Y
As filed with the Securities and Exchange Commission on February 3, 1999
File No. 333-38189
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
POST-EFFECTIVE AMENDMENT NO. 6 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 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, N.W.
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]
================================================================================
<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.'S
POST-EFFECTIVE AMENDMENT NO. 6 TO
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 Bank
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
<PAGE>
12. Policy With Respect to Certain Activities........................ Summary; Investment 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
<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.
<PAGE>
FEBRUARY ______, 1999
SUPPLEMENT NO. 4 TO PROSPECTUS FOR
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
DATED
AUGUST 1, 1998
SUPPLEMENT OFFERING BCTC IV SERIES 35 AND
IDENTIFYING ANTICIPATED INVESTMENTS
Series 35's Purpose--
o to invest in other limited partnerships that will each develop, own and
operate an apartment complex used as low and moderate income housing.
Terms of Offering--
o Series 35 is offering at least 250,000 and up to 4,000,000 Beneficial
Assignee Certificates that are the equivalent of limited partnership
interests in Series 35;
o the price of the certificates is $10 a piece with a minimum investment of
$5,000;
o this offering will end no later than December 31, 1999; and
o your money will be held in escrow until at least 250,000 certificates are
sold.
Series 35's Investors Will Receive--
o federal housing tax credits;
o tax losses that can offset passive income from any other investments; and
o profits, if any, from the sale of the apartment complexes.
Risk Factors as to Series 35, which begin on page __ of the Supplement and page
__ of the Prospectus--
o tax credit rules can be complicated and the failure to comply with them can
result in the loss of tax credits;
o the use of tax credits is limited so the investor may not be able to use
all of them;
o tax credits may be the only material benefit from the investment;
o when the apartment complexes are eventually sold, there may not be enough
money to return the original investment;
o there are limits on the transferability of the certificates; and
o it is unlikely that there will be a market for the certificates.
<TABLE>
<CAPTION>
- --------------------------------------------------------
The Offering Per Certificate
- ------------ ---------------
<S> <C>
Public Price......................... $10.00
Selling Commissions
and Fees......................... .90
Proceeds to Series 35................ 9.10
Apartment Complexes.................. 7.20 - 7.30
Working Capital
Reserves......................... 40
Fees and Expenses of
General Partner and
Affiliates........................... 1.40 - 1.50
- --------------------------------------------------------
</TABLE>
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 the
Prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
SUMMARY
This Summary outlines the main points of the offering, but does not replace a
full and careful reading of the Prospectus, and is qualified by the Prospectus.
All prospective investors should read the Prospectus in its entirety.
Boston Capital Tax Credit Fund IV L.P. is organized as a limited partnership
because that structure allows the pass through of tax benefits. Each series of
certificates issued by Boston Capital Tax Credit Fund IV L.P. assigns beneficial
interests in the limited partner interests allocated to that series to the
purchaser of those certificates. Certificates of beneficial interests are being
issued instead of direct limited partner interests because dealing with the
transfer of the certificates is less cumbersome than dealing with the transfer
of direct limited partner interests. Each series of certificates issued by
Boston Capital Tax Credit Fund IV L.P. are separate from the other series. This
offering allows investors to acquire an interest in Series 35 only.
The structure of the investment in Series 35 involves two tiers. In the bottom
tier is the operating partnership which will be the owner of an apartment
complex. Any tax credits, profits, losses or net cash produced by the operations
of, or sale or refinancing transactions with regard to, an apartment complex for
the Operating Partnership will be shared between Series 35 and the general
partners of the Operating Partnership in percentages to be negotiated between
Series 35 and each Operating Partnership. Series 35 expects that it will usually
receive 99% of the tax credits, profits and losses available from the Operating
Partnership. Series 35 will allocate 99% of the profits, losses, tax credits it
receives and 99% of the net cash flow it has available from operations to the
owners of the Series 35 certificates and 1% of those items will go to the
General Partner, Boston Capital Tax Credit Fund IV L.P. ("Boston Associates").
The Series 35 certificate owners will receive a priority return from sale or
refinancing transactions and the balance will be split 95% to the Series 35
certificate owners and 5% to Boston Associates.
2
<PAGE>
The following organization chart shows the basic structure of the investment and
the identity of the parties:
<TABLE>
<S> <C> <C> <C>
INVESTORS
100%
benefits
capital
contributions
CERTIFICATES
capital capital
contributions contributions
General SERIES Assignor
Partner 35 Limited Partner
Boston BCTC IV Assignor
Associates benefits benefits 99%/95%
1%/5%
benefits (1) capital contributions
limited partner
benefits (1)
Operating Operating
General Partners Partnership
capital contributions
benefits cost of apartment complex
Apartment Complex
</TABLE>
(1) percentages to be negotiated
3
<PAGE>
Risk Factors
Investors should be aware that an investment in Series 35 entails risk. The
"Risk Factors" section of the Prospectus contains a detailed discussion of the
material risks.
General risks associated with Series 35's investments include:
o The only benefit of this investment may be federal housing tax credits.
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 will represent a return of the money originally invested in Series
35.
o Series 35 will depend upon the ability, integrity and expertise of Boston
Capital Associates IV L.P. ("Boston Associates"), as general partner, in
selecting the appropriate mix of properties.
o There is no trading market for certificates and there are no assurances
that any market will develop. Accordingly, investors may not be able to
sell their certificates promptly and should therefore consider certificates
to be a long-term investment.
o Investors will not have the benefit of an independent underwriter's
investigation of Series 35 because the lead underwriter is an affiliate of
Boston Associates.
Real Estate Risks
o If a lender forecloses on an apartment complex that has not timely paid its
mortgage, a significant portion of tax credits previously received will be
taken back.
Tax Risks
o The use of tax credits can be limited because of the complicated nature of
the tax credit rules in the Internal Revenue Code. Failure to comply with
any of these complicated rules by an apartment complex could cause the loss
of some of the tax credits.
o Tax credits are generated over a ten-year period, but Series 35 must hold
the apartment complexes for at least fifteen years. Although investors are
not required to hold their certificates for any particular period of time,
there is no assurance a market will develop and there are restrictions on
their transfer in the agreement of limited partnership.
o 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 of some tax credits.
o Tax credits cannot be used to offset alternative minimum tax.
4
<PAGE>
The Offering
Series 35 is offering up to 4,000,000 certificates, with a minimum required
investment by each investor of five hundred certificates at $10 per certificate
($5,000), on the terms and conditions set forth in the Prospectus. No Series 35
certificates will be issued unless at least 250,000 certificates are sold. If
only the minimum number of Series 35 certificates is sold Series 35 will not
invest in many of the apartment complexes identified below. In addition, Series
35 will use approximately $.72 to $.73 of each dollar raised for investments in
apartment complexes. About one-half of the balance will be used to pay fees and
expenses to Boston Associates or its affiliates. See "Estimated Use of
Proceeds," and "Compensation and Fees" in the Prospectus. The offering of Series
35 certificates will not exceed 12 months.
Series 35 will place the initial monies raised in an escrow account until the
$2,500,000 minimum for Series 35 is achieved. During this time, which may take
several months, interest will be earned at the business money market rate.
Series 35 will pay the interest to the investor even if the minimum is not
reached. After $2,500,000 is raised, Series 35 will hold closings approximately
twice every month until the conclusion of the offering.
Boston Capital Tax Credit Fund IV L.P. has already issued other series of
certificates in other offerings--Series 20 to Series 34. The purchase of Series
35 certificates will not entitle the investor to any interest in any other
series of Boston Capital Tax Credit Fund IV L.P. or any interest in Boston
Capital Tax Credit Fund Limited Partnership, Boston Capital Tax Credit Fund II
Limited Partnership or Boston Capital Tax Credit Fund III L.P.
Suitability of an Investment in Certificates
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Considerations for Individual Investors Considerations for Corporate Investors
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
o individuals should only invest in tax credits if o tax credits cannot be used against the
they expect to have income taxes which the tax corporate alternative minimum tax;
credits can offset.
o the general limitations on business tax
o tax credits cannot be used against the credits apply;
alternative minimum tax;
o corporations generally have no limits on the
o tax credits cannot be used in IRA, Keogh or other amount of tax credits and passive losses they may
retirement plans; use each year; and
o non-resident aliens cannot use tax credits; o closely-held, personal service and S
corporations are specially limited in their use of
o married persons filing separately and living tax credits.
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; and
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
See "Suitability of an Investment in Certificates" 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
We will use the proceeds in the following way:
o invest approximately $.72 to $.73 of each dollar we raise directly in
constructing or rehabilitating the apartment complexes;
o hold $.04 of each dollar in working capital reserves; and
o use the rest to pay fees and expenses to Boston Associates and others. See
"Estimated Use of Proceeds" for a detailed breakdown of Series 35's
estimate of the use of the capital it raises.
Fiduciary Responsibility of Boston Associates
Boston Associates will act as a fiduciary to Series 35. Series 35 will partially
indemnify Boston Associates, and therefore may be required to pay some of Boston
Associates's business costs in connection with its operation of Series 35 that
Series 35 would not otherwise be required to pay. As described under "Conflicts
of Interest," Boston Associates will be permitted to engage in some activities
that potentially may involve a conflict of interest, such as sponsoring other
programs investing in apartment complexes that generate tax credits without
providing the benefits of those activities to Series 35 investors.
Conflicts of Interest
The interests of investors may conflict with the interests of Boston Associates.
Its affiliates are committed to the management of many other limited
partnerships that have investments similar to those made by Series 35. Boston
Associates and its affiliates, including the Dealer-Manager, will receive
substantial fees, commissions, compensation and other income from transactions
with and by Series 35 regardless of the success of your investment.
Compensation and Fees
Boston Associates will manage the business of Series 35, including the
investment and management of its assets, and will receive substantial
compensation and fees from Series 35 and/or the apartment complexes in
connection with this offering. The section of the Prospectus entitled
"Compensation and Fees" specifies the compensation payable to Boston Associates
and its affiliates. The most significant items of compensation are as follows:
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Compensation Category Who Receives the Compensation What the Compensation Equals
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reimbursement for Boston Associates or its affiliates o equal to all accountable expenses
Accountable Expenses paid to third parties
- ------------------------------------------------------------------------------------------------------------------------------
Dealer-Manager Fee Boston Capital Services, Inc. o equal to $0.20 per certificate sold
o also may receive selling
commissions of up to $0.70 per
certificate sold
o also may receive accountable and
non-accountable due diligence expense
reimbursements of up to $0.15 per
certificate sold
- ------------------------------------------------------------------------------------------------------------------------------
Asset Acquisition Fee Boston Capital Partners, Inc. o equal to $0.85 per certificate sold
- ------------------------------------------------------------------------------------------------------------------------------
Annual Fund Management Boston Associates or its affiliates o annually equal to 0.5% of the aggregate
and Reporting Fees cost of the apartment complexes, which
is the sum of equity invested
by Series 35 in the apartment
complex plus the amount of
mortgage debt on the apartment
complex
o could be about $36,000 per year if
$2,500,000 is raised and $576,000 if
$40,000,000 is raised
- ------------------------------------------------------------------------------------------------------------------------------
Share of Series 35 Distributions Boston Associates o 1% of tax credits;
o 1% of any cash distributions; and
o 5% of net proceeds of the sale of
the apartment complexes
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Objectives and Acquisition Policies
Series 35's principal business is to invest, as a limited partner, in other
limited partnerships (the "Operating Partnerships"), each of which will develop,
own and operate an apartment complex which is expected to qualify for federal
housing tax credits in order to:
(1) Generate tax credits, which can be used by investors to offset federal
income taxes from all sources. These tax credits include federal housing tax
credits, and a small number of historic tax credits in limited instances.
Occupancy requirements must be met for each apartment complex during the initial
fifteen-year period.
(2) Preserve and protect Series 35's capital. Series 35 requires the general
partners of the
7
<PAGE>
Operating Partnerships to:
o guarantee completion of the apartment complex;
o fund any construction cost overruns;
o pay operating shortfalls for a limited period; and
o guarantee a specific amount of tax credits.
(3) Provide tax benefits in the form of passive losses. Individual investors
generally may deduct tax losses only to the extent of their income other than
wages, salaries, dividends and interest.
(4) Distribute net cash, if any, from the sale or refinancing of apartment
complexes. Investors can get money back from the sale or refinancing of an
apartment complex only if the net sales price is large enough to pay all costs
of the sale plus fees and expenses paid in this offering, which is estimated to
be 27% of your initial investment.
To achieve these investment objectives, Series 35 will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes averaging approximately $1.00 to $1.10 per
certificate annually--10%-11% annual tax credit as a percentage of capital
invested--for the ten-year credit period. Series 35 has selected a 10%-11%
annual tax credit as a percentage of capital invested, as an investment
objective, after consulting with the underwriter regarding tax-free returns
currently available to investors in other similar tax credit investments. No
additional tax credits will be available for the remaining term of the
fifteen-year federal housing tax credit compliance period. This calculation
assumes:
o the applicability of current tax law;
o each apartment complex is occupied with qualifying individuals throughout
the fifteen-year federal housing tax credit compliance period; and
o investors cannot use any passive tax losses generated by Series 35.
Possible Internal Rate of Return
The internal rate of return is the rate at which the present value of your
future tax benefits would equal the cost of your investment. In essence, it
illustrates your future tax credit benefit as a return of principal and interest
in today's dollars.
For investors in the 15% - 39.6% tax bracket respectively, the tax-free rate of
return goal is approximately 2.5% -5% and the taxable rate of return goal is
approximately 2.9% - 8.3% exclusive of any cash available for distribution if:
8
<PAGE>
o none of the apartment complexes invested in have any value at the end of
the fifteen-year federal housing tax credit compliance period; and
o investors do use for tax purposes the assumed loss of the investor's entire
capital contributions.
The tax-free rate of return will exceed 2.5% -5% and taxable rate of return will
exceed 2.9% - 8.3% if:
o the value of the apartment complexes exceeds indebtedness plus sale
expenses; and
o investors receive distributions from these sales or refinancings.
In accordance with the rules for the allocation of federal housing tax credits,
Series 35's investment goal is for the following annual tax-free amounts for
each $10,000 investment in Series 35: $100 - $200 in 1999; $600 - $800 in 2000;
$1,000 - $1,100 in 2001 - 2008; $900 - $1,000 in 2009; and $300 - $500 in 2010.
This tax credit investment goal is not a forecast of anticipated tax credits,
nor does it represent a yield or return on investment. Rather it is an
investment goal of Series 35 for the credit period applicable to its
investments. There is no assurance that any particular tax-free internal rate of
return will be achieved.
The attainment of Series 35's investment objectives will depend on many factors,
including the ability of Boston Associates 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 Series 35 will meet its investment objectives.
Series 35 and Investor Protections
Series 35 will try to protect your investment in a number of ways. First, it
will invest its capital in each apartment complex 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 Series
35 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, Series 35's permission will be required to make major decisions, such as
the decision to sell an apartment complex. Other specific protections are as
follows:
Tax Credit Adjuster. If the amount of tax credits achieved by an apartment
complex is less than expected, Series 35 will decrease its capital contribution
to that apartment complex. Decreasing its capital contribution to one apartment
complex allows Series 35 to buy other tax credits from another apartment
complex.
Construction Guarantees. The Operating General Partner(s) will provide financial
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. The
9
<PAGE>
cost of completing the construction may be greater than the Operating General
Partner's guarantee.
Operating Deficit Guarantees. The Operating General Partner(s) will guarantee to
cover 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.
Repurchase of Operating Partnership Interest. The Operating General Partner(s)
must repay Series 35's capital contributions if the apartment complex fails to:
(1) receive the allocation of tax credits; (2) remain eligible for tax credits
during the period when capital contributions of Series 35 are due to the
Operating Partnership; or (3) obtain permanent mortgage loan financing.
Tax Credit Programs
Section 42 of the tax code offers tax credits to encourage investments in
qualified apartment complexes for use by persons of low and moderate income. The
U.S. Bureau of Census estimates that by the year 2000, there will be an unmet
national demand for twelve million units of affordable rental housing.
The tax code pre-funded and made available to eligible properties $3.3 billion
of federal housing tax credits, that is $1.25 annually per resident of each
state, each year since 1987. In 1993, Congress passed permanent legislation that
annually funds this ten-year tax credit allocation for additional tax credits
properties. The allocation of tax credits to a particular building is for the
full ten-year credit period and no reauthorization of the tax credit program is
required for any such existing allocation of tax credits.
Investors in a partnership that owns an apartment complex are eligible to
receive, for a ten-year period, a credit against federal tax liability. A tax
credit is a dollar for dollar reduction in tax liability, while a tax deduction
is a subtraction from adjusted gross income. The laws and rules authorizing
federal housing tax credits defined:
o the types of apartment complexes that qualify for the federal housing tax
credit;
o the kinds of tenants that must live in the apartment complex; and
o the rents the 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 tax
credits, and are described in the section of the Prospectus entitled "Tax Credit
Programs."
Because federal housing tax credits do not reduce a taxpayer's basis, a
taxpayer's gain upon the sale or other disposition of certificates is not
increased by the allowed tax credits.
10
<PAGE>
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, investors would have to repay a portion 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, funding life insurance expenses or simply
diversifying a tax advantage or conventional investment portfolio. The tax
credit benefit itself also may be used to offset the tax liability arising from
retirement plan withdrawals or used to reduce quarterly estimated tax payments.
Management
Series 35 maintains its principal office c/o Boston Capital Partners, Inc., One
Boston Place, Suite 2100, Boston, Massachusetts 02108-4406, telephone (617)
624-8900.
The General Partner of Boston Capital Tax Credit Fund IV L.P. 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 Series 35.
The General Partner has complete authority in the overall management and
operation of Series 35 and will have responsibility for supervising Series 35's
selection, negotiation and investment in apartment complexes.
Prior Performance of the General Partner and Its Affiliates
Boston Capital Tax Credit Fund IV L.P. (the "Fund") has issued other series in
other offerings--Series 20 to Series 34. The Fund has issued a total of
___________________ certificates, raised $_____________ and admitted ________
investors within Series 20 through 34, and may still sell up to $____________ to
the public if all the certificates in Series 35 are sold. See "Prior Performance
of the General Partner and its Affiliates" in the Prospectus for information
about Series 20 through 32.
The Fund has received orders for a total of _________ Series 33 certificates
($______________), and issued the last of these certificates on __________ ____,
1998. The fees paid as of _________ ___, 1998 to Boston Associates and
affiliates for Series 33 totaled $_____________.
No additional Series 33 certificates will be offered.
The Fund received orders for a total of _________ Series 34 certificates
($______________), and issued the last of these certificates on February ____,
1999. The fees paid as of February ___, 1999 to Boston Capital and affiliates
for Series 34 totaled $_____________. No additional Series 34 certificates will
be offered.
Affiliates of Series 35 have raised approximately $1.6 billion in equity from
approximately
11
<PAGE>
60,000 investors in more than 350 investment programs to acquire interests in
approximately 1,800 properties containing approximately 83,000 apartment units
in 48 states and territories, representing approximately $4.55 billion in
original development cost.
The section of the Prospectus entitled "Prior Performance of the General Partner
and Its Affiliates" contains a discussion of the prior real estate investment
programs in which Boston Associates affiliates have been involved and it is not
intended as an assurance of future performance. The Prior Performance Tables
attached to the Prospectus following the Financial Statements contain tabular
and statistical data regarding the prior investment programs of Boston
Associates's affiliates that have invested in low-income and government-assisted
housing.
Description of Certificates
Investors will invest in certificates, representing assignments of units of the
beneficial interest of Series 35 issued to BCTC IV Assignor Corp., a Delaware
corporation that 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 Series 35 and will not engage in any other business. Investors
will be entitled to all the rights and economic benefits of a limited partner of
Series 35, including the rights to a percentage of Series 35's income, gain,
credits, losses, deductions and distributions. No investor will be personally
liable for the debts, liabilities, contracts or other obligations of Series 35.
See "Summary of the Voting Rights Provisions of the Fund Agreement-Liability of
Partners and Investors to Third Parties." Investors will be bound by the terms
of the Fund's Agreement of Limited Partnership. 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
investors.
We anticipate the certificates to be transferable, subject to some restrictions.
No more than 50% of the certificates will be permitted to be transferred in any
twelve-month period. This prevents any potential recapture of tax credits upon
the transfer of certificates. See "Description of Certificates," "Risk
Factors--Certain Other Risks--Transferability" and "Federal Income Tax
Matters--Recapture of Tax Credits." We will identify each certificate as
representing a particular series.
Sharing Arrangements: Profits, Credits, Losses
Net Cash Flow and Residuals
Series 35 will allocate or distribute, as applicable, to the investors:
o 99% of its tax credits and tax losses from normal operations; and
o 99% of its cash generated after all expenses are paid, if any.
The remaining amount will go to Boston Associates provided that Boston
Associates's distribution of cash will be subordinated to the achievement of the
Priority Return to investors.
If there is a sale or refinancing of an apartment complex or the sale of Series
35's interest in an
12
<PAGE>
Operating Partnership, Series 35 will distribute 95% of the proceeds to the
investors, and 5% of the proceeds to Boston Associates; provided that Boston
Associates's distribution will be subordinated to the achievement of the
Priority Return to investors.
The Priority Return base for Series 35 is $1.10 per certificate (11%). The
Priority Return base is the level of return that investors must receive before
Boston Associates may receive a 5% share in the proceeds from the sale or
refinancing of apartment complexes. In establishing the Priority Return base,
Boston Associates does not represent that Series 35 is expected to provide this
level of return to investors. Boston Associates will receive fees and
compensation for services prior to investors receiving the Priority Return.
Federal Income Tax Matters
The section of the Prospectus entitled "Federal Income Tax Matters" contains a
more detailed discussion of the numerous federal income tax issues already
mentioned in this Summary. It is expected that each purchaser of a certificate
(1) will be treated as a partner for federal income tax purposes; and (2) will
be entitled to its allocable share of the tax credits, profits and losses from
Series 35. It is also expected that federal income tax will be imposed only at
the partner level with regard to an investment in Series 35 avoiding the double
taxation applicable to corporations. The "Federal Income Tax Matters" section of
the Prospectus also contains the legal opinions of Peabody & Brown as to all
material federal income tax matters with respect to an investment in Series 35.
See pages 108 and 109 of the Prospectus for a summarization of the precise
nature of the legal opinions being given with respect to these matters.
Summary of the Voting Rights Provisions
of the Fund Agreement--
Liability of Partners and Investors to Third Parties
The Fund Agreement that will govern the relationship between the investors and
Boston Associates is a legal document, described in the section of the
Prospectus entitled "Summary of 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 Certificates."
Investors should particularly be aware of the following terms of the Fund
Agreement:
o Voting rights. The Fund Agreement gives a majority of certificates the
right to:
(1) approve or disapprove the sale of all or substantially all of the
assets of Series 35 at any one time;
(2) amend the Fund Agreement, subject to important limitations;
(3) remove Boston Associates with or without cause and elect a
replacement; and
(4) dissolve Series 35.
13
<PAGE>
The majority vote will still bind investors who do not vote with the majority in
interest of their fellow investors.
o Changes in the rights of investors. The Fund Agreement may not be amended
to:
(1) alter the rights and obligations of each investor under the Fund
Agreement; or
(2) modify the order of distributions or allocations of tax credits or
cash distributions without the approval of any affected investor.
o Changes in investment objectives and policies. Boston Associates cannot
change the investment objectives or policies of Series 35 unless the Fund
Agreement is amended by the approval of a majority in interest of the
investors. If such an amendment is made, the majority vote will still bind
investors who do not vote with the majority in interest of their fellow
investors.
o 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 liable only for the
amount of the capital contributions that the limited partner agrees to make.
If a limited partner does not participate in the management of a partnership and
does not receive a distribution from the limited partnership or have knowledge
at the time of the distribution that the distribution was in violation of the
Revised Uniform Limited Partnership Act of the State of Delaware or the
applicable partnership agreement, he or she will have no additional financial
liability to the limited partnership or to creditors of the limited partnership.
All rights accorded limited partners in a limited partnership under the laws of
the State of Delaware extend to investors under the terms of the Fund Agreement.
14
<PAGE>
Investor Reports
Each investor will receive:
o an acknowledgment of receipt of the investment;
o a letter after the applicable Closing Date, confirming the assignment of
certificates;
o quarterly reports with unaudited financial information for each of the
first three fiscal quarters of each year;
o annual reports with audited financial statements; and
o Schedule K-1 and other necessary tax information.
Experts
Counsel for Series 35 is:
Peabody & Brown
1255 23rd Street N.W.
Washington, D.C. 20037
Accountants for Series 35 are:
Reznick Fedder & Silverman
4520 East-West Highway, Suite 300
Bethesda, Maryland 20814
15
<PAGE>
RISK FACTORS
An investment in the Series 35 involves various risks. Here is a summary of the
most important of these risks. Investors should read the entire Prospectus to
fully understand all of these risks.
General Risks of Series 35's Investments
Investors will not be able to evaluate all of the apartment complexes in which
Series 35 will invest. Boston Associates has not yet identified all of the
apartment complexes in which Series 35 will invest. Investors must rely on the
ability of Boston Associates to find suitable investments for Series 35.
Investors should read the sections "Management" and "Prior Performance of the
General Partner and Its Affiliates" to learn about the prior real estate
experience of Boston Associates. All of Series 35's investments are required to
meet Series 35's investment objectives and acquisition policies, as described in
the section of the Prospectus entitled "Investment Objectives and Acquisition
Policies." Series 35 does not guarantee that it will be able to find investments
meeting its investment objectives or that any investment it does make will
generate income for investors or increase in value over time.
Sale of less than all certificates may result in fewer investments for Series
35. The more certificates that are sold, the more money Series 35 will have to
invest in apartment complexes. If fewer than all of the certificates in any
series are sold, Series 35 will invest in fewer apartment complexes. The fewer
the apartment complexes Series 35 invests in, the less diversified its portfolio
of apartment complexes will be. Also if Series 35 invests in several apartment
complexes in the same geographic area, there will be less diversity. In such
circumstances, apartment complexes which suffer poor operating results can have
a greater negative effect on Series 35's operations as a whole. See "The
Offering -- Issuance of Certificates in Series."
Boston Associates may not be able to buy certificates to fund start up costs of
Series 35. Series 35 can borrow money in order to make investments in apartment
complexes before all of the money is raised from the offering. Any such loan is
to be repaid from the money that is raised from the offering. If insufficient
money is raised in the offering to repay such loans, Boston Associates has
agreed to buy enough certificates to provide Series 35 with money to repay such
loan(s). If Boston Associates does buy certificates, they will be purchased on
the same terms as any other investor, except Boston Associates will not pay
commissions and fees that otherwise would go to it or its affiliates. There is a
possibility that Boston Associates will not have enough money to meet these
obligations.
Investors may not receive cash if apartment complexes are sold. There is no
assurance that investors will receive any cash distributions from the sale or
refinancing of an apartment complex. The price at which an apartment complex is
sold may not be large enough to pay the mortgage and other expenses which must
be paid at such time. If that happens, investors will not get all of their
investment back, and the only benefit from an investment in Series 35 will be
the tax credits received.
16
<PAGE>
A decrease in an individual investor's taxable income will limit his benefit
received from tax credits. A change in an individual investor's personal tax
situation which reduces his taxable income will substantially reduce, defer or
eliminate the benefits to him of the tax credits. If an investor's adjusted
gross income increases to more than $200,000 in a particular year, any allocated
historic tax credits also will be substantially reduced, deferred or eliminated.
Investors may not be able to liquidate their investment promptly at a reasonable
price. Although it is possible that the certificates in all series may be listed
on a national securities exchange, there is no guarantee that such a listing can
or will be accomplished or that a public trading market will develop. Currently,
no certificates have been listed on a national securities exchange. The transfer
of certificates will be limited in some cases. Investors should consider their
investment in Series 35 to be a long term investment. See "Description of
Certificates--Transfers" and "Federal Income Tax Matters -- Classification as a
Partnership" and "-- Fund Income."
Boston Associates can impose restrictions on the transfers of certificates in
order to prevent a termination of Series 35 for tax purposes or prevent a
classification of Series 35 as something other than a partnership for federal
income tax purposes. In addition, Boston Associates will not allow sales of
certificates to an investor who does not meet the then applicable suitability
standards. See "Federal Income Tax Matters -- Sale or Disposition of
certificates."
Investors are liable for a period of time for the amount of their returned
contributions to any Series 35 creditors. In general, limited partners are not
liable for partnership obligations unless they take an active part in the
day-to-day management or control of the partnership's business. The Delaware
Revised Uniform Limited Partnership Act presently allows the investors to
exercise all of their rights in the Fund Agreement without jeopardizing their
limited liability. All rights given limited partners under the laws of the State
of Delaware extend to investors under the terms of the Fund Agreement. Unless an
investor is deemed to be taking part in the control of Series 35's business, his
liability is limited to the amount invested in Series 35.
Under Delaware law, if an investor has received the return of any part of his
investment without violation of Delaware law or the Fund Agreement, the investor
is liable for a period of one year for the amount of his returned contribution
which would be necessary to pay Series 35's creditors for liabilities incurred
during the period the contribution was held by Series 35. However, if any of the
money returned to an investor was returned in violation of applicable Delaware
law or the Fund Agreement, then the investor is liable for a period of three
years for the amount of the contribution wrongfully returned.
17
<PAGE>
Investors may have limited rights of action against Boston Associates. Under
Delaware law, the Boston Associates is required to exercise good faith and
integrity in handling the affairs of Series 35. The Fund Agreement provides that
Boston Associates will not be liable to investors for its actions or omissions
made in good faith and in a manner it reasonably believes was allowed under the
Fund Agreement and in the best interest of Series 35. However, if Boston
Associates's conduct constitutes fraud, bad faith, negligence or misconduct, it
would be liable to investors. Therefore, investors may have more limited rights
of action against Boston Associates than would otherwise be available, absent
these provisions in the Fund Agreement.
Series 35 may be liable for the liabilities of other series. Certificates are
issued in series, and the Fund Agreement provides that each series will be
treated for economic purposes as a separate partnership, sharing in a separate
and distinct pool of apartment complexes. The rights of investors in all series
will be identical in all other respects, except with respect to voting rights
and accounting matters applicable only to a particular series. See "The
Offering-Issuance of certificates and Series."
It is possible, however, that each series may not stand on its own with respect
to outside creditors. In such an event, such creditors would be able to reach
all of the assets of Series 35, despite the fact that the matter affecting the
creditor related only to a particular series. Therefore, in the event that a
creditor makes a claim against the assets of Series 35 and it can be determined
that such claim relates to one series only, Boston Associates will assume
liability for any such claim to the extent that the series does not have
sufficient funds to satisfy the claim. In the event there is a proper 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. Series 35 intends 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 investors in a particular series will be
affected by the performance of another series. This could result in lower
returns on their investments than would otherwise be the case.
An independent underwriter will not make an independent investigation of Series
35. The Dealer-Manager will receive commissions and other compensation as an
agent of Series 35. The Dealer-Manager has not retained counsel separate from
Series 35's counsel, but has conducted such due diligence investigation as it
deems necessary under the circumstances. However, because the Dealer-Manager is
an affiliate of Boston Associates, investors will not have the benefit of an
independent investigation of Series 35 as is customarily made by independent
underwriters.
Real Estate Risks
If the expenses of apartment complexes are greater than their income, Series 35
may have to pay any operating shortfalls. If the expenses of an apartment
complex are greater than its income, Series 35 may have to provide money to pay
the shortfall. Otherwise, the apartment complex may need to be sold on
disadvantageous terms in order to raise money. Also if the apartment complex
does not generate enough income to pay its mortgage payments and property taxes,
the lender could foreclose and Series 35 could lose its investment, including a
partial recapture of tax credits.
18
<PAGE>
Leveraged investments may increase the risk of loss because of the debt
payments. Each of the apartment complexes will have mortgage debt which
leverages Series 35's investment in the apartment complex. Leveraging allows
Series 35 to increase the amount of property that can be invested in with the
amount of money raised from the offering, and thus increase the amount of tax
credits available to Series 35. However, leveraging also can increase the risk
of loss. If there is a foreclosure of a mortgage loan on an apartment complex,
there can be a tax liability to investors including a partial recapture of tax
credits previously taken.
Operating General Partners have limited financial resources and if they fail to
meet their obligations, Series 35 may have limited remedies against them. The
Operating General Partner is responsible for completing the construction or
renovation and then renting and operating the apartment complex. If there are
cost overruns in the construction or renovation, or if rental income is not
enough to pay operating expenses, the Operating General Partner usually is
required to pay such shortfalls with its own money. In addition, the Operating
General Partners generally will be required to pay Series 35 some amounts if the
amount of tax credits generated by the apartment complex falls below an agreed
upon level. See "Investment Objectives and Acquisition Policies -- Acquisition
Policies." There is no guarantee that such Operating General Partners will have
enough money to meet their obligations. If any of the Operating General Partners
fail to meet their obligations to make these payments, the remedies of Series 35
may be limited to removing the Operating General Partner as general partner of
the Operating Partnership.
Government regulations regarding apartment complexes receiving government
assistance may limit the flexibility of those complexes to rent to tenants or
increase rents, thereby restricting the economic benefit to Series 35. Some of
the apartment complexes may receive government assistance. Generally, rents in
an apartment complex receiving government assistance cannot be increased without
the prior approval of the applicable government agencies. If needed rent
increases are not approved in a timely manner, an apartment complex may have
operating deficits.
Some government regulations may restrict the type of tenants that can rent
apartments in the apartment complex. This would reduce the pool of potential
renters available to rent apartments in the apartment complex.
Other government assistance programs provide rent supplement payments to
tenants. These payments are fixed in amount, unless Congress and/or the
appropriate agency has approved funding for an increase in the payments. If
there are no increases in rent supplement payments, the operating expenses of an
apartment complex could increase without a corresponding increase in rental
income, ultimately leading to a foreclosure on the apartment complex and the
loss or recapture of tax credits.
Apartment complexes that receive government assistance generally are subject to
restrictions on when and how they can be sold or refinanced. Due to these
restrictions, it may not be possible to sell or refinance an apartment complex
when it is in the economic interest of Series 35 or investors to do so.
19
<PAGE>
Tax Risks
IRS may challenge Series 35's tax positions which could result in the loss or
recapture of tax benefits. Series 35 will not request any tax rulings from the
IRS. Thus, there is no certainty as to the tax consequences of investing in
Series 35. Peabody & Brown, counsel to Series 35 and Boston Associates, provides
its legal opinion with regard to many of the material tax issues involved in
investing in Series 35. However, Peabody & Brown's opinion does not cover some
material tax issues because those issues depend upon the specific investments
made by Series 35 which have not yet been identified. Peabody & Brown's opinion
is not binding on the IRS or on any court. It is possible that the IRS will
challenge tax deductions and tax credits Series 35 claims. If such a challenge
is successful, it will have a material and adverse effect on the tax benefits
expected from an investment in Series 35. Each investor is urged to speak with
his or her own tax advisor with respect to the federal and state tax
consequences from an investment in Series 35.
IRS may audit Series 35 which might increase the chance that investors' returns
are audited. The IRS may audit the income tax returns of Series 35 and the
Operating Partnerships. In fact, the IRS has audited twenty-seven limited
partnerships of a total of more than 3450 such limited partnerships with which
affiliates of Series 35 are associated. Twenty-six of these audits have been
settled with the IRS without material changes and one is still pending. If the
income tax returns of Series 35 or an Operating Partnership are audited, the
returns of investors also may be audited.
Apartment complexes must adhere to complex rules in order to be eligible for tax
credits. In order for an investor to receive tax credits, the apartment
complexes must satisfy the complex rules for the federal housing tax credit and,
in some cases, the historic tax credit. The rules that determine whether an
apartment complex is eligible for tax credits and the rules regarding the use of
tax credits are complicated. The tax credits are generated during ten-to-twelve
years of an investment in each apartment complex. Therefore, investors must
reasonably expect to owe federal income taxes for each of the next twelve years
against which tax credits can be used. If an apartment complex is not built on
time, or fails to meet applicable income and rent restrictions, it will not
generate any tax credits. Typically, Series 35 invests in an apartment complex
before construction has been completed and before the apartment complex has been
rented.
Even though tax credits are generated during a ten-to-twelve year period, the
apartment complex must satisfy the applicable income and rent restrictions
during an initial fifteen-year compliance period. If an apartment complex fails
to satisfy the applicable income and rent restrictions at any time during the
initial fifteen-year tax credit compliance period, there will be a recapture of
a portion of the tax credits and a loss of tax credits for the year the failure
took place and for future years. In addition, if Series 35 sells its interest in
an apartment complex during the initial fifteen-year compliance period, a
portion of tax credits previously received could be recaptured. Prior to
investing in any apartment complex, Series 35 will require legal opinions that
state, based on specific assumptions, that investors will be entitled to the tax
benefits from the apartment complex 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."
20
<PAGE>
Under the tax code, investors are limited in what they can deduct from passive
activities so it is possible that investors may not be able to use all of the
tax benefits. The tax credits and losses allocated to investors will be "passive
activity credits and losses" and may be deducted by investors only to the extent
of their income from other passive activities or tax on net passive income,
except in some limited circumstances. See "Federal Income Tax Matters -- Passive
Loss and Tax Credit Limitations."
The restrictions imposed by the alternative minimum tax and business tax credit
issues may limit the tax liability that can be offset by tax credits. Tax
credits are subject to an IRS rule governing general business credits that
limits the amount of tax liability that may be offset. Also, neither federal
housing tax credits nor historic tax credits can be used to reduce any liability
for the alternative minimum tax.
IRS may unfavorably change the allocation of credits and losses. Series 35 will
allocate ninety-nine per cent of all of its profits, credits and losses. If the
IRS audits Series 35, it may try to reallocate profits, credits and losses in a
manner less favorable to the investors. In the opinion of Series 35's attorneys,
if the matter were litigated, it is more likely than not that the allocations
will be respected. 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 Certificates or Fund Interests" and
"Sharing Arrangements: Profits, Credits, Losses, Credits, Net Cash Flow and
Residuals."
Investors may realize taxable gain on sale or disposition of certificates. Upon
the sale or other taxable disposition of certificates, investors will realize
taxable income to the extent that their allocable share of the nonrecourse
mortgage indebtedness on the apartment complexes, together with the money they
receive from the sale of the certificates, is greater than the original cost of
their certificates. This realized taxable income is reduced to the extent that
investors have suspended passive losses or credits. It is possible that the sale
of certificates may not generate enough cash to pay the tax obligations arising
from the sale. See "Federal Income Tax Matters - Depreciation," "--Sale of Fund
Interests" and "--Certain Other Tax Considerations -- Alternative Minimum Tax."
Investors may have tax liability in excess of cash. Investors eventually may be
allocated profits for tax purposes which exceed any cash Series 35 distributes
to them. Under these circumstances, unless an investor has passive losses or
credits to reduce such tax liability, the investor will have to pay federal
income tax without a corresponding cash distribution from Series 35. Similarly,
in the event of a sale or foreclosure of an apartment complex or a sale of
certificates, an investor may be allocated taxable income, resulting in tax
liability, in excess of any cash distributed to him or her as a result of such
event. See "Federal Income Tax Matters -- Sale or Disposition of Certificates"
and "-- Sale or Other Disposition of an apartment complex and Interests in
Operating Partnerships."
21
<PAGE>
ANTICIPATED INVESTMENTS
Series 35 expects to invest in the ten Operating Partnerships described below.
Each Operating Partnership will use a significant part of the funds invested by
Series 35 to pay fees to the Operating General Partners. See the table entitled
"Terms of Investment in Operating Partnerships" in this Supplement.
While Boston Associates believes that Series 35 is reasonably likely to acquire
interests in the apartment complexes described below, it may not be able to do
so. Before any acquisition is made, Boston Associates will complete its due
diligence review as to the Operating Partnership and its 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 Boston Associates, either action will be
taken to mitigate the adverse factor(s), or the acquisition will not be made. It
is also possible that the acquisition terms may differ significantly from those
described below. Accordingly, investors should not rely on the ability of Series
35 to invest in these apartment complexes or under the described investment
terms in deciding whether to invest in Series 35. If Series 35 raises the entire
$40 million, the anticipated acquisition of the Operating Partnership Interests,
described below, will represent approximately 75% of the total money which
Series 35 currently expects to spend.
22
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Because Series 35 is currently in the offering phase, it has no material assets
or any operating history. Series 35 expects to acquire interests in the
following ten Operating Partnerships, eight of which are to be newly constructed
and two of which are to be rehabilitated:
<TABLE>
<CAPTION>
Operating
Partnership General Partner(s)
----------- ------------------
<S> <C> <C>
1. Cheyenne Housing L.P. Remount, LLC
(the "Cheyenne Partnership")
- new construction
2. Mulvane Housing L.P. Midland Residential Ventures
(the "Country Walk Partnership")
- new construction
3. Cypress Point L.P. Campbell, Hogue &
(the "Cypress Point Partnership") Associates
- new construction
4. Fairmont Oaks L.P. Dwayne Henson
(the "Fairmont Oaks Partnership")
- new construction
5. Freese L.P. Realty Resources Chartered
(the "Freese Partnership")
- rehabilitation
6. Meridian Housing L.P. Intervest Corporation
(the "Lauderdale Partnership")
- rehabilitation
7. Parkview L.P. Black Hills Healthcare
(the "Parkview Partnership") Network
- new construction
8. Partnership 22 L.P. National Housing
(the "South Main Partnership") Corporation
- new construction
9. Striplin L.P. Sam Nicholson
(the "Striplin Partnership") Nancy Nicholson
- new construction
10. Washington Courtyard L.P. Avenue Community
(the "Washington Courtyard Partnership") Development Corporation
- new construction Texas Interfaith Housing
Corporation
</TABLE>
23
<PAGE>
None of the Operating General Partners or the management companies are
affiliated with Boston Associates. Construction has begun on Cheyenne and County
Walk Partnership.
Permanent Mortgage Loan financing for the apartment complexes will be provided
from a variety of sources. Boston Associates believes that each of the apartment
complexes 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.
24
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Basic Government Permanent Mortgage Annual Annual
Partnership Location Number Monthly Assistance Mortgage Interest Reserve Management Management
Name of Property of Units Rents (1) Anticipated Loan (2) Rate Amount (3) Agent Fee
- --------------- ----------- -------- --------- --------------- --------------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Cheyenne Cheyenne, 40 $322- Federal Housing Community First 8.5% $8,000 Greenwalt 6% of net
Partnership Wyoming $363 1BR Tax Credits Bank Management rental income
$386- $675,000 (4)
$435 2BR
2. Country Walk Mulvane, 68 $380- Federal Housing General Motors 8.5% $13,600 Midland 6% of net
Partnership Kansas $425 1BR Tax Credits Acceptance Management rental income
$225- Corporation
$540 2BR $1,800,000 (5)
$575-
$625 3BR
3. Cypress Point Casa Grande, 104 $282- Federal Housing BCMC 8% $20,800 Campbell-Hogue 6% of net
Partnership Arizona $463 1BR Tax Credits $2,700,000 Management rental income
$444- (6)
$635 2BR
</TABLE>
- ----------
(1) Exclusive of utilities, unless indicated otherwise.
(2) 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.
(3) Amount deposited annually by the Operating Partnership to its capital
reserves account for future capital improvements or capital replacements.
(4) The terms of the Cheyenne Partnership's anticipated permanent first
mortgage loan in the amount of $675,000 are expected to include a term of
30 years, an interest rate of 8.5% and payments of principal and interest
on the basis of a 30-year amortization schedule.
(5) The terms of the Country Walk Partnership's anticipated permanent first
mortgage loan in the amount of $1,800,000 are expected to include a term of
15 years, an interest rate of 8.5% and payments of principal and interest
on the basis of a 20-year amortization schedule.
(6) The terms of the Cypress Point Partnership's anticipated permanent first
mortgage loan in the amount of $2,700,000 are expected to include a term of
30 years, an interest rate of 8% and payments of principal and interest on
the basis of a 30-year amortization schedule.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Basic Government Permanent Mortgage Annual Annual
Partnership Location Number Monthly Assistance Mortgage Interest Reserve Management Management
Name of Property of Units Rents Anticipated Loan Rate Amount Agent Fee
- ----------------- ------------ --------- ---------- ---------------- ---------------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4. Fairmont Oaks La Porte, 188 $419- Federal Housing General 8.5% $37,600 Orion Real 6% of net
Partnership Texas $575 1BR Tax Credits Electric Estate rental income
$450- Capital
$700 2BR Corporation
$575- $5,945,000 (7)
$800 3BR
5. Freese Bangor, 39 $419 1BR Federal Housing Maine Housing 2% $8,400 Realty 6% of net
Partnership Maine Tax Credits Finance Resources rental income
Authority
$600,000 (8)(a)
City of Bangor 1%
$212,000 (7)(b)
6. Lauderdale Meridian, 48 $240 1BR FmHA Sec. 515 $1,188,000 1% (9) $12,350 Intervest $21 per
Partnership Mississippi $288 2BR with 100% rental Management occupied unit
assistance per month
</TABLE>
- ------------------
(7) The terms of the Fairmont Oaks Partnership's anticipated permanent first
mortgage loan in the amount of $5,945,000 are expected to include a term of
15 years, an interest rate of 8.5% and payments of principal and interest
on the basis of a 30-year amortization schedule.
(8) (a) The terms of the Freese Partnership's anticipated permanent first
mortgage loan in the amount of $600,000 are expected to include a term
of 30 years, an interest rate of 2% and payments of principal and
interest on the basis of a 30-year amortization schedule.
(b) The terms of the Freese Partnership's anticipated permanent second
mortgage loan in the amount of $212,000 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.
(9) 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.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Basic Government Permanent Mortgage Annual Annual
Partnership Location Number Monthly Assistance Mortgage Interest Reserve Management Management
Name of Property of Units Rents Anticipated Loan Rate Amount Agent Fee
- ---------------- ------------ --------- --------- ---------------- ----------------- --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7. Parkview Gillette, 20 $295 1BR HOME Investment Wyoming 1% $6,000 Lutheran 6% of net
Partnership Wyoming Partnerships Community Health rental income
Program Development System
Housing Trust Authority
Fund Program $512,000
(10)(a) 1%
Wyoming
Community
Development
Authority
$350,000 (9)(b)
8. South Main Manassas, 82 $680- Federal Housing Tate Terrace 8.4% $16,400 National 6% of net
Partnership Virginia $700 2BR Tax Credits Realty Inc. Housing rental income
$800 3BR $4,077,000 (11)
</TABLE>
(10) (a) The terms of the Parkview Partnership's anticipated permanent first
mortgage loan in the amount of $512,000 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 first 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.
(b) The terms of the Parkview Partnership's anticipated permanent second
mortgage loan in the amount of $350,000 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.
(11) The terms of the South Main Partnership's anticipated permanent first
mortgage loan in the amount of $4,077,000 are expected to include a term of
30 years, an interest rate of 8.4% and payments of principal and interest
on the basis of a 30-year amortization schedule.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Basic Government Permanent Mortgage Annual Annual
Partnership Location Number Monthly Assistance Mortgage Interest Reserve Management Management
Name of Property of Units Rents Anticipated Loan Rate Amount Agent Fee
- ---- ------------ ------------ --------- --------- ---------------- ----------------- --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9. Striplin Dandridge, 24 $365- Loan guarantee First Virginia 7% $5,400 Nicholson 6% of net
Partnership Tennessee $456 3BR under Section Mortgage Company Management rental income
538 of the Rural $750,000
Rental Housing (12)
Program
10. Washington Houston, 74 $398- Federal Housing Southwest Bank 7.7% $11,100 Texas 6% of net
Courtyard Texas $600 1BR Tax Credits $2,833,000 (13) Interfaith rental income
Partnership $484- Housing
$720 2BR Corporation
$562-
$900 3BR
</TABLE>
(12) The terms of the Striplin Partnership's anticipated permanent first
mortgage loan in the amount of $750,000 are expected to include a term of
30 years, an interest rate of 7% and payments of principal and interest on
the basis of a 30-year amortization schedule.
(13) The terms of the Washington Courtyard Partnership's anticipated permanent
first mortgage loan in the amount of $2,833,000 are expected to include a
term of 20 years, an interest rate of 7.7% and payments of principal and
interest on the basis of a 20-year amortization schedule.
<PAGE>
TERMS OF INVESTMENT IN OPERATING PARTNERSHIPS
<TABLE>
<CAPTION>
Ownership
Interest(%)
Profits, Operating Series 35's Development Annual Asset
Losses, General Approximate Fee/Other Partnership Management
BCTC IV Credit/Net Partner Operating Operating Average Annual Distributions Management Fee to
Partnership Capital Cash Flow/ Contri- Deficit Partnership's Anticipated to Operating Fee to Boston
Name Contribution Backend bution Guarantee Credit Base Federal Credit GP Operating GP Associates
- -------------- ------------ ----------- --------- ------------- ------------- -------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Cheyenne $1,261,512 100/25/25 $100 Unlimited in $1,921,000 $175,210 $250,000 $3,000 $3,000
Partnership time and
amount
2. Country $1,958,266 100/20/20 $100 Unlimited in $3,181,000 $262,010 $339,000 $6,000 $6,000
Walk amount for 3
Partnership years
3. Cypress $2,650,512 100/10/20 $100 Unlimited in $4,401,000 $353,402 $460,000 $10,400 $10,400
Point time and
Partnership amount
4. Fairmont $6,072,264 100/50/50 $100 Unlimited in $9,640,000 $867,553 $1,676,000 $18,000 $18,000
Oaks time and
Partnership amount
5. Freese $3,007,567 100/40/40 $100 $400,000 in $4,871,000 $412,000 $450,000 $6,000 $3,000
Partnership the aggregate
for 5 years
6. Lauderdale $492,000 100/40/40 $12,312 Unlimited in $1,910,000 $67,393 $31,000 $500 $500
Partnership amount for 5
years
7. Parkview $698,600 100/20/20 $100 $100,000 in $1,317,400 $95,697 $85,000 $1,500 $1,500
Partnership the aggregate
for 5 years
8. South Main $3,101,511 100/10/20 $100 $145,000 in $6,523,000 $419,123 $745,280 $5,000 $5,000
Partnership the aggregate
for 3 years
9. Striplin $1,039,840 100/30/30 $100 Unlimited in $1,689,000 $140,519 $67,700 $1,800 $1,800
Partnership time and
amount
10.Washington $2,000,642 100/0/20 $100 Unlimited in $4,204,000 $270,357 $491,000 $7,400 $7,400
Courtyard time and
Partnership amount
</TABLE>
<PAGE>
THE CHEYENNE PARTNERSHIP
(Cheyenne Apartments)
Cheyenne Apartments is a 40-unit apartment complex for senior citizens
which is to be constructed on the 500 block of 4 Street in Cheyenne, Wyoming.
Cheyenne Apartments will consist of 30 one-bedroom units and 10 two-bedroom
units contained in 1 building. The complex will offer a function room and
central laundry facilities.
Individual units will contain a refrigerator, range with hood and air
conditioning.
Construction of Cheyenne Apartments began in January, 1999. The
Operating General Partner anticipates that construction completion and occupancy
will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
40 December, 1999 10 January, 2000
10 February, 2000
10 March, 2000
10 April, 2000
</TABLE>
THE COUNTRY WALK PARTNERSHIP
(Country Walk Apartments)
Country Walk Apartments is a 68-unit apartment complex for families
which is to be constructed on North Rock Road in Mulvane, Kansas. Country Walk
Apartments will consist of 24 one-bedroom units, 28 two-bedroom units and 16
three-bedroom units contained in 8 buildings. The complex will offer a
playground and central laundry facilities.
Individual units will contain a refrigerator, range with exhaust fan,
dishwasher, disposal, air conditioning and a patio or porch.
Construction of Country Walk Apartments began in November, 1998 and is
currently on schedule. The Operating General Partner anticipates that
construction completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
17 August, 1999 17 September, 1999
17 September, 1999 17 October, 1999
17 October, 1999 17 November, 1999
17 November, 1999 17 December, 1999
</TABLE>
THE CYPRESS POINT PARTNERSHIP
(Cypress Point Apartments)
Cypress Point Apartments is a 104-unit apartment complex for senior
citizens which is to be constructed in Casa Grande, Arizona. Cypress Point
Apartments will consist of 52 one-bedroom units and 52 two-bedroom units
contained in 12 buildings. The complex will offer a function room and central
laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning and a patio or porch.
<PAGE>
Construction of Cypress Point Apartments is anticipated to begin in
April, 1999. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
25 March, 2000 15 April, 2000
25 April, 2000 15 May, 2000
25 May, 2000 15 June, 2000
29 June, 2000 15 July, 2000
15 August, 2000
24 September, 2000
</TABLE>
THE FAIRMONT OAKS PARTNERSHIP
(Fairmont Oaks Apartments)
Fairmont Oaks Apartments is a 188-unit apartment complex for families
which is to be constructed on Fairmont Parkway and Underwood Boulevard in La
Porte, Texas. Fairmont Oaks Apartments will consist of 48 one-bedroom units, 84
two-bedroom units and 56 three-bedroom units contained in 47 buildings. The
complex will offer a playground, function room, pool and central laundry
facilities.
Individual units will contain a refrigerator, range with hood,
dishwasher, disposal, air conditioning, ceiling fans and a patio or porch.
Construction of Fairmont Oaks Apartments is anticipated to begin in
March, 1999. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
47 January, 2000 20 February, 2000
47 February, 2000 20 March, 2000
47 March, 2000 20 April, 2000
47 April, 2000 25 May, 2000
25 June, 2000
39 July, 2000
39 August, 2000
</TABLE>
THE FREESE PARTNERSHIP
(Freese Apartments)
Freese Apartments is an existing 39-unit apartment complex for senior
citizens which is to be rehabilitated in Bangor, Maine. Freese Apartments will
consist of 39 one-bedroom units contained in 1 building. The complex will offer
a function room and central laundry facilities.
Individual units will contain a refrigerator, range and air
conditioning.
Rehabilitation of Freese Apartments is anticipated to begin in April,
1999. The Operating General Partner anticipates that completion of
rehabilitation and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
39 November, 1999 10 January, 2000
10 February, 2000
19 March, 2000
</TABLE>
<PAGE>
THE LAUDERDALE PARTNERSHIP
(Lauderdale Apartments)
Lauderdale Apartments is an existing 48-unit apartment complex for
families which is to be rehabilitated in Meridian, Mississippi. Lauderdale
Apartments will consist of 12 one-bedroom units and 36 two-bedroom units
contained in 8 buildings. The complex will offer a playground, clubroom and
central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal and a patio or porch.
Rehabilitation of Lauderdale Apartments is anticipated to begin in May,
1999. The Operating General Partner anticipates that completion of
rehabilitation and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
24 June, 2000 12 July, 2000
24 July, 2000 12 August, 2000
12 September, 2000
12 October, 2000
</TABLE>
THE PARKVIEW PARTNERSHIP
(Parkview Apartments)
Parkview Apartments is a 20-unit apartment complex for senior citizens
which is to be constructed on West Warlow Drive in Gillette, Wyoming. Parkview
Apartments will consist of 20 one-bedroom units contained in 1 building. The
complex will offer a common room and central laundry facilities.
Individual units will contain a refrigerator, range and cable
television hook-up.
Construction of Parkview Apartments is anticipated to begin in
February, 1999. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
20 August, 1999 5 September, 1999
5 October, 1999
5 November, 1999
5 December, 1999
</TABLE>
THE SOUTH MAIN PARTNERSHIP
(South Main Commons Apartments)
South Main Commons Apartments is an 82-unit apartment complex for
families which is to be constructed in Manassas, Virginia. South Main Commons
Apartments will consist of 64 two-bedroom units and 18 three-bedroom units
contained in 9 buildings. The complex will offer a central living room and
central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning and a patio or porch.
<PAGE>
Construction of South Main Commons Apartments is anticipated to begin
in February, 1999. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
20 September, 1999 12 October, 1999
20 October, 1999 14 November, 1999
20 November, 1999 14 December, 1999
22 December, 1999 14 January, 2000
14 February, 2000
14 March, 2000
</TABLE>
THE STRIPLIN PARTNERSHIP
(Striplin Place Apartments)
Striplin Place Apartments is a 24-single family home development for
families which is to be constructed on East Dumplin Valley Road in Dandridge,
Tennessee. Striplin Place Apartments will consist of 24 three-bedroom homes. The
complex will offer central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning and a patio or porch.
Construction of Striplin Place Apartments is anticipated to begin in
February, 1999. The Operating General Partners anticipate that construction
completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
12 October, 1999 6 November, 1999
12 November, 1999 6 December, 1999
6 January, 2000
6 February, 2000
</TABLE>
THE WASHINGTON COURTYARD PARTNERSHIP
(Washington Courtyard Apartments)
Washington Courtyard Apartments is a 74-unit apartment complex for
families which is to be constructed on Washington Avenue and Sawyer Street in
Houston, Texas. Washington Courtyard Apartments will consist of 25 one-bedroom
units, 25 two-bedroom units and 24 three-bedroom units contained in 6 buildings.
The complex will offer a function room and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning and a patio or porch.
Construction of Washington Courtyard Apartments is anticipated to begin
in March, 1999. The Operating General Partners anticipate that construction
completion and occupancy will occur as follows:
<TABLE>
<CAPTION>
Number of Units Completion Number of Units Rent-Up
--------------- ---------- --------------- -------
<S> <C> <C> <C>
18 October, 1999 36 January, 2000
18 November, 1999 14 February, 2000
19 December, 1999 12 March, 2000
19 January, 2000 12 April, 2000
</TABLE>
<PAGE>
YEAR 2000
Boston Associates and its management have reviewed the potential computer
problems that may arise from the century date change known as the "Year 2000" or
"Y2K" problem. Boston Associates is currently taking the necessary precautions
to minimize any disruptions in normal operations that may cause a materially
adverse impact on Series 35's liquidity and financial condition. The majority of
Boston Associates's systems are "Y2K" compliant, including its
Accounting/Financial systems and database systems. For all remaining systems,
Boston Associates has contacted the vendors to provide the necessary upgrades,
replacements, and testing no later than year-end 1999. Boston Associates is
committed to ensuring that the "Y2K" issue will have no impact on our investors.
None of the costs incurred creating "Y2K" compliant systems will be paid by
Series 35, but rather by affiliates of Boston Associates.
<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:
* The Tax Credit rules are complicated and the usage of Tax Credits can
be limited.
* To the extent the Fund does not raise much capital, there will be
limited diversity.
* 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.
* 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>
Boston Capital | Services, Inc.
The date of this Prospectus is August 1, 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 August 1, 1998
the Fund has sold a total of 43,814,403 BACs and thus as of August 1,
1998 may sell up to 21,185,597 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
----
<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
-----
<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
-----
<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 ........................................... 122
"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
-----
<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:
* Against alternative minimum tax.
* In IRA, Keogh or other retirement plans.
* By nonresident aliens
Individual investors should also consider that:
* 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.
* 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:
* Tax Credits cannot be used against the corporate alternative minimum
tax.
* The general limitations on business tax credits apply.
* 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:
* 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>
* 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.
* The Fund will depend upon the ability, integrity and expertise of the
General Partner in selecting the appropriate mix of properties.
- - --Business Risks:
* 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:
* The Tax Credit rules are limited by the provisions of the Code.
* 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.
* 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.
* Tax Credits cannot be used to offset Alternative Minimum Tax.
- - --Certain Other Risks:
* 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.
* 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:
* 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.
* The General Partner and its Affiliates will be reimbursed for all
accountable expense disbursements to third parties.
* Boston Capital Partners, Inc. will receive an Asset Acquisition Fee
equal to $0.85 per BAC sold.
* 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.
* 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:
* Generate Tax Credits, which can be used by investors to offset federal
income taxes from all sources.
* Preserve and protect the Fund's capital.
* Provide tax benefits in the form of passive losses.
9
<PAGE>
* 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.
11
<PAGE>
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 $3.3 billion of
Federal Housing Tax Credits ($1.25 annually per resident of each state) each
year since 1987. In 1993, 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
12
<PAGE>
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 $1.6 billion in equity from approximately 60,000 investors in
over 350 investment programs, to acquire interests in approximately 1,800
properties containing approximately 83,000 apartment units in 48 states and
territories, representing approximately $4.55 billion in original development
cost.
13
<PAGE>
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
14
<PAGE>
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:
* 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.
* 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.
* 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.
* 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.
15
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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.
18
<PAGE>
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
19
<PAGE>
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.")
20
<PAGE>
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 27 limited partnerships (of a total of more than 350 such limited
partnerships) with which Affiliates of the General Partner are associated.
Twenty-six of these audits have now been settled with the IRS without
material changes and one is still pending. 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
31
<PAGE>
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-
32
<PAGE>
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
33
<PAGE>
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-
34
<PAGE>
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-
35
<PAGE>
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
36
<PAGE>
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
37
<PAGE>
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.
38
<PAGE>
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.
39
<PAGE>
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
40
<PAGE>
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.
42
<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
43
<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. The Fund shall not pay, directly or indirectly, a
commission or fee to the General Partner or its Affiliates in connection with
the reinvestment or distribution of sale or refinancing proceeds of the
Apartment Complexes.
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- ------------------------------------------
<S> <C>
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 ser-
vices related thereto, printing, travel,
distribution, filing and other account-
able 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 Organiza-
tion and Offering Expenses and Sell-
ing Commissions, exceed the amount
allowed therefor pursuant to Section
IV.C.2. of the NASAA Guidelines (up to
30.5% of the Gross Offering Pro-
ceeds), 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.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- ------------------------------------------
<S> <C>
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 antici-
pates 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 Oper-
ating 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 num-
ber 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 reimburse-
ments exceed $15 million.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- ------------------------------------------
<S> <C>
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 Manage-
ment Fee is not determinable at this
time.*** However, assuming each
Operating Partnership uses the maxi-
mum degree of leverage and the
maximum of $650,000,000 of BACs are
sold, the Aggregate Cost of the Apart-
ment Complexes would be approxi-
mately $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.*** How-
ever, assuming each Operating Part-
nership 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.
</TABLE>
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.
46
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Amount of Compensation
- -------------------------------- --------------------------------------------
<S> <C>
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 man-
agement 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 Man-
agement Fee to Affiliates of the Gen-
eral 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 administra-
tive 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 Part-
nership would be required to pay to
independent parties for comparable
administrative services in the same
geographic location. The General Part-
ner or its Affiliates may not be reim-
bursed 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.***
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------ ---------------------------------------
<S> <C>
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 15-99% 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.")
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Amount of Compensation
- ------------------------------- -----------------------------------------
<S> <C>
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.")
</TABLE>
- - ----------------
*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-
51
<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
53
<PAGE>
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-
54
<PAGE>
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 15%-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 15% 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
55
<PAGE>
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
56
<PAGE>
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
57
<PAGE>
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.
58
<PAGE>
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:
59
<PAGE>
(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
60
<PAGE>
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
61
<PAGE>
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-
62
<PAGE>
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
63
<PAGE>
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
64
<PAGE>
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 May 1998, for
example, the annual credit is equal to 8.36%. "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
ownership.
65
<PAGE>
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 May 1998, the Applicable Percentage is 3.61%. 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
66
<PAGE>
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
67
<PAGE>
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.
68
<PAGE>
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.")
69
<PAGE>
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.
70
<PAGE>
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
71
<PAGE>
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
72
<PAGE>
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.
73
<PAGE>
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-
74
<PAGE>
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
75
<PAGE>
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.
76
<PAGE>
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
77
<PAGE>
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
78
<PAGE>
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
79
<PAGE>
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.
80
<PAGE>
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.
81
<PAGE>
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
82
<PAGE>
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.
83
<PAGE>
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
84
<PAGE>
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.
85
<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
86
<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
87
<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
88
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
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 68, 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
89
<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 was a member of the Fannie Mae
Housing Impact Advisory Council and the Republican Housing Opportunity
Caucus. 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. President Bush appointed him to the
President's Advisory Committee on the Arts at the John F. Kennedy Center for
the Performing Arts. 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, age 50, 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 is a leader in the community and serves
on the Business Leaders Council of the Boston Symphony, Board of Directors of
Junior Achievement of Massachusetts, the Board of Advisors for the Ron Burton
Training Village and is on the Board of Corporators of Northeastern
University. He graduated from Northeastern University.
90
<PAGE>
Christopher W. Collins, age 43, 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
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 38, is Senior Vice President of Marketing and Sales and
National Sales Director of Boston Capital Services, Inc. Mr. Unger has had
over seventeen 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 38, 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 52, 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.
Jeffrey H. Goldstein, age 36, is Senior Vice President of Real Estate for
Boston Capital Partners, Inc. Mr. Goldstein is a former member of the Board
of Directors 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.
91
<PAGE>
He graduated from the University of Colorado and received his MBA from
Northeastern University.
A. Guy Hubschman, age 38, 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 34, 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, 1988 to December 31, 1997,
Affiliates of the General Partner and their respective predecessors in
interest have served as general partners of six public limited partnerships
and 28 private limited partnerships including ten corporate limited
partnerships for a total of 34 real estate programs. Of the 28 private
limited partnerships, all are organized in a two-tier structure. 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 their investment in a single
upper-tier partnership.
Affiliates of the General Partner and their respective predecessors in
interest raised $1,576,152,029 in subscriptions from 60,907 investors during
this ten-year period. A total of 1,352 properties(1), with a total
development cost of $3,331,183,108 were acquired for the public and private
limited partnerships. These properties are geographically located 11% in the
Northeast, 12% in the Mid-Atlantic, 34% in the Southeast, 24% in the Midwest,
10% in the Southwest, and 9% in the West.
The foregoing information covering the period from January 1, 1998 to
December 31, 1997, can be summarized as follows:
92
<PAGE>
<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 ..... 6 962 $ 2,213,245,930 60,044 $ 913,443,458 $ 949,525
Private .... 28 390 $ 1,117,937,178 863 $ 662,708,571 $1,699,253
-- --- --------------- ------ -------------- ----------
Total ...... 34 1,352 $ 3,331,183,108 60,907 $1,576,152,029 $1,165,793
</TABLE>
REGIONS
<TABLE>
<CAPTION>
Northeast Mid-Atlantic Southeast Midwest Southwest West
--------- ------------ --------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Public ..... 13% 10% 33% 24% 10% 10%
Private .... 8% 14% 34% 25% 12% 7%
--------- ------------ --------- ------- --------- -----
Total ...... 11% 12% 34% 24% 10% 9%
</TABLE>
Of these 34 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)
<TABLE>
<S> <C>
Alabama ........ 26
Arizona ........ 15
Arkansas ....... 16
California ..... 67
Colorado ....... 13
Connecticut .... 7
Delaware ....... 4
Florida ........ 69
Georgia ........ 77
Illinois ....... 11
Indiana ........ 9
Iowa ........... 21
Kansas ......... 18
Kentucky ....... 41
Louisiana ...... 75
Maine .......... 31
Maryland ....... 24
</TABLE>
<TABLE>
<S> <C>
Massachusetts .. 20
Michigan ....... 51
Minnesota ...... 26
Mississippi .... 59
Missouri ....... 72
Montana ........ 4
Nebraska ....... 8
Nevada ......... 5
New Hampshire .. 7
New Jersey ..... 7
New Mexico ..... 15
New York ....... 67
North Carolina . 53
North Dakota ... 21
Ohio ........... 18
Oklahoma ....... 25
Oregon ......... 2
</TABLE>
<TABLE>
<S> <C>
Pennsylvania ... 45
Puerto Rico .... 8
Rhode Island ... 5
South Carolina . 36
South Dakota ... 3
Tennessee ...... 23
Texas .......... 66
Utah ........... 5
Vermont ........ 5
Virginia ....... 62
Virgin Islands . 8
Washington ..... 2
West Virginia .. 5
Wisconsin ...... 16
Wyoming ........ 1
</TABLE>
- ----------------
(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 78 shared investments.
(2) The total number of properties by state does not reflect the 78 shared
investments of 63 operating partnerships. The net number of properties
reflected is 1,274.
The 34 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
1,352 total properties acquired during this ten-year period, eleven properties
were refinanced.
Of the total offerings during the ten-year period, 34 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 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.
93
<PAGE>
Information concerning the public limited partnerships organized between
January 1, 1995 and December 31, 1997 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, 1997, interests in 28 of the
limited partnerships with similar investment objectives were sold to
approximately 863 investors in private offerings intended to be exempt from
the registration requirements of the Securities Act of 1933. A total of
$662,708,571 in subscriptions was raised. Interests were acquired in a total
of 390 properties, with a total development cost of $1,117,937,178.
The private limited partnerships involved new construction or renovation of
apartment complexes, financed with mortgage indebtedness aggregating
approximately $589,714,722 in addition to the equity investment of the prior
limited partnerships of $662,708,571. 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, 1997, interests in seven limited
partnerships with investment objectives similar to those of the Fund, were sold
to approximately 60,044 investors in public offerings registered under The
Securities Act of 1933. A total of $913,443,458 in subscriptions was raised. A
total of 962 properties were purchased at a total development cost of
$2,213,245,930.
Information regarding the public offerings is summarized as follows as of
December 31, 1997:
<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 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
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
</TABLE>
94
<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 IV
L. P. (Series 20
through 31) .. 22,834 $378,412,500 252 $725,682,204 195 53 4
</TABLE>
During the four-year period ending December 31, 1997, Affiliates of the
General Partner sponsored one public investment limited partnership with
similar investment objectives. This public limited partnership owns interests
in 252 operating partnerships which include 13 properties jointly owned by
two or more investment partnerships or series within an investment
partnership, representing a total of 13 shared investments. The total number
of properties by state does not duplicate the 13 shared investments. The net
number of properties reflected is 239 located in:
<TABLE>
<S> <C> <C>
Alabama ......... 1 Maryland ....... 4 Ohio ............. 3
Arizona ......... 2 Massachusetts... 3 Oklahoma ......... 5
Arkansas ........ 6 Michigan ....... 3 Pennsylvania ..... 6
California ...... 6 Minnesota ...... 2 Puerto Rico ...... 1
Colorado ........ 1 Mississippi .... 21 Rhode Island ..... 1
Connecticut...... 6 Missouri ....... 13 South Carolina ... 4
Florida ......... 3 Montana ........ 1 South Dakota ..... 1
Georgia ......... 8 Nebraska ....... 1 Tennessee ........ 5
Illinois ........ 3 Nevada ......... 3 Texas ............ 20
Indiana ......... 1 New Hampshire .. 2 Utah ............. 2
Iowa ............ 2 New Jersey ..... 5 Vermont .......... 1
Kansas .......... 2 New Mexico ..... 1 Virginia ......... 10
Kentucky ........ 11 New York ....... 16 Virgin Islands.... 3
Louisiana ....... 19 North Carolina.. 10 Wisconsin ........ 4
Maine ........... 5 North Dakota ... 12
</TABLE>
All of the operating partnership acquisitions of the public limited
partnership involved new construction or renovation of existing Apartment
Complexes, financed with government-assisted mortgage indebtedness
aggregating approximately $380,937,647 in addition to the equity investment
of the invest-ing partnerships of $378,412,500. These properties equalled
100% of the total development cost of properties acquired by public limited
partnerships in the four-year period ended December 31, 1997.
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 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 $1.6 billion in equity from approximately 60,000 inves
95
<PAGE>
tors to acquire interests in approximately 1,800 properties containing
approximately 83,000 apartments units in 48 states, Puerto Rico, The Virgin
Islands and Washington, D.C., representing over $4.55 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 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
96
<PAGE>
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 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.")
97
<PAGE>
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 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.
98
<PAGE>
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.
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
<PAGE>
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 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 Part-
100
<PAGE>
nership 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 transferee
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
101
<PAGE>
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 procedures
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 success-
102
<PAGE>
ful. 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 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.
103
<PAGE>
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.
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
104
<PAGE>
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 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
105
<PAGE>
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
assurance 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
106
<PAGE>
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
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 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
107
<PAGE>
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 permitted 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
108
<PAGE>
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 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.")
109
<PAGE>
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 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
110
<PAGE>
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-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 reor-
111
<PAGE>
ganization 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-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.
112
<PAGE>
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 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.")
113
<PAGE>
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 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
114
<PAGE>
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 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 conse-
115
<PAGE>
quences 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.
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.
116
<PAGE>
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 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
117
<PAGE>
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 provide,
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--
118
<PAGE>
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, 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
119
<PAGE>
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.")
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
120
<PAGE>
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
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 Con-
121
<PAGE>
tributions 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 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
122
<PAGE>
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
taxable 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
123
<PAGE>
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
corporations 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
124
<PAGE>
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 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
125
<PAGE>
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.
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
126
<PAGE>
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 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
127
<PAGE>
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.
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.
128
<PAGE>
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 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.
129
<PAGE>
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 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 271/2 years using the straight line method, pur-
130
<PAGE>
suant 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 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
131
<PAGE>
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
271/2 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 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.
132
<PAGE>
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 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
133
<PAGE>
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. 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
134
<PAGE>
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 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.
135
<PAGE>
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 27 limited partnerships with which Affiliates of the
General Partner are associated. Twenty-six of these audits have now been
settled with the IRS without material change and one is still pending.
Audit Procedures for Fund and Operating Partnership Tax Returns. The IRS is
paying increased attention to the proper application of the tax laws to
limited 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
136
<PAGE>
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.
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.
137
<PAGE>
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 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.
138
<PAGE>
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).
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
termi-
139
<PAGE>
nation 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-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
140
<PAGE>
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
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 limi-
141
<PAGE>
tation 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 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
142
<PAGE>
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).
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
143
<PAGE>
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 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
144
<PAGE>
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.
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,
145
<PAGE>
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.
146
<PAGE>
<TABLE>
<CAPTION>
Number of BACs Selling Price
Purchased Commission Per BAC
- ------------------------------ ----------------- -----------
<S> <C> <C> <C>
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
</TABLE>
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
147
<PAGE>
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."
148
<PAGE>
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.
149
<PAGE>
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.
150
<PAGE>
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)
151
<PAGE>
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-
152
<PAGE>
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-
153
<PAGE>
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.
154
<PAGE>
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, Washington,
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 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 neces-
155
<PAGE>
sary 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.
"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.
156
<PAGE>
"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, 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
157
<PAGE>
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 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
158
<PAGE>
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.
"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
159
<PAGE>
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 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 Part-
160
<PAGE>
nership, (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.
"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.
161
<PAGE>
"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 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
162
<PAGE>
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.
333-38189, 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.
"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.
163
<PAGE>
"Service" means the Internal Revenue Service, acting through any authorized re
presentative.
"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.
164
<PAGE>
BOSTON CAPITAL ASSOCIATES IV L.P.
INDEPENDENT AUDITORS' REPORT
December 31, 1997
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, 1997. 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, 1997, in conformity with generally accepted accounting
principles.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 16, 1998
I-1
<PAGE>
BOSTON CAPITAL ASSOCIATES IV L.P.
BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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
========
</TABLE>
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, 1997
To the Stockholder
BCTC IV Assignor Corp.
We have audited the accompanying balance sheet of BCTC IV Assignor Corp. as of
December 31, 1997. 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, 1997, in conformity with generally accepted accounting principles.
REZNICK, FEDDER & SILVERMAN
Bethesda, Maryland
March 16, 1998
I-3
<PAGE>
BCTC IV ASSIGNOR CORP. BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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,
1997 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, 1997 and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Braintree, Massachusetts
February 8, 1998
I-5
<PAGE>
C & M ASSOCIATES
d/b/a/ BOSTON CAPITAL ASSOCIATES
(A MASSACHUSETTS GENERAL PARTNERSHIP)
BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash ..................................... $1,007,128
Service fees receivable (Notes 3 and 4) .. 11,834
----------
Total current assets .................... 1,018,962
----------
OTHER ASSETS:
Investments (Note 2) ..................... 74,636
----------
$1,093,598
==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--affiliates (note 4) .... $ 436
----------
Total current liabilities ............... 436
----------
PARTNERS' EQUITY .......................... 1,093,162
----------
$1,093,598
==========
</TABLE>
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, 1997
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 1997. 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, 1997 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 is a guarantor on a $20 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,
1997, there is no outstanding liability of C & M Associates under the line of
credit. There is, however, $13,803,409 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, 1997 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, 1997 are
payable to the related party.
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, 1995, and ending December 31, 1997 (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, 1997, 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, 1997, and
emphasizes Boston Capital's philosophy of broad diversification:
<TABLE>
<CAPTION>
% Equity # of Operating Average Equity
Committed Partnerships Per Operating
Program at 12/31/97 Acquired # of States Partnership
- ------------------- ------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Boston Capital Tax
Credit Fund IV
L.P.:
Series 23 .. 100.0% 22 15 $1,516,331
Series 24 .. 99.2% 24 17 $ 896,601
Series 25 .. 99.4% 22 16 $1,366,377
Series 26 .. 88.8% 41 19 $ 865,939
Series 27 .. 90.7% 12 11 $1,858,863
Series 28 .. 62.4% 22 11 $1,134,785
Series 29 .. 59.0% 15 6 $1,569,601
Series 30 .. 33.8% 7 5 $1,280,616
Series 31 .. 75.8% 20 8 $1,516,284
</TABLE>
Although the percent of Equity Committed as of December 31, 1997 for Series 24,
Series 25, Series 26, Series 27, Series 28, Series 29, Series 30 and Series 31
is 99.2%, 99.4%, 88.8%, 90.7%, 62.4%, 59.0%, 33.8% and and 75.8% 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, 1995 and
December 31, 1997, which invested in 185 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, 1995 Through December 31, 1997
<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 $29,842,295 $32,892,574
Additional capital (5) ....................... $ 488,129 $ 1,146,023 $ 2,351,210
----------- ----------- -----------
Total other sources .......................... $31,172,373 $30,988,318 $35,243,784
Amount available for investment
from offering proceeds ..................... $29,195,250 $18,984,875 $26,467,000
----------- ----------- -----------
Total development costs ...................... $60,367,623 $49,973,193 $61,710,784
=========== =========== ===========
Percentage leverage (6) ...................... 50.83% 59.72% 53.30%
Average length of offering (days) ............ 165 76 91
Months to invest 90% of amount available ..... 4 13 12
</TABLE>
I-11
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
January 1, 1995 Through December 31, 1997
<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 $39,999,000
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 .......................... $46,900,509 $39,152,942 $30,630,125
Additional capital (5) ...................... $ 3,087,894 $ 1,381,716 $ 299,921
----------- ----------- -----------
Total other sources ......................... $49,988,403 $40,534,658 $30,930,046
Amount available for investment
from offering proceeds .................... $34,964,125 $21,531,125 $34,999,125
----------- ----------- -----------
Total development costs ..................... $84,952,528 $62,065,783 $65,929,171
=========== =========== ===========
Percentage leverage (6) ..................... 55.21% 63.08% 46.46%
Average length of offering
(days) .................................... 159 85 124
Months to invest 90% of amount
available ................................. N/A 15 N/A
</TABLE>
I-12
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
January 1, 1995 Through December 31, 1997
<TABLE>
<CAPTION>
Public Offerings
---------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 29) (Series 30) (Series 31)
1997 1997 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Dollar amount offered (1) ................... $39,918,000 $26,490,750 $38,889,750
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 .......................... $22,251,605 $ 7,486,700 $28,668,103
Additional capital (5) ...................... $ 47,511 $ 600 $ 338,200
----------- ----------- -----------
Total other sources ......................... $22,299,116 $ 7,487,300 $29,006,303
Amount available for investment
from offering proceeds .................... $34,928,250 $23,179,406 $34,986,656
----------- ----------- -----------
Total development costs ..................... $57,227,366 $30,666,706 $63,992,959
=========== =========== ===========
Percentage leverage (6) ..................... 38.88% 24.41% 44.80%
Average length of offering
(days) .................................... 121 80 112
Months to invest 90% of amount
available ................................. N/A 15 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 1997 includes 22.18% 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, 1995 and
December 31, 1997 for the programs included in Table I. None of the programs
included in this Table have been liquidated.
The Table should be read in conjunction with the introduction and
accompanying notes.
January 1, 1995 Through December 31, 1997
<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 amounts 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 ..................... 610,047 424,302 434,119
Dollar amount of cash generated from
operating partnerships before
payments to sponsors (3) ............... 738 2,200 180
Amounts paid to sponsors from
operations (4) ......................... 0 0 0
</TABLE>
<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 $39,999,000
Amounts paid and/or payable to
sponsor and affiliates from
proceeds (1):
Underwriting fees (2) ....................... 1,398,565 861,245 1,399,965
Acquisition fees ............................ 3,396,515 2,091,595 3,399,915
Acquisition expense reimbursement ........... 799,180 492,140 799,980
Asset management fee ........................ 414,304 292,994 114,424
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>
I-14
<PAGE>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
January 1, 1995 Through December 31, 1997
<TABLE>
<CAPTION>
Public Offerings
----------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 29) (Series 30) (Series 31)
1997 1997 1997
------------- ------------- --------------
<S> <C> <C> <C>
Dollar amount raised (1) .................... $39,918,000 $26,490,750 $38,889,750
Amounts paid and/or payable to
sponsor and affiliates from
proceeds (1):
Underwriting fees (2) ....................... 1,397,130 927,176 1,361,141
Acquisition fees ............................ 3,393,030 2,251,714 3,305,629
Acquisition expense reimbursement ........... 798,360 529,815 777,795
Asset management fee ........................ 87,590 18,795 31,291
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: 1997 would include
1995-1997 cash distributions for the partnership organized in 1995.
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, 1993 and
March 31, 1998. 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 378 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, 1998 (8)
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,
1994 1995 1996 1997 1998
====================================================================
<S> <C> <C> <C> <C> <C>
Gross Revenues 760,875 511,745 85,172 43,090 17,342
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) (1,050,293) (2,744,283) (3,144,888) (3,504,918) (2,857,430)
Operating Expenses (3) (532,872) (769,308) (656,306) (698,661) (649,268)
Interest Expense 0 0 0 0 0
Depreciation (2) (36,167) (39,729) (55,408) (55,279) (63,054)
Net Income-GAAP Basis (858,457) (3,041,575) (3,771,430) (4,215,768) (3,552,410)
Taxable Income
from operations (4) (438,751) (2,196,498) (3,317,529) (4,225,626) (4,172,309)
gain on sale 0 0 0 0 0
Cash generated from operations (6) 77,060 102,182 85,170 (35,198) (57,226)
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 77,060 102,182 85,170 (35,198) (57,226)
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 77,060 102,182 85,170 (35,198) (57,226)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 77,060 102,182 85,170 (35,198) (57,226)
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period Ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1993 1994 1995 1996 1997
====================================================================
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 24 83 134 140 140
State Credit 0 0 0 0 0
Ordinary Income (loss) (9) (44) (66) (87) (84)
from operations (9) (44) (66) (87) (84)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0 0 0
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in program properties 98.54%
I-17
<PAGE>
</TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
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 1998
====================================================================
<S> <C> <C> <C> <C> <C>
Gross Revenues 401,039 509,945 139,504 46,186 34,155
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) (183,664) (1,201,623) (2,451,672) (2,594,599) (2,589,608)
Operating Expenses (3) (230,286) (541,876) (470,468) (445,136) (467,076)
Interest Expense 0 0 0 0 0
Depreciation (2) (8,588) (30,673) (42,298) (42,167) (42,168)
Net Income-GAAP Basis (21,499) (1,264,227) (2,824,934) (3,035,716) (3,064,697)
Taxable Income
from operations (4) 65,999 (804,258) (2,392,927) (3,154,406) (2,909,915)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (32,403) 548,415 (87,238) (119,175) (126,644)
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 (32,403) 548,415 (87,238) (119,175) (126,644)
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 (32,403) 548,415 (87,238) (119,175) (126,644)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (32,403) 548,415 (87,238) (119,175) (126,644)
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period Ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1993 1994 1995 1997
====================================================================
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 73 127 133 133
State Credit 0 0 0 0 0
Ordinary Income (loss) 0 (22) (66) (89) (82)
from operations 0 (22) (66) (89) (82)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0 0 0
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 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, 1998 (8)
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 1998
====================================================================
<S> <C> <C> <C> <C> <C>
Gross Revenues 191,686 663,275 490,352 221,224 57,047
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) (3,858) (1,115,590) (1,858,752) (2,861,140) (2,073,142)
Operating Expenses (3) (152,566) (728,647) (550,424) (527,872) (265,225)
Interest Expense 0 0 0 0 0
Depreciation (2) (5,350) (27,291) (50,726) (51,011) (52,182)
Net Income-GAAP Basis 29,912 (1,208,253) (1,969,550) (3,218,799) (2,333,502)
Taxable Income
from operations (4) (4,184) (468,951) (3,017,243) (3,085,516) (2,277,311)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (140,802) (517,316) 37,527 (44,125) (963)
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 (140,802) (517,316) 37,527 (44,125) (963)
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 (140,802) (517,316) 37,527 (44,125) (963)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (140,802) (517,316) 37,527 (44,125) (963)
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period Ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1993 1994 1995 1996 1997
====================================================================
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 18 101 124 133
State Credit 0 0 0 0 0
Ordinary Income (loss) 0 (11) (73) (97) (57)
from operations 0 (11) (73) (97) (57)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0 0 0
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in program properties 97.81%
</TABLE>
I-19
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
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 1998
====================================================================
<S> <C> <C> <C> <C> <C>
Gross Revenues 8,065 231,414 151,206 41,051 52,699
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) 0 (544,795) (2,804,393) (2,941,378) (2,516,153)
Operating Expenses (3) (5,561) (483,018) (438,912) (396,611) (357,506)
Interest Expense 0 0 0 0 0
Depreciation (2) 0 (15,470) (23,285) (23,285) (23,285)
Net Income-GAAP Basis 2,504 (811,869) (3,115,384) (3,320,223) (2,844,245)
Taxable Income
from operations (4) 0 (399,908) (3,063,829) (2,569,647) (2,771,051)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (753,574) (608,238) 87,374 90,782 (149)
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 (753,574) (608,238) 87,374 90,782 (149)
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 (753,574) (608,238) 87,374 90,782 (149)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (753,574) (608,238) 87,374 90,782 (149)
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1993 1994 1995 1996 1997
====================================================================
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 20 83 132 133
State Credit 0 0 0 0 0
Ordinary Income (loss) 0 (10) (78) (68) (73)
from operations 0 (10) (78) (68) (73)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0 0 0
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in program properties 99.38%
</TABLE>
I-20
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
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 1998
======================================================
<S> <C> <C> <C> <C>
Gross Revenues 77,548 109,287 63,343 53,299
Profit on sale of properties 0 0 0 0
Less:
Losses from operating partnerships (1) (277,472) (902,586) (2,109,014) (1,854,423)
Operating Expenses (3) (179,938) (295,327) (296,809) (277,987)
Interest Expense 0 0 0 0
Depreciation (2) (5,395) (16,968) (18,957) (18,957)
Net Income-GAAP Basis (385,257) (1,105,594) (2,361,437) (2,098,068)
Taxable Income
from operations (4) (55,555) (563,052) (1,286,281) (1,295,853)
gain on sale 0 0 0 0
Cash generated from operations (6) (1,071,123) 828,821 55,158 21,666
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales
and refinancing (1,071,123) 828,821 55,158 21,666
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 (1,071,123) 828,821 55,158 21,666
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (1,071,123) 828,821 55,158 21,666
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1994 1995 1996 1997
======================================================
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 34 91 113
State Credit 0 0 0 0
Ordinary Income (loss) (3) (29) (72) (71)
from operations (3) (29) (72) (71)
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 94.53%
</TABLE>
I-21
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
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 1998
======================================================
<S> <C> <C> <C> <C>
Gross Revenues 25,984 93,986 80,225 35,289
Profit on sale of properties 0 0 0 0
Less:
Losses from operating partnerships (1) (62,112) (1,155,551) (1,817,108) (1,372,762)
Operating Expenses (3) (93,965) (312,736) (309,421) (304,253)
Interest Expense 0 0 0 0
Depreciation (2) (4,295) (12,538) (12,538) (12,538)
Net Income-GAAP Basis (134,388) (1,386,839) (2,058,842) (1,654,264)
Taxable Income
from operations (4) (36,367) (1,179,491) (1,796,994) (1,662,953)
gain on sale 0 0 0 0
Cash generated from operations (6) (3,300,628) 3,087,382 121,376 97,864
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales
and refinancing (3,300,628) 3,087,382 121,376 97,864
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 (3,300,628) 3,087,382 121,376 97,864
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (3,300,628) 3,087,382 121,376 97,864
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1994 1995 1996 1997
======================================================
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 46 100 119
State Credit 0 0 0 0
Ordinary Income (loss) (1) (45) (75) (67)
from operations (1) (45) (75) (67)
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 97.70%
</TABLE>
I-22
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
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 1998
======================================================
<S> <C> <C> <C> <C>
Gross Revenues 9,097 395,171 190,215 78,002
Profit on sale of properties 0 0 0 0
Less:
Losses from operating partnerships (1) (18,054) (483,614) (1,847,436) (1,705,493)
Operating Expenses (3) 0 (447,957) (326,623) (287,098)
Interest Expense 0 0 0 0
Depreciation (2) 0 (9,804) (13,072) (13,072)
Net Income-GAAP Basis (8,957) (546,204) (1,996,916) (1,927,661)
Taxable Income
from operations (4) 0 (348,385) (2,316,483) (2,351,906)
gain on sale 0 0 0 0
Cash generated from operations (6) 11,841 (410,825) (266,198) 31,227
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales
and refinancing 11,841 (410,825) (266,198) 31,227
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 11,841 (410,825) (266,198) 31,227
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 11,841 (410,825) (266,198) 31,227
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1994 1995 1996 1997
======================================================
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 31 90 129
State Credit 0 0 0 0
Ordinary Income (loss) 0 (13) (76) (72)
from operations 0 (13) (76) (72)
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 98.38%
</TABLE>
I-23
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
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 1998
=========================================
<S> <C> <C> <C>
Gross Revenues 139,594 193,065 50,741
Profit on sale of properties 0 0 0
Less:
Losses from operating partnerships (1) (149,023) (797,796) (1,342,281)
Operating Expenses (3) (128,659) (310,902) (270,839)
Interest Expense 0 0 0
Depreciation (2) (5,769) (12,980) (12,979)
Net Income-GAAP Basis (143,857) (928,613) (1,575,358)
Taxable Income
from operations (4) (205,977) (1,059,389) (1,572,243)
gain on sale 0 0 0
Cash generated from operations (6) 102,553 (293,553) 53,614
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Cash generated from operations, sales
and refinancing 102,553 (293,553) 53,614
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 102,553 (293,553) 53,614
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0
Cash generated (deficiency) after cash
distributions and special items 102,553 (293,553) 53,614
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1995 1996 1997
=========================================
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 11 50 112
State Credit 0 0 0
Ordinary Income (loss) (8) (56) (77)
from operations (8) (56) (77)
from recapture 0 0 0
Capital gain (loss) 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0
Investment income 0 0 0
Return of capital 0 0 0
Source (on cash basis):
Sales 0 0 0
Refinancing 0 0 0
Operations 0 0 0
Other 0 0 0
Amount remaining invested in program properties 98.51%
</TABLE>
I-24
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1995
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 25)
<TABLE>
<CAPTION>
For the Financial
Statement period ended
March 31,
1996 1997 1998
=========================================
<S> <C> <C> <C>
Gross Revenues 130,046 442,637 134,963
Profit on sale of properties 0 0 0
Less:
Losses from operating partnerships (1) 22,315 (767,183) (1,550,724)
Operating Expenses (3) (109,194) (425,636) (367,116)
Interest Expense 0 0 0
Depreciation (2) (2,622) (10,488) (10,488)
Net Income-GAAP Basis 40,545 (760,670) (1,793,365)
Taxable Income
from operations (4) 10,287 (453,738) (2,196,058)
gain on sale 0 0 0
Cash generated from operations (6) (177,485) 74,185 (239,940)
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Cash generated from operations, sales
and refinancing (177,485) 74,185 (239,940)
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 (177,485) 74,185 (239,940)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0
Cash generated (deficiency) after cash
distributions and special items (177,485) 74,185 (239,940)
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1995 1996 1997
=========================================
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 13 108
State Credit 0 0 0
Ordinary Income (loss) 0 (23) (77)
from operations 0 (23) (77)
from recapture 0 0 0
Capital gain (loss) 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0
Investment income 0 0 0
Return of capital 0 0 0
Source (on cash basis):
Sales 0 0 0
Refinancing 0 0 0
Operations 0 0 0
Other 0 0 0
Amount remaining invested in program properties 99.50%
</TABLE>
I-25
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 26)
<TABLE>
<CAPTION>
For the Financial
Statement period ended
March 31,
1996 1997 1998
=========================================
<S> <C> <C> <C>
Gross Revenues 8,666 962,666 534,030
Profit on sale of properties 0 0 0
Less:
Losses from operating partnerships (1) 0 (493,405) (869,148)
Operating Expenses (3) (35,876) (665,060) (662,078)
Interest Expense 0 0 0
Depreciation (2) 0 (14,198) (18,931)
Net Income-GAAP Basis (27,210) (209,997) (1,016,127)
Taxable Income
from operations (4) 0 (760,605) (1,551,349)
gain on sale 0 0 0
Cash generated from operations (6) (13,967) 63,427 (99,875)
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Cash generated from operations, sales
and refinancing (13,967) 63,427 (99,875)
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 (13,967) 63,427 (99,875)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0
Cash generated (deficiency) after cash
distributions and special items (13,967) 63,427 (99,875)
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1995 1996 1997
=========================================
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 21 59
State Credit 0 0 0
Ordinary Income (loss) 0 (25) (41)
from operations 0 (25) (41)
from recapture 0 0 0
Capital gain (loss) 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0 0
Investment income 0 0 0
Return of capital 0 0 0
Source (on cash basis):
Sales 0 0 0
Refinancing 0 0 0
Operations 0 0 0
Other 0 0 0
Amount remaining invested in program properties 99.65%
</TABLE>
I-26
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 27)
<TABLE>
<CAPTION>
For the
Financial
Statement
period ended
March 31,
1997 1998
========================
<S> <C> <C>
Gross Revenues 269,562 323,118
Profit on sale of properties 0 0
Less:
Losses from operating partnerships (1) (9,016) (689,756)
Operating Expenses (3) (277,112) (404,945)
Interest Expense 0 0
Depreciation (2) (7,761) (15,522)
Net Income-GAAP Basis (24,327) (787,105)
Taxable Income
from operations (4) (177,866) (783,283)
gain on sale 0 0
Cash generated from operations (6) (118,251) 32,425
Cash generated from sales 0 0
Cash generated from refinancing 0 0
Cash generated from operations, sales
and refinancing (118,251) 32,425
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 (118,251) 32,425
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0
Cash generated (deficiency) after cash
distributions and special items (118,251) 32,425
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1996 1997
========================
<S> <C> <C>
Federal Income Tax Results
Federal Credit (5) 8 20
State Credit 0 0
Ordinary Income (loss) (9) (37)
from operations (9) (37)
from recapture 0 0
Capital gain (loss) 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0
Investment income 0 0
Return of capital 0 0
Source (on cash basis):
Sales 0 0
Refinancing 0 0
Operations 0 0
Other 0 0
Amount remaining invested in program properties 100.00%
</TABLE>
I-27
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 28)
<TABLE>
<CAPTION>
For the
Financial
Statement
period ended
March 31,
1997 1998
========================
<S> <C> <C>
Gross Revenues 254,197 1,280,997
Profit on sale of properties 0 0
Less:
Losses from operating partnerships (1) (1,567) (351,007)
Operating Expenses (3) (155,959) (645,593)
Interest Expense 0 0
Depreciation (2) (5,081) (20,326)
Net Income-GAAP Basis 91,590 264,071
Taxable Income
from operations (4) (15,956) (488,790)
gain on sale 0 0
Cash generated from operations (6) (142,303) 619,169
Cash generated from sales 0 0
Cash generated from refinancing 0 0
Cash generated from operations, sales
and refinancing (142,303) 619,169
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 (142,303) 619,169
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0
Cash generated (deficiency) after cash
distributions and special items (142,303) 619,169
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1996 1997
========================
<S> <C> <C>
Federal Income Tax Results
Federal Credit (5) 0 7
State Credit 0 0
Ordinary Income (loss) (2) (18)
from operations (2) (18)
from recapture 0 0
Capital gain (loss) 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0
Investment income 0 0
Return of capital 0 0
Source (on cash basis):
Sales 0 0
Refinancing 0 0
Operations 0 0
Other 0 0
Amount remaining invested in program properties 100.00%
</TABLE>
I-28
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1997
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 29)
<TABLE>
<CAPTION>
For the
Financial
Statement
period ended
March 31,
1997 1998
========================
<S> <C> <C>
Gross Revenues 1,992 800,608
Profit on sale of properties 0 0
Less:
Losses from operating partnerships (1) 0 (626,915)
Operating Expenses (3) (1,058) (441,805)
Interest Expense 0 0
Depreciation (2) 0 (8,633)
Net Income-GAAP Basis 934 (276,745)
Taxable Income
from operations (4) 0 (397,786)
gain on sale 0 0
Cash generated from operations (6) 96,625 3,645,201
Cash generated from sales 0 0
Cash generated from refinancing 0 0
Cash generated from operations, sales
and refinancing 96,625 3,645,201
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 96,625 3,645,201
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0
Cash generated (deficiency) after cash
distributions and special items 96,625 3,645,201
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1997
==============
<S> <C>
Federal Income Tax Results
Federal Credit (5) 2
State Credit 0
Ordinary Income (loss) (2)
from operations (2)
from recapture 0
Capital gain (loss) 0 Cash Distributions
to investors:
Source (on GAAP basis) 0
Investment income 0
Return of capital 0
Source (on cash basis):
Sales 0
Refinancing 0
Operations 0
Other 0
Amount remaining invested in program properties 100.00%
</TABLE>
I-29
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1997
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 30)
<TABLE>
<CAPTION>
For the
Financial
Statement
period ended
March 31,
1998
==============
<S> <C>
Gross Revenues 459,716
Profit on sale of properties 0
Less:
Losses from operating partnerships (1) 100,573
Operating Expenses (3) (223,345)
Interest Expense 0
Depreciation (2) (5,613)
Net Income-GAAP Basis 331,331
Taxable Income
from operations (4) (42,975)
gain on sale 0
Cash generated from operations (6) (1,821)
Cash generated from sales 0
Cash generated from refinancing 0
Cash generated from operations, sales
and refinancing (1,821)
Less: Cash distributions to investors
from operating cash flow 0
from sales and refinancing 0
from other 0
Cash generated (deficiency) after cash
distributions (1,821)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0
Cash generated (deficiency) after cash
distributions and special items (1,821)
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1997
==============
<S> <C>
Federal Income Tax Results
Federal Credit (5) 0
State Credit 0
Ordinary Income (loss) (3)
from operations (3)
from recapture 0
Capital gain (loss) 0 Cash Distributions
to investors:
Source (on GAAP basis) 0
Investment income 0
Return of capital 0
Source (on cash basis):
Sales 0
Refinancing 0
Operations 0
Other 0
Amount remaining invested in program properties 100.00%
</TABLE>
I-30
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1997
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 31)
<TABLE>
<CAPTION>
For the
Financial
Statement
period ended
March 31,
1998
==============
<S> <C>
Gross Revenues 200,996
Profit on sale of properties 0
Less:
Losses from operating partnerships (1) (43,087)
Operating Expenses (3) (224,172)
Interest Expense 0
Depreciation (2) (3,426)
Net Income-GAAP Basis (69,689)
Taxable Income
from operations (4) (141,712)
gain on sale 0
Cash generated from operations (6) 194,462
Cash generated from sales 0
Cash generated from refinancing 0
Cash generated from operations, sales
and refinancing 194,462
Less: Cash distributions to investors
from operating cash flow 0
from sales and refinancing 0
from other 0
Cash generated (deficiency) after cash
distributions 194,462
Less: Special items (not including sales and
refinancing) (identify and quantify) 0
Cash generated (deficiency) after cash
distributions and special items 194,462
</TABLE>
<TABLE>
<CAPTION>
For the Tax
period ended
December 31,
Tax & Distribution Data Per $1,000 invested (7) 1997
==============
<S> <C>
Federal Income Tax Results
Federal Credit (5) 0
State Credit 0
Ordinary Income (loss) (4)
from operations (4)
from recapture 0
Capital gain (loss) 0 Cash Distributions
to investors:
Source (on GAAP basis) 0
Investment income 0
Return of capital 0
Source (on cash basis):
Sales 0
Refinancing 0
Operations 0
Other 0
Amount remaining invested in program properties 0.00%
</TABLE>
I-31
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 1998 (8)
PUBLIC OFFERINGS CLOSED DURING 1998
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 32)
<TABLE>
<CAPTION>
For the
Financial
Statement
period ended
March 31,
1998
==============
<S> <C>
Gross Revenues 2,782
Profit on sale of properties 0
Less:
Losses from operating partnerships (1) 0
Operating Expenses (3) (23,978)
Interest Expense 0
Depreciation (2) 0
Net Income-GAAP Basis (21,196)
Taxable Income
from operations (4) 0
gain on sale 0
Cash generated from operations (6) (1,033,617)
Cash generated from sales 0
Cash generated from refinancing 0
Cash generated from operations, sales
and refinancing (1,033,617)
Less: Cash distributions to investors
from operating cash flow 0
from sales and refinancing 0
from other 0
Cash generated (deficiency) after cash
distributions (1,033,617)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0
Cash generated (deficiency) after cash
distributions and special items (1,033,617)
</TABLE>
I-32
<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, 1997.
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.
Note 8: The information provided in the tables labeled "Tax & Distribution Data
per $1,000 invested on a Tax Basis" is through the period December 31, 1997.
I-28
<PAGE>
TABLE III-A
Table III-A summarizes the actual Tax Credit results during the period January
1, 1987 through December 31, 1997, 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 1990(1)1991 1992 1993 1994 1995 1996 1997 Cumulative
- --------------------------------------- ----- ----- ----- ----- ------ ------ ----- ----- ----- ----- ---- ----------
<S> <C> <C> <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 9.4 145.9
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 13.1 128.3
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 11.1 153.9
BCTC 1 .. 12,999,000 Dec. 1988 .9 11.0 22.0 14.2 14.2 14.2 14.2 14.2 14.2 14.2 133.3
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 10.2 144.6
BCTC 3 .. 28,822,000 May 1989 12.0 18.5 12.9 12.9 12.9 12.9 12.9 12.9 12.9 120.8
BCTC 4 .. 29,788,160 Jun. 1989 7.8 17.4 13.9 12.6 12.6 12.4 12.4 12.4 12.4 113.9
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 10.4 135.6
BCTC 6 .. 12,935,780 Sep. 1989 2.9 15.3 14.9 13.5 13.1 13.0 13.0 13.0 12.8 111.5
BCTC II 7 .. 10,361,000 Dec. 1989 6.2 11.9 17.1 11.9 12.1 12.2 12.2 12.2 12.2 108.0
BCTC II 9 .. 41,574,018 May 1990 9.3 11.6 11.9 12.5 13.5 13.7 13.8 13.8 100.1
BCTC II 10 .. 24,288,998 Aug. 1990 3.1 10.4 12.0 14.1 14.6 14.8 14.7 14.7 98.4
BCTC II 11 .. 24,735,003 Dec. 1990 4.5 7.9 12.3 12.8 13.3 13.3 13.3 13.3 90.7
BCTC II 12 .. 29,710,003 May 1991 4.7 11.0 12.1 14.3 14.8 14.7 14.8 86.4
BCTC II 14 .. 55,728,996 Dec. 1991 3.8 9.1 12.5 14.0 14.4 14.5 14.5 82.8
BCTC III 15 . 38,705,000 Jun. 1992 3.1 9.2 13.4 14.4 14.8 14.8 69.7
BCTC III 16 . 54,293,000 Dec. 1992 1.4 4.4 8.6 13.9 14.2 14.2 56.7
BCTC III 17 . 50,000,000 May 1993 3.2 8.3 13.6 14.1 14.1 53.3
BCTC III 18 . 36,162,000 Oct. 1993 .1 7.3 12.8 13.4 13.4 47.0
BCTC III 19 . 40,800,000 Dec. 1993 1.8 10.2 12.6 13.4 38.0
BCTC IV 20 .. 38,667,000 Jun. 1994 2.3 8.4 13.4 13.4 37.5
BCTC IV 21 .. 18,927,000 Sept. 1994 3.5 9.2 11.5 24.2
BCTC IV 22 .. 25,644,000 Dec. 1994 4.6 10.4 12.1 27.1
BCTC IV 23 .. 33,366,000 Jun. 1995 3.1 9.1 13.0 25.2
BCTC IV 24 .. 21,697,000 Sept. 1995 1.7 5.1 11.3 18.1
BCTC IV 25 .. 30,248,000 Dec. 1995 1.4 10.9 12.3
BCTC IV 26 .. 39,959,000 Jun. 1996 2.6 6.0 8.6
BCTC IV 27 .. 24,607,000 Sept. 1996 0.9 2.0 2.9
BCTC IV 285 . 39,999,000 Jan. 1997 .7 .7
BCTC IV 295 . 39,918,000 Jun. 1997 1.9 1.9
BCTC IV 305 . 26,490,750 Sep. 1997 .1 .1
------------
Total ....... $877,332,608
<CAPTION>
Overall Tax
Cumulative time Credit
Program invested through 1996 Objective
- ------------------ --------------------- -----------
<S> <C> <C>
AAH I .. 10 yrs. 130-150
AAH II .. 9 yrs. 3 mos. 130-150
AAH III (CA)2 .. 9 yrs. 3 mos. 170
BCTC 1 .. 9 yrs. 130-150
BCTC 2 (CA)2 .. 8 yrs. 8 mos. 170
BCTC 3 .. 8 yrs. 7 mos. 130-150
BCTC 4 .. 8 yrs. 6 mos. 130-150
BCTC 5 (CA)2 .. 8 yrs. 5 mos. 150-170
BCTC 6 .. 8 yrs. 3 mos. 130-150
BCTC II 7 .. 8 yrs. 130-140
BCTC II 9 .. 7 yrs. 7 mos. 130-150
BCTC II 10 .. 7 yrs. 4 mos. 130-150
BCTC II 11 .. 7 yrs. 130-150
BCTC II 12 .. 6 yrs. 7 mos. 140-160
BCTC II 14 .. 6 yrs. 140-160
BCTC III 15 .. 5 yrs. 6 mos. 140-160
BCTC III 16 .. 5 yrs. 140-160
BCTC III 17 .. 4 yrs. 7 mos. 140-160
BCTC III 18 .. 4 yrs. 2 mos. 140-160
BCTC III 19 .. 4 yrs. 140-160
BCTC IV 20 .. 3 yr. 6 mos. 130-150
BCTC IV 21 .. 3 yr. 3 mos. 130-150
BCTC IV 22 .. 3 yrs. 130-150
BCTC IV 23 .. 2 yr. 6 mos. 130-150
BCTC IV 24 .. 2 yr. 3 mos. 130-150
BCTC IV 25 .. 2 yrs. 130-150
BCTC IV 26 .. 1 yr. 6 mos. 120-140
BCTC IV 27 .. 1 yr. 3 mos. 120-140
BCTC IV 285 .. 11 mos. 120-140
BCTC IV 295 .. 6 mos. 110-130
BCTC IV 305 .. 3 mos. 110-130
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>
================================================================================
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
-----
<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
-----
<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-
A-6
<PAGE>
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.
A-7
<PAGE>
"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-
A-8
<PAGE>
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
A-9
<PAGE>
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
A-10
<PAGE>
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.
A-11
<PAGE>
"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.
A-12
<PAGE>
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
A-13
<PAGE>
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
A-14
<PAGE>
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-
A-15
<PAGE>
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-
A-16
<PAGE>
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
A-17
<PAGE>
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
A-18
<PAGE>
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
A-19
<PAGE>
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,
A-20
<PAGE>
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-
A-21
<PAGE>
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.
A-22
<PAGE>
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
A-23
<PAGE>
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.
A-24
<PAGE>
(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
A-25
<PAGE>
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
A-26
<PAGE>
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
A-27
<PAGE>
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.
A-28
<PAGE>
(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
A-29
<PAGE>
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:
A-30
<PAGE>
(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
A-31
<PAGE>
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-
A-32
<PAGE>
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:
A-33
<PAGE>
(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
A-34
<PAGE>
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
A-35
<PAGE>
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
A-36
<PAGE>
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
A-37
<PAGE>
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
A-38
<PAGE>
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.
A-39
<PAGE>
(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
A-40
<PAGE>
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
A-41
<PAGE>
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
A-42
<PAGE>
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-
A-43
<PAGE>
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.
A-44
<PAGE>
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.
A-45
<PAGE>
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.
A-46
<PAGE>
(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.
A-47
<PAGE>
(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
A-48
<PAGE>
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").
A-49
<PAGE>
(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.
A-50
<PAGE>
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
A-51
<PAGE>
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
A-52
<PAGE>
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
A-53
<PAGE>
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-
A-54
<PAGE>
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;
A-55
<PAGE>
(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.
A-56
<PAGE>
(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-
A-57
<PAGE>
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>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
[LOGO]
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 ......................................... 19
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 ............................................................. 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>
Boston Capital | Services, Inc.
One Boston Place, Suite 2100
Boston, MA 02108-4406
(617) 624-8900 or (800) 866-2282
www.BostonCapital.com
<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.
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
<PAGE>
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 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.
----------------------------------
2
<PAGE>
(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, 1997.
* 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, 1997.
* Boston Capital Associates - Notes to Balance Sheet.
* Boston Capital Associates Balance Sheet, December 31, 1997.
* Boston Capital Associates - Notes to Balance Sheet.
* BCTC IV Assignor Corp. - Report of Independent Certified
Public Accountants.
* BCTC IV Assignor Corp. - Balance Sheet, December 31, 1997.
* BCTC IV Assignor Corp. - Notes to Balance Sheet.
- -----------------------------
* Previously Filed
(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 -
3
<PAGE>
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.
- -----------------------------
* Previously Filed
4
<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)20 are inapplicable.
* 21. Other documents or Statements to Security Holders.
A. Supplement No. 1 dated August 1, 1998 to
Prospectus dated August 1, 1998.
B. Supplement No. 2 dated September 8, 1998
to Prospectus dated August 1, 1998.
C. Supplement No. 3 dated September 22, 1998
to Prospectus dated August 1, 1998.
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.
- --------------------
* Previously Filed
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
5
<PAGE>
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 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
6
<PAGE>
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 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.
7
<PAGE>
(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.
8
<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 Post-Effective
Amendment No. 6 to 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 3rd day of February 1999.
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
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
Post-Effective Amendment No. 6 to 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 February 3, 1999
- ---------------------- 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 February 3, 1999
- ---------------------- 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.
/s/ Anthony Nickas Executive Vice President, February 3, 1999
- ---------------------- Principal Financial Officer
Anthony Nickas and Principal Accounting Officer
of BCTC IV Assignor Corp.
</TABLE>
[RF&S LOGO]
Reznick Fedder & Silverman
Certified Public Accountants o A Professional Corporation
4520 East West Highway o Suite 300 o Bethesda, Maryland 20814-3319 o
Phone (301) 652-9100 o Fax (301) 652-1848
February 3, 1999
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-------------------------------
We consent to the inclusion in this Registration Statement on Form S-11 of our
reports dated March 16, 1998 on the audited financial statements of BCTC IV
Assignor Corp., Boston Capital Tax Credit Fund IV L.P., and Boston Capital
Associated IV L.P., as of December 31, 1997. We also consent to the reference to
our firm under the caption "Experts."
REZNICK FEDDER & SILVERMAN
/s/ Reznick Fedder & Silverman
<TABLE>
<S> <C> <C> <C>
Two Hopkins Plaza 212 S. Tryon Street 745 Atlantic Avenue 5607 Glenridge Drive
Suite 2100 Suite 1180 Suite 800 Suite 500
Baltimore, MD 21201-2911 Charlotte, NC 28281-8100 Boston, MA 02111-2735 Atlanta, GA 30342-1376
Phone (410) 783-4900 Phone (704) 332-9100 Phone (617) 423-5855 Phone (404) 847-9447
Fax (410) 727-0460 Fax (704) 332-6444 Fax (617) 423-6651 Fax (404) 847-9495
</TABLE>
<TABLE>
<S> <C> <C> <C>
Certified Public Accountants South Shore Executive Park Voice 781. 380.3520
Business Consultants Ten Forbes West Fax 781. 380.7836
Braintree, MA 02184-2696 EMail [email protected]
| |
| | | | Kevin P. Martin, CPA
| K | P | M | Kevin P. Martin & Associates, P.C. Kevin P. Martin, Jr., CPA, MST
| | | | Kenneth J. Davin, CPA
| | Garrett H. Dalton, III, CPA, MBA
Lisa A. Martin, CPA, MST
</TABLE>
CONSENT TO INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-11 of
our report dated February 8, 1998 on the audit of the balance sheet of C & M
Associates d/b/a Boston Capital Associates as of December 31, 1997. We also
consent to our firm under the caption of "Experts".
/s/ Kevin P. Martin & Associates, P.C.
KEVIN P. MARTIN & ASSOCIATES, P.C.
February 3, 1999
Braintree, MA 02184
