash upon dissolution
and termination of the Partnership. Nothing in this Section 8.02(f) shall alter
the limitation on liability of the General Partner or its Affiliates pursuant to
Section 5.08(a).
ARTICLE IX.
BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX MATTERS
9.01. Books and Records.
(a) The Partnership shall maintain at the principal office of the Partnership
the following records, which are available for examination and copying there at
the request, and at the expense, of any Partner or Assignee or his duly
authorized representative during ordinary business hours or, copies of which may
be requested by any Partner or Assignee or his duly authorized re presentative
provided that the reasonable costs of fulfilling such request, including copying
expenses, shall be paid by the Person making such request:
(i) a current list, updated at least quarterly, of the full name and last
known home or business address and business telephone number of each Partner
and Assignee, set forth in alphabetical order and each Partners' or Assignees'
related interest in the Partnership. Any requests for copies of said list
shall be mailed within 10 days of the request thereof. A Partner or Assignee
may request a copy of said list, without limitation, for matters relating to
voting rights under the Agreement and the exercise of rights under federal
proxy laws.
(ii) a copy of the Certificate and of this Agreement, together with executed
copies of any powers of attorney pursuant to which this Agreement, and any
amendments hereto, has been executed;
(iii) copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the three most recent years;
(iv) copies of (1) any effective written partnership agreements and (2) any
financial statements of the Partnership for the three most recent years;
(v) for a period of at least five years, copies of each appraisal received
pursuant to Section 5.05(e); and
(vi) the Partnership books.
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(b) The Managing General Partner or its agent or designee shall maintain for a
period of at least six years a record of the information obtained to indicate
that an Assignee meets the suitability standards set forth in the Prospectus.
(c) If a Partner or Assignee must compel production of the list set forth in
Section 9.01(a)(i), then the General Partner will pay the Partner's or
Assignee's actual costs and damages, including attorneys' fees. It shall be a
defense that the actual purpose and reason for the requests is to secure such
list or other information for the purpose of selling such list or copies
thereof, or of using the same for a commercial purpose other than in the
interest of the Partner or Assignee relative to the affairs of the Partnership.
The General Partner may require the requesting party to represent that the list
is not requested for a commercial purpose unrelated to the Partner's or
Assignee's interest in the Partnership. The remedies provided hereunder are in
addition to, and shall not in any way limit, other remedies available to
Partners or Assignees under federal law, or the laws of any state.
9.02. Accounting Basis and Fiscal Year.
The Partnership will initially utilize the accrual method of accounting. The
fiscal year of the Partnership shall begin on April 1st of each calendar year.
9.03. Bank Accounts.
The bank accounts of the Partnership shall be maintained in such banking
institutions as the Managing General Partner shall determine. All deposits and
other funds not immediately needed in the operation of the business may be
invested in Permitted Temporary Investments, as directed by the Managing General
Partner; provided, however, prior to the sale by the Partnership of the minimum
number of BACs, no funds paid by subscribers for BACs shall be invested in
tax-exempt notes or bonds. The funds of the Partnership shall not be commingled
with the funds of any other Person.
9.04. Reports.
(a) Within 45 days after the end of each of the first three fiscal quarters of
each year, the Managing General Partner shall send to each Person who was an
Assignee during such quarter certain unaudited financial information with
respect to the Partnership as of the end of, such fiscal quarter, together with
a report of the activities of the Partnership during such fiscal quarter.
(b) Within 120 days after the end of the fourth quarter in each fiscal year, the
Managing General Partner shall cause to be prepared and distributed to each
person who was an Assignee at any time during the quarter then ended (i) a
detailed statement describing (a) any new agreement, contract or arrangement
required to be reported by Section 5.03(b) and (b) the amount of all fees, other
compensation and amounts paid by the Partnership during such fiscal period to
any General Partner or any Affiliate of any General Partner which may be
included in the financial statements sent to BAC Holders and (ii) until the
Capital Contributions of the Assignees shall be fully invested, a report of
acquisitions of Operating Partnership Interest.
(c) The Managing General Partner shall send to each Person who was an Assignee
at any time during the year then ended such tax information as
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shall be necessary for the preparation by such Assignee of his federal income
tax return and required state income and other tax returns with regard to
jurisdictions in which the Partnership is formed or qualified or owns
investments. The Managing General Partner shall send this information within 75
days after the end of each year.
(d) Within 120 days after the end of each fiscal year, the Managing General
Partner shall send to each Person who was an Assignee at any time during the
fiscal year then ended (i) the balance sheet of the Partnership as of the end of
such year and statements of operations, changes in Partners' and Assignees'
capital and changes in financial position of the Partnership for such year, all
of which shall be prepared in accordance with generally accepted accounting
principles and accompanied by a report of the Accountants containing an opinion
of the Accountants, (ii) a statement of Cash Available for Distribution for such
year (which need not be audited), (iii) a report of the activities of the
Partnership during such year, and (iv) a statement (which need not be audited)
showing distributions per Unit by admission date at any time during such year in
respect of such year, which statement shall identify distributions from (a) Cash
Available for Distribution generated during the year, (b) Cash Available for
Distribution generated during prior years which has been held as reserves, (c)
proceeds from a Capital Transaction, (d) lease payments on net leases with
builders and sellers, and (e) the Working Capital Reserve and other sources.
(e) A copy of each report referred to in this Section 9.04 shall be filed with
all securities commissions requiring such filing at the time required by such
commissions.
(f) If BACs are issued in series, all reports described in this Section 9.04
shall set forth required information for each series separately, as applicable.
9.05. Section 754 Elections.
In the event of a transfer of all or any part of the Interest of an Assignee,
the Partnership may, but is not required to elect, pursuant to Section 754 of
the Code (or any corresponding provision of succeeding law), to adjust the basis
of the Partnership property.
9.06. Designation of Tax Matters Partner.
The Managing General Partner is hereby authorized to designate itself or any
other General Partner, as Tax Matters Partner of the Partnership, as provided in
regulations pursuant to Section 6231 of the Code. Each Partner and Assignee, by
the execution of this Agreement consents to such designation of the Tax Matters
Partner and agrees to execute, certify, acknowledge, deliver, swear to, file and
record at the appropriate public offices such documents as may be necessary or
appropriate to evidence such consent.
9.07. Duties of Tax Matters Partner.
(a) To the extent and in the manner provided by applicable law and regulations,
the Tax Matters Partner shall furnish the name, address, profits interest and
taxpayer identification number of each Partner and Assignee to the Secretary of
the Treasury or his delegate (the "Secretary").
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(b) To the extent and in the manner provided by applicable law and regulations,
the Tax Matters Partner shall keep each Partner and Assignee informed of the
administrative and judicial proceedings for the adjustment at the Partnership or
Operating Partnership level of any item required to be taken into account by a
Partner and Assignee for income tax purposes (such administrative proceeding
referred to hereinafter as a "tax audit" and such judicial proceeding referred
to hereinafter as "judicial review").
(c) If the Tax Matters Partner, on behalf of the Partnership, receives a notice
with respect to a Partnership tax audit from the Secretary or from the Tax
Matters Partner of the Operating Partnership, the Tax Matters Partner shall,
within 30 days of receiving such notice forward a copy of such notice to the
Persons who hold or held an interest (through their Interest in the Partnership
or the BACs) in the Profits, Losses and Credits of such Operating Partnership
for the Operating Partnership taxable year to which the notice relates.
9.08. Authority of Tax Matters Partner.
The Tax Matters Partner is hereby authorized, but not required:
(a) to enter into any settlement with the Internal Revenue Service or the
Secretary with respect to any tax audit or judicial review, in which agreement
the Tax Matters Partner may expressly state that such agreement shall bind the
other Partners or Assignees, except that such settlement agreement shall not
bind any Partner or Assignee who (within the time prescribed pursuant to the
Code and regulations thereunder) files a statement with the Secretary
providing that the Tax Matters Partner shall not have the authority to enter
into a settlement agreement on the behalf of such Partner or Assignee;
(b) in the event that a notice of a final administrative adjustment at the
Partnership or Operating Partnership level of any item required to be taken
into account by a Partner or Assignee for tax purposes (a "final adjustment")
is mailed to the Tax Matters Partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment with the Tax
Court, the District Court of the United States for the district in which the
Partnership's principal place of business is located, or the United States
Claims Court;
(c) to intervene in any action brought by any other Partner or Assignee for
judicial review of a final adjustment;
(d) to file a request for an administrative adjustment with the Secretary at
any time and, if any part of such request is not allowed by the Secretary, to
file a petition for judicial review with respect to such request;
(e) to enter into an agreement with the Internal Revenue Service to extend the
period for assessing any tax which is attributable to any item required to be
taken into account by a Partner or Assignee for tax purposes, or an item
affected by such item; and
(f) to take any other action on behalf of the Partners or Assignees or the
Partnership in connection with any administrative or judicial tax proceeding
to the extent permitted by applicable law or regulations.
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9.09. Expenses of Tax Matters Partner.
The Partnership shall indemnity and reimburse the Tax Matters Partner for all
expenses, including legal and accounting fees, claims, liabilities, losses and
damages incurred in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners or Assignees. The payment of
all such expenses shall be made before any distributions are made from Cash Flow
or the Working Capital Reserve are set aside by the Managing General Partner.
Neither the General Partner, or any Affiliate, nor any other Person shall have
any obligation to provide funds for such purpose. The taking of any action and
the incurring of any expense by the Tax Matters Partner in connection with any
such proceeding, except to the extent required by law, is a matter in the sole
discretion of the Tax Matters Partner and the provisions on limitations of
liability of the General Partner and indemnification set forth in Section 5.08
of this Agreement shall be fully applicable to the Tax Matters Partner in its
capacity as such.
ARTICLE X.
MEETINGS AND VOTING RIGHTS OF LIMITED
PARTNERS AND ASSIGNEES
10.01. Meetings.
(a) Except as otherwise provided in Section 10.01(b), the Managing General
Partner may, and at the written request signed by 10% or more in Interest of the
Limited Partners (including the Assignor Limited Partner acting on behalf of and
at the instruction of the Assignees) shall, submit any matter to the Limited
Partners and Assignees upon which the Limited Partners and Assignees are
entitled to vote for a vote by written Consent without a meeting. With regard to
all matters to be brought before the Limited Partners, the Assignor Limited
Partner shall act for and at the direction of the Assignees.
(b) Meetings of the Limited Partners and Assignees for any purpose may be called
by the Managing General Partner at any time and, after receipt of a written
request for such a meeting signed by 10% or more in Interest of the Limited
Partners (including the Assignor Limited Partner acting on behalf of and at the
instruction of the Assignees) the Managing General Partner shall notify in
person or in writing by a certified mailing all Limited Partners (including the
Assignor Limited Partner) and Assignees of such request within ten days of
receiving such request. Any such request shall state the purpose of the proposed
meeting and the matters proposed to be acted upon thereat. Meetings shall be
held at the principal office of the Partnership or at such other place as may be
designated by the Managing General Partner or, if the meeting is called upon the
request of Assignees, as designated by such Assignees. In addition, the Managing
General Partner shall submit any matter upon which the Limited Partners
(including the Assignor Limited Partner acting on behalf of and at the
instruction of the Assignees) are entitled to act to the Limited Partners and
Assignees for a vote by written Consent without a meeting.
(c) Any meeting called pursuant to Section 10.01(b) shall be held not less than
15 days nor more than 60 days after the date of the receipt of the
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request for such meeting. Notice to each Limited Partner and Assignee shall be
given at his record address, or at such other address which he may have
furnished in writing to the Managing General Partner or Assignor Limited
Partner. Such Notice shall state the place, date and hour of the meeting and
shall indicate that the Notice is being issued at the direction of, or by, the
Partner or Partners calling the meeting. Included with such notice shall be a
detailed statement of the action proposed, including a verbatim statement of the
wording of any proposal to be acted upon at the meeting. The Partnership will
provide proxies or written consents which provide for approval and disapproval
of each matter to be acted upon at the meeting. If a meeting is adjourned to
another time or place, and if an announcement of the adjournment of time or
place is made at the meeting, it shall not be necessary to give Notice of the
adjourned meeting. The presence in person or by proxy of a majority in Interest
of the Limited Partners (including the Assignor Limited Partner acting on behalf
of and at the instruction of the Assignees) shall constitute a quorum at all
meetings of the Limited Partners and the Assignees; provided, however, that if
there be no such quorum, holders of a majority in Interest of the Limited
Partners (including the Assignor Limited Partner voting on behalf of the
Assignees) so present or so represented may adjourn the meeting from time to
time without further Notice, until a quorum shall have been obtained. No Notice
of the time, place or purpose of any meeting of Limited Partners and Assignees
need be given to any Limited Partner or Assignee who attends in person or is
represented by proxy, except for a Limited Partner or Assignee attending a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened, or to any Limited Partner or Assignee entitled to such
Notice who, in writing, executed and filed with the records of the meeting,
either before or after the time thereof, waives such Notice.
(d) For the purpose of determining the Limited Partners entitled to vote on, or
to vote at, any meeting of the Limited Partners, or any adjournment thereof, or
to vote by written Consent without a meeting, and the Assignees entitled to
direct the voting of the Assignor Limited Partner on any such occasion, the
Managing General Partner or the Limited Partners requesting such meeting or vote
may fix, in advance, a date as the record date of any such determination of
Limited Partners and Assignees. Such date shall not be more than 50 days nor
less than 10 days before any such meeting or submission of a matter to the
Limited Partners and Assignees for a vote by written Consent.
(e) At each meeting of Limited Partners and Assignees, the Limited Partners and
Assignees present or represented by proxy shall elect such officers and adopt
such rules for the conduct of such meeting as they shall deem appropriate.
(f) The provisions of this Section 10.01 are subject to the provisions of
Section 12.11.
10.02. Voting Rights of Limited Partners and Assignees.
(a) The consent of 80% in Interest of the Limited Partners (or of such greater
number of Limited Partners as are then required under the Act) (it being
understood that the Assignor Limited Partner is voting at the direction of the
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Assignees), shall be required to approve any transaction involving the sale,
transfer or other disposition of all or substantially all of the assets of the
Partnership when the consideration to be received by Limited Partners or
Assignees does not consist entirely of cash, prior to the consummation of such
transaction.
(b) A majority in Interest of the Limited Partners (or of such greater number of
Limited Partners as are then required under the Act) (it being understood that
the Assignor Limited Partner is voting at the direction of the Assignees),
without the concurrence of the General Partner, may: (i) amend this Agreement,
subject to the conditions that such amendment (a) may not in any manner allow
the Limited Partners or Assignees to take part in the management or control of
the Partnership's business or otherwise modify their limited liability and (b)
may not, without the Consent of the Partner affected and subject to the
provisions of Section 6.05(b), alter the rights, powers and duties of such
Partner as set forth in Article V, the interest of such Partner in Profits,
Credits and Losses, or Cash Available for Distribution, or Liquidation, Sale or
Refinancing Proceeds as set forth in this Agreement; (ii) dissolve the
Partnership; (iii) remove any General Partner and elect a replacement therefor;
(iv) approve or disapprove the sale of all or substantially all of the assets of
the Partnership at any one time (including the Partnership's interest in all of
the Operating Partnerships) and (v) advise the General Partner to: (a) remove
any Operating General Partner from an Operating Partnership, or (b) disapprove
any material and adverse amendment to the Operating Partnership Agreement. If so
advised, the General Partner shall promptly take such action as may be required
to remove such Operating General Partner or to disapprove such amendment, in
accordance with the terms of the Operating Partnership Agreement. If the Limited
Partners (including the Assignor Limited Partner voting at the direction of the
Assignees) vote to remove a General Partner pursuant to this Section 10.02, they
shall provide the removed General Partner with Notice thereof, which Notice
shall set forth the date upon which such removal is to become effective.
(c) Any General Partner removed pursuant to this Section shall, upon such
removal, have the rights afforded to it pursuant to Section 6.05. Assignees, or
any successor General Partner proposed by them, shall have the option, but not
the obligation, to acquire, upon payment of any agreed upon value or the fair
market value therefor, the Interest in the Partnership of any General Partner so
removed. Any dispute as to fair market value shall be settled by arbitration in
accordance with the rules of the American Arbitration As sociation. The cost of
arbitration shall be borne equally by the removed General Partner and the
Partnership.
(d) Any General Partner removed pursuant to this Section shall remain liable for
all obligations and liabilities incurred by him as General Partner before such
removal shall have become effective, but shall be free of any obligation or
liability as General Partner incurred on account of the activities of the
Partnership from and after the time such removal shall have become effective.
(e) A Limited Partner shall be entitled to cast one vote for each Limited
Partnership Interest which he owns and an Assignee shall be entitled to direct
the Assignor Limited Partner to cast one vote for each BAC which he owns: (i) at
a meeting, in person, by written proxy or by a signed writing directing
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the manner in which he desires that his vote be cast, which writing must be
received by the General Partner for each Limited Partner or the Assignor Limited
Partner for each Assignee prior to such meeting, or (ii) without a meeting, by a
signed writing directing the manner in which he desires that his vote be cast,
which writing must be received by the General Partner for each Limited Partner
or the Assignor Limited Partner for each Assignee prior to the date upon which
the votes of Limited Partners and Assignees are to be counted. Every proxy must
be signed by the Limited Partner or Assignee or his attorney-in-fact. No proxy
shall be valid after the expiration of 12 months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Limited Partner or Assignee executing it. Only the votes of Limited
Partners and Assignees of record on the Notice date, whether at a meeting or
otherwise, shall be counted. The General Partner shall not be entitled to vote.
The laws of the State of Delaware pertaining to the validity and use of
corporate proxies shall govern the validity and use of proxies given by the
Limited Partners. Assignees may give proxies only to the Assignor Limited
Partner. The Assignor Limited Partner will vote in accordance with the
directions of the Assignees so that each Interest of an Assignee will be voted
separately.
(f) The provisions of this Section 10.02 are subject to the provisions of
Section 12.11.
(g) Notwithstanding anything herein to the contrary, the General Partner and any
affiliated partnerships or corporations which purchased BACs may not vote as
Limited Partners and may not direct the Assignor Limited Partner to vote on
their behalf with respect to matters set forth in Section 10.02(b)(iii);
provided, however, that the above-described restriction shall not apply in the
event the BACs are listed for trading and the applicable stock exchange or
NASDAQ prohibits restrictions on voting rights of the BAC Holders or Limited
Partners.
(h) The merger or combination of the Partnership with another entity shall be
prohibited.
10.03. Voting by the Assignor Limited Partner on Behalf of BAC Holders.
The Assignor Limited Partner hereby agrees that, with respect to any matter on
which a vote of the Limited Partners is taken, the Consent of the Limited
Partners is required or any other action of the Limited partners is required or
permitted, it shall vote its Limited Partnership Interest or grant such Consent
or take such action (other than solely administrative actions as to which the
Assignor Limited Partner has no discretion) only for the sole benefit of, and in
accordance with the written instructions of the BAC Holders to which units of
beneficial interest in such Limited Partnership Interest have been assigned. The
General Partner shall provide notice to the BAC Holders containing information
regarding any matters to be voted upon or as to which any Consent or other
action is requested or proposed sufficiently in advance of the date of the vote,
Consent or action for which instructions are requested to permit BAC Holders to
provide written instructions and shall otherwise establish reasonable procedures
for any such request for instructions. The Partnership and the General Partners
hereby agree to permit BAC Holders to attend any meetings of Partners and the
Assignor Limited Partner shall, upon the written request of BAC Holders owning
BACs which repre-
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sent in the aggregate 10% or more of all of the outstanding BACS, request the
General Partners to call a meeting of Partners pursuant to Section 10.01 or to
submit a matter to the Assignor Limited Partner without a meeting pursuant to
this Agreement. The General Partners shall give the Limited Partners and BAC
Holders Notice of any meeting to be held pursuant to Section 10.01(a) or (b) at
the same time and manner as such Notice is required to be given to the Assignor
Limited Partner pursuant to Section 10.01(c).
10.04. Management of the Partnership.
No Limited Partner or Assignee shall take part in the management or control of
the business of the Partnership or transact any business in the name of the
Partnership. No Limited Partner or Assignee shall have the power or authority to
bind the Partnership or to sign any agreement or document in the name of the
Partnership. No Limited Partner or Assignee shall have any power or authority
with respect to the Partnership except insofar as the Consent of the Limited
Partners or Assignees shall be expressly required.
10.05. Other Activities.
The Limited Partners and Assignees may engage in or possess interests in other
business ventures of every kind and description for their own accounts,
including without limitation, serving as general or limited partner of other
partnerships which own, either directly or through interests in other
partnerships, apartment complexes similar to the Apartment Complexes. Neither
the Partnership nor any of the Partners or Assignees shall have any rights by
virtue of this Agreement in or to such business ventures or to the income or
profits derived therefrom.
ARTICLE XI.
ASSIGNMENT OF BENEFICIAL INTERESTS
TO ASSIGNEES AND RIGHTS OF ASSIGNEES
11.01. Assignment of Beneficial Interests to Assignees.
(a) The Assignor Limited Partner, by the execution of this Agreement,
irrevocably transfers and assigns to the Assignees all of the Assignor Limited
Partner's rights and beneficial interest in and to the Limited Partnership
Interest held by the Assignor Limited Partner, such transfer and assignment made
in the number of units equal to the number of BACs purchased by each such Person
no later than the next business day following the day such Person's funds are
released to the Partnership, on behalf of the Assignor Limited Partner, of any
proceeds from the Offering. The rights and interest so transferred and assigned
shall include the following:
(i) all rights to receive distributions of Capital Contributions pursuant to
Section 3.04(c);
(ii) all rights with respect to profits, credits, losses and cash
distributions pursuant to Article IV;
(iii) all rights to receive any proceeds of sales or refinancings pursuant to
Section 4.02 or liquidation of the Partnership pursuant to Section 8.02;
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(iv) all rights to inspect books and records and to receive reports pursuant
to Article IX; and
(v) all rights which Limited Partners have, or may have in the future, under
the Act, except as otherwise provided herein.
(b) The General Partner, by the execution of this Agreement, irrevocably
Consents to and acknowledges that (i) the transfer and assignment pursuant to
Section 11.01(a) by the Assignor Limited Partner to the Assignees of the
Assignor Limited Partner's rights and beneficial interest in its Limited
Partnership Interest is effective, and (ii) the Assignees are intended to be
third party beneficiaries of all rights and privileges of the Assignor Limited
Partner in respect of its Limited Partnership Interest. The General Partner
covenants and agrees that, in accordance with the foregoing transfer and
assignment, all the Assignor Limited Partner's rights and privileges may be
exercised by the Assignees.
11.02. Rights of Assignees of the Assignor Limited Partner.
(a) The Assignees shall share pari passu on the basis of one unit of beneficial
interest in the Assignor Limited Partner's Limited Partnership Interest for one
BAC, and shall be considered as a single class with respect to all rights to
receive distributions of Net Cash Flow, Liquidation, Sale or Refinancing
Proceeds, allocations of Profits, Credits and Losses, and other determinations
of allocations and distributions pursuant to this Agreement.
(b) Limited Partners (including the Assignor Limited Partner voting the
Interests of the Assignees at their direction) shall vote on all matters in
respect of which they are entitled to vote (either in person, by proxy or by
written Consent), as a single class with each Limited Partner entitled to one
vote per Partnership Interest and each BAC Holder entitled to one vote per BAC
through the Assignor Limited Partner.
11.03. Fiduciary Duty of Assignor.
Pursuant to Section VII.E.3. of the NASAA Guidelines and in conformance with the
terms of this Agreement, the Assignor shall have fiduciary responsibility for
the safekeeping of any funds and assets of the Assignees and shall not permit
the use of such funds and assets other than for the benefit of the Assignees.
11.04. Preservation of Tax Status and Preservation of Partnership Status.
(a) The Managing General Partner may, upon advice of counsel, restrict, halt or
suspend trading of BACs to prevent a termination of the Partnership for federal
income tax purposes which is deemed harmful to the Assignees. In the event of
such suspension, the transferring or assigning Assignee will be notified in such
event, and any deferred transfers or assignments will be affected (in
chronological order to the extent practicable), as of the first day of the next
succeeding period in which such transfers or assignments can be affected without
either premature termination of the Partnership for tax purposes or any adverse
effects from such premature termination, as the case may be. In the event
transfers or assignments are suspended for the foregoing reasons, the General
Partner will give notice of such suspension to Assignees as soon as practicable.
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(b) The Managing General Partner may, upon advice of counsel, (i) restrict or
halt trading in BACs, (ii) cause the delisting of BACs from public trading
markets, (iii) require a purchaser of BACs (at no additional cost) to be
admitted to the Partnership as a Limited Partner, (iv) require a BAC Holder (at
no additional cost) to become a Limited Partner, and/or (v) take such other
action with respect to the manner in which BACs are being or may be transferred
or traded, as it may deem necessary or appropriate (including causing the
amendment of this Agreement in connection therewith), in order to preserve the
status of the Partnership as a partnership, prevent a termination of the
Partnership for federal income tax purposes which is deemed harmful to the
Assignees, prevent federal income tax treatment of the Partnership as an
association taxable as a corporation, insure that BAC Holders will be treated as
limited partners of the Partnership for state law and federal income tax
purposes and/or qualify the Partnership as a pass-through entity pursuant to the
provisions of any future legislation.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
12.01. Appointment of Managing General Partner as Attorney-in-Fact.
(a) Each Limited Partner, including each Substitute Limited Partner, by the
execution of this Agreement, irrevocably constitutes and appoints, with full
power of substitution, the Managing General Partner, acting through any partner
of its general partner, his true and lawful attorney-in-fact with full power and
authority in his name, place and stead to execute, certify, acknowledge,
deliver, swear to, file and record at the appropriate public offices this
Agreement, and such other documents as may be 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 any such Person deems appropriate
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 Delaware Revised Uniform Limited
Partnership Act on the date thereof) in a jurisdiction in which the
Partnership may conduct business or in which such formation, qualification or
continuation is, in the opinion of any such Person, necessary to protect the
limited liability of the Limited Partners and Assignees;
(ii) any other instrument or document which may be required to be filed by the
Partnership under Federal law or under the laws of any state in which any such
Person deems it advisable to file;
(iii) all amendments to this Agreement adopted in accordance with the terms
hereof and all instruments which any such Person deems appropriate to reflect
a change or modification of the Partnership in accordance with the terms of
this Agreement; and
(iv) any instrument or document, including amendments to this Agreement, which
may be required to (A) effect the continuation of the Partnership, the
admission of any Limited Partners, any Substitute Limited Partner or any
additional or successor General Partner, or the dissolution and termination of
the Partnership (provided such continuation, admis-
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sion or dissolution and termination are in accordance with the terms of this
Agreement), (B) to reflect any reductions in amount of contributions of
Partners or (C) to make a correction to any Exhibit thereto.
(b) The appointment by each Limited Partner of each of such Persons as his
attorney-in-fact is irrevocable and 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 such Persons to act as contemplated
by this Agreement in any filing and other action by them on behalf of the
Partnership, and such power shall survive the removal, Bankruptcy, death,
incompetence or dissolution of any Person hereby giving such power and the
transfer or assignment of all or any part of the BACs or Partnership Interests
of such Person; provided, however, that in the event of a transfer by a Limited
Partner or a BAC Holder of all or any part of his Interests, the foregoing power
of attorney of a transferor Limited Partner or BAC Holder shall survive such
transfer only until such time as the transferee shall have been admitted to the
Partnership as a Substitute Limited Partner and all required documents and
instruments shall have been duly executed, filed and recorded to effect such
substitution.
12.02. Signatures; Amendments.
(a) Each Limited Partner, additional General Partner and successor General
Partner shall become a signatory hereto by signing such number of counterpart
signature pages to this Agreement and such other instrument or instruments in
such manner and at such time as the Managing General Partner shall determine. By
so signing, each Limited Partner, successor General Partner or additional
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, as amended
from time to time; provided, however, that no such counterpart shall be binding
if and until it shall have been accepted by the Managing General Partner.
(b) In addition to any amendments otherwise authorized herein, amendments may be
made to this Agreement from time to time by the General Partner, without the
Consent of the Limited Partners (or the Assignees), (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; (ii) to cure any ambiguity
or correct or supplement any provision herein which may be inconsistent with the
manifest intent of this Agreement or the administrative efficiency of the
Partnership; 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,
or by any national securities exchange or NASDAQ, which addition or deletion is
deemed by such Commission, agency, entity or official to be for the benefit or
protection of Limited Partners or the Assignees; provided, however, that no
amendment shall be adopted pursuant to this Section 12.02(b) unless the adoption
thereof (1) is for the benefit of, or not adverse to the interests of, the
Limited Partners and the Assignees; (2) is not inconsistent with Section 5.01;
(3) does not affect the distribution of Cash Available for Distribution or
Liquidation, Sale or Refinancing Proceeds or the allocation of Profits, Credits
and Losses among the Limited Partners or the Assignees; and (4) does not affect
the limited liability of the Limited Partners or the Assignees or the status of
the Partnership as a partnership for federal income tax purposes.
A-58
<PAGE>
(c) If this Agreement shall be amended as a result of substituting a Limited
Partner, the amendment to this Agreement shall be signed by the Managing General
Partner and by the Person to be substituted (which signature of the Person to be
substituted may be made by such Person's attorney-in-fact), and if a Limited
Partner is to be substituted, either by the assigning Limited Partner or by the
Managing General Partner pursuant to its authority to act as Attorney-in-Fact on
behalf of the assigning Limited Partner. If this Agreement shall be amended to
reflect the designation of an additional General Partner, such amendment shall
be signed by the other General Partners and by such additional General Partner.
If this Agreement shall be amended to reflect the withdrawal of a General
Partner when the business of the Partnership is being continued, such amendment
shall be signed by the withdrawing General Partner and by the remaining or
successor General Partner or Partners.
(d) In making any amendments, there shall be prepared and filed by the Managing
General Partner for recording such documents and certificates if and to the
extent required to be prepared and filed under the Act.
12.03. Ownership by Limited Partners or Assignees of General Partner or Its
Affiliates.
No Limited Partner or Assignee shall at any time, either directly or indirectly,
own any stock or other interest in any General Partner or in any Affiliate of
any General Partner if such ownership by itself or in conjunction with the stock
or other interest owned by other Limited Partners and Assignees would, in the
opinion of counsel for the Partnership, jeopardize the classification of the
Partnership as a partnership for federal income tax purposes. Each Limited
Partner and Assignee shall promptly supply any information requested by the
Managing General Partner in order to establish compliance by the Limited Partner
or Assignee with the provisions of this Section 12.03.
12.04. Binding Provisions.
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.
12.05. Applicable Law.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware provided, however, that causes of action
for violations of federal or state securities laws shall not be governed by this
section.
12.06. 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, except that no
counterpart shall be binding unless signed by the Managing General Partner.
12.07. 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 law, such invalidity shall not impair the operation of or affect
those portions of this Agreement which are valid.
12.08. Captions.
Article and Section titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
A-59
<PAGE>
12.09. Disallowance of Expenses.
Any fee paid to any General Partner pursuant to this Agreement which is
disallowed as a deductible expense for federal income tax purposes shall
constitute, for federal income tax purposes, a special allocation of gross
income to the General Partner receiving such fee.
12.10. Entire Agreement.
This Agreement, together with the Exhibits attached hereto, sets forth all (and
is intended by all parties to be an integration of all) of the promises,
agreements and understandings among the parties hereto with respect to the
Partnership, the Partnership business and the property of the Partnership, and
there are no promises, agreements, or understandings, oral or written, express
or implied, among them other than as set forth or incorporated herein.
12.11. Series Treated as Separate Partnerships; Exceptions.
(a) Except as otherwise provided in Section 12.11(b), this Partnership Agreement
shall apply to each series of BACs as though each such series were a separate
partnership and the terms set forth herein shall be applied identically in each
series. The General Partners shall maintain separate bank accounts and books and
records for each series and shall credit income and apportion Operating Expenses
and other costs which are not specifically allocable to a particular series
among all outstanding series upon the advice of the Accountants.
(b) Section 12.11(a) shall not apply in the following instances:
(i) if the topics of a meeting or a vote without a meeting concern more than
one series of BACs, then for purposes of Section 10.01 all affected series
will be combined and treated as a single class; and
(ii) the right of Limited Partners and Assignees set forth in Sections
10.02(a) and (b) may be exercised only by a majority in interest (or such
greater percentage as is then required under the Act) of the Limited Partners
of all affected series (including the Assignor Limited Partner acting for and
at the direction of BAC Holders of all affected series) voting as a single
class.
(c) In the event that a creditor asserts a claim against the assets of the
Partnership and it can be determined by the nature of the creditor's claim that
such claim is attributable to one series only, and that series' funds are
insufficient to satisfy the claim, then the General Partner will assume
liability for any unsatisfied portion of the creditor's claim. In the event of
such claim against more than one series, if the proportional liability of a
particular series can be determined, such series will only be liable for such
proportional amount of the claim; if such series' funds are insufficient to
satisfy the proportional amount of the claim, the General Partner will assume
liability for any unsatisfied portion thereof.
A-60
<PAGE>
IN WITNESS WHEREOF, the parties hereto hereunder affix their signatures and
seals on December 16, 1993.
GENERAL PARTNER:
BOSTON CAPITAL ASSOCIATES IV L.P.
By: Boston Capital Associates,
its General Partner
By: /s/ Herbert F. Collins
------------------------------------
Herbert F. Collins
General Partner
By: /s/ John P. Manning
------------------------------------
John P. Manning
General Partner
ASSIGNOR LIMITED PARTNER:
BCTC IV ASSIGNOR CORP.
By: /s/ John P. Manning
------------------------------------
John P. Manning
President
A-61
<PAGE>
Boston Capital Tax Credit Fund IV Investor Form
-----------------------------------------------
BOSTON CAPITAL
The Tax Credit Experts
<TABLE>
<S> <C> <C> <C> <C> <C>
I. Investor Information (Please Type or Print Clearly)
[ ] This investment is for Series [ ] I have previously invested in Series
Individual Name Social Security Number
Joint Name Social Security Number
Entity Name Taxpayer Identification Number
Home Address
City State Zip Code Home Telephone
Occupation
Check One [ ] Mr. [ ] Mrs. [ ] Ms. [ ] Mr. & Mrs. [ ] Dr. [ ] Other
II. Legal Form of Ownership
[ ] Individual (01) [ ] Community Property (15) [ ] Partnership (04) [ ] Grantor Trust/Living Trust (07)
[ ] JTWROS (08) [ ] Tenants in Common (09) [ ] Corporation (05) [ ] Other (specify)
III. Investment Information
Investment Amount $ Minimum Investment: $5,000 (Additional increments: $1,000)
Make Checks Payable to: "WB&T/BCTC FUND IV ESCROW ACCOUNT"
</TABLE>
IV. Investor Signature (if required)
Investors who are residents of the states of Arizona, Arkansas, California,
Iowa, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New
Hampshire, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, South
Dakota, Texas, Washington, and Wisconsin must make the following representations
and sign below. In addition, certain Soliciting Dealers have internally
determined that Investor Signatures will be required. Each Account Executive
should consult with his or her central office regarding an Investor Signature
requirement. If there is such a requirement, please have your client complete
the information and make the representations that follow by signing below. I
hereby confirm that I have received a Prospectus relating to the offering of
Beneficial Assignee Certificates ("BACs") representing assignments of limited
partnership interests in Boston Capital Tax Credit Fund IV L.P. and that I meet
the minimum suitability standards regarding annual income and net worth as
disclosed in the Prospectus.
Signature of First Investor Date
Signature of Second Investor Date
For Internal Use Only
B/D No. Check No. o CONTINUED ON THE OTHER SIDE
<PAGE>
Boston Capital Tax Credit Fund IV Investor Form
-----------------------------------------------
side two
- --------------------------------------------------------------------------------
V. Broker/Dealer Information
[ ] Please check if new address
Account Executive Broker/Dealer Firm
-----------------------------------------------------------------------------
Account Executive's Branch Address
City State Zip Code Telephone
-----------------------------------------------------------------------------
The undersigned represents that he has complied with the requirements of the
rules of fair practice 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 interests is
suitable for the investor, and, in addition, has informed the investor as to the
lack of liquidity and marketability of the interests.
Account Executive's Signature and/or Branch Manager Date
- --------------------------------------------------------------------------------
Make Checks Payable To: "WB&T/BCTC FUND IV ESCROW ACCOUNT"
Submit Documents To: Boston Capital Services
Escrow Administrator
One Boston Place, Suite 2100
Boston, Massachusetts 02108-4406
(617) 624-8900 or (800) 866-2282
<PAGE>
[logo] Stars in circle
IV
BOSTON CAPITAL
TAX CREDIT FUND IV L.P.
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary .................................................................... 6
Additional Summary Information for Corporate Investors ...................... 16
Suitability of an Investment in BACs ........................................ 18
Estimated Use of Proceeds .................................................. 23
Risk Factors ................................................................ 24
Fiduciary Responsibility of the General Partner ............................ 36
Conflicts of Interest ...................................................... 38
Compensation and Fees ...................................................... 43
Investment Objectives and Acquisition Policies .............................. 49
Investment In Operating Partnerships ........................................ 63
Tax Credit Programs ........................................................ 64
Government Assistance Programs .............................................. 74
Management .................................................................. 88
Prior Performance of the General Partner and its Affiliates ................ 92
Description of BACs (Beneficial Assignee Certificates) ...................... 96
Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals 99
Federal Income Tax Matters .................................................. 102
The Offering ................................................................ 143
Summary of Certain Provisions of the Fund Agreement .......................... 149
Sales Literature ............................................................ 154
Experts .................................................................... 154
Investor Reports ............................................................ 154
Legal Matters .............................................................. 155
Registration Statement ...................................................... 155
Glossary .................................................................... 155
Appendix I--Reports of Independent Certified Public Accountants, Financial
Statements and Tabular Information Concerning Prior Limited
Partnerships ...................................................... I-1
Exhibit A--Fund Agreement .................................................. A-1
Exhibit B--Investor Form .................................................... B-1
</TABLE>
[logo]
Boston Capital | Services, Inc.
One Boston Place, Suite 2100
Boston, MA 02108-4406
(617) 624-8900 or (800) 866-2282
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the approximate amount of the
fees and expenses (other than underwriting commissions and
discounts) payable by the Registrant (or, to the extent expenses
exceed the limits set forth in the Prospectus, by the General
Partner or its Affiliates) in connection with the issuance and
distribution of 10,000,000 beneficial assignee certificates
("BACs").
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 75,750
NASD Filing Fee................................................... 10,500
*Printing......................................................... 250,000
*Accounting Fees and Expenses..................................... 50,000
*Blue Sky Expenses (including legal fees)......................... 100,000
*Counsel Fees and Expenses........................................ 100,000
*Transfer Agent and Registrar Fees................................ 50,000
Miscellaneous including advertising............................... 250,000
Total......... $ 886,250
---------
</TABLE>
Item 31. Sales to Special Parties.
None.
Item 32. Recent Sales of Unregistered Securities.
The General Partner of the Registrant, Boston Capital Associates
IV L.P., holds a 1% interest in the Partnership for which it
contributed $500.00 to the Partnership as of October 12, 1993. The
Assignor Limited Partner of the Registrant, BCTC IV Assignor
Corp., holds a 99% interest for which it has contributed $100.00
to the Partnership. These sales were exempt from registration
under Section 4(2) of the Securities Act of 1933 as they did not
involve any public offering.
--------------------------------
* Estimated.
4
<PAGE>
Item 33. Indemnification of Directors and Officers.
Section 5.08 of the Partnership Agreement provides in part that
neither the General Partner, its Affiliates nor the Assignor
Limited Partner, shall be liable, responsible or accountable in
damages or otherwise to the Partnership or any of the Limited
Partners (including assignees of the Assignor Limited Partner) for
any act or omission performed or omitted by any General Partner or
the Assignor Limited Partner in good faith and in the best
interests of the Partnership and the Assignees, provided that such
General Partner's or Assignor Limited Partner's conduct did not
constitute fraud, bad faith, negligence, misconduct or breach of
fiduciary duty. The Partnership shall indemnify and hold harmless
the General Partner, and its Affiliates, including the Assignor
Limited Partner, from any loss, liability or damage incurred by
any of them or by the Partnership by reason of any act performed
or omitted to be performed by them in good faith and in a manner
reasonably believed by them to be in the Partnership's best
interests, in connection with the business of the Partnership,
including all judgments, costs and attorneys' fees (which costs
and attorneys' fees may be paid as incurred only if the legal
action relates to the performance of duties or services by the
General Partner or its Affiliates on behalf of the Partnership;
the legal action is initiated by a third party who is not a
Partner or BAC Holder; and the General Partner, the Assignor
Limited Partner or their Affiliates undertake to repay the
advanced funds to the Partnership in cases in which they are not
entitled to indemnification) and any amounts expended in
settlement of any claims of liability, loss or damage, provided
that such General Partner's or Assignor Limited Partner's conduct
did not constitute fraud, bad faith, negligence, misconduct or
breach of fiduciary duty. The satisfaction of any indemnification
obligation shall be from and limited to Partnership assets, and no
Limited Partner or BAC Holder shall have any personal liability on
account thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the General Partner and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a General
Partner or controlling person of the registrant in the successful
defense of any such action, suit or proceeding) is asserted by
such general partner or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question
5
<PAGE>
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
See "Fiduciary Responsibility of the General Partner" in Part I of this
Registration Statement and Section 5.08 of the Limited Partnership Agreement.
Item 34. Treatment of Proceeds from Stock Being Registered.
Inapplicable.
Item 35. Financial Statements and Exhibits.
(a) Financial Statements
All Financial Statements (which include all information
required by any schedule) are included in the Prospectus,
including the following:
Boston Capital Associates IV L.P. - Report of Independent
Certified Public Accountants.
Boston Capital Associates IV L.P. Balance Sheet, December
31, 1996.
Boston Capital Associates IV L.P. - Notes to Balance Sheet.
Boston Capital Associates - Report of Independent Certified
Public Accountants.
Boston Capital Associates Balance Sheet, December 31, 1996.
Boston Capital Associates - Notes to Balance Sheet.
Boston Capital Associates Balance Sheet, December 31, 1996.
Boston Capital Associates - Notes to Balance Sheet.
BCTC IV Assignor Corp. - Report of Independent Certified
Public Accountants.
6
<PAGE>
BCTC IV Assignor Corp. - Balance Sheet, December 31, 1996.
BCTC IV Assignor Corp. - Notes to Balance Sheet.
(b) Description of Exhibits
1. Form of Dealer-Manager Agreement between Boston
Capital Services, Inc. and the Registrant
(including, as an exhibit thereto, the form of
Soliciting Dealer Agreement).
2. Inapplicable.
3. Organization Documents -
Certificate of Limited Partnership of Boston Capital Tax
Credit Fund IV L.P.
Certificate of Limited Partnership of Boston Capital
Associates IV L.P.
Certificate of Incorporation and By-Laws of BCTC IV
Assignor Corp. (the Assignor Limited Partner).
4. Instruments defining the rights of security holders,
including indentures.
Agreement of Limited Partnership of Boston Capital
Tax Credit Fund IV L.P. (included in Part I of this
Registration Statement).
5. Opinion re legality.
Form of Opinion of Peabody & Brown.
Items (b)6 and 7 are inapplicable.
8. Opinion re tax matters.
Form of Opinion of Peabody & Brown.
7
<PAGE>
Item (b)9 is inapplicable.
10. Material Contracts.
A. Form of Beneficial Assignee Certificate.
B. Form of Capital Contributions Escrow Agreement
between Wainwright Bank & Trust Company and the
Registrant.
Items (b)11 through (b)21 are inapplicable.
22. Subsidiaries of Registrant.
See "Conflicts of Interest," and "Management" in
Part I of this Registration Statement.
Item (b)23 is inapplicable.
24. Consents of Experts and Counsel.
A. Letter of Peabody & Brown (included in Exhibits
5 and 8).
* B. Letter of Reznick Fedder & Silverman.
* C. Letter of Kevin P. Martin & Associates, P.C.
25. Powers of Attorney - Included with Signature Page to
Registration Statement.
Item (b)26 and 27 is inapplicable.
--------------------
* To be filed by amendment
8
<PAGE>
Item 36. Undertakings.
The Registrant undertakes (a) to file any prospectuses required by
Section 10(a)(3) of the Securities Act of 1933 as post-effective
amendments to the Registration Statement; (b) that for the purpose
of determining any liability under the Act each such
post-effective amendment may be deemed to be a new registration
statement relating to the securities offered therein and the
offering of such securities at that time may be deemed to be the
initial bona fide offering thereof; (c) that all post-effective
amendments will comply with the applicable forms, rules, and
regulations of the Commission in effect at the time such
post-effective amendments are filed, and (d) to remove from
registration by means of a post-effective amendment any of the
securities being registered which remain at the termination of the
offering.
The Registrant undertakes to send to each Investor at least on an
annual basis a detailed statement of any transactions with the
General Partner or its Affiliates, and of fees, commissions,
compensation and other benefits paid, or accrued to the General
Partner or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services
performed.
The Registrant undertakes to provide to the Investors the
financial statements required by Form 10-K for the first full
fiscal year of operations of the Partnership.
The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period with
respect to any applicable series describing each property not
identified in the Prospectus at such time as there arises a
reasonable probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment
filed at least once every three months, with the information
contained in such amendment provided simultaneously to the
existing Investors. Each sticker supplement should disclose all
compensation and fees received by the General Partner and its
Affiliates in connection with any such acquisition. The
post-effective amendment shall include audited financial
statements meeting the requirements of Rule 3-14 of Regulation S-X
only for properties acquired during the distribution period.
The Registrant also undertakes to file, after the end of the
distribution period with respect to any applicable series, a
current report on Form 8-K containing the financial statements and
any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding
purchase agreement) made after the end of the distribution period
involving the use of 10 percent or more (on a cumulative basis) of
the net proceeds
9
<PAGE>
of the offering and to provide the information contained in such
report to the Investors at least once each quarter after the
distribution period of the offering has ended.
The Registrant undertakes that the prospectus will be supplemented
at the close of any series to state the number of participants in
that series, the amount of BACs sold therein, the cumulative
amount sold under all series sold under the subject registration
statement, and the amount of BACs to be offered in the next
series.
The Registrant undertakes that if at the commencement of the
offering of any series (which will not take place until completion
of the offering of any prior series with the same investment
objectives and the filing of the supplement contemplated by the
preceding undertaking) the series to be offered has a reasonable
probability of acquiring an interest in an Operating Partnership,
the offering will not commence until after a post-effective
amendment to the registration statement has been filed and
declared effective. Any such post-effective amendment shall
contain such information as would be required in an original
registration statement with respect to the Operating partnership
being acquired (including audited financial statements complying
with Rule 3-14 of Regulation S-X).
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration
10
<PAGE>
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
this 17th day of October 1997.
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
By: Boston Capital Associates IV L.P.
By: Boston Capital Associates
By: /s/ John P. Manning
----------------------
John P. Manning
By: /s/ Herbert F. Collins
----------------------
Herbert F. Collins
ASSIGNOR LIMITED PARTNER
BCTC IV ASSIGNOR CORP.
By: /s/ John P. Manning
---------------------------------
John P. Manning
President
12
<PAGE>
POWER OF ATTORNEY
We, the undersigned general partners of Boston Capital Associates and
directors and officers of BCTC IV Assignor Corp., do hereby constitute and
appoint John P. Manning, Herbert F. Collins and Anthony Nickas and each of them,
our true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, to do any and all acts and
things in our respective names and on our respective
behalves in the capacities indicated below that John P. Manning, Herbert F.
Collins and Anthony Nickas, or each of them, may deem necessary or advisable to
enable Boston Capital Tax Credit Fund IV L.P. and/or BCTC IV Assignor Corp., to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for us or any of us in our respective names in the
capacities indicated below any and all amendments (including post- effective
amendments) hereto and to file the same, with all exhibits thereto and other
documents therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that John P. Manning, Herbert F. Collins and
Anthony Nickas, or each of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE: TITLE: DATE:
<S> <C> <C>
/s/ Herbert F. Collins General Partner and October 17, 1997
- ---------------------- Principal Executive
Herbert F. Collins Officer, Principal Financial Officer
and Principal Accounting Officer of
Boston Capital Associates; Director
and Chairman of the Board of BCTC IV
Assignor Corp.
/s/ John P. Manning General Partner and October 17, 1997
- -------------------- Principal Executive
John P. Manning Officer, Principal Financial Officer
and Principal Accounting Officer of
Boston Capital Associates; Director,
President and Chief Executive
Officer of BCTC IV Assignor Corp.
13
<PAGE>
/s/ Anthony Nickas Executive October 17, 1997
- ------------------ Vice President,
Anthony Nickas Principal Financial Officer
and Principal Accounting Officer
of BCTC IV Assignor Corp.
</TABLE>
14
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
AND
BCTC IV ASSIGNOR CORP.
(Exact name of the registrants as
specified in their governing instruments)
-----------------
One Boston Place
Suite 2100
Boston, Massachusetts 02108-4406
(Address of principal executive offices)
<PAGE>
LIST OF EXHIBITS
1. Underwriting Agreement -
Form of Dealer-Manager Agreement between Boston Capital Services, Inc.
and the Registrant (including, as an exhibit thereto, the form of
Soliciting Dealer Agreement).
3. Organization Documents -
Certificate of Limited Partnership of Boston Capital Tax
Credit Fund IV L.P.
Certificate and Agreement of Limited Partnership of Boston
Capital Associates IV L.P.
Certificate of Incorporation and By-Laws of BCTC IV
Assignor Corp. (the Assignor Limited Partner).
4. Instruments defining the rights of security holders, including
indentures -
See the Agreement of Limited Partnership of Boston Capital Tax Credit
Fund IV L.P. (included in Part I of this Registration Statement).
5. Form of Opinion of Peabody & Brown re legality
8. Form of Tax Opinion of Peabody & Brown
10A. Form of Beneficial Assignee Certificate
10B. Form of Capital Contributions Escrow Agreement between
Wainwright Bank & Trust Company and the Registrant
24A. Consent of Peabody & Brown (included in Exhibits 5 and 8)
*24B. Consent of Reznick Fedder & Silverman (certain other consents
previously filed)
*24C. Consent of Kevin P. Martin & Associates, P.C.
25. Powers of Attorney (Included with Signature Page to the Registration
Statement)
- ---------------------------
* To be filed by amendment
Exhibit 1
<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
DEALER-MANAGER AGREEMENT
January ___, 1998
Boston Capital Services, Inc.
One Boston Place
Suite 2100
Boston, MA 02108-4406
Dear Sirs:
Boston Capital Associates IV L.P., a Delaware limited partnership (the
"General Partner"), and BCTC IV Assignor Corp., a Delaware corporation (the
"Assignor Limited Partner") have organized and will act as the general partner
and the assignor limited partner, respectively, of Boston Capital Tax Credit
Fund IV L.P., a Delaware limited partnership (the "Fund") which was formed to
invest through the acquisition of limited partnership interests in other limited
partnerships (the "Operating Partnerships"), each of which will own and operate
an apartment complex intended for occupancy by individuals and families of low
and moderate income.
An aggregate of 65,000,000 beneficial assignee certificates ("BACs")
representing assignments of limited partnership interests in units of $10 each
(the "BACs") is being offered by the Fund in one or more series. Each series
will consist of at least 250,000 BACs. The initial minimum investment in the
Fund is five hundred BACs, or $5,000, except for employees of the General
Partner and/or its Affiliates for whom the initial minimum investment is one
hundred BACs, or $1,000; additional purchases must be made in multiples of one
hundred BACs, or $1,000. The offering of 65,000,000 BACs will terminate
twenty-four months from the effective date of the Fund's registration statement
(the "Registration Statement") unless terminated earlier or extended by the
General Partner (the "Termination Date"), and is subject to the condition that
subscriptions for at least 250,000 BACs be accepted by the General Partner by
the Termination Date. The offering period for the Fund will commence on the
effective date of the Registration Statement. The offering of each series will
not exceed twelve months, or such lesser period as may be determined by the
General Partner, in its sole discretion (a "Series Offering Period"). Only upon
the expiration or termination of a Series Offering Period may the Fund offer
BACs of a new series, except that any series that will be sold only to investors
in one specific state and which will invest at least 80% of its Net Offering
Proceeds, through Operating Partnerships, in Apartment Complexes which qualify
for both Federal Housing Tax Credits and State Housing Tax Credits provided for
under the laws of such specified state may be offered simultaneously with a
series of BACs which will not invest in Apartment Complexes generating any State
Housing Tax Credits and/or with a series of BACs which will invest exclusively
in Apartment Complexes generating State Housing Tax Credits from a different
state(s).
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The purchasers thereof will have the BACs issued to them and will
become the holders thereof (the "BAC Holders"), and as such will receive the
rights and interests in the limited partnership interest of the Assignor Limited
Partner, the beneficial interests of which are assigned to them pursuant to the
terms of the Fund Agreement hereinafter referred to. The Fund Agreement provides
that the Assignor Limited Partner will assign to the BAC Holders all of the
beneficial interests of its limited partnership interests in the Fund, on the
basis of one unit of beneficial interest for one BAC.
The General Partner, on behalf of the Fund, hereby authorizes and
appoints, subject to the terms and conditions of this Agreement, Boston Capital
Services, Inc., a massachusetts corporation, as dealer-manager (the
"Dealer-Manager") to organize a group of soliciting dealers (the "Soliciting
Dealers"), consisting of brokers and dealers, who shall be members in good
standing of the National Association of Securities Dealers, Inc. (the "NASD"),
to solicit purchasers of the BACs.
SECTION 1. Representations and Warranties of the Fund and the General Partner.
The Fund and the General Partner, jointly and severally, represent and
warrant to the Dealer-Manager that:
(a) The Fund has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-11, SEC File
No. 33-_______ and a related preliminary prospectus for the
registration of the BACs under the Securities Act of 1933, as
amended, (the "1933 Act"), and has filed such amendments thereto
and such amended preliminary prospectuses as may have been
required as of the date hereof. Such Registration Statement as
amended and the amended prospectus on file with the Commission at
the time the registration statement becomes effective are herein
called the "Registration Statement" and the "Prospectus"
respectively, except that (A) if the Fund files a post-effective
amendment to such registration statement, then the term
"Registration Statement" shall, from and after the declaration of
the effectiveness of such post- effective amendment, refer to such
registration statement as amended by such post-effective
amendment, thereto, and the term "Prospectus" shall refer to the
amended prospectus then on file with the Commission, and (B) if
the prospectus filed by the Fund pursuant to either Rule 424(b) or
(c) of the rules and regulations of the Commission under the 1933
Act (the "Regulations") shall differ from the prospectus on file
at the time the Registration Statement or the most recent post-
effective amendment thereto, if any, shall have become effective,
the term "Prospectus" shall refer to such prospectus filed
pursuant to either Rule 424(b) or (c), as the case may be, from
and after the date on which it shall have been filed. The
Commission has not issued any order preventing or suspending the
use of any preliminary prospectus or the Prospectus.
(b) The Fund at its Closing Date (or at each of its Closing Dates if
it shall have more than one closing) will be duly organized and
legally existing as a limited partnership pursuant to the laws of
the State of Delaware with full power and authority to own the
interests and conduct business as described in the Prospectus; the
General Partner is duly organized and legally existing as a
limited partnership pursuant to the laws of Delaware; the General
Partner has full power and
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<PAGE>
authority to conduct business as described in the Prospectus;
the Fund and the General Partner have the power and authority to
enter into and perform this Agreement; the execution and delivery
of this Agreement by the Fund and the General Partner have been
duly and validly authorized by all necessary action; the execution
and delivery of this Agreement, the fulfillment of its terms and
consummation of the transactions contemplated hereunder do not and
will not conflict with or constitute a breach or default under any
other agreement, indenture or instrument by which the Fund or the
General Partner are bound, or any law, regulation or order
applicable to the Fund, the General Partner or their respective
properties; this Agreement constitutes the valid and binding
agreement of the Fund and the General Partner, enforceable against
each of them in accordance with its terms.
(c) At the time the Registration Statement initially becomes effective
and at the time that any post-effective amendment thereto becomes
effective, the Registration Statement and the Prospectus, and at
each Closing Date the Prospectus, will comply with the provisions
of the 1933 Act and the Regulations; at the time the Registration
Statement initially becomes effective and at the time that any
post- effective amendment thereto becomes effective the
Registration Statement will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated thereinor necessary to make the statements therein not
misleading; and at the time the Registration Statement or an
amendment thereto becomes effective, and the Prospectus at each
Closing Date, will not contain an 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 in light of
the circumstances in which they were made, not misleading;
provided, however, that the representations and warranties in this
paragraph shall not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and
in conformity with information furnished to the Fund or the
General Partner in writing by the Dealer-Manager expressly for use
in the Registration Statement or the Prospectus. Every contract or
other document required by the 1933 Act or the Regulations to be
filed as an exhibit to the Registration Statement has been so
filed.
(d) Any supplemental sales literature or advertisement, regardless of
how labeled or described, used in addition to the Prospectus in
connection with the offering and sale of the BACs which is
furnished or approved by the General Partner ("Authorized Sales
Literature") shall, to the extent required, be filed with and
approved by the appropriate securities agencies and bodies.
SECTION 2. Representations and Warranties of the Dealer-Manager.
The Dealer-Manager hereby represents, warrants and agrees with the Fund
and the General Partner that:
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<PAGE>
(a) Solicitation and other activities by the Dealer-Manager hereunder
shall be undertaken only in accordance with this Agreement, the
1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the applicable rules and regulations of the
Commission and any other applicable securities or Blue Sky
Laws and regulations. The Dealer-Manager agrees that through the
Termination Date it will not use or authorize the use of any
solicitation material other than the Prospectus and Authorized
Sales Literature.
(b) The Dealer-Manager is a broker-dealer registered with the
Commission and with each state in which it intends to make an
offer (but not necessarily in each state in which a Soliciting
Dealer may make an offer), it is, and will remain until the
Termination Date, a member in good standing of the NASD and agrees
to comply with the provisions of Sections 24 and 34 (including the
purchaser suitability, due diligence and disclosure requirements
of Appendix F thereof) of Article II of the Rules of Fair Practice
of the NASD (the "Rules of Fair Practice"), and each sales
representative of the Dealer-Manager making offers or sales of
BACs is properly licensed in each such jurisdiction where he
intends to so act. The Dealer-Manager acknowledges that it has
reviewed the Prospectus and Authorized Sales Literature and has
determined that the suitability standards are fully disclosed and
are consistent with Section 3 of Appendix F of Section 34 of the
Rules of Fair Practice. In recommending to a participant the
purchase, sale or exchange of BACs the Dealer-Manager shall:
(i) have reasonable grounds to believe, on the basis of
information obtained from the participant concerning his
investment objectives, other investments, financial situation
and needs, and any other information known by the
Dealer-Manager or an associated person that:
(A) the participant is or will be in a financial position
appropriate to enable him to realize to a significant
extent the benefits described in the Prospectus, including
the tax benefits;
(B) the participant has a fair market net worth sufficient
to sustain the risks inherent in the Fund, including loss
of investment and lack of liquidity; and
(C) the Fund is otherwise suitable for the participant;
and
(ii) will maintain in its files documents disclosing the basis
upon which the determination of suitability was reached as to
each participant.
The Dealer-Manager hereby represents that it will communicate to
each of its sales agents, representatives and other appropriate
persons associated with it, the above-referenced suitability
standards and the Dealer-Manager
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<PAGE>
shall require each Soliciting Dealer that it may engage to
acknowledge compliance with Appendix F of Section 34 of the Rules
of Fair Practice. Furthermore, the Dealer-Manager shall not
execute any transaction in the Fund in a discretionary account
without prior written approval of the transaction by the potential
investor.
(c) The Dealer-Manager shall provide a copy of the Prospectus to each
prospective investor to whom the Dealer-Manager shall directly
effect a sale of the BACs at the time of sale of any BACs to each
such prospective investor. It shall not, in connection with the
offer and sale of BACs, give any information or make
representations, nor shall it authorize others to give any
information or make representations other than such information
and representations as is contained in the Prospectus or in any
Authorized Sales Literature.
(d) Each Soliciting Dealer engaged by the Dealer-Manager will be a
broker-dealer registered with the Commission and with each state
in which it intends to make an offer, will be a member in good
standing of the NASD and will agree to comply with the provisions
of Sections 24 and 34 (including the purchaser suitability, due
diligence and disclosure requirements of Appendix F thereof) of
Article II of the Rules of Fair Practice, and each sales
representative employed by a Soliciting Dealer who makes offers or
sales of BACs will be properly licensed to sell securities in the
jurisdictions where such representative makes offers or sales.
(e) The Dealer-Manager will promptly deliver to the General Partner
any subscription documents received by it and will promptly
deliver all checks executed by or delivered on behalf of
prospective investors to the Escrow Agent for deposit in the
Escrow Account in accordance with Section 8 hereof.
(f) Prior to participating in the offer and sale of the BACs, the
Dealer-Manager shall have reviewed the Prospectus and will have
reasonable grounds to believe that all material facts are
adequately and accurately disclosed and provide a basis for
evaluating the Fund. In determining the adequacy of the disclosed
facts, the Dealer-Manager shall obtain written information on
material facts relating at a minimum to the following, if relevant
in view of the nature of the offering:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the General
Partner;
(v) the Fund's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
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<PAGE>
Prior to executing a purchase transaction in the Fund, the
Dealer-Manager or a person associated with it shall inform the
prospective investor of all pertinent facts relating to the
liquidity and marketability of an investment in the BACs
during the term of the prospective investment in the Fund.
(g) The Dealer-Manager represents that it has not engaged, and agrees
that it will not engage, in any activity with respect to the BACs
in violation of the 1934 Act, including Rule 10b-6 thereunder.
(h) Neither the Dealer-Manager nor any other person is authorized by
the General Partner or the Fund to give any information or make
any representations in connection with this Agreement or the
offering of the BACs other than those contained in the Prospectus
and other Authorized Sales Literature furnished to the
Dealer-Manager or authorized for use by the General Partner or the
Fund. Without limiting the generality of the foregoing, the
Dealer-Manager will not publish, circulate or otherwise use any
other advertisement or solicitation material without the prior
written approval of the General Partner.
(i) The Dealer-Manager will require that each of the Soliciting
Dealers retained by it enter into a soliciting dealer agreement
similar in form to the one attached hereto as Exhibit A (a
"Soliciting Dealer Agreement").
(j) On becoming a Soliciting Dealer and in soliciting purchasers of
the BACs, the Dealer-Manager agrees to comply with the terms and
conditions imposed on the Soliciting Dealers pursuant to the
Soliciting Dealer Agreement.
(k) The Blue Sky Survey for the Fund indicates or will indicate the
jurisdictions in which it is believed that offers and sales of the
BACs may be made under the applicable state securities laws and
regulations. In effecting offers or sales in a jurisdiction, the
Dealer-Manager will comply with all special conditions and
limitations imposed by such jurisdiction, as set forth in the Blue
Sky Survey for the Fund. If the Blue Sky Survey for the Fund is
not enclosed herewith, it will be made available to the
Dealer-Manager at a later date. Under no circumstances will the
Dealer-Manager engage in any activities as a Soliciting Dealer
hereunder in any jurisdiction (a) which is not listed in the
applicable Blue Sky Survey as a jurisdiction in which offers and
sales of BACs may be made under the Blue Sky or securities laws of
such jurisdiction or (b) in which you may not lawfully so engage.
The Blue Sky Survey shall not be considered solicitation material,
as that term is herein used.
SECTION 3. Compensation of Dealer-Manager.
(a) As compensation for the services of the Dealer-Manager hereunder,
the Fund will pay to the Dealer-Manager a selling commission of
seven per cent (7%) of the purchase price of each BAC sold by it
and a Dealer-Manager Fee in the amount of two per cent (2%) of the
purchase price for each BAC sold to a subscriber. However, for
purchases of more than 10,000 BACs, the selling
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<PAGE>
commission will be as follows: first 10,000 BACs, 7.0%; next
10,000 BACs, 6.5%; next 10,000 BACs, 5.5%; next 10,000 BACs, 4.5%;
next 10,000 BACs, 3.5%; and next 10,000 BACs and over, 2.5%. The
Dealer-Manager shall be entitled to the foregoing compensation
only for the number of BACs for which the subscriber is admitted
to the Fund as a BAC holder. The Dealer-Manager will also be
entitled to receive: (i) an accountable due diligence expense
reimbursement for actual bona fide due diligence expenses incurred
by the Dealer-Manager or Soliciting Dealers retained by the
Dealer-Manager, in an aggregate amount not to exceed one-half of
one per cent (0.5%) of the purchase price for the BACs in such
Fund sold through the efforts of the Dealer-Manager or by the
Soliciting Dealers to subscribers with respect to such Fund; and
(ii) a non-accountable expense allowance in an amount up to one
per cent (1%) of the public ofering price of the BACs sold.
(b) The Dealer-Manager may re-allow all or any of the Selling
Commission and due diligence expense for which the Dealer-Manager
was reimbursed by the Fund as part of its accountable due
diligence expense reimbursement in respect of the BACs in the Fund
sold by such Soliciting Dealer.
(c) No subscription shall be effective unless and until the
subscription payment is accepted by the General Partner, and the
General Partner reserves the right in its sole discretion to
reject any subscription payment submitted. In the event that a
sale of a BAC for which one of the Soliciting Dealers engaged by
the Dealer- Manager has solicited a subscription shall not occur,
for whatever reason, no Dealer-Manager Fee, Selling Commission or
accountable due diligence expense reimbursement with respect to
such BACs shall be paid to the Dealer-Manager or such Soliciting
Dealer.
SECTION 4. Mutual Covenants.
In the event that any party hereto shall learn of any circumstances or
facts, the existence of which causes such party to believe that such
circumstances or facts (i) render the Prospectus inaccurate or misleading as to
any material facts or (ii) should otherwise be disclosed in a supplement or
amendment to the Prospectus or other selling material, such party will promptly
bring such circumstances or facts to the attention of each party hereto. If, in
the opinion of any party hereto or of counsel for any party hereto, such
circumstances or facts should be set forth in an amendment or supplement to the
Prospectus or to any selling material, the General Partner shall cause such
amendment or supplement to be prepared promptly and shall make available to the
Dealer-Manager sufficient copies thereof for its own use and/or distribution to
the Soliciting Dealers.
SECTION 5. Termination.
This Agreement may be terminated by written or telegraphic notice to
the Dealer- Manager from the General Partner, or upon the expiration or
termination of the offering of BACs; provided, however, that such termination
shall not relieve the Fund of the obligation to pay when due all fees payable to
the Dealer-Manager hereunder or the obligations of any of the parties hereto
referred to under Section 7 hereof.
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<PAGE>
SECTION 6. Liability of Parties.
(a) Nothing herein contained shall constitute the Dealer-Manager, the
Soliciting Dealers, the General Partner and the Fund as an
association, partnership, unincorporated business or other
separate entity, nor shall anything herein contained render the
General Partner or the Fund liable for the obligations of any of
the Soliciting Dealers. Neither the General Partner nor the Fund
shall be under any liability to any Soliciting Dealer or any other
person for any act or omission or any matter connected with this
Agreement or the Fund, except for obligations expressly assumed by
an association, partnership, unincorporated business or other
separate entity in this Agreement.
(b) It is understood and agreed by the parties that no partner of the
General Partner shall have any personal liability under this
Agreement by virtue of its status as a partner of the General
Partner, and that any person asserting a claim against the General
Partner hereunder shall look solely to the assets of such General
Partner (specifically excluding the personal assets of the
partners thereof).
SECTION 7. Indemnification.
(a) The General Partner will indemnify and hold harmless the
Dealer-Manager and each Soliciting Dealer from and against any and
all losses, claims, damages or liabilities, joint or several, to
which the Dealer-Manager and any Soliciting Dealer may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon a breach or alleged breach by the
General Partner of any of his representations and warranties or
upon an untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and the General Partner will reimburse the
Dealer-Manager and each such Soliciting Dealer for any legal or
other expenses (including, but not limited to, reasonable
attorneys' fees) reasonably incurred by the Dealer-Manager and
such Soliciting Dealer in connection with investigating or
defending any such claim or action instituted against the
Dealer-Manager or any such Soliciting Dealer, whether or not
resulting in any liability.
The indemnity agreement in this Section 7(a) will be in addition
to any liability which the General Partner may otherwise have and
shall extend upon the same terms and conditions to each person, if
any, who controls the Dealer-Manager and any Soliciting Dealer
within the meaning of the 1933 Act or 1934 Act, or is a registered
representative of such Dealer-Manager or Soliciting Dealer.
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<PAGE>
(b) The Dealer-Manager and each Soliciting Dealer will indemnify and
hold harmless the General Partner and the Fund from and against
any and all losses, claims, damages or liabilities to which the
General Partner and the Fund may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) the failure or alleged
failure by the Dealer-Manager and/or such Soliciting Dealer to
perform fully and to act in compliance with the provisions of this
Agreement or the Soliciting Dealer Agreement, or (ii) any untrue
statement or alleged untrue statement of any material fact made by
the Dealer-Manager or such Soliciting Dealer to any offeree or
purchaser of any of BACs (other than any statement contained in
the Prospectus or any Authorized Sales Literature, or any
amendment or supplement thereto), or (iii) any omission or alleged
omission by the Dealer-Manager or such Soliciting Dealer to state
to any offeree or purchaser of any BACs a material fact necessary
in order to make the statements made to such offeree or purchaser
not misleading in light of the circumstances under which they were
made (other than any such material fact omitted from the
Prospectus, or any amendment or supplement thereto), and will
reimburse any legal or other expenses (including, but not limited
to, reasonable attorneys' fees) reasonably incurred by the General
Partner or the Fund in connection with investigating or defending
any such claim or action, whether or not resulting in any
liability.
The indemnity agreement in this Section 7(b) will be in addition
to any liability which the Dealer-Manager and/or such Soliciting
Dealer may otherwise have and shall extend upon the same terms and
conditions to each person signing the Registration Statement on
behalf of the Fund and each person, if any, who controls the
General Partner or the Fund within the meaning of the 1933 Act or
the 1934 Act.
(c) No person shall be liable under the indemnity agreements contained
under Sections 7(a) and (b) hereof unless the person requesting
indemnification shall have notified such indemnifying party within
ten (10) business days after the summons or other first legal
process giving notice of the nature of the claim shall have been
served upon the indemnified party, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying
party under this Section 7, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve him or it from any
liability which he or it may have to any indemnified party
otherwise than under this Section 7. In case any such action is
brought against any indemnified party and he or it notifies the
indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent
that he or it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party
to such indemnified party of his or its election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other
9
<PAGE>
expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than
reasonable costs of investigation.
(d) If the right to indemnification provided for in paragraphs (a),
(b) or (c) of this Section 7 would by its terms be available to a
person hereunder (collectively, the "Indemnified Parties" and
individually, an "Indemnified Party"), but is held to be
unavailable by a court of competent jurisdiction for any reason
other than because of the terms of such indemnification provision,
then, the General Partner, the Dealer-Manager and the Soliciting
Dealers (collectively, the "Indemnifying Parties" and
individually, an "Indemnifying Party") shall contribute to the
aggregate of such losses, claims, damages and liabilities as are
contemplated in those paragraphs (including, but not limited to,
any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any claim, action,
suit or proceeding) in the ratio in which the proceeds of the
offering of BACs have been actually received by each such
Indemnifying Party. For purposes of the preceding sentence,
proceeds paid to an Indemnifying Party hereunder and subsequently
paid to another Indemnifying Party or Indemnifying Parties
pursuant to this Agreement, the Fund Agreement for the Fund or
otherwise, shall be deemed received by the last of such
Indemnifying Parties to whom or to which such proceeds were paid;
provided, however, that proceeds paid to the Fund and not
subsequently paid to the Dealer-Manager or such Soliciting Dealer
shall be considered to be received by the General Partner.
However, the right of contribution described in the preceding
sentences is subject to the following limitations:
(i) In no case shall any Indemnifying Party and the persons
who control such Indemnifying Party within the meaning of
applicable state and federal securities laws be required
to contribute any amount in excess of the aggregate
offering proceeds actually received by it and them
(determined as described above); and
(ii) No person guilty of fraudulent misrepresentation within
the meaning of Section 11(f) of the 1933 Act shall be
entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Any Indemnified Party entitled to contribution will, promptly
after receipt of such notice of commencement of any action, suit,
proceeding or claim against him or it in respect of which a claim
for contribution may be made against another Indemnifying Party or
Indemnifying Parties, notify such other Indemnifying Party or
Indemnifying Parties. Failure to so notify such other Indemnifying
Party or Indemnifying Parties shall not relieve such other
Indemnifying Party or Indemnifying Parties from any other
obligation it or they may have hereunder or otherwise. If such
other Indemnifying Party or Indemnifying Parties are so notified,
such other Indemnifying Party or Indemnifying Parties shall be
entitled to participate in the defense of such action, suit,
proceeding or claim at its or their own expense or in accordance
with arrangements satisfactory to all parties who may be required
to contribute.
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<PAGE>
After notice from such other Indemnifying Party or Indemnifying
Parties to the Indemnified Party entitled to contribution of its
or their election to assume its or their own defense, the
Indemnifying Party or Indemnifying Parties so electing shall not
be liable for any legal or other expenses of litigation
subsequently incurred by the Indemnified Party entitled to
contribution in connection with the defense thereof, other than
the reasonable costs of investigation. No person shall be required
to contribute with respect to any action or claim settled without
his or its consent.
SECTION 8. Transfer of Funds.
The Dealer-Manager shall either directly, or through each Soliciting
Dealer, instruct subscribers to make their checks payable to the Escrow Agent as
agent for the Fund. If the Dealer-Manager receives a check not conforming to the
foregoing instructions it shall return such check directly to such subscriber
not later than the end of the next business day following its receipt. Checks
received by the Dealer-Manager which conform to the foregoing instructions shall
be transmitted for deposit by the Dealer-Manager as soon as practicable to the
Escrow Agent, but in any event by noon of the second business day following
receipt by the Dealer-Manager.
SECTION 9. Notices.
Any notice hereunder shall be in writing or by telegram and if to the
Dealer-Manager shall be deemed to have been duly given if mailed or telegraphed
to the Dealer-Manager at the address to which this letter is addressed, and if
to the General Partner or the Fund, if delivered or sent to them c/o Boston
Capital Partners, Inc. at One Boston Place, Suite 2100, Boston, Massachusetts
02109.
SECTION 10. Parties in Interest.
The Agreement herein set forth is intended solely for the benefit of
the Dealer-Manager, each Soliciting Dealer, the General Partner and the Fund
(and, to the extent provided in Section 7 hereof certain parties associated
therewith), and their respective successors and assigns, and no other person
shall acquire or have any right by virtue of this Agreement, and the term
"successors and assigns" as used herein shall not include any subscriber or
purchaser, as such, of BACs.
SECTION 11. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware.
SECTION 12. Amendment.
This Agreement may be amended by an agreement in writing signed by all
the parties hereto.
SECTION 13. Confirmation.
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Please confirm your agreement to become the Dealer-Manager under the
terms and conditions herein set forth by signing and returning the confirmation
on the enclosed duplicate copy of this letter to us at the above address.
Very truly yours,
BOSTON CAPITAL ASSOCIATES IV L.P.
By: Boston Capital Associates,
its General Partner
By: __________________________
John P. Manning,
a Partner
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<PAGE>
BOSTON CAPITAL TAX CREDIT
FUND IV L.P.
By: Boston Capital Associates IV L.P.,
General Partner
By: Boston Capital
Associates, General Partner
By: ________________________
John P. Manning,
Partner
BOSTON CAPITAL SERVICES, INC.
By: __________________________
Richard J. DeAgazio
its President
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<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
SOLICITING DEALER AGREEMENT
January _____, 1998
Dear Sir or Madam:
Boston Capital Associates IV L.P., a Delaware limited partnership (the
"General Partner"), and BCTC IV Assignor Corp., a Delaware corporation (the
"Assignor Limited Partner") have organized and the General Partner will act as
the general partner of Boston Capital Tax Credit Fund IV L.P., a Delaware
limited partnership (the "Fund") which was formed to invest through the
acquisition of limited partnership interests in other limited partnerships, each
of which will own and operate an apartment complex intended for occupancy by
individuals and families of low and moderate income.
An aggregate of 65,000,000 beneficial assignee certificates ("BACs")
representing assignments of limited partnership interests in units of $10 each
(the "BACs") is being offered by the Fund in one or more series. Each series
will consist of at least 250,000 BACs. The initial minimum investment in the
Fund is five hundred BACs, or $5,000; additional purchases must be made in
multiples of one hundred BACs, or $1,000. The offering of 65,000,000 BACs will
terminate twenty-four months from the effective date of the Fund's registration
statement (the "Registration Statement") unless terminated earlier or extended
by the General Partner (the "Termination Date"), and is subject to the condition
that subscriptions for at least 250,000 BACs be accepted by the General Partner
by the Termination Date. The series offering period ("Series Offering Period")
for the Fund will commence on the effective date of the Registration Statement.
The offering of each series will not exceed twelve months, or such lesser period
as may be determined by the General Partner, in its sole discretion (a "Series
Offering Period"). Only upon the expiration or termination of a Series Offering
Period may the Fund offer BACs of a new series, except that any series that will
be sold only to investors in one specific state and which will invest at least
80% of its Net Offering Proceeds, through Operating Partnerships, in Apartment
Complexes which qualify for both Federal Housing Tax Credits and State Housing
Tax Credits provided for under the laws of such specified state may be offered
simultaneously with a series of BACs which will not invest in Apartment
Complexes generating any State Housing Tax Credits and/or with a series of BACs
which will invest exclusively in Apartment Complexes generating State Housing
Tax Credits from a different state(s).
The purchasers thereof will have the BACs issued to them and will
become the holders thereof (the "BAC Holders"), and as such will receive the
rights and interests in the limited partnership interest of the Assignor Limited
Partner, the beneficial interests of which are assigned to them pursuant to the
terms of the Fund Agreement hereinafter referred to. The Fund Agreement provides
that the Assignor Limited Partner will assign to those persons who purchase BACs
all of the beneficial interests of its limited
1
<PAGE>
partnership interests in the Fund, on the basis of one unit of beneficial
interest for one BAC.
The undersigned, Boston Capital Services, Inc. (the "Dealer Manager"),
has entered into a Dealer-Manager Agreement (the "Dealer-Manager Agreement")
with the General Partner and the Fund pursuant to which the Dealer-Manager has
agreed to use its best efforts to form and manage a group of securities dealers
(the "Soliciting Dealers") consisting of brokers and dealers who shall be
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"), for the purpose of soliciting purchasers of the Units. You are
invited to become one of the Soliciting Dealers and, by your confirmation
hereof, you agree to act in such capacity and to use your best efforts, in
accordance with the following terms and conditions, to obtain purchasers of
BACs.
SECTION 1. Solicitation.
You hereby agree to solicit, as an independent contractor and not as
the agent of the Dealer-Manager, the Fund or the General Partner, persons
acceptable to the General Partner who will acquire BACs. In connection with the
execution of this Agreement and your solicitation of purchasers of the BACs, you
hereby acknowledge that no subscriptions for BACs will be effective unless and
until accepted by the General Partner on behalf of the Fund and hereby covenant,
represent and warrant to the Dealer-Manager, the Fund and the General Partner as
follows:
(a) Solicitation and other activities by you hereunder shall be
undertaken only in accordance with this Agreement, the Securities
Act of 1933, as amended (the "1933 Act") and the applicable rules
and regulations of the Commission.
(b) You hereby acknowledge receipt of copies of the Prospectus
describing the terms of the offering and the BACs offered thereby,
including the Investor Information Form as an attachment thereto.
Additional copies of the Prospectus will be supplied in reasonable
quantities upon your request. Neither you nor any other person is
authorized by the General Partner or the Fund to give any
information or make any representations in connection with this
Agreement or the offering of the BACs other than those contained
in the Prospectus and other authorized solicitation material
furnished by the General Partner or the Dealer-Manager
("Authorized Sales Literature"). Without limiting the generality
of the foregoing, you agree not to publish, circulate or otherwise
use any other advertisement or solicitation material other than
Authorized Sales Literature. Further, you agree that should you
distribute any Authorized Sales Literature to prospective
purchasers, such distribution shall be accompanied or preceded by
the Prospectus as then currently in effect.
(c) You represent that you have not engaged, and agree that you will
not engage, in any activity in respect of the BACs in violation of
the Securities Exchange Act of 1934, as amended (the "1934 Act"),
including Rule l0b-6 thereunder.
(d) In recommending to a potential investor the purchase of BACs, you
or someone associated with you shall have reasonable grounds to
believe, on the basis of
2
<PAGE>
information obtained from the potential investor concerning his
investment objectives, other investments, financial situation and
needs, and any other information known by you or such person
associated with you, that:
(i) The potential investor is or will be in a financial
position appropriate to enable him to realize to a significant
extent the benefits described in the Prospectus, including the
tax benefits of the Fund;
(ii) The potential investor has a net worth sufficient to
sustain the risks inherent in the Fund, including loss of
investment and lack of liquidity; and
(iii) The Fund is otherwise suitable for such potential
investor.
(e) You agree to instruct Subscribers to make their checks payable to
the Escrow Agent as agent for the Fund. Any Soliciting Dealer
receiving a check not conforming to the foregoing instructions
shall return such check directly to such Subscriber no later than
the end of the next business day following its receipt. Checks
received by Soliciting Dealers which conform to the foregoing
instructions shall be transmitted to the Dealer-Manager with
accompanying subscription documents pursuant to one of the
following methods:
(i) Where, pursuant to a Soliciting Dealer's internal
supervisory procedures, internal supervisory review is
conducted at the same location at which subscription documents
and checks are received, such checks will be transmitted by
noon of the next business day following receipt by the
Soliciting Dealer; and
(ii) Where, pursuant to a Soliciting Dealer's internal
supervisory procedures, final internal supervisory review is
conducted at a different location, checks will be transmitted
by noon of the next business day following receipt by the
Soliciting Dealer to the office of the Soliciting Dealer
conducting such final internal supervisory review (the "Final
Review Office"). The Final Review Office will in turn transmit
such checks for deposit to the Escrow Agent by noon of the
next business day following receipt thereof by the Final
Review Office.
The Dealer-Manager will forward all checks to the Escrow Agent as
soon as practicable following processing. In conjunction with all
of the foregoing procedures, investor checks and subscription
documentation delivered on Saturdays, Sundays and holidays will be
treated as not having been received until the first business day
thereafter.
(f) You will maintain in your files documents disclosing the basis
upon which the determination of suitability was reached as to each
potential investor. You hereby represent that you will communicate
to each of your sales agents,
3
<PAGE>
representatives and other appropriate persons associated with you
the above-referenced suitability standards. Notwithstanding the
provisions of this Section 1, you shall not execute any
transaction in the Fund in a discretionary account without prior
written approval of the transaction by the potential investor.
(g) Prior to participating in the offering of the Fund, you or a
person associated with you shall have reasonable grounds to
believe, based on information made available to you or such person
by the General Partner through the Prospectus or other materials,
that all material facts are adequately and accurately disclosed
and provide a basis for evaluating the Fund.
(h) In determining the adequacy of disclosed facts pursuant to Section
1(g) hereof, you or a person associated with you shall obtain
information on material facts relating at a minimum to the
following, if relevant in view of the nature of the Fund:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the General
Partner;
(v) the Fund's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
(i) For purposes of Sections 1(g) and 1(h) hereof, you or a person
associated with you may rely upon the results of an inquiry
conducted by another member or members of the NASD, provided that:
(i) You or such person associated with you has reasonable
grounds to believe that such inquiry was conducted with due
care;
(ii) The results of the inquiry were provided to you or such
person associated with you with the consent of the NASD member
or members conducting or directing the inquiry; and
(iii) No NASD member that participated in the inquiry is a
sponsor of the Fund or an affiliate of such a sponsor.
(j) Prior to executing a purchase transaction in the Fund, you or a
person associated with you shall inform the prospective investor
of all pertinent facts relating to the liquidity and marketability
of an investment in the BACs during the term of the prospective
investment in the Fund.
4
<PAGE>
(k) You shall not, directly or indirectly, pay or award any finder's
fees, commissions or other compensation to any person engaged by a
potential investor for investment advice as an inducement for such
advisor to advise the purchase of BACs; provided, however, that
normal sales commissions payable to a duly registered
broker-dealer or other properly licensed person, who is a member
of the NASD, for selling BACs shall not be prohibited hereby.
(l) You shall comply with Sections 8, 24, 25 and 36 of Article IV of
the NASD Rules of Fair Practice.
(m) So long as the BACs have not been included on NASDAQ or listed on
an exchange, you shall, in recommending the purchase, sale or
exchange of BACs to an investor, (i) inform such investor of all
pertinent facts relating to the liquidity and marketability of
BACs in accordance with Section 4(d) of Appendix F of the Rules of
Fair Practice of the National Association of Securities Dealers,
Inc.; and (ii) have reasonable grounds to believe, based on
information obtained from the investor, that an investment in the
BACs is suitable for such investor in accordance with Section
3(b)(1) of Appendix F.
SECTION 2. Compensation of Soliciting Dealers.
As compensation for the services of the Soliciting Dealers hereunder,
the Dealer-Manager will re-allow, as a Selling Commission, a portion of the
funds received by it from the Fund in an amount up to seven per cent (7%) of the
purchase price for each BAC sold to a Subscriber through such Soliciting
Dealer's efforts with respect to the Fund. However, for purchases of more than
10,000 BACs, the selling commission will be as follows: first 10,000 BACs, up to
7.0%; next 10,000 BACs, up to 6.5%; next 10,000 BACs, up to 5.5%; next 10,000
BACs, up to 4.5%; next 10,000 BACs, up to 3.5%; and next 10,000 BACs and over,
up to 2.5%.
In addition, the Dealer-Manager may re-allow to the Soliciting Dealers
hereunder, a non-accountable expense allowance in an amount up to one percent
(1%) of the purchase price for each BAC sold to a Subscriber though such
Soliciting Dealer's efforts with respect to the Fund. A Soliciting Dealer shall
be entitled to the foregoing compensation only if (i) the insertion of such
Soliciting Dealer's name has been made in the Investor Information Form relating
to the Subscriber's BACs, (ii) an account executive from such Soliciting Dealer
has executed the certification contained in Part II of the Subscriber's Investor
Information Form, (iii) such Soliciting Dealer has executed this Agreement in
the form hereof and delivered it to the Dealer Manager, and (iv) the Subscriber
is admitted as a BAC Holder for the number of BACs indicated in his Investor
Information Form.
5
<PAGE>
SECTION 3. Blue Sky and Securities Laws.
The Dealer-Manager assumes no obligation or responsibility in respect
of the qualification of the BACs under the laws of any jurisdiction. The Blue
Sky Survey for the Fund indicates or will indicate the jurisdictions in which it
is believed that offers and sales of the BACs may be effected under the
applicable Blue Sky or state securities laws. In effecting offers or sales in a
jurisdiction, you will comply with all special conditions and limitations
imposed by such jurisdiction, as set forth in the Blue Sky Survey for the Fund.
If the Blue Sky Survey for the Fund is not enclosed herewith, it will be made
available to you at a later date. Under no circumstances will you, as a
Soliciting Dealer, engage in any activities hereunder in any jurisdiction (a)
which is not listed in the Blue Sky Survey as a jurisdiction in which offers and
sales of the BACs may be effected under the Blue Sky or state securities laws of
such jurisdiction or (b) in which you may not lawfully so engage. The Blue Sky
Survey shall not be considered solicitation material, as that term is herein
used.
SECTION 4. Termination.
This Agreement may be terminated by written or telegraphic notice to
you from the Dealer-Manager, or upon the expiration or termination of the
offering of BACs, provided, however, that such termination shall not relieve the
Dealer-Manager of the obligation to pay when due all fees payable to you
hereunder or its obligations referred to under Section 6 hereof, and shall not
relieve you of any obligation or any liability under this Agreement, and all
representations and warranties shall survive the termination of this Agreement.
SECTION 5. Liability of the Parties.
Nothing herein contained shall constitute the Dealer-Manager, the
Soliciting Dealers, the General Partner and the Fund as an association,
partnership, unincorporated business or other separate entity, nor shall
anything herein contained render the Dealer-Manager, the General Partner or the
Fund liable for the obligations of any of the Soliciting Dealers. Neither the
Dealer-Manager, the General Partner nor the Fund shall be under any liability to
any Soliciting Dealer or any other person for any act or omission or any matter
connected with this Agreement or the Fund, except for obligations expressly
assumed by an association, partnership, unincorporated business or other
separate entity in this Agreement.
SECTION 6. Indemnification.
Under the Dealer-Manager Agreement, a copy of which is included as an
Exhibit to the Registration Statement, the General Partner has agreed to
indemnify and hold harmless various parties, including each Soliciting Dealer
and any party who controls such Soliciting Dealer within the meaning of the 1933
Act and the 1934 Act, from certain liabilities, and the Dealer-Manager and the
Soliciting Dealers have similarly agreed to indemnify the Fund and the General
Partner and certain associated parties. The indemnification provisions of the
Dealer-Manager Agreement are attached hereto as Exhibit A. In executing the
Dealer-Manager Agreement, to which the form of this Soliciting Dealer Agreement
is attached as Exhibit A, the Dealer-Manager acted as the
6
<PAGE>
representative of each of the Soliciting Dealers, and the Soliciting Dealers
shall thus be deemed to be in privity of contract with the Fund and the General
Partner. By your acceptance hereof, you ratify the action of the Dealer-Manager
in executing the Dealer-Manager Agreement on your behalf. Furthermore, you
hereby indemnify the Dealer-Manager and hold it harmless for any losses, claims,
damages, costs and other expenses (including reasonable attorneys' fees and
costs) incurred by the Dealer- Manager as a result of your violation or breach
of the terms (including your covenants, representations and warranties under the
Dealer-Manager Agreement), conditions and obligations of this Agreement. The
Dealer-Manager hereby agrees to indemnify each Soliciting Dealer and hold it
harmless for any losses, claims, damages, costs and other expenses (including
reasonable attorneys' fees and costs) incurred by a Soliciting Dealer as a
result of the Dealer-Manager's violation or breach of the terms (including its
representations and warranties under the Dealer-Manager Agreement) of this
Agreement.
SECTION 7. Notices.
Any notice hereunder shall be in writing or by telegram and, if to you
as a Soliciting Dealer, shall be deemed to have been duly given if mailed or
telegraphed to you at the address set forth below, and if to the Dealer-Manager,
if delivered or sent to us at One Boston Place, Boston, Massachusetts 02109.
SECTION 8. Parties in Interest.
The Agreement herein set forth is intended solely for the benefit of
each Soliciting Dealer, the General Partner, the Dealer-Manager and the Fund
(and to the extent provided in Section 6 hereof certain parties associated
therewith, and their successors and assigns), and no other person shall acquire
or have any right by virtue of this Agreement, and the terms "successors and
assigns," as used herein, shall not include any Subscriber for or purchasers of
the BACs, as such.
SECTION 9. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
SECTION 10. Amendment.
This Agreement may be amended by an agreement in writing signed by all
of the parties hereto.
7
<PAGE>
SECTION 11. Confirmation.
Please confirm your agreement to become one of the Soliciting Dealers
under the terms and conditions herein set forth by signing and returning the
confirmation on the enclosed duplicate copy of this letter to the undersigned
Boston Capital Services, Inc., One Boston Place, Suite 2100, Boston,
Massachusetts 02108, Attention: Anthony Nickas.
Very truly yours,
BOSTON CAPITAL SERVICES, INC.
By: ___________________________
Richard J. DeAgazio,
its President
CONFIRMED:
______________________________ , 199__
SOLICITING DEALER
-----------------------------------
By:
Authorized Signature
Address of Soliciting Dealer:
-----------------------------------
Street
-----------------------------------
City State Zip Code
8
<PAGE>
Commission Officer: ________________________________________
Due Diligence Officer: ----------------------------------------
Marketing Officer: ----------------------------------------
----------------------------------------
----------------------------------------
*If applicable, please enclose lists of Branch Offices, Branch Managers and
Registered Representatives.
9
<PAGE>
Exhibit A to
Soliciting Dealer Agreement
SECTION 7. Indemnification.
(a) The General Partner will indemnify and hold harmless the
Dealer-Manager and each Soliciting Dealer from and against any and all losses,
claims, damages or liabilities, joint or several, to which the Dealer-Manager
and any Soliciting Dealer may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon a breach or alleged breach by the
General Partner of any of his representations and warranties or upon an untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
General Partner will reimburse the Dealer-Manager and each such Soliciting
Dealer for any legal or other expenses (including, but not limited to,
reasonable attorneys' fees) reasonably incurred by the Dealer-Manager and such
Soliciting Dealer in connection with investigating or defending any such claim
or action instituted against the Dealer-Manager or any such Soliciting Dealer,
whether or not resulting in any liability.
The indemnity agreement in this Section 7(a) will be in addition to any
liability which the General Partner may otherwise have and shall extend upon the
same terms and conditions to each person, if any, who controls the
Dealer-Manager and any Soliciting Dealer within the meaning of the 1933 Act or
the 1934 Act, or is a registered representative of such Dealer-Manager or
Soliciting Dealer.
(b) The Dealer-Manager and each Soliciting Dealer will indemnify and
hold harmless the General Partner and the Fund from and against any and all
losses, claims, damages or liabilities to which the General Partner and the Fund
may become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) the failure or
alleged failure by the Dealer-Manager and/or such Soliciting Dealer to perform
fully and to act in compliance with the provisions of this Agreement or the
Dealer- Manager Agreement, or (ii) any untrue statement or alleged untrue
statement of any material fact made by the Dealer-Manager or such Soliciting
Dealer to any offeree or purchaser of any of the BACs (other than any statement
contained in the Prospectus or any Authorized Sales Literature, or any amendment
or supplement thereto), or (iii) any omission or alleged omission by the
Dealer-Manager or such Soliciting Dealer to state to any offeree or purchaser of
any of the BACs a material fact necessary in order to make the statements made
to such offeree or purchaser not misleading in light of the circumstances under
which they were made (other than any such material fact omitted from the
Prospectus, or any amendment or supplement thereto), and will reimburse any
legal or other expenses (including, but not limited to, reasonable attorneys'
fees)
10
<PAGE>
reasonably incurred by the General Partner or the Fund in connection with
investigating or defending any such claim or action, whether or not resulting in
any liability.
The indemnity agreement in this Section 7(b) will be in addition to any
liability which the Dealer-Manager and/or such Soliciting Dealer may otherwise
have and shall extend upon the same terms and conditions to the person signing
the Registration Statement on behalf of the Fund and each person, if any, who
controls the General Partner or the Fund within the meaning of the 1933 Act or
1934 Act.
(c) No person shall be liable under the indemnity agreements contained
under Sections 7(a) and (b) hereof unless the person requesting indemnification
has notified such indemnifying party within ten (10) business days after the
summons or other first legal process giving notice of the nature of the claim
has been served upon the indemnified party, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve him or it
from any liability which he or it may have to any indemnified party otherwise
than under this Section 7. In case any such action is brought against any
indemnified party and he or it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that he or it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of his or its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) If the right to indemnification provided for in paragraphs (a), (b)
or (c) of this Section 7 would by its terms be available to a person hereunder
(collectively, the "Indemnified Parties" and individually, an "Indemnified
Party"), but is held to be unavailable by a court of competent jurisdiction for
any reason other than because of the terms of such indemnification provision,
then, the General Partner, the Dealer-Manager and the Soliciting Dealers
(collectively, the "Indemnifying Parties" and individually, an "Indemnifying
Party") shall contribute to the aggregate of such losses, claims, damages and
liabilities as are contemplated in those paragraphs (including, but not limited
to, any investigation, legal and other expenses incurred in connection with, and
any amount paid in settlement of, any claim, action, suit or proceeding) in the
ratio in which the proceeds of the offering of the BACs have been actually
received by each such Indemnifying Party. For purposes of the preceding
sentence, proceeds paid to an Indemnifying Party hereunder and subsequently paid
to another Indemnifying Party or Indemnifying Parties pursuant to this
Agreement, the Fund Agreement for the Fund or otherwise, shall be deemed
received by the last of such Indemnifying Parties to whom or to which such
proceeds were paid; provided, however, that proceeds paid to the Fund and not
subsequently paid to the Dealer-Manager or such Soliciting Dealer shall be
considered to be received by the General Partner. However, the right of
contribution described in the preceding sentences is subject to the following
limitations:
11
<PAGE>
(i) In no case shall any Indemnifying Party and the persons
who control such Indemnifying Party within the meaning of applicable state and
federal securities laws be required to contribute any amount in excess of the
aggregate offering proceeds actually received by it and them (determined as
described above); and
(ii) No person guilty of fraudulent misrepresen-tation within
the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
Any Indemnified Party entitled to contribution will, promptly after receipt of
such notice of commencement of any action, suit, proceeding or claim against him
or it in respect of which a claim for contribution may be made against another
Indemnifying Party or Indemnifying Parties, notify such other Indemnifying Party
or Indemnifying Parties. Failure to so notify such other Indemnifying Party or
Indemnifying Parties shall not relieve such other Indemnifying Party or
Indemnifying Parties from any other obligation it or they may have hereunder or
otherwise. If such other Indemnifying Party or Indemnifying Parties are so
notified, such other Indemnifying Party or Indemnifying Parties shall be
entitled to participate in the defense of such action, suit, proceeding or claim
at its or their own expense or in accordance with arrangements satisfactory to
all parties who may be required to contribute. After notice from such other
Indemnifying Party or Indemnifying Parties to the Indemnified Party entitle to
contribution of its or their election to assume its or their own defense, the
Indemnifying Party or Indemnifying Parties so electing shall not be liable for
any legal or other expenses of litigation subsequently incurred by the
Indemnified Party entitled to contribution in connection with the defense
thereof, other than the reasonable costs of investigation. No person shall be
required to contribute with respect to any action or claim settled without his
or its consent.
12
Exhibit 3
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
PARTNERSHIP OF "BOSTON CAPITAL TAX CREDIT FUND IV L.P." FILED IN THIS OFFICE
ON THE FIFTH DAY OF OCTOBER, A.D. 1993, AT 9 O'CLOCK A.M.
* * * * * * * *
[STATE SEAL] /s/ William T. Quillen
---------------------------------------
William T. Quillen, Secretary of State
AUTHENTICATION: #4087242
DATE: 10/05/1993
753278176
<PAGE>
CERTIFICATE OF LIMITED PARTNERSHIP
OF
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
THIS CERTIFICATE, signed and sworn to as of the 1st day of October 1993,
by the undersigned persons:
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
The undersigned, Boston Capital Associates IV L.P., a Delaware limited
partnership, as general partner, and BCTC IV Assignor Corp., as limited partner,
hereby form a limited partnership pursuant to the Delaware Revised Uniform
Limited Partnership Act, as follows:
1. The name of the Partnership is BOSTON CAPITAL TAX CREDIT FUND IV L.P.
2. The address of the registered office and the name of the registered
agent for service of process in Delaware is The Prentice-Hall Corporation
System, Inc., 32 Loockerman Square, Suite L-100, County of Kent, Dover,
Delaware 19901.
3. The General Partner is Boston Capital Associates IV L.P., a limited
partnership formed under the laws of the State of Delaware and having its
principal place of business at 313 Congress Street, Boston, Massachusetts
02201-1232.
IN WITNESS WHEREOF, the general partner hereto has affixed its signature
and seal as of the day and year first written above.
GENERAL PARTNER:
---------------
BOSTON CAPITAL ASSOCIATES IV L.P.
By: Boston Capital Associates,
its general partner
Attest: By: /s/ John P. Manning
------------------------------
John P. Manning
General Partner
/s/ Candace L. Cook
- ------------------------
<PAGE>
Commonwealth of Massachusetts )
) ss:
County of Suffolk )
Before me, the undersigned Notary Public in and for the County of Suffolk,
Commonwealth of Massachusetts, personally appeared John P. Manning, in his
capacity as a general partner of Boston Capital Associates, a general
partnership formed under the laws of the Commonwealth of Massachusetts, as
general partner of Boston Capital Associates IV L.P., the general partner of
Boston Capital Tax Credit Fund IV L.P. and, being duly sworn, acknowledges the
execution of the foregoing Certificate of Limited Partnership.
Witness my hand and notarial seal this 1st day of October 1993.
/s/ Sarita D. Neufeld
----------------------
Notary Public
(Seal)
My Commission Expires: 3/13/98
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
PARTNERSHIP OF "BOSTON CAPITAL ASSOCIATES IV L.P." FILED IN THIS OFFICE
ON THE FIFTH DAY OF OCTOBER, A.D. 1993, AT 9 O'CLOCK A.M.
* * * * * * * *
[STATE SEAL] /s/ William T. Quillen
---------------------------------------
William T. Quillen, Secretary of State
AUTHENTICATION: #4087243
DATE: 10/05/1993
753278177
<PAGE>
CERTIFICATE OF LIMITED PARTNERSHIP
OF
BOSTON CAPITAL ASSOCIATES IV L.P.
THIS CERTIFICATE, signed and sworn to as of the 1st day of October 1993,
by the undersigned persons:
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
The undersigned, C&M Associates d/b/a Boston Capital Associates, a
Massachusetts general partnership, as general partner, and Capital Investment
Holdings IV, as limited partner, hereby form a limited partnership pursuant to
the Delaware Revised Uniform Limited Partnership Act, as follows:
1. The name of the Partnership is BOSTON CAPITAL ASSOCIATES IV L.P.
2. The address of the registered office and the name of the registered
agent for service of process in Delaware is The Prentice-Hall Corporation
System, Inc., 32 Loockerman Square, Suite L-100, County of Kent, Dover,
Delaware 19901.
3. The General Partner is C&M Associates d/b/a Boston Capital Associates,
a general partnership formed under the laws of the Commonwealth of
Massachusetts and having its principal place of business at 313 Congress
Street, Boston, Massachusetts 02201-1232.
IN WITNESS WHEREOF, the general partner hereto has affixed its signature
and seal as of the day and year first written above.
GENERAL PARTNER:
---------------
By: Boston Capital Associates,
Attest: By: /s/ John P. Manning
-------------------------
John P. Manning
General Partner
/s/ Candace L. Cook
- ------------------------
<PAGE>
Commonwealth of Massachusetts )
) ss:
County of Suffolk )
Before me, the undersigned Notary Public in and for the County of Suffolk,
Commonwealth of Massachusetts, personally appeared John P. Manning, in his
capacity as a general partner of Boston Capital Associates, a general
partnership formed under the laws of the Commonwealth of Massachusetts, as
general partner of Boston Capital Associates IV L.P., and, being duly sworn,
acknowledges the execution of the foregoing Certificate of Limited Partnership.
Witness my hand and notarial seal this 1st day of October 1993.
/s/ Sarita D. Neufeld
----------------------
Notary Public
(Seal)
My Commission Expires: 3/13/98
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "BCTC IV ASSIGNOR CORP." FILED IN THIS OFFICE ON THE TWELFTH
DAY OF OCTOBER, A.D. 1993, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
* * * * * * * *
[STATE SEAL] /s/ William T. Quillen
---------------------------------------
William T. Quillen, Secretary of State
AUTHENTICATION: #4098412
DATE: 10/13/1993
753284107
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BCTC IV ASSIGNOR CORP.
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BY-LAWS
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of BCTC IV
Assignor Corp. (hereinafter referred to as the "Corporation") shall be at 32
Loockerman Square, Suite L-100, Dover, Delaware 19901.
Section 1.02. Additional Offices. The Corporation may also have offices
at such other places, both within and without the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Time and Place. All meetings of stockholders for the
election of Directors shall be held at such time and place, either within or
without the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting. Meetings of stockholders for any other purpose
may be held at such time and place either within or without the State of
Delaware as shall be stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting.
Section 2.02. Annual Meeting. Annual meetings of stockholders shall be
held for the purpose of electing a Board of Directors and transacting such other
business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time of such annual meeting, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10)
(unless a longer period is required by law) nor more than fifty (50) days prior
to the meeting.
Section 2.04. Special Meeting. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or, if the Chairman is not present (or, if there is none), by the President
and shall be called by the President or
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Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
such meeting. Such request shall state the purpose or purposes of the proposed
meeting. The person calling such meeting shall cause notice of the meeting to be
given in accordance with the provisions of Section 2.05 of this Article II and
of Article V.
Section 2.05. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time of such special meeting and the
purpose or purposes for which the meeting is called, shall be delivered either
personally or mailed to his last address to each stockholder not less than ten
(10) (unless a longer period is required by law) nor more than fifty (50) days
prior to the meeting.
Section 2.06. List of Stockholders. The Officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting, at
a place within the city where the meeting is to be held. Such place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting and may be inspected by any stockholder who
is present.
Section 2.07. Presiding Officer. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or if the Chairman is not
present (or if there is none), by the President, or, if the President is not
present, by a Vice President, or, if a Vice President is not present, by such
person who may have been chosen by the Board of Directors, or, if none of such
persons is present, by a Chairman to be chosen by the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy. The Secretary of the Corporation, or, if the Secretary is
not present, an Assistant Secretary, or, if an Assistant Secretary is not
present, such person as may be chosen by the Board of Directors, shall act as
secretary of meetings of stockholders, or, if none of such persons is present,
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall choose any person present to
act as secretary of the meeting.
Section 2.08. Quorum and Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at stockholders meetings, present in person or represented by proxy,
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. The stockholders present in
person or represented by proxy at a duly organized meeting may continue to do
business until final adjournment of such meeting whether on the same day or on a
later day, notwithstanding the withdrawal of enough stockholders to leave less
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than a quorum. If a meeting cannot be organized because a quorum has not
attended, those present in person or represented by proxy may adjourn the
meeting from time, until a quorum shall be present or represented. Notice of the
adjourned meeting need not be given if the time and place of the adjourned
meeting are announced at the meeting at which the adjournment is taken. Even if
a quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or represented
by proxy, may adjourn the meeting from time to time without notice of the
adjourned meeting if the time and place of the adjourned meeting are announced
at the meeting at which the adjournment is taken, until a date which is not more
than thirty (30) days after the date of the original meeting. At any adjourned
meeting at which a quorum is present in person or represented by proxy any
business may be transacted which might have been transacted at the meeting as
originally called. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at such meeting.
Section 2.09. Voting.
(a) At any meeting of stockholders, every stockholder having
the right to vote shall be entitled to vote in person or by proxy, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. Except as otherwise provided by law or
the Certificate of Incorporation, each stockholder of record shall be entitled
to one (1) vote for each share of capital stock registered in his name on the
books of the Corporation.
(b) At a meeting at which a quorum is present, all elections
of Directors shall be determined by a plurality vote, and, except as otherwise
provided by law or the Certificate of Incorporation, all other matters shall be
determined by a vote of a majority of the shares present in person or
represented by proxy and voting on such other matters.
Section 2.10. Consent. Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted by law or the Certificate of
Incorporation to be taken at any meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a written
consent, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present or represented by proxy and voted.
Such written consent shall be filed with the minutes of meetings of
stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing.
ARTICLE III
DIRECTORS
Section 3.01. Number and Tenure. There shall be such number of
Directors, not less than one (1), as shall from time to time be fixed by the
stockholders at the annual meeting or at any special meeting called for such
purpose. The Directors shall be elected at
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the annual meeting of the stockholders, except for initial directors named in
the Certificate of Incorporation or elected by the incorporator, and except as
provided in Section 3.02 of this Article, and each Director elected shall hold
office until his successor is elected and shall qualify. Directors need not be
stockholders.
Section 3.02. Vacancies. If any vacancies occur in the Board of
Directors, or if any new Directorships are created, they shall be filled by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining Director. Each Director so chosen shall hold office until the
next annual election of Directors and until his successor is duly elected and
shall qualify. If there are no Directors in office, any Officer or stockholder
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorporation or these By-laws, at which meeting such
vacancies shall be filled.
Section 3.03. Resignation. Any Director may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation, or, in the absence of all of the foregoing, by
notice to any other director or officer of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect upon delivery
to the designated director or officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 3.04. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.05. Annual Meeting. Unless otherwise agreed by the newly
elected Directors, the annual meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of stockholders, and no
notice of such meeting to either incumbent or newly elected Directors shall be
necessary.
Section 3.06. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice, at such time and place as may from time to
time be determined by the Board of Directors.
Section 3.07. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on two (2)
days' notice to each Director, if such notice is delivered personally or sent by
telegram, or on five (5) days' notice if sent by mail. Special meetings shall be
called by the Chairman of the Board or the President in like manner and on like
notice on the written request of one-half or more of the number of Directors
then in office. The purpose of a special meeting of the Board of Directors need
not be stated in the notice of such meeting.
Section 3.08. Quorum and Adjournments. Unless otherwise provided by the
Certificate of Incorporation, at all meetings of the Board of Directors,
one-half of the total number of Directors shall constitute a quorum for the
transaction of business; provided, however, that when the board consists of one
(1) Director, then one (1) Director shall constitute a quorum. If a quorum is
not present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting, from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
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Section 3.09. Presiding Officer. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or if the Chairman
is not present (or if there is none), by the President, or, if the President is
not present, by such person as the board may appoint for the purpose of
presiding at the meeting from which the President is absent.
Section 3.10. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee. Such consent shall
have the same force and effect as the unanimous vote of the Board of Directors.
Section 3.11. Telephone Meetings. Members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
ARTICLE IV
COMMITTEES
Section 4.01. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one (1) or more
committees, each committee to consist of one (1) or more Directors of the
Corporation. The Board of Directors may designate one (1) or more persons who
are not Directors as additional members of any committee, but such persons shall
be non-voting members of such committee. The Board of Directors may designate
one (1) or more Directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members of
the committee present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution, elect or remove Officers or
Directors, or amend the By-laws of the Corporation; and, unless the resolution
or the Certificate of Incorporation expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. Such committee or committees shall have such name or
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names as may be determined from time to time by resolution adopted by the Board
of Directors.
Section 4.02. Minutes of Committee Meetings. Unless otherwise provided
in the resolution of the Board of Directors establishing such committee, each
committee shall keep minutes of action taken by it and file the same with the
Secretary of the Corporation.
Section 4.03. Quorum. A majority of the number of Directors
constituting any committee shall constitute a quorum for the transaction of
business, and the affirmative vote of such Directors present at the meeting
shall be required for any action of the committee; provided, however, that, when
a committee of one (1) member is authorized under the provisions of Section 4.01
of this Article, such one (1) member shall constitute a quorum.
Section 4.04. Vacancies, Changes, and Discharge. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of, and to discharge any committee.
Section 4.05. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of the
personal interest of any director, shall have authority to establish reasonable
compensation for committee members for their services as such and may, in
addition, authorize reimbursement of any reasonable expenses incurred by
committee members in connection with their duties.
ARTICLE V
NOTICES
Section 5.01. Form and Delivery.
(a) Whenever, under the provisions of law, the Certificate of
Incorporation or these By-laws, notice is required to be given to any
stockholder, it shall not be construed to mean personal notice unless otherwise
specifically provided, but such notice may be given in writing, by mail,
telecopy, telegram or messenger addressed to such stockholder, at his address as
it appears on the records of the Corporation. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, with postage
prepaid.
(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these By-laws, notice is required to be given to any director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such director at the usual place of residence or
business of such director as in the discretion of the person giving such notice
will be likely to be received most expeditiously by such director. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail, with postage prepaid. Notice to a director may also be given personally or
be sent to such address.
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Section 5.02. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these By-laws, a
written waiver of notice, signed by the person or persons entitled to said
notice, whether before or after the time for the meeting stated in such notice,
shall be deemed equivalent to such notice.
ARTICLE VI
OFFICERS
Section 6.01. Designations. The Officers of the Corporation shall be
chosen by the Board of Directors and shall be a President and a Secretary. The
Board of Directors may also choose a Chairman of the Board, one (1) or more Vice
Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or
more Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. Any officer of the Corporation shall have the
authority to affix the seal of the Corporation and to attest the affixing of the
seal by his signature. All officers and agents of the Corporation shall exercise
such powers and perform such duties as shall from time to time be determined by
the Board of Directors.
Section 6.02. Term of Office and Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders or at a meeting called
for that purpose shall choose Officers and agents, if any, in accordance with
the provisions of Section 6.01. Each Officer of the Corporation shall hold
office until his successor is elected and shall qualify. Any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of a majority of the Directors then
in office. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 6.03. Compensation. The salaries of all officers and agents, if
any, of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer or agent shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
Section 6.04. The Chairman of the Board and The President. The Chairman
of the Board shall be the chief executive officer of the Corporation. If there
is no Chairman of the Board, the President shall be the chief executive officer
of the Corporation. The duties of the Chairman of the Board, and of the
President at the direction of the Chairman of the Board, shall be the following:
(i) Subject to the direction of the Board of Directors, to
have general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents and, in general, to
perform all duties incident to the office of Chairman of the Board (or
President, as the case may be) and to see that all orders and resolutions of the
Board of Directors are carried into effect.
(ii) Unless otherwise prescribed by the Board of Directors, to
have full power and authority on behalf of the Corporation to attend, act and
vote at any meeting of security holders of other Corporations in which the
Corporation may hold securities. At such meeting the Chairman of the Board (or
the President, as the case may
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be) shall possess and may exercise any and all rights and powers incident to the
ownership of such securities which the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
(iii) To preside over meetings of the stockholders and of the
Board of Directors, to call special meetings of stockholders, to be an
ex-officio member of all committees of the board, and to have such other duties
as may from time to time be prescribed by the Board of Directors.
Section 6.05. The Vice President. The Vice President, if any (or in the
event there be more than one (1), the Vice Presidents in the order designated,
or in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the President and shall generally
assist the President and perform such other duties and have such other powers as
may from time to time be prescribed by the Board of Directors.
Section 6.06. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for any committees of the Board of Directors, if requested
by such committee. He shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may from time to time be prescribed by the Board of
Directors or the President, under whose supervision he shall act. He shall have
custody of the seal of the Corporation, and he, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his signature or by the signature of such
Assistant Secretary.
Section 6.07. The Assistant Secretary. The Assistant Secretary, if any
(or in the event there be more than one (1), the Assistant Secretaries in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 6.08. The Treasurer. The Treasurer, if any, shall have the
custody of the corporate funds and other valuable effects, including securities,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors, at regular meetings of the board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the Corporation.
Section 6.09. The Assistant Treasurer. The Assistant Treasurer, if any,
(or in the event there be more than one (1), the Assistant Treasurers in the
order designated, or in
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the absence of any designation, in the order of their election), shall, in the
absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as may from time to time be
prescribed by the Board of Directors.
Section 6.10. Chairman of the Board. If a Chairman of the Board shall
be elected by the Board of Directors, the Chairman of the Board shall preside
over meetings of the stockholders and of the Board of Directors, shall call
special meetings of stockholders, shall be an ex-officio member of all
committees of the board, and shall have such other duties as may from time to
time be prescribed by the Board of Directors or the President. In the absence of
a Chairman of the Board, the above described duties shall be carried out by the
President.
Section 6.11. Transfer of Authority. In case of the absence of any
officer or for any other reason that the Board of Directors deems sufficient,
the Board of Directors may transfer the powers or duties of that officer to any
other officer or to any director or employee of the Corporation, provided a
majority of the full Board of Directors concurs.
ARTICLE VII
STOCK CERTIFICATES
Section 7.01. Form and Signatures. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board, the President or a Vice President
and the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Corporation, certifying the number and class (and series, if
any) of shares owned by him, and bearing the seal of the Corporation. Such seal
and any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 7.02. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 7.03. Registered Stockholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person who is registered on its books as the owner of shares of its capital
stock to receive dividends or other distributions, to vote as such owner, and to
hold liable for calls and assessments a person who is registered on its books as
the owner of shares of its capital stock. The Corporation shall not be bound to
recognize any equitable, legal, or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
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Section 7.04. Issuance of Certificate. No certificate shall be issued
for any share until (i) consideration for such share in the form of cash,
services rendered, personal or real property, leases of real property or a
combination thereof in an amount not less than the par value or stated capital
of such share has been received by the Corporation and (ii) the Corporation has
received a binding obligation of the subscriber or purchaser to pay the balance
of the subscription or purchase price.
Section 7.05. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen, or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and to give the Corporation a bond in
such sum, or other security in such form as it may direct, as indemnity against
any claim that may be made against the Corporation on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Directors, Officers, Employees or Agents.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, except in such cases as involve gross negligence or willful
misconduct.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the
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performance of his duty to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Article.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
Section 9.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware." The seal or any facsimile thereof may be, but need not be,
unless required by law, impressed or affixed to any instrument executed by an
officer of the Corporation.
ARTICLE X
AMENDMENTS
Section 10.01. These By-laws may be altered, amended or repealed or new
By-laws may be adopted by the stockholders or by the Board of Directors, to the
extent that such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such proposed alteration, amendment, repeal or
adoption of new By-laws be contained in the notice of such special meeting.
11
Exhibit 5
<PAGE>
________________ ___, 1997
Boston Capital Associates IV L.P.
General Partner of Boston
Capital Tax Credit Fund IV L.P.
One Boston Place
Suite 2100
Boston MA 02108-4406
RE: Boston Capital Tax Credit Fund IV L.P.
--------------------------------------
Gentlemen:
You have requested our opinion with respect to certain matters in
connection with Boston Capital Tax Credit Fund IV L.P., a Delaware limited
partnership (the "Partnership").
We have acted as counsel to the Partnership; to Boston Capital
Associates IV L.P., a Delaware limited partnership which is the general partner
of the Partnership (the "General Partner"); and to BCTC IV Assignor Corp., the
assignor limited partner of the Partnership (the "Assignor Limited Partner"), in
connection with the registration by the Partnership under the Securities Act of
1933, as amended, of 25,000,000 additional units of beneficial interests in the
Limited Partnership Interest of the Assignor Limited Partner (the "Units").
In this regard, we have reviewed Registration Statement No. 33-_____,
and Pre-Effective Amendment No. ____ thereto (collectively, the "Registration
Statement") and the Prospectus (the "Prospectus") constituting a part thereof
filed with the Securities and Exchange Commission (the "Commission").
The Partnership has issued a Limited Partnership Interest to the
Assignor Limited Partner, which will assign Units thereof to certain investors
("Assignees"). Under certain circumstances described in the Registration
Statement, Units may be held directly by investors as Limited Partners. The
Assignees and such Limited Partners are collectively referred to as "Investors."
This opinion is applicable to Units held under either form of ownership.
<PAGE>
Boston Capital Associates IV L.P.
__________________ ___, 1997
Page 2
We have reviewed the Partnership's Certificate of Limited Partnership
(the "Certificate"), dated as of October 1, 1993 and filed for recording on
October 5, 1993 in the office of the Secretary of State of Delaware, which
formed the Partnership and admitted the General Partner to the Partnership and
the Partnership's Agreement of Limited Partnership (the "Partnership Agreement")
dated as of December 16, 1993. The Partnership Agreement states in full all of
the terms and conditions of the agreement among the General Partner, the Limited
Partners (including the Assignor Limited Partner) and the Assignees.
We have examined the Delaware Revised Uniform Limited Partnership Act,
the relevant provisions of the federal securities laws and the applicable
regulations and other administrative and judicial interpretations thereof, and
other federal laws and regulations as we have deemed necessary or appropriate.
Based solely on the foregoing, it is our opinion that:
When the aforesaid public offering is completed and the Units
are issued and sold in the manner contemplated by the Registration
Statement, the Units will be validly authorized and legally issued.
When all Capital Contributions in respect of each Unit thus issued have
been made in accordance with the terms of the Partnership Agreement and
as described in the Registration Statement, when the Partnership
Agreement has been appropriately amended to reflect the sale and
issuance of such Units and when the Partnership Agreement and such
amendments thereto have been duly and properly executed, if and to the
extent necessary, such Units will be fully paid and non-assessable.
However, if any Partner or Assignee has received the return of any part
of his Capital Contribution without violation of the Partnership
Agreement or the Delaware Revised Uniform Limited Partnership Act, he
is liable to the Partnership for a period of one year thereafter for
the amount of the returned Capital Contribution, but only to the extent
necessary to discharge the Partnership's liabilities to creditors who
extended credit to the Partnership during the period the Capital
Contribution was held by the Partnership; and if a Partner or Assignee
has received the return of any part of his Capital Contribution in
violation of the Partnership Agreement or the Delaware Revised Uniform
Limited Partnership Act, he is liable to the Partnership for a period
of six years thereafter for the amount of the Capital Contribution
wrongfully returned.
The opinion set forth above represents our conclusion as to the
application of the existing laws of Delaware and federal laws to the instant
matter, and we can give no assurance that changes in such laws, or in the
interpretation thereof, will not affect the opinion expressed by us. Moreover,
there can be no assurance that a court considering the issues would not hold
contrary to such opinion. Further, the opinion set forth represents
<PAGE>
Boston Capital Associates IV L.P.
__________________ ___, 1997
Page 3
our conclusions based upon the documents reviewed by us and the facts presented
to us. Any material amendments to such documents or changes in any significant
fact could affect the opinion expressed herein.
Our opinion is further qualified to the extent that the validity of any
provision of any agreement or the rights of Partners or Assignees may be subject
to or affected by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the rights of creditors generally. Further, 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 of such agreements.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement under the caption "Experts".
Very truly yours,
PEABODY & BROWN
Exhibit 8
<PAGE>
________________ ___, 1997
Boston Capital Associates IV L.P.
General Partner of Boston
Capital Tax Credit Fund IV L.P.
One Boston Place
Suite 2100
Boston MA 02108-4406
RE: Boston Capital Tax Credit Fund IV L.P.
---------------------------------------
Gentlemen:
You have requested our opinion with respect to certain matters in
connection with Boston Capital Tax Credit Fund IV L.P., a Delaware limited
partnership (the "Partnership").
We have acted as counsel to the Partnership; to Boston Capital
Associates IV L.P., a Delaware limited partnership which is the General Partner
of the Partnership (the "General Partner"); and to BCTC IV Assignor Corp., the
assignor limited partner of the Partnership (the "Assignor Limited Partner"), in
connection with the registration by the Partnership under the Securities Act of
l933, as amended, of 25,000,000 additional units of beneficial interests in the
Limited Partnership Interest of the Assignor Limited Partner (the "Units").
In this regard, we have reviewed Registration Statement No. 33-_____
and Pre-Effective Amendment No. ___ thereto (collectively, the "Registration
Statement") and the Prospectus (the "Prospectus") constituting a part thereof
filed with the Securities and Exchange Commission (the "Commission").
The Partnership has issued a Limited Partnership Interest to the
Assignor Limited Partner, which will assign Units thereof to certain investors
("Assignees"). Under certain limited circumstances described in the Registration
Statement, Units may be held directly by investors as Limited Partners. The
Assignees and such Limited Partners are collectively referred to as "Investors."
This opinion is applicable to Units held under either form of ownership.
<PAGE>
Boston Capital Associates IV L.P.
____________ ___, 1997
Page 2
We have reviewed the Partnership's Certificate of Limited Partnership
(the "Certificate"), dated as of October 1, 1993 and filed for recording on
October 5, 1993 in the office of the Secretary of State of Delaware, which
formed the Partnership and admitted the General Partner to the Partnership, and
the Partnership's Agreement of Limited Partnership (the "Partnership Agreement")
dated as of December 16, 1993. The Partnership Agreement restates in full all of
the terms and conditions of the agreement among the General Partner, the Limited
Partners (including the Assignor Limited Partner) and the Assignees.
We have examined and relied upon (i) the audited Balance Sheet of
Boston Capital Associates IV L.P., as of December 31, 1994, and the accompanying
report dated March 18, 1997, by Reznick Fedder & Silverman, Certified Public
Accountants, (ii) the audited Balance Sheet of Boston Capital Associates, as of
December 31, 1994, and the accompanying report dated January 17, 1997, by Kevin
P. Martin & Associates, P.C., Certified Public Accountants, and (iii) the
certificates of John P. Manning and Herbert F. Collins dated as of
_____________, 1997, to the effect that there has been no material adverse
change in such financial statements since the respective dates thereof.
In addition, we assume that (i) the Partnership Agreement and any
amendments thereto as may be necessary to reflect the sale and issuance of the
Units will be duly and properly executed in the form reviewed by us, (ii) the
Partnership is operating, and will continue to operate, in accordance with the
terms and conditions of the Certificate and the Partnership Agreement, and (iii)
any creditor who makes any nonrecourse loan to the Partnership will not have or
acquire at any time, as a result of making such loan, any direct or indirect
interest in the profits, capital or property of the Partnership other than as a
creditor.
We have examined the Delaware Revised Uniform Limited Partnership Act,
the relevant provisions of the Internal Revenue Code of l986, as amended, the
applicable Treasury Regulations and other administrative and judicial
interpretations thereof, and such other federal laws, regulations, documents and
records as we have deemed necessary or appropriate in order to render this
opinion.
Based solely on the foregoing, it is our opinion that:
(1) the Partnership is a duly formed and validly existing
limited partnership under the Revised Uniform Limited Partnership Act
as in effect in the State of Delaware;
(2) each Investor's payment for Units will be treated as a
direct capital contribution to the Partnership in exchange for his
Units;
<PAGE>
Boston Capital Associates IV L.P.
____________ ___, 1997
Page 3
(3) the Partnership will be classified as a partnership for
federal income tax purposes, and the interest of each Investor in the
Partnership will be treated as a partnership interest for federal
income tax purposes; and
(4) the statements in the Prospectus under the caption
"Federal Income Tax Matters," insofar as they are statements of federal
income tax law or conclusions with respect to federal income tax law,
are correct in all material respects, based upon existing federal
income tax law and present interpretations thereof. We can give no
assurance that such statements will continue to be correct if existing
federal income tax law, or the interpretation thereof, is changed or
modified hereafter.
The opinions set forth above represent our conclusions as to the
application of the existing laws of Delaware and federal income tax law to the
instant matter, and we can give no assurance that changes in such laws, or in
the interpretation thereof, will not affect the opinions expressed by us.
Moreover, there can be no assurance that contrary positions may not be taken by
the Internal Revenue Service, or that a court considering the issues would not
hold contrary to such opinions. Further, the opinions set forth represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant fact
could affect the opinions expressed herein.
Our opinion is further qualified to the extent that the validity of any
provision of any agreement or the rights of partners or Assignees may be subject
to or affected by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the rights of creditors generally. Further, 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 of such agreements.
Other than as set forth above, we have not been asked to, and we do
not, render any opinion with respect to the federal income tax treatment of any
specific item of income, gain, loss, deduction or credit of the Partnership.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement under the caption "Experts."
Very truly yours,
PEABODY & BROWN
Exhibit 10A
<PAGE>
(FRONT)
Series
Certificate Number
Beneficial Assignee
Certificate
[BOSTON CAPITAL PARTNERS, INC. LOGO]
BOSTON CAPITAL TAX CREDIT FUND IV L. P.
(organized under the Laws of the State of Delaware)
BENEFICIAL ASSIGNEE CERTIFICATE OF LIMITED PARTNERSHIP INTEREST
This certifies that __________________________________________________
___________________________________________ is the owner of Beneficial Assignee
Certificates of Limited Partnership Interest (the "BACs") in Boston Capital Tax
Credit Fund IV L. P. (the "Partnership"), a limited partnership organized under
the laws of the State of Delaware, issued by its assignor limited partner, BCTC
IV Assignor Corp., a Delaware corporation (the "Assignor Limited Partner"),
pursuant to and in accordance with the Agreement of Limited Partnership as
amended from time to time (the "Partnership Agreement"). Such Partnership
Agreement authorizing the transfer of the beneficial interests of BCTC IV
Assignor Corp. to the holder hereof (the "BAC Holder"), is hereby incorporated
by reference as fully as if set forth in its entirety, all of the provisions of
which, including but not limited to the rights and privileges, the restrictions
and qualifications thereof as set forth therein. No transfer, sale, pledge or
other disposition of the BACs evidenced by this Certificate may be made except
by compliance with the provisions of the Partnership Agreement and applicable
law. The holder and every transferee or assignee hereof or of the BAC
represented hereby or any interest therein agrees to be bound by the terms of
the Partnership Agreement.
[This Certificate is not valid unless registered and countersigned by
the Transfer Agent and Registrar.]
<PAGE>
ATTENTION CALIFORNIA RESIDENTS: 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.
Witness the facsimile signatures of the duly authorized officers of the
General Partner of the Partnership and the Assignor Limited Partner.
Date: _____________________ Boston Capital Tax Credit
Fund IV L.P.
By: Boston Capital
Associates IV L.P.,
General Partner
By: Boston Capital Associates,
General Partner
________________________________
General Partner
BCTC IV Assignor Corp.,
Assignor Limited Partner
By: ____________________________
President
[Countersigned and Registered:
Registrar and Transfer Company,
Transfer Agent and Registrar
By: ___________________________
Authorized Signature]
<PAGE>
(BACK)
THE INTERESTS EVIDENCED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS OF THE PARTNERSHIP AGREEMENT
AND TO THE FOLLOWING PROVISIONS:
This Certificate and the Interests evidenced hereby (but no fractional
part of an Interest) may be transferred only by the holder of record hereof upon
the surrender of this Certificate, duly executed to the Partnership or its
Designee; subject, however, to all of the limitations and restrictions contained
in the Partnership Agreement. This Certificate may be surrendered to the
Assignor Limited Partner or its Designee, in exchange for one or more
certificates for the same aggregate number of BACS, provided, however that no
certificate may be issued representing a fractional BAC.
Until due presentation of this Certificate for entry in the books and
records of the Partnership, the Partnership may treat the holder of record of
the BACs represented by this Certificate as the owner thereof for all purposes
and shall not be charged with notice of any claim or demand to the BACS
represented by this Certificate or the Interest of any other person. The entry
in the books and records of the Partnership of the transfer of this Certificate
shall transfer to the transferee as of the effective date prescribed by Article
VII of the Partnership Agreement such right, title, and interest of the
transferor in and to this Certificate (and to the Interests evidenced hereby) as
is prescribed by Article VII of the Partnership Agreement. A transfer of this
Certificate shall not hereby transfer to the transferee the right to any sum
payable to the holder of record prior to the effective date of such transfer.
Any transferee or assignee hereof or of the BACs represented hereby or
any interest therein is advised to consult his tax advisor with respect to the
applicable tax consequences to him at the time of acceptance of the sale,
assignment or transfer of the BACS represented by this Certificate.
Any transferee or assignee hereof or of the BACs represented hereby or
any interest therein is advised to consult his tax advisor with respect to the
applicable tax consequences to him at the time of acceptance of the sale,
assignment or transfer of the BACs represented by this Certificate.
The transferee, if a resident of California upon acceptance of the
sale, assignment or transfer of the BACs represented by this Certificate
confirms that the BACs are a suitable investment for the transferee based upon
the following suitability standards: (1) minimum annual gross income for the
current year of $60,000 and a net worth (excluding home, home furnishings and
automobiles) of $60,000 or (2) net worth (excluding home, home furnishings and
automobiles) of not less than $175,000. In addition to this requirement, a
Pennsylvania transferee's net worth must also be equal to or greater than ten
times his or her dollar amount of BACs purchased.
<PAGE>
BAC Holders are advised as follows:
You have acquired an interest in Boston Capital Tax Credit Fund IV
L.P., One Boston Place, Suite 2100 Boston, Massachusetts 02180-4406, whose
taxpayer identification number is ___________________________. The Internal
Revenue Service has issued Boston Capital Tax Credit Fund IV L.P. the following
tax shelter registration number:
You must report this registration number to the Internal Revenue Service, if
you claim any deduction, loss, credit, or other tax benefit or report any income
by reason of your investment in Boston Capital Tax Credit Fund IV L.P.
You must report the registration number (as well as the name, and taxpayer
identification number of Boston Capital Tax Credit Fund IV L.P.) on Form 8271.
Form 8271 must be attached to the return on which you claim the deduction,
loss, credit, or other tax benefit or report any income.
Issuance of a registration number does not indicate that this investment or
the claimed tax benefits have been reviewed, examined, or approved by the
Internal Revenue Service.
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws of regulations.
TEN COM - as tenants in common
UNIF GIFT MIN - .................... Custodian.................................
(cust) Minor)
under Uniform Gifts to Minors Act
............................................................
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the
above list
<PAGE>
FOR VALUE RECEIVED, __________________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
_________________________________
________________________________________________________________________________
(Please print name and address of transferee)
the beneficial assignee certificates of limited partnership interest, and does
hereby irrevocably constitute and appoint __________________________________ to
transfer said certificate on the books of the Partnership with full power of
substitution.
Date: ________________________ _______________________________________
The above signature of the transferor must
correspond with the name as written upon the
face of the Certificate in every particular
without alteration or enlargement or
any change whatsoever.
Exhibit 10B
<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
CAPITAL CONTRIBUTIONS ESCROW AGREEMENT
This Agreement made as of the ___ day of January 1998, by and between
Boston Capital Tax Credit Fund IV L.P., a Delaware limited partnership (the
"Fund"), Boston Capital Associates IV L.P., a Delaware limited partnership (the
"General Partner") , a Wainwright Bank & Trust Company, Boston, Massachusetts
(the "Escrow Agent").
1. The Offering. The Fund intends to offer for subscription in one or
more series, 65,000,000 beneficial assignee certificates ("BACs") at a price of
$10.00 per BAC, representing assignments of units of the beneficial interest of
the Limited Fund Interest in the Fund issued to the Assignor Limited Partner.
The initial minimum purchase by each potential investor completing an Investor
Information Form (a "Subscriber") is five hundred BACs ($5,000), except for
employees of the General Partner and/or its Affiliates for whom the initial
minimum investment is one hundred BACs ($1,000); additional purchases by
Subscriber must be made in multiples of 100 BACs ($1,000). The offering will be
made through a group of soliciting dealers (the "Soliciting Dealers"), organized
by and including Boston Capital Services, Inc. as dealer-manager (the
"Dealer-Manager"), which are members of the National Association of Securities
Dealers, Inc. The Fund hereby appoints Wainwright Bank & Trust Company, Boston,
Massachusetts as its Escrow Agent to receive from the Soliciting Dealers and
Dealer-Manager (i) the monies paid by the subscribers for the BACs to which they
have each subscribed (the "Subscription Payments"), (ii) to hold and invest such
Subscription Payments.
The Fund intends to offer and sell and to issue BACs in series. Each
series will consist of up to 5,000,000 BACS subject to expansion. The offering
of each series will not exceed twelve months, or such lesser period as may be
determined by the General Partner, in its sole discretion (a "Series offering
Period").
The offering by the Fund will terminate twenty-four months from the
effective date of the Fund's Registration Statement, unless terminated earlier
or extended by the General Partner, and is subject to the condition that
subscriptions for at least 250,000 BACs be accepted by the General Partner by
the last day of the applicable Series Offering Period (the "Termination Date").
The General Partner will notify the Escrow Agent in writing received by the
Escrow Agent no later than 5:00 p.m. on the second business day next preceding
the date the General Partner determines as the Termination Date for each Series
offering Period.
2. Establishment of the Escrow. The Escrow Agent will establish
segregated escrow accounts for each series in the offering (the "Series Escrow
Accounts") into which all Subscription Payments shall be deposited. Each Series
Escrow Account will be identified in a manner clearly indicating the series in
the offering to which the Series Escrow Account relates. Records with respect to
each Series Escrow Account will be maintained separately by the Escrow Agent.
Credit on the books of the Escrow Agent will be given as of the date of deposit
of each check. Interest on each deposited check will begin to accrue one (1)
business day after each such date of deposit. If the Escrow Agent receives
notice that a
<PAGE>
check for a Subscription Payment has been dishonored, it shall give immediate
oral notice (to be confirmed in writing promptly thereafter) to the General
Partner; and, unless otherwise instructed at that time by the General Partner,
shall undertake routine steps to collect such check through the Escrow Agent's
customary collections channels. In the event that collections from the
Subscribers in the form of checks or other demand remittances are credited by
the Escrow Agent to the Series Escrow Account and the items giving rise to such
credits are subsequently dishonored, the Escrow Agent may, in its discretion,
charge to the Series Escrow Account the amount of any item so dishonored. Upon
final payment of any such item, the Escrow Agent shall credit to the Series
Escrow Account the amount thereof with appropriate advice to the Fund.
Subscription proceeds deposited may not be withdrawn by Subscribers.
The General Partner agrees to inform the Escrow Agent when offers and
sales in each series have begun and terminated. Subscription Payments forwarded
for deposit to the Fund's Series Escrow Accounts will clearly indicate the
series in which the Subscriber is investing.
3. Closing and Disbursement of Funds. The Fund intends to make the
offering on the condition that a minimum of 250,000 BACs ($2,500,000) shall have
been accepted by the General Partner by the applicable Termination Date. Until
subscriptions for at least 250,000 BACs in any series are received, no
Subscriber will be recognized as a BAC Holder and subscriptions will be
deposited with the Escrow Agent. If $2,500,000 (250,000 BACs) of Subscription
Payments have not been collected and are not then held in cleared funds in the
possession of the Escrow Agent on the applicable Termination Date, and upon
written notice from, and instructions by, the General Partner, the Escrow Agent
shall return to the Subscribers the Subscription Payments with interest on the
fifth business day after the later of the applicable Termination Date or receipt
of the instructions from the General Partner. If at least $2,500,000 of
Subscription Payments have been collected and are then held in cleared funds in
the possession of the Escrow Agent by the applicable Termination Date, then upon
written notice from, and instruction by, the General Partner, the Escrow Agent
shall pay to the Fund all funds then held in the Series Escrow Account including
interest earned thereon prior to the Termination Date, and less reimbursement to
the Escrow Agent for fees and expenses payable hereunder, if any. The Fund shall
determine the amount of interest due to each Subscriber and within 75 days after
the end of the fiscal quarter following a Closing Date shall itself pay such
interest to Subscribers. Subsequent to but not including such Termination Date,
any interest earned will be paid to the Fund. A subscriber will be entitled to
the amount of interest earned on his subscription proceeds starting from the day
after such proceeds were deposited in the Series Escrow Account until but not
including the Closing Date.
Subscriptions for BACS will be accepted or rejected by the General
Partner within 30 days of receipt, but the issuance of BACs to a Subscriber
shall be subject to acceptance of subscriptions for a number of BACs sufficient
to effectuate a closing. If the Subscription Payments allocated to such rejected
or cancelled subscription ("Rejected Funds") have been delivered to Escrow
Agent, the General Partner will inform Escrow Agent of the rejection or
cancellation, and Escrow Agent, upon receiving such notice, will refund to the
Subscriber the Rejected Funds within 10 days of such notice, without interest.
2
<PAGE>
4. Investment of Funds. The Fund hereby directs the Escrow Agent to
invest (in the name of the Escrow Agent or the name of its nominee or nominees)
funds in the Series Escrow Account for the benefit of the Subscribers in any one
or a combination of the following: bank time deposits; short-term securities
issued or guaranteed by the United States Government; bank money market
accounts; and short-term certificates of deposit issued by a bank. Investments
for periods of five days or less shall not be required.
5. Compensation. The Fund agrees to pay to the Escrow Agent
compensation of $1.00 per Subscriber whose funds are received by the Escrow
Agent for all services rendered by the Escrow Agent under this Agreement and, in
addition, the reasonable compensation of its counsel and all other reasonable
expenses incurred by the Escrow Agent hereunder.
6. Exculpation. The General Partner agrees to indemnify the Escrow
Agent for, and to hold it harmless against, any loss, liability, or expense
incurred without gross negligence or willful misconduct on the part of the
Escrow Agent, arising out of this Escrow Agreement, as well as the costs and
expenses of defending any claim or liability or of prosecuting any action in the
premises. The Escrow Agent shall not be obligated to take any action hereunder
which might in its reasonable judgment subject it to any expense or liability
unless it shall have been furnished with indemnity acceptable to it. Prior to
the Termination Date, Subscription Payments held by the Escrow Agent shall
remain the property of the Subscribers making such Payments and shall not be
subject to a lien of the Escrow Agent or any other creditors of the Fund or the
General Partner.
The Escrow Agent shall not be obligated to take any action which it is
not expressly directed to take in this Agreement unless and until it shall have
received written instruction from the Fund. The Escrow Agent shall be liable
only for its own gross negligence or willful misconduct and shall incur no
liability for action in accordance with the terms of this Escrow Agreement or
with the terms of any instructions received by it from the General Partner,
whether or not contrary to the provisions of this Agreement or to the agreements
between the Fund and the Subscribers. The Escrow Agent may rely upon, and shall
be protected in acting upon, any resolution, certificate, opinion, notice,
request, consent, or other paper or document believed by it to be genuine and to
have been signed by the proper person or persons. Any notice or instruction from
the Fund shall be sufficient if it bears or purports to bear the signature of
any one of the following: John P. Manning, Herbert F. Collins, and Anthony A.
Nickas, whose signatures appear hereon, with or without designation of principal
or of representative capacity. The Escrow Agent may consult with counsel, and
the opinion of such counsel shall be full and complete protection in respect to
any action taken or suffered by it hereunder in accordance with such opinion.
The Escrow Agent may petition any court of competent jurisdiction to resolve any
disagreement relating hereto and may refuse to act until such court has ordered
it to act. Such rights and remedies shall be alternative and any action taken or
not taken in conformance with an opinion of counsel or court order shall not
constitute negligence or misconduct and shall be complete and final acquittance
and discharge of the Escrow Agent's responsibilities with respect thereto.
Notwithstanding the foregoing, it is understood and agreed by the
parties that no partner of the General Partner acting in its capacity as such
shall have any personal liability under this agreement and that any person
asserting a claim against the General
3
<PAGE>
Partner hereunder shall look solely to the assets of such General Partner
(specifically excluding the personal assets of the partners thereof).
7. Notices. All notices and other communications hereunder shall be in
writing, or if given by telephone, telegraph or telex shall be confirmed in
writing. No notice shall be given until given in writing and shall be sent,
postage prepaid, addressed as follows:
(a) If to the Fund or the General Partner, notice is deemed given
when received by Anthony A. Nickas, c/o Boston Capital
Partners, Inc., One Boston Place Suite 2100, Boston,
Massachusetts 02208-4406.
(b) If to the Escrow Agent, notice is deemed given when received
by Patricia A. Sasso, Assistant Vice President, Wainwright
Bank & Trust Company, Church Green, 101 Summer Street, Boston,
Massachusetts 02110, or to such other address as the Escrow
Agent shall subsequently designate in writing to the General
Partner.
8. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit of
the respective successor and assigns of the parties hereto.
(b) This Agreement shall be governed and construed in accordance with
the laws of the Commonwealth of Massachusetts and shall not be amended except by
written instrument executed by the parties hereto.
(c) This Agreement may be executed in one or more counterparts, each of
which shall constitute the original, and all of which collectively shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal on the day and year first above written.
BOSTON CAPITAL ASSOCIATES IV L.P. WAINWRIGHT BANK & TRUST COMPANY
By: Boston Capital Associates By: _______________________________
Its General Partner Its: ______________________________
By: _______________________________
John P. Manning, Partner
By: _______________________________
Herbert F. Collins, Partner
4
<PAGE>
Signatories:
By: _______________________________
Anthony A. Nickas
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
By: Boston Capital Associates IV L.P.,
as General Partner
By: Boston Capital Associates,
as General Partner
By: _______________________________
John P. Manning, Partner
AGREED TO AND ACCEPTED BY-.
BOSTON CAPITAL SERVICES, INC.
By: _______________________________
Richard J. DeAgazio
President
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