Y
As filed with the Securities and Exchange Commission on July 21, 2000
File No. 333-38340
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM S-11
PRE-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
(SERIES 39 AND 40)
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 M. Nemeroff, Esq.
Nixon Peabody LLP
Suite 900
401 9th Street, N.W.
Washington, D.C. 20004-2128
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
-------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered (Per Unit) Offering Price Registration Fee
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beneficial Assignee Certificates (BACS)(1) ....... 7,500,000 $10.00 $75,000,000 $19,800
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes underlying units of Partnership Interest.
-------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
================================================================================
<PAGE>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.'S
PRE-EFFECTIVE AMENDMENT NO. 1 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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
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.................... *
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities............ Fiduciary Responsibility of the General Partner
</TABLE>
3
-----------------------------
* Omitted since answers are negative or inapplicable.
<PAGE>
Y
______________, 2000
SUPPLEMENT NO. 1 TO PROSPECTUS FOR
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
DATED
_______________, 2000
(SUPPLEMENT OFFERING BCTC IV SERIES 39 AND
IDENTIFYING CERTAIN ANTICIPATED INVESTMENTS)
This Supplement is part of, and should be read in conjunction with, Boston
Capital's Prospectus. Capitalized terms used herein but not defined have the
meanings ascribed to them in the Prospectus.
Series 39'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 39 is offering at least 250,000 ($2.5 million) and up to 4,000,000
($40 million) Beneficial Assignee Certificates that are the equivalent of
limited partnership interests in Series 39;
o the price of the certificates is $10 each with a minimum investment of
$5,000;
o this offering will end no later than January 31, 2001; and
o your money will be held in escrow until at least 250,000 certificates are
sold.
Series 39'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.
<PAGE>
Prior Performance of Boston Associates and Its Affiliates
Boston Capital Tax Credit Fund IV L.P. (the "Fund") has issued other series in
other offerings - Series 20 to Series 38. The Fund has issued a total of
_________________ certificates, raised $______________ and admitted ___________
investors within Series 20 through 38. See "Prior Performance of Boston
Associates and Its Affiliates" in the Prospectus for information about Series 20
through 35.
Investment Objectives and Acquisition Policies
Series 39'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 achieve the investment goals set forth in the
Prospectus.
To achieve its investment objectives, Series 39 will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes, averaging approximately $.95 to $1.00 per
certificate annually--9.5%-10% annual tax credit as a percentage of capital
invested--for the ten-year credit period. After consulting with the underwriter
regarding tax-free returns currently available to investors in other similar tax
credit investments, Series 39 has selected as an investment objective a 9.5%-10%
annual tax credit as a percentage of capital invested. 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 39.
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 1.8% -4.2%, exclusive of any cash available for
distribution, if:
o none of the apartment complexes invested in has 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 1.8% -4.2% 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 39's investment goal is for the following annual tax-free amounts for
each $10,000 investment in Series 39: $100 - $200 in 2000; $550 - $600 in 2001;
$950 - $1,000 in 2002 - 2009; $800 - $850 in 2010; and $350 - $400 in 2011. 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 39 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 39'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 39 will meet its investment objectives.
Anticipated Investments
Series 39 expects to invest in the fourteen operating partnerships described
below. Each operating partnership will use a significant part of the funds
invested by Series 39 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 39 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
39 to invest in these apartment complexes or under the described investment
terms in deciding whether to invest in Series 39. If Series 39 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 39 currently expects to spend.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Because Series 39 is currently in the offering phase, it has no material assets
or any operating history. Series 39 expects to acquire interests in the
following 14 operating partnerships, which will develop, own and operate
apartment complexes, 8 of which are to be newly constructed and 6 of which are
to be rehabilitated:
<TABLE>
<CAPTION>
Partnership Operating General Partner(s)
<S> <C>
1. Briarwood Apartments L.P. Oscar H. Harris
(the "Briarwood Partnership") Edward S. Turlington
Property Rehabilitation Larry W. Godwin
2. Bristol Court L.P. Royal Ambling LLC
(the "Bristol Court Partnership")
New Construction
3. Colorado City II L.P. Calhoun Properties
(the "Colorado City Partnership")
Property Rehabilitation
4. Emerson Place L.P. Emerson Place LLC
(the "Emerson Place Partnership")
New Construction
5. Glenville L.P. Belmont Development Corporation
(the "Glenville Partnership")
New Construction
Operating Operating
Partnership General Partner(s)
6. Henry L.P. Silverwood Associates
(the "Henry Partnership")
Property Rehabilitation
7. Kaiser Street L.P. Craig A. Moulton
(the "Kaiser Street Partnership") Thomas J. Kostosky
New Construction
8. Orange Grove II L.P. Rialto Properties
(the "Orange Grove Partnership")
New Construction
9. Hinds County II L.P. J.H. Thames, Jr.
(the "Park Wind II Partnership") Rodney F. Triplett, Jr.
New Construction
10. Plantation Place II L.P. Calhoun Properties
(the "Plantation Place Partnership")
Property Rehabilitation
11. Pleasantview L.P. Calhoun Properties
(the "Pleasantview Partnership")
New Construction
12. Runge L.P. Calhoun Properties
(the "Runge Partnership")
New Construction
13. Seagoville L.P. Patrick A. Barbolla
(the "Seagoville Partnership")
Property Rehabilitation
14. Stearns Congregate L.P. Joseph M. Cloutier
(the "Stearns Partnership")
Property Rehabilitation
</TABLE>
None of the operating general partners or the management companies is affiliated
with Boston Associates.
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.
The priority return base for Series 39 is $.975 per certificate (9.75%). 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 39 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.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Operating Basic Government
Partnership Location Number Monthly Assistance
Name of Property of Units Rents(1) Anticipated
-------- ------------------ -------------------- ------------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
1. Briarwood Jonesville, 36 $428 1BR RHS Sec. 515
Partnership North Carolina $448 2BR with 100% rental
assistance
2. Bristol Court Genessee Township, 144 $170- Federal Housing
Partnership Michigan $520 2BR Tax Credits
$429-
$591 3BR
3. Colorado City Colorado City, 32 $247 1BR RHS Sec. 515
Partnership Texas $290 2BR
4. Emerson Place Indianapolis, 92 $310- Federal Housing
Partnership Indiana $410 1BR Tax Credits
$360-
$490 2BR
$400-
$590 3BR
5. Glenville Glenville, 32 $336 1BR Home Investment
Partnership New York Partnerships
Program
</TABLE>
<TABLE>
<CAPTION>
Permanent Mortgage Annual Annual
Mortgage Interest Reserve Management
Loan Rate Amount Management Agent Fee
------------------- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
$2,008,300 1% (2) $22,096 DTH Management $60 per
Group occupied unit
per month
Independent Bank 8.65% $28,800 Sterling 6% of net
$4,000,000 Management rental income
(3)
$805,000 1% (2) $11,880 Calhoun $26 per
Management occupied unit
per month
Home Bank 8.5% $18,400 Flaherty & 6% of net
$2,100,000 Collins rental income
(4)
New York Housing 1% $12,500 Belmont 6% of net
Trust Fund Management rental income
$1,321,000
(5)
</TABLE>
(1) Exclusive of utilities, unless indicated otherwise.
(2) Rural Housing Service ("RHS") (formerly Farmers Home Administration)
515 loan with a term of 50 years and a stated interest rate of between
7.5% and 9.5%, written down to an effective rate of 1% through an
interest credit subsidy, and payments of principal and interest on the
basis of a 50-year amortization schedule.
(3) The terms of the Bristol Court Partnership's anticipated permanent
first mortgage loan in the amount of $4,000,000 are expected to include
a term of 20 years, an interest rate of 8.65% and payments of principal
and interest on the basis of a 30-year amortization schedule.
(4) The terms of the Emerson Place Partnership's anticipated permanent
first mortgage loan in the amount of $2,100,000 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 25-year amortization schedule.
(5) The terms of the Glenville Partnership's anticipated permanent first
mortgage loan in the amount of $1,321,000 are expected to include a
term of 30 years, an interest rate of 1% and payments of interest only,
and the payment of the entire outstanding balance of principal at the
end of the 30-year term.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Operating Basic Government Permanent
Partnership Location Number Monthly(1) Assistance Mortgage
Name of Property of Units Rents Anticipated Loan
-------- ------------------ -------------------- ------------ -------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
6. Henry Arlington, 110 $790 2BR Credit Arlington County
Partnership Virginia $925 3BR Enhancement Industrial
provided by Development
Federal National Authority
Mortgage $6,992,000
Associa-tion(6a) (6a)
Affordable Arlington County
Housing $985,000(6b)
Investment Virginia Housing
Program(6b) Development
Lead Safe Authority
Program(6c) $300,000(6c)
7. Kaiser Street Pinconning, 28 $194- Federal Housing Independent Bank
Partnership Michigan $525 1BR Tax Credits $700,000
$236- (7)
$600 2BR
8. Orange Grove Christiansted, 12 $900 2BR RHS Sec. 515 $1,000,000
Partnership US Virgin Islands with 100% rental
assistance
</TABLE>
<TABLE>
<CAPTION>
Mortgage Annual Annual
Interest Reserve Management Agent Management
Rate Amount Fee
-------- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
6. 7.5% $22,000 Habitat America 6% of net
rental income
6%
0%
7. 8.5% $5,600 Smith & Company 6% of net
rental income
8. 1% (2) $7,600 Pan American $22 per
Management occupied unit
per month
</TABLE>
(6) (a) The terms of the Henry Partnership's anticipated permanent
first mortgage loan in the amount of $6,992,000 are expected to
include a term of 30 years, an interest rate of 7.5% and payments
of principal and interest on the basis of a 30-year amortization
schedule.
(b) The terms of the Henry Partnership's anticipated permanent
second mortgage loan in the amount of $985,000 are expected to
include a term of 30 years, an interest rate of 6% and
payments of interest only, provided, however, that the terms
of the permanent second mortgage loan will provide for the
deferral and accrual of payments of interest based on
available cash flow, and for the payment of the entire
outstanding balance of principal and interest at the end of
the 30-year term.
(c) The terms of the Henry Partnership's anticipated permanent
third mortgage loan in the amount of $300,000 are expected to
include a term of 30 years, an interest rate of 0% and
repayment of the entire outstanding balance of principal at
the end of the 30-year term.
(7) The terms of the Kaiser Street Partnership's anticipated permanent
first mortgage loan in the amount of $700,000 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.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Operating Basic Government Permanent
Partnership Location Number Monthly(1) Assistance Mortgage
Name of Property of Units Rents Anticipated Loan
-------- ------------------ -------------------- ------------ -------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
9. Park Wind II Jackson, 56 $466- Federal Housing First Tennessee
Partnership Mississippi $545 2BR Tax Credits Bank
$529- $1,890,000
$635 3BR (8)
10. Plantation Place Bunkie, 32 $244 1BR RHS Sec. 515 $944,000
Partnership Louisiana $293 2BR
11. Pleasantview West Monroe, 40 $325- Home Investment Hibernia Bank
Partnership Louisiana $380 2BR Partnerships $580,000(9a)
$380- Program(9b) Louisiana Housing
$400 3BR Finance Authority
$350,000(9b)
12. Runge Partnership Runge, 32 $275 1BR RHS Sec. 515 $955,000
Texas $288 2BR with 100% rental
assistance
</TABLE>
<TABLE>
<CAPTION>
Mortgage Annual Annual
Interest Reserve Management Agent Management
Rate Amount Fee
-------- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
9. 8.5% $8,400 Park Management 6% of net
rental income
10. 1% (2) $9,600 Calhoun $26 per
Management occupied unit
per month
11. 8.5% $15,200 Calhoun 6% of net
Management rental income
4%
12. 1% (2) $9,600 Calhoun $26 per
Management occupied unit
per month
</TABLE>
(8) The terms of the Park Wind II Partnership's anticipated permanent first
mortgage loan in the amount of $1,890,000 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.
(9) (a) The terms of the Pleasantview Partnership's anticipated permanent
first mortgage loan in the amount of $580,000 are expected to include
a term of 25 years, an interest rate of 8.5% and payments of principal
and interest on the basis of a 25-year amortization schedule.
(b) The terms of the Pleasantview 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 4%
and payments of interest only, provided, however, that the
terms of the permanent second mortgage loan will provide for
the deferral and accrual of payments of 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.
<PAGE>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
<TABLE>
<CAPTION>
Operating Basic Government Permanent
Partnership Name Location Number Monthly(1) Assistance Mortgage
of Property of Units Rents Anticipated Loan
-------- ------------------ -------------------- ------------ -------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
13. Seagoville Seagoville, 81 $365- RHS Sec. 515 $2,100,000;
Partnership Texas $389 2BR with 75% rental Texas Department
assistance; of Housing and
Home Investment Community Affairs
Partnerships $350,000
Program (10)
(10)
14. Stearns Millinocket, Maine 12 $465 1BR RHS Sec. 515 $591,000;
Partnership with 100% rental Maine State
assistance; Housing Authority
Downtown and $100,000
Neighborhood (11)
Revitalization
Program
(11)
</TABLE>
<TABLE>
<CAPTION>
Mortgage Annual Annual
Interest Reserve Management Agent Management
Rate Amount Fee
-------- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
13. 1% (2) $24,500 Fountainhead $22 per
3% Management occupied unit
per month
14. 1% (2) $2,700 Realty Resources $26 per
0% occupied unit
per month
</TABLE>
(10) The terms of the Seagoville 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 3% and payments of principal and
interest on the basis of a 30-year amortization schedule.
(11) The terms of the Stearns Partnership's anticipated permanent second
mortgage loan in the amount of $100,000 are expected to include a term
of 30 years, an interest rate of 0% and payments of principal 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 based on available cash
flow, and for the payment of the entire outstanding balance of
principal at the end of the 30-year term.
<PAGE>
TERMS OF INVESTMENT IN OPERATING PARTNERSHIPS
<TABLE>
<CAPTION>
Ownership
Interest(%)
Profits,
Losses, Operating
BCTC IV Credit/Net General Operating
Partnership Capital Cash Flow/ Partner Deficit Guarantee
Name Contribution Backend Contribution
--------- ------------- --------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
1. Briarwood $673,093 99.9/10/40 $100 For 3 years to
Partnership the Partnership
to cover
debt
service,
operating
expenses
and the
Replacement
Reserve
Fund
which
exceeds
operating
income
available
for
payment
thereof.
2. Bristol $6,270,965 99.9/20/40 $100 $50,000 in the
Court aggregate for 3
Partnership years
3. Colorado $322,186 99/30/30 $100 Unlimited in
City duration and
Partnership amount
4. Emerson $3,548,788 99/10/35 $100 $200,000 in the
Place aggregate for 5
Partnership years
5. Glenville $1,598,588 99/30/30 $100 $170,000 in the
Partnership aggregate for 5
years
6. Henry $3,060,371 99/10/20 $100 $190,000 in the
Partnership aggregate for 3
years
7. Kaiser $508,493 99.8/10/20 $100 For 3 years in
Street amounts such
Partnership that unrepaid
advances do not
exceed $75,000
8. Orange Grove $485,803 99/50/50 $52,632 Unlimited in
Partnership amount for 5
years
9. Park Wind II $2,232,636 99.99/10/20 $100 $170,000 in the
Partnership aggregate until
3 years have
elapsed or the
closing of a
fixed rate loan
with a term
exceeding 15
years on which
the debt service
coverage exceeds
1.15 has
occurred,
whichever is
later
10. Plantation $535,650 99/30/30 $100 Unlimited in
Place duration and
Partnership amount
11. Pleasantview $1,341,660 99/30/30 $100 Unlimited in
Partnership duration and
amount
12. Runge $367,530 99/30/30 $54,400 Unlimited in
Partnership duration and
amount
13. Seagoville $816,495 99.99/10/20 $100 $215,000 in the
Partnership aggregate for 3
years
14. Stearns $391,550 99.99/25/25 $57,371 $75,000 in the
Partnership aggregate for 5
years
</TABLE>
TERMS OF INVESTMENT IN OPERATING PARTNERSHIPS
<TABLE>
<CAPTION>
Fund's Development Annual
Approximate Fee/Other Partnership Asset
Operating Average Annual Distributions Management Fee Management Fee
Partnership's Anticipated to Operating GP to Operating GP to Boston
Credit Base Federal Credit Capital
-------- ----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
1. $841,366 $84,137 $285,677 $1,000 $1,000
2. $9,811,000 $791,289 $1,000,000 $5,000 $5,000
3. $1,142,000 $41,306 $149,000 $1,000 $1,000
4. $5,344,000 $452,075 $578,000 $9,200 $9,200
5. $2,621,000 $206,269 $334,000 $1,500 $1,500
6. $10,138,000 $364,330 $1,075,000 $50,000 $5,000
7. $651,914 $65,191 $220,000 $20,000 $2,800
8. $1,743,000 $63,091 $268,000 $500 $500
9. $4,948,000 $286,235 $521,000 $15,000 $5,000
10. $1,525,000 $68,673 $70,000 $1,000 $1,000
11. $2,064,000 $174,242 $275,000 $3,000 $3,000
12. $1,352,000 $47,119 $122,000 $500 $500
13. $3,116,000 $106,731 $416,000 $1,000 $500
14. $1,377,000 $50,830 $73,000 $500 $500
</TABLE>
<PAGE>
THE BRIARWOOD PARTNERSHIP
(Briarwood Apartments)
Briarwood Apartments is a 36-unit apartment complex for senior citizens
which is being rehabilitated on Valley Road in Jonesville, North Carolina.
Briarwood Apartments will consist of 34 one-bedroom units and 2 two-bedroom
units contained in 5 buildings. The complex will offer a community room, office,
maintenance room and central laundry facilities.
Individual units will contain a refrigerator, range, air conditioning
and wall-to-wall carpeting.
Rehabilitation of Briarwood Apartments began in October, 1999. The
Operating General Partners anticipate 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>
36 September, 2000 12 October, 2000
6 November, 2000
6 December, 2000
6 January, 2001
6 February, 2001
</TABLE>
THE BRISTOL COURT PARTNERSHIP
(Bristol Court Apartments)
Bristol Court Apartments is a 144-unit apartment complex for families
which is to be constructed on North Saginaw Street in Genessee Township,
Michigan. Bristol Court Apartments will consist of 96 two-bedroom units and 48
three-bedroom units contained in 10 buildings. The complex will offer a function
room, pool and central laundry facilities.
Individual units will contain a refrigerator, range with hood,
dishwasher, disposal and a patio or porch.
Construction of Bristol Court Apartments is anticipated to begin in
June, 2000. 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>
36 May, 2001 24 June, 2001
36 June, 2001 12 July, 2001
36 July, 2001 12 August, 2001
36 August, 2001 12 September, 2001
12 October, 2001
12 November, 2001
12 December, 2001
12 January, 2002
12 February, 2002
12 March, 2002
12 April, 2002
</TABLE>
THE COLORADO CITY PARTNERSHIP
(Colorado City Apartments)
Colorado City Apartments is an existing 32-unit apartment complex for
families which is being rehabilitated. The Apartment Complex is located on
Highway 208 North in Colorado City, Texas. Colorado City Apartments will consist
of 16 one-bedroom units and 16 two-bedroom units contained in 4 buildings. The
complex will offer central laundry facilities.
Individual units will contain a refrigerator, range and air
conditioning.
Rehabilitation of Colorado City Apartments began in March, 2000. 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>
8 October, 2000 32 January, 2001
8 November, 2000
8 December, 2000
8 January, 2001
</TABLE>
THE EMERSON PLACE PARTNERSHIP
(Emerson Place Apartments)
Emerson Place Apartments is a 92-unit apartment complex for families
which is being constructed on 21 Street at Emerson in Indianapolis, Indiana.
Emerson Place Apartments will consist of 16 one-bedroom units, 48 two-bedroom
units and 28 three-bedroom units contained in 6 buildings. The complex will
offer a function room, playground, and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning and a patio or porch.
Construction of Emerson Place Apartments began in March, 2000. 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>
15 October, 2000 20 January, 2001
15 November, 2000 15 February, 2001
15 December, 2000 15 March, 2001
15 January, 2001 15 April, 2001
15 February, 2001 15 May, 2001
17 March, 2001 12 June, 2001
</TABLE>
THE GLENVILLE PARTNERSHIP
(Glenville Apartments)
Glenville Apartments is a 32-unit apartment complex for senior citizens
which is being constructed on Saratoga Road in Glenville, New York. Glenville
Apartments will consist of 32 one-bedroom units contained in 1 building. The
complex will offer central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher and
disposal.
Construction of Glenville Apartments began in May, 2000. 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>
32 February, 2001 8 March, 2001
6 April, 2001
6 May, 2001
6 June, 2001
6 July, 2001
</TABLE>
THE HENRY PARTNERSHIP
(Henry Apartments)
Henry Apartments is an existing 110-unit apartment complex for families
which is to be rehabilitated. The Apartment Complex is located on Henry Drive at
Wilson Boulevard in Arlington, Virginia. Henry Apartments will consist of 100
two-bedroom units and 10 three-bedroom units contained in 11 buildings. The
complex will offer central laundry facilities.
Individual units will contain a refrigerator, range, air conditioning
and a patio or porch.
Rehabilitation of Henry Apartments is anticipated to begin in June,
2000. 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>
25 November, 2000 10 January, 2001
25 December, 2000 20 February, 2001
25 January, 2001 20 March, 2001
35 February, 2001 20 April, 2001
20 May, 2001
20 June, 2001
</TABLE>
THE KAISER STREET PARTNERSHIP
(Kaiser Street Apartments)
Kaiser Street Apartments is a 28-unit apartment complex for senior
citizens which is being constructed on Kaiser at East 3 Street in Pinconning,
Michigan. Kaiser Street Apartments will consist of 14 one-bedroom units and 14
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, dishwasher,
disposal, air conditioning and a patio.
Construction of Kaiser Street Apartments began in April, 2000. 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>
28 March, 2001 7 April, 2001
7 May, 2001
7 June, 2001
7 July, 2001
</TABLE>
THE ORANGE GROVE PARTNERSHIP
(Orange Grove Apartments)
Orange Grove Apartments is a 12-unit apartment complex for families
which is being constructed on Orange Grove Drive in Christiansted, US Virgin
Islands. Orange Grove Apartments will consist of 12 two-bedroom units contained
in 1 building. The complex will offer central laundry facilities.
Individual units will contain a refrigerator, range, air conditioning
and a patio or porch.
Construction of Orange Grove Apartments began in April, 2000. 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>
12 April, 2001 6 May, 2001
6 June, 2001
</TABLE>
THE PARK WIND II PARTNERSHIP
(Park Wind Apartments)
Park Wind Apartments is a 56-unit apartment complex for families which
is being constructed on Shaw Road at Norman Street in Jackson, Mississippi. Park
Wind Apartments will consist of 40 two-bedroom units and 16 three-bedroom units
contained in 7 buildings. The complex will offer a function room, pool,
playground and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
ceiling fans, air conditioning and a patio or porch.
Construction of Park Wind Apartments began in January, 2000. 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>
14 July, 2000 14 August, 2000
14 August, 2000 14 September, 2000
14 September, 2000 14 October, 2000
14 October, 2000 14 November, 2000
</TABLE>
THE PLANTATION PLACE PARTNERSHIP
(Plantation Place Apartments)
Plantation Place Apartments is an existing 32-unit apartment complex
for families which is being rehabilitated. The Apartment Complex is located on
Pershing Highway in Bunkie, Louisiana. Plantation Place Apartments will consist
of 16 one-bedroom units and 16 two-bedroom units contained in 4 buildings. The
complex will offer central laundry facilities.
Individual units will contain a refrigerator, range, microwave oven and
air conditioning.
Rehabilitation of Plantation Place Apartments began in March, 2000. 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>
8 September, 2000 32 January, 2001
8 October, 2000
8 November, 2000
8 December, 2000
</TABLE>
THE PLEASANTVIEW PARTNERSHIP
(Pleasantview Apartments)
Pleasantview Apartments is a 40-unit apartment complex for families
which is being constructed on Edwards and Pan Key Streets in West Monroe,
Louisiana. Pleasantview Apartments will consist of 32 two-bedroom units and 8
three-bedroom units contained in 13 buildings. The complex will offer a function
room and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
microwave oven, air conditioning and a patio or porch.
Construction of Pleasantview Apartments began in April, 2000. 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 October, 2000 15 January, 2001
20 November, 2000 10 February, 2001
10 March, 2001
5 April, 2001
</TABLE>
THE RUNGE PARTNERSHIP
(Runge Apartments)
Runge Apartments is a 32-unit apartment complex for families which is
being constructed on Madison and Gohad Streets in Runge, Texas. Runge Apartments
will consist of 16 one-bedroom units and 16 two-bedroom units contained in 9
buildings. The complex will offer central laundry facilities.
Individual units will contain a refrigerator, range and air
conditioning.
Construction of Runge Apartments began in March, 2000. 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>
16 November, 2000 8 January, 2001
16 December, 2000 8 February, 2001
8 March, 2001
8 April, 2001
</TABLE>
THE SEAGOVILLE PARTNERSHIP
(May Road Apartments)
May Road Apartments is an existing 81-unit apartment complex for
families which is to be rehabilitated. The Apartment Complex is located on May
Road in Seagoville, Texas. May Road Apartments will consist of 81 two-bedroom
units contained in 20 buildings. The complex will offer central laundry
facilities.
Individual units will contain a refrigerator, range, air conditioning
and a patio or porch.
Rehabilitation of May Road Apartments is anticipated to begin in June,
2000. 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>
27 October, 2000 81 January, 2001
27 November, 2000
27 December, 2000
</TABLE>
THE STEARNS PARTNERSHIP
(Stearns Apartments)
Stearns Apartments is an existing 12-unit apartment complex for senior
citizens which is to be rehabilitated. The Apartment Complex is located on
Katahdin Street in Millinocket, Maine. Stearns Apartments will consist of 12
one-bedroom units contained in 1 building. The complex will offer a function
room, library and central laundry facilities.
Individual units will contain a refrigerator and range with exhaust
fan.
Rehabilitation of Stearns Apartments is anticipated to begin in June,
2000. 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>
12 March, 2001 6 April, 2001
6 May, 2001
</TABLE>
* * * * * * * *
<PAGE>
PROSPECTUS
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
Series 39 and 40
Boston Capital'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 39 will be offered first and Series 40 will begin after Series 39 is
finished;
o Each series is offering at least 2,000,000 Beneficial Assignee Certificates
that are the equivalent of limited partnership interests in each series;
o the price of the certificates is $10 each with a minimum investment of
$5,000; and
o your money will be held in escrow until at least 250,000 certificates are
sold.
Boston Capital'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 Boston Capital, which begin on page 35 of this
Prospectus--
o tax credit rules can be complicated and the failure of apartment complexes 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 them
all;
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>
--------------------------------------------------------------------------------------------------
Fees and
Proceeds Expenses
Selling to Working of General
Public Commissions Boston Apartment Capital Partner and
Price and Fees Capital Complexes Reserves Affiliates
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Certificate ... $10.00 $0.90 $9.10 $7.20-7.30 $.40 $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.
Boston Capital | Services, Inc.
August 1, 2000
<PAGE>
--------------------------------------------------------------------------------
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 .
--------------------------------------------------------------------------------
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 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 Boston Capital is not
permitted.
For a period of ninety days after the date of this Prospectus, all dealers
effecting transactions in the registered securities, whether or not
participating in the distribution, may be required to deliver a prospectus.
This obligation is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
The investment described in this Prospectus has been registered with the
Internal Revenue Service (the "IRS") 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. Investors must
include it on their tax returns for the period of time in which they are
investors. Issuance of a registration number does not indicate that this
investment or the claimed tax benefits have been reviewed, examined or approved
by the IRS.
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
2
<PAGE>
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 Boston Capital 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.
3
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary ........................................................... 9
Additional Summary Information for Corporate
Investors ....................................................... 25
Suitability of an Investment in Certificates ...................... 28
Estimated Use of Proceeds ......................................... 33
Risk Factors ...................................................... 35
General Risks of Boston Capital's Investments .................... 35
Investors will not be able to evaluate all of the
apartment complexes in which the series will invest ......... 35
Sale of less than all certificates may result in fewer
investments for Boston Capital .............................. 36
Boston Associates may not be able to buy certificates to
fund start up costs of Boston Capital ....................... 36
Investors may not receive cash if apartment complexes
are sold .................................................... 36
A decrease in an individual investor's taxable income
will limit his benefit received from tax credits ............ 37
Investors may not be able to liquidate their investment
promptly at a reasonable price .............................. 37
Investors are liable for a period of time for the amount
of their returned contributions to any Boston Capital
creditors ................................................... 37
Investors may have limited rights of action against
Boston Associates ........................................... 38
A series may be liable for the liabilities of other series .... 38
An independent underwriter will not make an
independent investigation of Boston Capital ................. 39
The prohibition on mergers in the Fund Agreement may
limit the operational flexibility of Boston Capital ......... 39
Real Estate Risks ............................................... 39
If the expenses of apartment complexes are greater than
their income, Boston Capital may have to pay any
operating shortfalls ........................................ 39
Leveraged investments may increase the risk of loss
because of the debt payments ................................ 40
Operating General Partners have limited financial
resources and if they fail to meet their obligations,
Boston Capital may have limited remedies against
them ........................................................ 40
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
of Boston Capital ........................................... 41
Tax Risks ....................................................... 41
IRS may challenge Boston Capital's tax positions which
could result in the loss or recapture of tax benefits ....... 41
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
IRS may audit Boston Capital which might increase the
chance that investors' returns are audited ................ 42
Apartment complexes must adhere to complex rules in
order to be eligible for tax credits ...................... 42
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 .. 43
The restrictions imposed by the alternative minimum tax
and business credit issues may limit the tax liability
that can be offset by tax credits ......................... 43
IRS may unfavorably change the allocation of credits and
losses .................................................... 43
Investors may realize taxable gain on sale or disposition
of certificates ........................................... 44
Investors may have tax liability in excess of cash .......... 44
Fiduciary Responsibility of Boston Associates ................... 45
Conflicts of Interest ........................................... 47
Inconsistent Interests ...................................... 48
Common Management; Selection of Operating
Partnership Interests ..................................... 50
Public Limited Partnerships ................................. 51
Other Transactions with Boston Associates or Its
Affiliates. ............................................... 52
Expenses .................................................... 52
Annual Report ............................................... 53
Services .................................................... 54
Miscellaneous ............................................... 54
Employment of Professionals ................................. 55
Compensation and Fees ........................................... 55
Investment Objectives and Acquisition Policies .................. 59
Investment Objectives ....................................... 59
Acquisition Policies ........................................ 63
Repurchase Events ........................................... 68
Adjuster Provisions ......................................... 69
Loans ....................................................... 69
Capital Contributions ....................................... 71
Boston Capital's Limited Liability .......................... 72
The Operating General Partners .............................. 73
Regulatory Restrictions ..................................... 75
Unused or Returned Funds .................................... 75
Preliminary Investments and Reserves ........................ 76
Borrowing Policies .......................................... 77
Other Policies .............................................. 78
Investment in Operating Partnerships ............................ 79
Tax Credit Programs ............................................. 79
The Tax Credit .............................................. 80
Summary of the Tax Credit Program ........................... 81
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Qualified Apartment Complexes .............................. 84
Eligible Basis and Qualified Basis ......................... 87
Use of the Tax Credit ...................................... 88
Credits Subject to State Allocation ........................ 90
Qualified Allocation Plans ................................. 91
State Housing Tax Credit Program. .......................... 92
Historic Tax Credit ........................................ 93
Government Assistance Programs ................................. 94
Rural Housing Services ("RHS") Programs .................... 95
USHUD Mortgage Loan Insurance Programs and Insurance
Subsidy Programs ......................................... 96
USHUD Rental Assistance Programs ........................... 101
Rent Supplement Programs ................................... 104
Transfer of Physical Assets Procedure ...................... 105
Government National Mortgage Association/Federal
National Mortgage Association ............................ 105
State and Local Financing Programs ......................... 106
HOME Program ............................................... 108
Management ..................................................... 109
The General Partner ........................................ 109
Boston Capital Partners, Inc. and Its Affiliates ........... 110
Prior Performance of Boston Associates and Its
Affiliates .................................................... 115
Private Placements (with Similar Investment Objectives) .... 118
Public Offerings ........................................... 118
Description of Certificates .................................... 121
The Certificates ........................................... 121
Transfers .................................................. 122
Sharing Arrangements: Profits, Credits, Losses, Net
Cash Flow and Residuals ....................................... 125
From Boston Capital to the Investors ....................... 125
From the Operating Partnerships to Boston Capital .......... 127
Authority of the Boston Associates to Vary Allocations to
Preserve and Protect Partners' and Investors' Intent ..... 129
Allocations of Profits, Credits and Losses and Cash
Distributions Pending Final Issuance of Certificates ..... 129
Federal Income Tax Matters ..................................... 130
General Considerations ..................................... 130
Brief Overview of Federal Income Tax Considerations ........ 131
Opinions of Counsel ........................................ 131
Classification as a Partnership ............................ 131
Investments in Operating Partnerships ...................... 132
Tax Treatment of Electing Large Partnerships ............... 133
Limitations on Use of Credits and Losses ................... 133
Allocation of Fund Income, Gain, Credits and Loss .......... 136
Depreciation ............................................... 136
Historic Tax Credit and Its Recapture ...................... 136
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Tax Treatment of Certain Partnership Expenses ............... 137
Sales or Disposition of Operating Partnership Property ...... 137
Sales or Disposition of Certificates ........................ 138
Transferability--Termination of Boston Capital .............. 138
Tax Rates and Capital Gains ................................. 138
Alternative Minimum Tax ..................................... 139
Tax Returns and Tax Information ............................. 139
Tax Shelter Registration .................................... 139
Changes in Tax Law .......................................... 140
Opinions of Counsel ......................................... 140
Tax Rates ................................................... 142
Classification as a Partnership ............................. 143
Classification of Investors as Partners for Tax Purposes .... 146
Fund Allocations and Distributions .......................... 146
Federal Housing Tax Credit .................................. 159
State Designation of Apartment Complexes .................... 160
Historic Tax Credit ......................................... 161
Passive Loss and Tax Credit Limitations ..................... 163
Individuals ................................................. 164
Corporations ................................................ 166
All Taxpayers ............................................... 168
At-Risk Limitation on Credits and Losses .................... 168
Purchase of Existing Apartment Complexes from Tax-
Exempt or Governmental Entities ........................... 170
Investment by Tax-Exempt Entities ........................... 172
Recapture of Tax Credits .................................... 173
Depreciation ................................................ 176
Construction Period Expenditures ............................ 177
Fees Paid From Capital Contributions or Boston Capital
or Operating Partnership Cash Flow.. ...................... 178
Sale or Disposition of Certificates ......................... 181
Sale or Other Disposition of an Apartment Complex and
Interests in Operating Partnerships ....................... 182
Excess Investment Interest Limitation ....................... 184
Certain Tax Elections ....................................... 185
IRS Audit Considerations .................................... 186
Limitations for Deductions Attributable to Activities Not
Engaged in for Profit ..................................... 189
Overall Evaluation of Tax Benefits .......................... 191
Certain Other Tax Considerations ............................ 192
"Tax Shelter" Registration .................................. 195
Future Federal Income Tax Legislation and Regulations ....... 196
State and Local Taxes ....................................... 196
The Offering .................................................... 196
Selling Arrangements ........................................ 201
Escrow Arrangements ......................................... 204
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary of Provisions of the Fund Agreement .................... 204
Withdrawal of Boston Associates ............................ 205
Removal of Boston Associates ............................... 205
Liability of Partners and Investors to Third Parties ....... 206
Withdrawal of Capital and Redemption of Investors'
Interest ................................................. 206
Management of Boston Capital ............................... 207
Mergers and Rollups ........................................ 207
Voting Rights and Meetings ................................. 207
Amendments to Fund Agreement ............................... 209
Dissolution and Liquidation ................................ 209
Tax Election ............................................... 210
Tax Matters Partner Designation ............................ 210
Books and Records .......................................... 210
Successor in Interest ...................................... 211
Power of Attorney .......................................... 211
Applicable Law ............................................. 211
Sales Literature ............................................... 211
Experts ........................................................ 212
Investor Reports ............................................... 212
Legal Matters .................................................. 213
Registration Statement ......................................... 213
Glossary ....................................................... 214
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>
8
<PAGE>
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 this
Prospectus. All prospective investors should read this Prospectus in its
entirety.
Boston Capital Tax Credit Fund IV L.P. ("Boston Capital") is organized as a
limited partnership because that structure allows the pass through of tax
benefits. Each series of certificates issued by Boston Capital 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 is separate from the other series.
The structure of the investment in Boston Capital 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 Boston Capital and
the general partners of the operating partnership in percentages to be
negotiated between Boston Capital and each operating partnership. Boston
Capital expects that it will usually receive 99% of the tax credits, profits
and losses available from the operating partnership. Boston Capital 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 certificates
and 1% of those items will go to the general partner, Boston Capital Associates
IV L.P. ("Boston Associates").
Net proceeds from sale or refinancing transactions will be split 95% to
investors and 5% to Boston Associates; however, if investors have not received
a return from cash distributions and tax credits equal to 10.5% per year on a
cumulative basis from the quarter in which they invested, Boston Associates' 5%
share will be subordi-
9
<PAGE>
nated until investors have received enough to meet the priority return.
The following organization chart shows the basic structure of the investment
and the identity of the parties:
--------------
INVESTORS
--------------
^ 100% |
proceeds/ | |
tax benefits | | capital
(3) | | contributions
| |
CERTIFICATES |
| |
| |
capital capital | |
contributions contributions | v
---------- ------- ----------------
General ---------------> <---------------- Assignor
Partner SERIES Limited Partner
Boston --------------- 39 & 40 ----------------> BCTC IV Assignor
Associates proceeds/ proceeds/ ----------------
---------- tax benefits ------- tax benefits
(2) ^ | (3)
| |
proceeds/ | | capital contributions
tax benefits | |
(1) | |
| |
limited partner
tax | |
benefits(1) | v
---------------- -----------
Operating -----> Operating
General Partners Partnership
---------------- <----- -----------
capital ^ |
contributions | |
| |
| |
| |
| |
tax | | cost of apartment complex
benefits | |
| v
-----------------
Apartment Complex
-----------------
Risk Factors
Investors should be aware that an investment in Boston Capital entails risk.
The "Risk Factors" section of this Prospectus contains a detailed discussion of
the material risks.
General risks associated with Boston Capital's investments include:
o The only benefit of this investment may be 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 rep-
10
<PAGE>
resent a return of the money originally invested in Boston Capital.
o Boston Capital will depend upon the ability, integrity and expertise of 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 Boston Capital 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 Boston Capital intends
to 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.
The Offering
Boston Capital is offering certificates in separate series on a best efforts
basis, which means that no specified
11
<PAGE>
amount of capital will be raised. Each series of certificates will consist of
at least 2,000,000 certificates ($20,000,000). Only one series will be offered
at a time. Boston Associates and the Dealer-Manager are responsible for
deciding when one series stops and the next one starts. Boston Capital will
separately account for, and issue information with respect to, each series. No
series of certificates will be sold unless at least 250,000 certificates are
sold. Each series will invest in separate pools of apartment complexes that
qualify for tax credits. The description of the apartment complexes which the
current series expects to invest in are described in the supplement delivered
with this Prospectus. The investment and tax risks for each series will be
materially identical.
Boston Capital will place initial monies raised in an escrow account until the
$2,500,000 minimum is achieved for each series. During that time, interest will
be earned at savings account rates. The interest will be paid to the investor
even if the minimum is not reached.
Boston Capital will use approximately $0.72 to $0.73 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 this Prospectus. The offering
of each series will not exceed twelve months.
Suitability of an Investment in Certificates
<TABLE>
<CAPTION>
Considerations for Considerations for
Individual Investors Corporate Investors
---------------------------- --------------------------
<S> <C>
o individuals should o tax credits cannot be
invest in tax credits used against the corpo-
only if they expect to rate alternative mini-
have income taxes mum tax;
which the tax credits
can offset;
o tax credits cannot be o the general limitations
used against the alter- on business tax credits
native minimum tax; apply;
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Considerations for Considerations for
Individual Investors Corporate Investors
---------------------------- -------------------------
<S> <C>
o tax credits cannot be o corporations generally
used in IRA, Keogh or have no limits on the
other retirement plans; amount of tax credits
o non-resident aliens can- and passive losses they
not use tax credits; and may use each year; and
o married persons filing o closely held, personal
separately and living service and S corpora-
together in any year tions are specially lim-
may not use tax credits ited in their use of tax
against taxes owed in credits.
that year on income
derived from wages,
salaries, dividends or
interest income.
</TABLE>
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 $0.72 to $0.73 of each dollar we raise directly in
constructing or rehabilitating the apartment complexes;
o hold $0.04 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 Boston Capital's
estimate of the use of the capital it raises.
Fiduciary Responsibility of Boston Associates
Boston Associates will act as a fiduciary to Boston Capital. Boston Capital
will partially indemnify Boston Associates, and therefore may be required to
pay some of Boston Associates' business costs in connection with its operation
of Boston Capital that Boston Capital would not otherwise be required to pay.
As described under "Conflicts of Interest," Boston Associates will be
13
<PAGE>
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
Boston Capital 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 Boston
Capital. Boston Associates and its affiliates, including the Dealer-Manager,
will receive substantial fees, commissions, compensation and other income from
transactions with and by Boston Capital regardless of the success of your
investment.
Compensation and Fees
Boston Associates will manage the business of Boston Capital, including the
investment and management of its assets, and will receive substantial
compensation and fees from Boston Capital and/or the apartment complexes in
connection with this offering. The section of this Prospectus entitled
"Compensation and Fees" specifies the compensation payable to Boston Associates
and its affiliates. The most significant items of compensation are as follows:
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
--------------- ------------------ ----------------------
<S> <C> <C>
Reimbursement Boston o equal to all
for Associates or accountable
Accountable its affiliates expenses paid to
Expenses third parties
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
----------------- ------------------ -----------------------
<S> <C> <C>
Dealer- Boston o equal to $0.20 per
Manager Fee Capital certificate sold;
Services, Inc. o also may receive
selling commis-
sions of up to
$0.70 per certifi-
cate sold; and
o also may receive
accountable and
non-accountable
due diligence
expense reim-
bursements of
up to $0.15 per
certificate sold
Asset Boston Capital o equal to $0.85
Acquisition Fee Holdings per certificate
Limited sold
Partnership
Annual Fund Boston o annually equal to
Management Associates or 0.5% of the
and Reporting its affiliates aggregate cost of
Fees the apartment
complexes, which
is the sum of equity
invested by Boston
Capital in the
apartment complex
plus the amount of
mortgage debt on the
apartment complex;
and
o could be about $36,000
per year if $2,500,000
is raised and $504,000
if $35,000,000 is raised
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
---------------- ------------------ -----------------------
<S> <C> <C>
Share of Boston o 1% of tax credits;
Boston Capital Associates o 1% of any cash
Distributions distributions; and
o 5% of net proceeds
of the sale of the
apartment complexes
</TABLE>
Investment Objectives and Acquisition Policies
Boston Capital'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
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 Boston Capital's capital. Boston Capital requires the
general partners of the 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 equal to their original investment only if the net sales
price is large enough to pay fees and expenses paid in this offering, estimated
to be 27% of
16
<PAGE>
your initial investment, plus all costs of the sale of the apartment complexes.
To achieve these investment objectives, each series will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes, averaging approximately $0.95 to $1.00 per
certificate annually--9.5%-10% annual tax credit as a percentage of capital
invested-- for the ten-year credit period. If this annual tax credit goal is
met, it should result in an approximate tax-free internal rate of return of
1.8%-4.2% even assuming none of the apartment complexes invested in has any
value in excess of indebtedness plus sale expenses at the end of the
fifteen-year federal housing tax credit compliance period, and investors use for
tax purposes the assumed loss of the investor's entire capital contributions.
There is no assurance that any particular tax-free internal rate of return will
be achieved.
The internal rate of return is the rate at which the present value of your
future tax benefits will be equal to the cost of your investment. In essence,
it illustrates your future tax credit benefit as return of principal and
interest in today's dollars. The tax-free internal rate of return can exceed
1.8%-4.2% if the value of the apartment complexes exceeds indebtedness plus
sale expenses and the investors receive distributions from those sale or
refinancing transactions.
After consulting with the underwriter regarding tax-free returns currently
available to investors in other similar tax credit investments, Boston Capital
has selected as its investment objective a 9.5%-10% annual tax credit as a
percentage of capital invested. 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 Boston Capital.
The attainment of Boston Capital's investment objectives will depend on many
factors, including the ability
17
<PAGE>
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 Boston Capital will meet its investment objectives.
Boston Capital and Investor Protections
Boston Capital will try to protect your investment in a number of ways. First,
each series 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 Boston Capital 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, Boston Capital'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, Boston Capital will decrease its capital
contribution to that apartment complex. Decreasing its capital contribution to
one apartment complex may increase its effective return and may allow Boston
Capital 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 cost of completing the
construction may be greater than the operating general partner's guarantee.
Operating Deficit Guarantees. The operating general partner(s) may guarantee to
cover operating expenses arising from the operation of each apartment complex.
The amount of such operating deficit guarantees may, 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 Boston Capital's
18
<PAGE>
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 Boston Capital 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 prefunded 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
credit 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 tax
credits defined:
o the types of apartment complexes that qualify for the federal housing tax
credit;
o the income attributes 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 this Prospectus entitled "Tax
Credit Programs."
Because 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.
19
<PAGE>
The federal housing tax credit program requires that its rules be complied with
during the fifteen-year period after tax credits are first taken. To the extent
the tax credit rules are not adhered to during the fifteen-year period,
investors would have to repay a portion of the 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 advantaged 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
Boston Capital 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. ("Boston Associates"), a Delaware limited partnership. The
general partner of Boston Associates 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 Boston Associates is the same as that of
Boston Capital.
Boston Associates has complete authority in the overall management and
operation of each series and will have responsibility for supervising Boston
Capital's selection, negotiation and investment in apartment complexes.
Prior Performance of Boston Associates
and Its Affiliates
Affiliates of Boston Capital have raised approximately $2.3 billion in equity
from approximately 73,000 investors in more than 350 investment programs to
acquire interests in approximately 2,100 properties containing
20
<PAGE>
approximately 102,000 apartment units in 48 states and territories,
representing approximately $5.14 billion in original development cost.
The section of this Prospectus entitled "Prior Performance of Boston Associates
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 this Prospectus following the Financial Statements contain
tabular and statistical data regarding the prior investment programs of Boston
Associates' 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 Boston Capital 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 Boston Capital and will not engage in any other
business. Investors will be entitled to all the rights and economic benefits of
a limited partner of Boston Capital, including the rights to a percentage of
Boston Capital's income, gain, credits, losses, deductions and distributions.
No investor will be personally liable for the debts, liabilities, contracts or
other obligations of Boston Capital. See "Summary of Provisions of the Fund
Agreement-Liability of Partners and Investors to Third Parties." Investors will
be bound by the terms of the Fund 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
21
<PAGE>
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
Boston Capital 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' distribution of cash will be subordinated to the achievement of the
priority return to investors.
From Boston Capital to investors, if there is a sale or refinancing of an
apartment complex or the sale of Boston Capital's interest in an operating
partnership, Boston Capital will distribute 95% of the proceeds to the
investors, and 5% of the proceeds to Boston Associates; provided that Boston
Associates' distribution will be subordinated to the achievement of the
priority return to investors.
Federal Income Tax Matters
The section of this 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
the respective series. It is also expected that federal income tax will be
imposed only at the partner level with regard to an investment in Boston
Capital avoiding the double taxation applicable to corporations. The "Federal
Income Tax Matters" section of this Prospectus also contains the legal opinions
of Nixon Peabody LLP as to all material federal income tax matters with respect
to an investment in Boston Capital. See pages 140 through 142 of this
Prospectus for a sum-
22
<PAGE>
marization of the precise nature of the legal opinions being given with respect
to these matters.
Summary of Provisions of the Fund Agreement
The Fund Agreement that will govern the relationship between investors and
Boston Associates is a legal document, described in the section of this
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 a series 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 Boston Capital.
The majority vote of each series 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 a series unless the Fund
Agreement is amended by the approval of a majority in interest of the
investors in that series. If such an amendment is made, the majority vote
will still bind
23
<PAGE>
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 Boston Capital 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.
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.
24
<PAGE>
Experts
Counsel for Boston Capital Accountants for Boston
is: Capital are:
Nixon Peabody LLP Reznick Fedder & Silverman
401 9th Street, N.W. 4520 East-West Highway,
Washington, D.C. 20004 Suite 300
Bethesda, Maryland 20814
ADDITIONAL SUMMARY INFORMATION FOR CORPORATE INVESTORS
An investment in Boston Capital may enable C Corporations to reduce current
taxes due, increase cash flow and increase net income for the purposes of
financial reporting.
If the cost method of accounting is available to an investor, the investment in
certificates would be carried as an asset on its balance sheet. The passive
losses would not be recorded for the purposes of financial reporting.
Use of Losses and Credits
Generally, there are no special limitations on a corporation's ability to use
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 specific rules 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 be allowed to use tax credits and
passive losses to reduce taxes only on passive income. Because a corporation
subject to Subchapter S of the tax 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 Certificates."
In computing alternative minimum tax, losses and credits from passive
activities may be used only to
25
<PAGE>
offset income from passive activities of a taxpayer. See "Federal Income Tax
Matters--Other Tax Considerations--Alternative Minimum Tax."
Income Statement and Balance Sheet Example
Assume a C Corporation makes an investment of $1,000,000 in a series and Boston
Capital allocates to the C Corporation $110,000 of 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 series. Such investment and allocations
would have a number of effects upon the income statement and the balance sheet
of the corporation. The following chart illustrates the expected principal
effects:
<TABLE>
<CAPTION>
Income Statement Balance Sheet
----------------------------- --------------------------
<S> <C>
o income tax liability can o current assets would
be reduced by up to increase by $131,000
$131,000--$110,000 of because of the increase
credits plus 35% of the in cash flow caused by
$60,000 of losses--if the reduction in tax
the corporation can liability;
fully use both losses at
a 35% marginal rate and
credits;
o the use of tax credits o the $1,000,000 invest-
does not create a ment would reduce cur-
deferred tax liability rent assets, but increase
and, consequently, long term investment
does affect net income by the same amount;
to the extent that the o under the cost method
tax credits are used, of accounting, the
thereby increasing earn- investment is shown at
ings per share; and cost and is not reduced
by losses; therefore, the
use of losses does not
affect net income for
financial reporting
purposes;
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Income Statement Balance Sheet
-------------------------------- --------------------------
<S> <C>
o the use of losses creates o the deferred income tax
a deferred tax liability liability of $21,000 is
and, consequently, recorded as a liability;
does not affect net and
income because the o depending upon the
reduction in current tax corporation's dividend
liability is exactly offset policies, an increase in
by deferred tax liability. net earnings could
increase retained earn-
ings by $110,000--the
amount of tax credits.
</TABLE>
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 Boston Capital, 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.
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 tax code which would limit their use of losses and credits
from passive activities. Moreover, the above example assumes that the
corporation is not subject to the alternative minimum tax or the limitations on
the use of business tax credits, and that the corporation has sufficient tax
liability to use 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 certificates. 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 Boston Capital.
27
<PAGE>
Considerations for Corporate Investors
<TABLE>
<CAPTION>
Closely Held Personal Service
C-Corporations Corporations Corporations
----------------- ----------------- -----------------
<S> <C> <C> <C>
Definition o not subject o more than o principal
to 50% owned, activity is the
Subchapter S by value performance
of the tax directly or of personal
code indirectly, by services by a
five or fewer corporation's
individuals, employees/
using the owners
rules of
ownership
attribution,
at any time
during the
last half of
the relevant
taxable year
Income offset o income from o active or o passive
by tax credits all sources passive income
and losses income,
excluding
portfolio
income
Time frame that o ten to twelve o ten to twelve o ten to twelve
you must years after years after years after
reasonably your your your
expect to have investment investment investment in
appropriate in certificates in certificates certificates
income to
offset
</TABLE>
SUITABILITY OF AN INVESTMENT
IN CERTIFICATES
All Investors
The certificates being offered for sale through this Prospectus are suitable
for all investors who (1) 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 (2) have adequate
financial means to bear the lack of liquidity and the economic risks associated
with long-term investments in real estate. Boston Capital does not deem sales
of certificates completed until five business days after an investor has
received this Prospectus, during which you may receive a refund of your
subscription.
The certificates may not be suitable for investors that must pay the
alternative minimum tax or are tax--
28
<PAGE>
exempt. Moreover, if the investor distributes its certificates as a gift, the
donor and the not the donee must satisfy all applicable suitability
requirements.
Alternative Minimum Tax/Tentative
Minimum Tax
The tax 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. Consequently,
an investment in certificates may not be a suitable investment for an investor
expecting to be subject to the alternative minimum tax or an investor that
expects the difference between his tax liability and the tentative minimum tax
to be minimal.
Regardless of whether or not a prospective investor is otherwise subject to the
alternative minimum tax, each prospective investor must determine what his
tentative minimum tax would be, in order to determine the maximum amount of tax
credits which you can use in any given year. The amount of tax credits which an
investor may use in any year may not exceed the difference between (1) your
income tax as computed under the normal formula for determining income tax
liability; and (2) your tentative minimum tax as computed under the alternative
minimum tax formula.
For example, an investor, not otherwise subject to the alternative minimum tax,
with $15,000 in regular income tax liability and $10,000 in tentative minimum
tax liability, 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 that year, could be carried
back one year or forward twenty 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."
29
<PAGE>
Tax-Exempt Entities
It is unlikely that a tax-exempt entity would be able to use tax credits because
of its lack of income tax liability. However, if a tax-exempt entity has, and
expects to continue to have, unrelated business taxable income ("UBTI"), it
could use tax credits to offset the federal tax on such income. See "Federal
Income Tax Matters--Investment by Tax-Exempt Entities."
Considerations for Individual and
Other Non-Corporate Investors
o investors must have 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 net worth--excluding home, home
furnishings and automobiles--of not less than $150,000;
o if more than one investor purchases certificates together, each investor
must satisfy all applicable suitability requirements;
o even an investor without passive income can use the investment in
certificates for ten to twelve years to reduce federal income taxes by up
to $25,000 in any tax year, but not in excess of the investor's federal
income tax liability;
o married individuals filing separately may not use tax credits to offset
taxes on non-passive income unless they live apart for the entire year;
o if married persons live apart for the entire year, each individual may use
tax credits to offset taxes on up to $12,500 of non-passive income for that
year;
o there are special rules governing an investor's ability to carry unused tax
credits and historic tax credits forward to future years. See "Federal
Income Tax Matters--Passive Loss and Tax Credit Limitations"; and
o investors can fully use the historic tax credit only if the adjusted gross
income is not greater than $200,000 in that year; the use of the historic
tax credit is phased out when adjusted gross income is between $200,000 and
$250,000; and investors cannot use the historic tax credit at all if their
adjusted gross income is greater than $250,000.
30
<PAGE>
Considerations for Foreign Investors
o definition: natural person and resident of the United States, but a citizen
of another country;
o must have, and expect to have in the future, income subject to taxation by
the United States sufficient to use the expected tax credits to offset
federal income tax liability;
o the tax code may require Boston Capital to withhold up to 30% of any
distributions;
o the Foreign Investment in Real Property Tax Act may require Boston Capital to
withhold part of any distribution of proceeds from the sale of an
apartment complex or interest in an operating partnership otherwise due; and
o should consult a legal, tax and/or business advisor because your tax
consequences of an investment in certificates by foreign investors may
differ significantly from those described in this Prospectus.
Various states have established suitability standards for investors that are in
addition to those established by Boston Capital and which must be met by
investors residing in any such state, as illustrated by the following chart:
<TABLE>
<CAPTION>
Additional
Minimum
Additional Net Worth
Minimum (exclusive of
Annual home, home
Gross furnishings,
State Income automobiles) Other
------------ -------------------- -------------------- -------------------
<S> <C> <C> <C>
California $60,000, plus $60,000; or For investments by
Iowa ---------------- ---------------- or on behalf of a
Washington no minimum, $175,000 fiduciary account,
plus the suitability
requirements must
be met by either
the donor of the
funds for investment,
or 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).
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Additional
Minimum
Additional Net Worth
Minimum (exclusive of
Annual home, home
Gross furnishings,
State Income automobiles) Other
-------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C>
Maine $50,000, and $50,000; or Additional
---------------- ---------------- investments not
no minimum, $200,000 made at the time if
plus initial investment
must be for a
minimum of $5,000.
-------------------------------------------------------------------------------------
Nebraska none none Investors are
allowed at least five
business days after
they receive this
Prospectus until the
sale of certificates
is final; they may
not invest more
than ten percent
(10%) of net worth
in any series.
--------------------------------------------------------------------------------------
New $50,000 $125,000; or
Hampshire ---------------- ----------------
no minimum, $250,000
plus
--------------------------------------------------------------------------------------
New Jersey $50,000, plus $60,000; or
---------------- ----------------
no minimum, $150,000
plus
--------------------------------------------------------------------------------------
Ohio none none Investors may not
invest more than
ten percent (10%)
of liquid net worth.
--------------------------------------------------------------------------------------
Pennsylvania amount equal amount o Investors must
to or greater sufficient to be in a financial
than ten sustain the position to
times risks enable them
investor's described in to realize to a
dollar this significant extent
amount of Prospectus the benefits
certificates described in this
purchased Prospectus;
o investments in
certificates must
be otherwise
suitable for each
investor; and
investor will not
be admitted to
Boston Capital
until at least
$5,000,000 has
been raised.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Additional
Minimum
Additional Net Worth
Minimum (exclusive of
Annual home, home
Gross furnishings,
State Income automobiles) Other
-------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C>
South Dakota $60,000, plus $60,000; or
---------------- ----------------
no minimum, $175,000
plus
--------------------------------------------------------------------------------------
Tennessee none none Investors may
withdraw their
subscriptions within
five business days
from receipt or
confirmation,
whichever is later.
--------------------------------------------------------------------------------------
Texas $60,000, plus $60,000; or
---------------- ----------------
no minimum, $175,000
plus
</TABLE>
Investors in the following states must execute an investor form provided by the
Soliciting Dealer or Dealer-Manager on behalf of Boston Capital: 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.
ESTIMATED USE OF PROCEEDS
The proceeds of the offering will provide all of the working capital, without
which each series will not be able to achieve its investment objectives. The
following table sets forth the estimated use of the sum of the proceeds of the
sale of certificates for each series. These figures represent Boston Capital's
present estimates; the actual figures may differ. We will use the proceeds in
the following way:
o invest approximately $0.72 to $0.73 of each dollar we raise directly in
constructing or rehabilitating the apartment complexes;
33
<PAGE>
o hold $0.04 of each dollar in working capital reserves; and
o use the rest to pay fees and expenses to Boston Associates and others.
Boston Capital will hold all proceeds of the offering in trust for the benefit
of the investors to be used only for the purposes set forth below.
<TABLE>
<CAPTION>
Dollar Dollar
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Gross Offering Proceeds
per series ................. $2,500,000 100.0% $40,000,000 100.0%
========== ===== =========== =====
Less Public Offering
Expenses:
Selling Commissions
(1) ....................... $ 175,000 7.0% $ 2,800,000 7.0%
Dealer-Manager Fee .......... 50,000 2.0% 800,000 2.0%
Organization and
Offering Expenses (2)....... 112,500 4.5% 1,400,000 3.5%
Total Offering Expenses ...... 337,500 13.5% 5,000,000 12.5%
---------- ----- ----------- -----
Amount Available after
offering expenses: ......... $2,162,500 86.5% $35,000,000 87.5%
========== ===== =========== =====
Acquisition Expenses (3)...... 50,000 2.0% 800,000 2.0%
Asset Acquisition Fee (3)..... 212,500 8.5% 3,400,000 8.5%
Working Capital
Reserve (4) ................ 100,000 4.0% 1,600,000 4.0%
---------- ----- ----------- -----
Capital Contributions
to Operating
Partnerships (5) ........... $1,800,000 72.0% $29,200,000 73.0%
========== ===== =========== =====
</TABLE>
------------------
(1) Selling Commissions of up to 7% payable to brokers, most of whom are not
affiliated with Boston Capital. 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 series directly, or in connection with the
organization of the series, the structuring of the series' investments and
the offering of certificates. Organization and offering expenses also
include an accountable expense reimbursement to Boston Capital in the amount
of up to 0.5% of total offering proceeds and a non-accountable expense
allowance to Boston Capital in the amount of up to 1.0% of total offering
proceeds to be paid to Boston Capital and its affiliates, as described under
the caption "The Offering-Selling Arrangements." If actual organization and
operating expenses exceed these estimates, they will still be paid from the
offering proceeds; provided, however, if the organization and offering
expenses and the selling commissions exceed 15% of the total offering
proceeds, the excess will be paid by Boston Associates and not the series.
34
<PAGE>
(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 Boston
Associates for selecting, evaluating, negotiating and closing the series
investments in apartment complexes. Acquisition expenses do not include, and
Boston Capital will not incur, any expenses for mortgage origination and
real estate brokerage fees from the proceeds of the offering.
(4) Money in the working capital reserve will be available for contingencies
relating to the operation, management and administration of the apartment
complexes, operating partnerships and Boston Capital, 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 can be
used for option and/or other payments and interest expense incurred to
secure the acquisition of apartment complexes.
(5) At a minimum, the amount of offering proceeds which will be invested in
apartment complexes will be the greater of: (1) 82.5% of the total offering
proceeds reduced by 0.1625% for each 1% of financing encumbering the
apartment complexes; or (2) 69.5% of the total offering proceeds. It is
anticipated that each apartment complex will be leveraged with significant
mortgage debt.
RISK FACTORS
Investing in certificates 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 certificates.
General Risks of Boston Capital's
Investments
Investors will not be able to evaluate all of the apartment complexes in which
the series will invest. Boston Associates has not yet identified all of the
apartment complexes in which the series will invest. Investors must rely on the
ability of Boston Associates to find suitable investments for Boston Capital.
Investors should read the sections "Management" and "Prior Performance of
Boston Associates and Its Affiliates" to learn about the prior real estate
experience of Boston Associates. All of Boston Capital's investments are
required to meet Boston Capital's investment objectives and acquisition
policies, as described in the section of this Prospectus entitled "Investment
Objectives and Acquisition
35
<PAGE>
Policies." Boston Capital 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 Boston
Capital. The more certificates that are sold, the more money Boston Capital
will have to invest in apartment complexes. If fewer than all of the
certificates in any series are sold, Boston Capital will invest in fewer
apartment complexes. The fewer the apartment complexes Boston Capital invests
in, the less diversified its portfolio of apartment complexes will be. Also if
Boston Capital 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
Boston Capital'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
Boston Capital. Boston Capital 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 Boston Capital 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
36
<PAGE>
investment in Boston Capital will be the tax credits received.
A decrease in an individual investor's taxable liability may 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 Boston Capital 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 Boston Capital for tax purposes or prevent a
classification of Boston Capital 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 Boston Capital 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
37
<PAGE>
extend to investors under the terms of the Fund Agreement. Unless an investor
is deemed to be taking part in the control of Boston Capital's business, his
liability is limited to the amount invested in Boston Capital.
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 Boston Capital's creditors for
liabilities incurred during the period the contribution was held by Boston
Capital. 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.
Investors may have limited rights of action against Boston Associates. Under
Delaware law, Boston Associates is required to exercise good faith and
integrity in handling the affairs of Boston Capital. 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 Boston Capital.
However, if Boston Associates' 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.
A series 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
38
<PAGE>
the assets of Boston Capital, 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 Boston Capital 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. Boston Capital 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 Boston
Capital. The Dealer-Manager will receive commissions and other compensation as
an agent of Boston Capital. The Dealer-Manager has not retained counsel
separate from Boston Capital'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 Boston Capital as is
customarily made by independent underwriters.
The prohibition on mergers in the Fund Agreement may limit the operational
flexibility of Boston Capital. Although at this time, Boston Associates has no
intent to effect a merger of Boston Capital with any other entity, the presence
of this prohibition in the Fund Agreement may make it more difficult to effect
any sort of change in control that would involve a merger in the future.
Real Estate Risks
If the expenses of apartment complexes are greater than their income, Boston
Capital may
39
<PAGE>
have to pay any operating shortfalls. If the expenses of an apartment complex
are greater than its income, Boston Capital 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 Boston Capital could lose its investment,
including a partial recapture of tax credits.
Leveraged investments may increase the risk of loss because of the debt
payments. Each of the apartment complexes will have mortgage debt which
leverages Boston Capital's investment in the apartment complex. Leveraging
allows Boston Capital 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 Boston Capital. 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, Boston Capital 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 Boston Capital 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 Boston Capital may be
40
<PAGE>
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 Boston Capital.
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 Boston Capital or investors to do so.
Tax Risks
IRS may challenge Boston Capital's tax positions which could result in the loss
or recapture of tax benefits. Boston Capital will not request any tax rulings
from the IRS. Thus, there is no certainty as to the tax consequences of
investing in Boston Capital. Nixon Peabody LLP, counsel to Boston Capital and
Boston Associates, provides its legal opinion with regard to many of the
material tax issues involved in investing in
41
<PAGE>
Boston Capital. However, Nixon Peabody LLP's opinion does not cover some
material tax issues because those issues depend upon the specific investments
made by Boston Capital which have not yet been identified. Nixon Peabody LLP'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 Boston Capital claims. If such a
challenge is successful, it will have a material and adverse effect on the tax
benefits expected from an investment in Boston Capital. 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 Boston Capital.
IRS may audit Boston Capital which might increase the chance that investors'
returns are audited. The IRS may audit the income tax returns of Boston Capital
and the operating partnerships. In fact, the IRS has audited 31 limited
partnerships of a total of more than 3450 such limited partnerships with which
affiliates of Boston Capital are associated. Twenty-five of these audits have
been settled with the IRS without material changes and six are still pending.
If the income tax returns of Boston Capital 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, Boston Capital invests in an
apartment complex before construction has been completed and before the
apartment complex has been rented.
42
<PAGE>
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 Boston Capital 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, Boston Capital 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."
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. Boston Capital
will allocate ninety-nine per cent of all of its profits, credits and losses.
If the IRS audits Boston Capital, it may try to
43
<PAGE>
reallocate profits, credits and losses in a manner less favorable to the
investors. In the opinion of Boston Capital'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, 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 Boston Capital
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 Boston
Capital. 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."
44
<PAGE>
FIDUCIARY RESPONSIBILITY OF
BOSTON ASSOCIATES
Boston Associates, as general partner, is accountable to the limited
partnership as a fiduciary and consequently must exercise good faith and
integrity in handling Boston Capital's affairs. A court in which any legal
action against Boston Associates is instituted will interpret what constitutes
good faith and integrity.
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 an investor may bring a derivative action on
behalf of a series to recover a judgment to the same extent as a limited
partner has such rights under the Delaware Revised Uniform Limited Partnership
Act (the "Act"). The 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 investors 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
investors to enforce their rights against Boston Associates will be
substantially the same as the rights of the limited partners.
Under applicable Delaware law, Boston Associates, as general partner, is
accountable to investors as a fiduciary and, consequently, is required to
exercise good faith and integrity in handling the affairs of the series.
However, the Fund Agreement provides that Boston
45
<PAGE>
Associates and some of its affiliates shall not be liable, responsible, or
accountable in damages or otherwise to Boston Capital or to any of the
investors for any act or omission performed or omitted by Boston Associates or
some of its affiliates in good faith and in the best interest of Boston
Capital, except for conduct constituting fraud, bad faith, negligence,
misconduct or breach of fiduciary duty. Boston Capital also indemnifies Boston
Associates and some of its affiliates 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 Boston
Capital's best interests, in connection with any act or omission in connection
with the business of Boston Capital, 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
Boston Capital and not from investors. Under the provisions of the Fund
Agreement, investors may have a more restricted right of action against Boston
Associates and some of its affiliates than would be the case absent these
provisions.
The Fund Agreement provides that neither Boston Associates, nor its affiliates,
the Dealer-Manager nor Boston Capital shall be indemnified against such
liabilities arising under federal or state securities laws, rules or
regulations, unless: (1) Boston Associates, or its affiliates, the Dealer-
Manager or Boston Capital are successful in defending such action, such claim
is dismissed or a court of competent jurisdiction approves a settlement of such
claim; and (2) 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 as long as it is an affiliate of
Boston Associates.
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<PAGE>
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 Boston Associates could have various
defenses available to it if the investors were to bring an action for breach of
its fiduciary duty. Such defenses could include technical defenses such as
those based on statutes of limitations. Also, Boston Associates 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 Boston Capital. 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 of
Boston Associates should consult with their legal counsel. Boston Capital 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 prohibited within this Prospectus.
CONFLICTS OF INTEREST
Boston Associates, the Dealer-Manager and Boston Capital Partners, Inc. are
affiliates. John P. Manning and Herbert F. Collins equally own all the stock in
Boston Capital Partners, Inc. 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 Boston Capital and Boston
Associates and its affiliates will be entered into without the benefit of
arm's-length bargaining and will involve conflicts of interest.
47
<PAGE>
Management and operation of Boston Capital will subject Boston Associates to
certain conflicts of interest. Some agreements and arrangements among Boston
Capital and Boston Associates and its affiliates have been established by
Boston Associates and are not the result of arm's-length negotiations. Although
some provisions of the Fund Agreement are designed to mitigate such conflicts
of interest by limiting the authority of Boston Associates and its ability to
enter into transactions with Boston Capital, such conflicts cannot be
completely eliminated. See "Fiduciary Responsibility of Boston Associates" for
a discussion of Boston Associates' fiduciary duties to the investors, which, in
general, require Boston Associates to consider the best interests of investors
in managing Boston Capital.
In considering the risks and merits of an investment in Boston Capital,
prospective investors should carefully consider the following potential
conflicts of interest:
Inconsistent Interests
Your interests may be inconsistent in some respects with Boston Associates'
interests. Also, Boston Capital's interests in the operating partnerships may
be inconsistent in some respects with the interests of the applicable operating
general partners.
These inconsistent interests arise due to: (1) Boston Associates' interest in
Boston Capital; (2) Boston Associates' receipt of fees from Boston Capital, and
in some cases, from one or more operating partnerships; and (3) Boston
Associates' ongoing business relationships with some of the operating general
partners.
Conflicts of interest between Boston Associates and its affiliates also arise
in connection with their performance of activities, such as the decisions they
can make in the following circumstances without your prior consent:
o withholding payments of capital contributions to the operating partnerships;
o removing any of the operating general partners; and
o exercising the repurchase obligation of the operating general partners upon
the occurrence of a repurchase event.
48
<PAGE>
Other transactions, such as terminating Boston Capital's business, selling
operating partnership interests, selling or refinancing an apartment complex,
or liquidating an operating partnership, may produce profits for Boston
Associates and/or its affiliates and/or the operating general partner(s) at a
time when it produces adverse tax or other consequences for you. Conversely,
Boston Capital's or an operating partnership's decision to continue business
may be advantageous to them at a time when termination may be advantageous to
you.
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 Boston Associates. In general, Boston Associates will
consent to the sale or disposition of an apartment complex where such sale or
disposition is consistent with Boston Capital'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 that 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 the 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 Boston Capital,
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
49
<PAGE>
independent review of their performance on behalf of the operating partnership.
Each Operating Partnership Agreement should 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 Boston Associates' request and subject to the applicable agency's approval,
the operating general partners must 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, Boston
Associates 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, Boston Capital or the operating partnership, as applicable,
thus, potentially causing additional conflicts of interest.
The Fund Agreement, however, sets forth significant restrictions on the terms
of agreements for the provision of any goods and services to Boston Capital by
Boston Associates and its affiliates. Such restrictions generally require the
terms of transactions with affiliates to be no less favorable to Boston Capital
than the terms obtainable from nonaffiliated entities rendering similar
services as an ongoing activity in the same geographical location. As general
partner of Boston Capital, Boston Associates must fulfill its fiduciary duty to
exercise good faith and integrity in handling all of Boston Capital's affairs.
Common Management; Selection of
Operating Partnership Interests
Boston Associates and its affiliates are committed to the continuing management
of numerous public and private limited partnerships which have invested or will
invest in limited partnerships that own apartment complexes similar to the
operating partnerships in which Boston Capital will invest. The operating
general partners also are committed to the continuing management of other
limited partnerships which are
50
<PAGE>
similar to the operating partnerships. Moreover, operating general partners may
be general partners of other partnerships that may own apartment complexes
located proximate to or in the same market area, and compete with Boston
Capital's apartment complexes.
Public Limited Partnerships
If Boston Associates or any of its affiliates offer interests in public limited
partnerships with similar investment objectives as Boston Capital and which
will acquire operating partnership interests that would satisfy the same
criteria and standards of operating partnership interests to be acquired by
Boston Capital, Boston Associates and its affiliates will review the investment
portfolio of each partnership, including any series being offered by each such
entity. To the extent that they have selected and/or evaluated operating
partnership interests, they will in their sole determination decide which
entity will acquire the investment on the basis of various factors.
These factors include: (1) the amount of funds available and the length of time
the funds have been available for investment; (2) the cash requirements of each
entity; and (3) the effect of the acquisition on each 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, then Boston Associates and its affiliates will
acquire investments for the entities on a basis of priority determined by the
dates of formation of the entities, including any series being offered by each
partnership.
In the event that two or more of Boston Capital's series have funds available
at the same time for investment, and investment opportunities become available
in operating partnership interests, conflicts may arise as to which of Boston
Capital's series should invest in the investments involved. In that event,
Boston Associates and its affiliates will review the investment portfolio of
any such series in the same manner in which they evaluated the public limited
partnerships in the preceding paragraph. Boston Capital will not invest, with
respect to any series of certificates, in any operating partnership owned or
controlled by any of its affiliates.
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<PAGE>
Boston Associates and its affiliates, will devote only as much of their time to
Boston Capital's business as in their judgment and experience is reasonably
required. Because Boston Associates' officers and employees are also officers
and/or employees of other affiliates of Boston Associates, they will have
conflicts of interest in allocating management time, services and functions
among Boston Capital and any present and future partnerships or other ventures
which are or may be organized by Boston Associates' affiliates. If necessary,
Boston Capital will hire its own employees to help carry out its business and
operations. Boston Associates and its affiliates will allocate their management
time, services and functions among the various operating partnership interests,
and if additional series of certificates are issued, among the several series
of certificates, as in their discretion best serves the interest of Boston
Capital and investors. For an indication of the number and size of partnerships
which are presently being managed by Boston Associates' affiliates, see "Prior
Performance of Boston Associates and Its Affiliates."
Other Transactions With Boston Associates
or Its Affiliates
Boston Associates and its affiliate(s) should provide services to Boston
Capital in connection with finding, analyzing, structuring and acquiring
operating partnership interests. Boston Associates and its affiliates,
including the Dealer-Manager, will receive substantial fees, commissions,
compensation and other income from transactions with Boston Capital as
described in this Prospectus and the Fund Agreement. See "Compensation and
Fees."
Expenses
All of Boston Capital's expenses must be billed directly to and paid by the
respective series. Boston Associates and its affiliates may be reimbursed for
the actual costs of goods and materials used for or by Boston Capital;
provided, however, that unless Boston Associates or its affiliates purchase the
goods or materials on behalf of Boston Capital from an independent third party,
the reimbursement to Boston Associates or its affiliates therefor shall not
exceed the lesser of the cost of such goods and materials or 90% of the
competitive price
52
<PAGE>
which would be charged by non-affiliated persons. If Boston Associates or its
affiliates purchase goods or materials from an independent third party which
are used by Boston Capital, Boston Associates 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 Boston Associates or
its affiliates are entitled to compensation by way of a separate fee. Also
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 ongoing administration of Boston Capital 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, directors, senior management
personnel or persons owning 5% or more of the equity of Boston Associates or
any affiliate thereof, or persons having the power to cause the direction of
the Boston Associates or any of its affiliates.
Annual Report
Boston Capital's annual report must contain a breakdown of any costs reimbursed
to Boston Associates and its affiliates. Boston Associates and its affiliates
shall cause its accountants to verify the allocation of such costs to Boston
Capital. The method of verification shall, at minimum, provide: (1) a review of
the time records of individual employees, the cost of whose services were
reimbursed; and (2) a review of the specific nature of the work performed by
each of those employees. Accountants will itemize the additional costs of the
verification on a program-by-program basis. Boston Capital may reimburse Boston
Associates for these costs 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.
53
<PAGE>
Services
Any services beyond those described under "Compensation and Fees" and in the
Fund Agreement that Boston Associates or its affiliates perform for Boston
Capital may be provided only under extraordinary circumstances and must meet
the following criteria:
o the compensation, price or fee 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 Boston Capital 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 Boston Associates 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;
o the fees and other terms of the contract for services shall be disclosed in
a supplement to this 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;
o Boston Associates or its affiliates must be previously engaged in the
business of rendering such services or selling or leasing such goods,
independently of Boston Capital and as an ordinary and ongoing business; and
o all services or goods for which Boston Associates or its affiliates are 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
contract must contain a clause allowing termination without penalty on sixty
days' notice. In addition, all such services must be necessary to the
prudent operation of Boston Capital.
Miscellaneous
No rebates or give-ups may be received by Boston Associates or its affiliates,
nor may Boston Associates or its affiliates participate in any reciprocal
business arrangements that would circumvent the Fund Agreement. Furthermore,
reciprocal business arrangements that would
54
<PAGE>
circumvent the restrictions of the Fund Agreement against dealing with
affiliates are prohibited.
Boston Capital's monies may not be commingled with the funds of any other
person. Nothing contained in this provision, however, shall prohibit Boston
Associates from establishing a master fiduciary account pursuant to which
separate subtrust accounts are established for the benefit of affiliated
entities.
Boston Capital may invest in joint venture arrangements with another program
formed by Boston Associates or its affiliates if the conditions set forth under
"The Offering--Issuance of Certificates in Series" are met.
Boston Capital may obtain loans from Boston Associates or any affiliate of
Boston Associates, 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, Boston
Associates may not borrow money from Boston Capital.
Employment of Professionals
Nixon Peabody LLP in Washington, D.C., is Counsel to Boston Capital, Boston
Associates and affiliates of the Boston Associates, the Assignor Limited
Partner, the Dealer-Manager and to other entities in which affiliates of Boston
Associates are general partners.
If any dispute should arise between Boston Capital and Boston Associates or any
affiliate of Boston Associates, depending on the nature of the dispute, Boston
Associates may cause Boston Capital to retain separate counsel for such matters
as and when appropriate.
Reznick Fedder & Silverman, of Bethesda, Maryland, are accountants and auditors
for Boston Capital, Boston Associates, the Assignor Limited Partner and for
other entities in which Boston Associates 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 Boston
Associates and its affiliates, during the various phases of the organization,
operation and termination of Boston Capital are summarized below. None of the
fees to be paid to Boston Associ-
55
<PAGE>
ates and its affiliates has been or will be negotiated at arm's-length. No
compensation that duplicates the fees to be paid to Boston Associates 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. Boston Capital shall not pay, directly or indirectly, a commission or
fee to Boston Associates or its affiliates in connection with the reinvestment
or distribution of sale or refinancing proceeds of the apartment complexes.
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
--------------------- -------------------- --------------------------
<S> <C> <C>
Reimbursement for Boston Associates o equal to all costs and
Organization & and its affiliates expenses paid in
Offering Expenses connection with the
organization of Boston
Capital and offering of
certificates, including
but not limited to legal,
accounting and
investor
communications and
computer services,
printing, travel,
distribution, and filing;
o actual amount depends
on the number of
certificates sold, but is
not expected to exceed
$800,000 if the
maximum of
$40,000,000 of
certificates are sold in
each series; and
o if the Front End Fees,
including Organization
and Offering Expenses
and Selling
Commissions, exceed
the amount allowed by
Section IV.C.2 of the
NASAA Guidelines--up
to 30.5% of the Gross
Offering Proceeds--
Boston Associates will
pay the excess.
--------------------------------------------------------------------------------
Selling Commissions Boston Capital o equal to $0.70 per
Services, Inc. certificate (7%) sold.
--------------------------------------------------------------------------------
Dealer-Manager Fee Boston Capital o equal to $0.20 per
Services, Inc. certificate (2%) sold;
and
o all or a portion of
which may be
reallowed to Soliciting
Dealers.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
-------------------- ------------------ --------------------------
<S> <C> <C>
Reimbursement for Boston Capital o equal to up to $0.05
Accountable Due Services, Inc. per certificate (0.5%);
Diligence Expenses and
o Dealer-Manager anticipates that
most of this reimbursement will be
reallowed to Soliciting Dealers.
--------------------------------------------------------------------------------
Non-Accountable Boston Capital o equal to up to $0.10
Expense Allowance Holding Limited per certificate (1%)
Partnership sold; and
o Dealer-Manager anticipates that
most of this reimbursement will be
reallowed to Soliciting Dealers.
--------------------------------------------------------------------------------
Asset Acquisition Boston Capital o equal to $0.85 per
Fee Holding Limited certificate (8.5%) sold.*
Partnership
--------------------------------------------------------------------------------
Reimbursement for Boston Capital o equal to all costs and expenses
Investment Partners, Inc. paid in connection with the
Expenses structuring and making of Boston
Capital's investments, including
the reimbursement of any interest
expense incurred in obtaining
funds with which to make:
1. loans and/or option and/or
deposit payments to operating
partnerships prior to Boston
Capital's acquisition of an
interest; and
2. investments in operating
partnerships prior to the
sale of the number of
certificates whose net offering
proceeds would enable Boston
Capital to acquire interests;
o these reimbursements will not
exceed $15 million.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
---------------------- ---------------------- ---------------------------
<S> <C> <C>
Annual Fund Boston Associates o annually equal to 0.5%
Management and or its affiliates of the aggregate cost of
Reporting Fees the apartment
complexes, which is
the sum of equity
invested by Boston
Capital in the
apartment complex
plus the amount of
mortgage debt on the
apartment complex;
o could be about
$438,000 per year if
$40,000,000 of
certificates are sold in
each series; and
o the annual Fund
Management Fee will
be reduced by the
amount of any
Reporting Fees paid to
affiliates of Boston
Associates 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.
--------------------------------------------------------------------------------
Management Fee Affiliates of Boston o equal to the lesser of:
Associates (1) 5% of the gross
receipts of any apartment
complex with respect to
which property management
services are provided by an
affiliate of Boston
Associates; or (2) the
competitive fees for those
services in the area.
--------------------------------------------------------------------------------
Loan Interest from Boston Capital or o not to exceed the
Boston Associates or Operating interest or similar
Affiliates Partnership charges or fees of
unrelated lending
institutions for similar
loans.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Compensation Who Receives the What the Compensation
Category Compensation Equals
-------------------- ------------------- --------------------------
<S> <C> <C>
Reimbursement of Boston Associates o equal to the actual costs of
operating expenses or its affiliates goods and materials used
of Boston Capital for or by Boston Capital
and/or the and/or the operating
Operating partnerships and obtained
Partnerships from entities unaffiliated
with Boston Associates;
o also may include administrative
services necessary to the prudent
operation of Boston Capital; and
o may not include rent or
depreciation, utilities, capital
equipment, other ongoing
administrative expenses or
salaries or fringe benefits.
--------------------------------------------------------------------------------
Share of Profits, Boston Associates o 1% of tax credits and
Losses and Credits losses;
and of Net Cash o 1% of any net cash
Flow Distribution flow distributions
(subordinated to the
achievement of priority
return); and
o 5% of net proceeds of
the sale of the
apartment complexes.
</TABLE>
------------------
* Reduced to the extent that any Acquisition Fees, Development Fees or
consulting fees are paid to the Boston Affiliates or its affiliates by
operating partnerships or operating general partners.
INVESTMENT OBJECTIVES AND
ACQUISITION POLICIES
Investment Objectives
Each series' 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 that is expected to qualify for
federal housing tax credits and/or historic tax credits and/or state housing
tax credits. These apartment complexes may be newly constructed or
substantially renovated. 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.
Some of the operating partnerships in which Boston Capital intends to invest
have been identified and are described in the supplement accompanying this
Prospectus. Boston Capital will again supplement this Pro-
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<PAGE>
spectus 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 Boston Capital will acquire that particular operating
partnership interest. Boston Capital will supply these supplement(s) to all
investors in the series of certificates then being offered and to all
prospective investors.
Boston Capital has four objectives for its investments in operating
partnerships, in order of importance:
(1) Generate tax credits during the first ten to twelve years of an investment
in each operating partnership which investors can use to offset federal income
taxes from all sources. These tax credits include federal housing tax credits,
and in limited circumstances a small amount of historic tax credits. Each
apartment complex must meet continuing occupancy requirements for the initial
fifteen-year period beginning once tax credits are first taken.
(2) Preserve and protect Boston Capital's capital. Boston Capital requires the
general partners of the 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 minimum amount of tax credits.
While these safeguards provide additional protection, there can be no assurance
that these measures will adequately protect investments in the respective
partnerships.
(3) Provide tax benefits in the form of passive losses. Individual investors
generally may deduct any tax losses allocated to them only to the extent of
your income derived from passive activities, namely, income other than wages,
salaries, dividends and interest. See "Risk Factors--Tax Risks Associated with
the Partnership Investments."
(4) Distribute net cash, if any, from the sale or refinancing of apartment
complexes. Under certain favorable market and regulatory conditions, Boston
Capital
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<PAGE>
will distribute to investors part or all of their original investment when some
or all of the properties are sold or refinanced. You can get money back from
the sale or refinancing of an apartment complex equal to your original
investment only if the net sales price is large enough to pay fees and expenses
paid in this offering, estimated to be 27% of your initial investment, plus all
costs of the sale.
Generally, the sale of Boston Capital's interest in an operating partnership or
the sale by 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 apartment complexes or operating partnership interests,
as applicable, to purchasers subject to certain government restrictions and/or
conditions.
Boston Capital will undertake to hold operating partnership interests for the
initial fifteen-year federal housing tax credit compliance period. Boston
Capital currently anticipates selling operating partnership interests, or the
underlying apartment complexes, as soon as practicable after that 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, after the expiration of the ten-year period, an
interest in an operating partnership may be sold, or Boston Capital may agree
to the sale of the underlying apartment complex, in the sole discretion of
Boston Associates when it deems such action to be in the best interest of
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
Boston Capital to liquidate some of its investments until well after the
fifteenth year, even though tax credits are available only for a ten-year
period as to each apartment complex.
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<PAGE>
To achieve these investment objectives, each series will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes, averaging approximately $0.95 to $1.00 per
certificate annually--9.5%-10% annual tax credit as a percentage of capital
invested--for the ten-year credit period. If this annual tax credit goal is met,
it should result in a tax-free internal rate of return of 1.8%-4.2% even
assuming none of the apartment complexes invested in has any value in excess of
indebtedness plus sale expenses at the end of the fifteen-year federal housing
tax credit compliance period, and investors use for tax purposes the assumed
loss of the investor's entire capital contributions. There is no assurance that
any particular tax-free internal rate of return will be achieved.
The internal rate of return is the rate at which the present value of your
future tax benefits will be equal to the cost of your investment. In essence,
it illustrates your future tax credit benefit as return of principal and
interest in today's dollars. The tax-free internal rate of return can exceed
1.8%-4.2% if the value of the apartment complexes exceeds indebtedness plus
sale expenses and the investors receive distributions from those sale or
refinancing transactions.
After consulting with the underwriter regarding tax-free returns currently
available to investors in other similar tax credit investments, Boston Capital
has selected as its investment objective a 9.5%-10% annual tax credit as a
percentage of capital invested. No additional tax credits will be available for
the remaining terms of the fifteen-year federal housing tax credit compliance
period. This calculation assumes:
o the applicability of current tax law;
o each 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 the series.
The attainment of these investment objectives will depend on many factors,
including the ability of Boston Associates to select suitable investments on a
timely
62
<PAGE>
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 any series will meet its investment objectives.
Boston Capital selected the investment objectives after consulting with the
Dealer-Manager regarding tax-free investments currently available to investors
in other similar tax credit investments. Tax credits will not be available for
an apartment complex until it has been placed in service and, with respect to
tax credits, until its apartment units are occupied by qualified tenants. No
tax credits will be available with respect to an apartment complex after the
ten-year credit period applicable to each apartment complex. See "Tax Credit
Programs--Use of the Tax Credit."
Acquisition Policies
Boston Capital will make investments in operating partnerships which Boston
Associates believes to be consistent with Boston Capital's investment
objectives. In the event that the applicable provisions of the tax code are not
interpreted in the way Boston Associates 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 Boston Capital to attain its
investment objectives by pursuing the acquisition policies described below,
Boston Associates will have the right to modify appropriately such acquisition
policies so as to afford Boston Capital a better opportunity to achieve its
investment objectives. If Boston Capital's acquisition policies were to
materially change after the final investment date, a material amendment to the
Fund Agreement would generally require your consent.
Each operating partnership must use the straight line method of depreciation
over a recovery period of 27.5 years, or forty years in the event Boston
Capital 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 forty years using
the straight line method, unless certain allocations are made.
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Boston Capital and/or its affiliates may arrange for Boston Capital to borrow
funds from lending institutions in order to acquire previously specified
investments in operating partnerships after the minimum offering of 250,000
certificates 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 Boston Capital from the net offering proceeds of the applicable
series. Any such reimbursement of interest expense will be made (1) only from
net offering proceeds allocated to the category of acquisition expenses as set
forth in "Estimated Use of Proceeds"; and (2) only in accordance with the
applicable limitations on Front End Fees as provided in this Prospectus.
If the minimum offering with respect to the particular series of certificates
is sold and a sufficient number of certificates to provide Boston Capital with
sufficient funds to repay the loan(s) has not been sold prior to the
termination of the offering of the series of certificates, then Boston
Associates and/or its affiliates will purchase a sufficient number of
certificates to provide Boston Capital with funds to repay such loan(s). These
certificates will be purchased on the same terms and conditions as other
investors except Boston Associates will not pay selling commissions, the
Dealer-Manager Fee, or other organization and offering expenses otherwise
payable to the Dealer-Manager from Boston Capital.
In no event will the investment in any operating partnership interest acquired
by Boston Capital exceed 20% of the gross offering proceeds of such series,
based upon the maximum amount of certificates offered with respect to such
series, unless investors are informed of such proposed investment by: (1)
supplement to this Prospectus during the offering of such series; or (2) a
report sent to investors within forty-five days of the close of the quarter in
which the 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, Boston Capital will not invest in any operating
partnership whose operating general partner is an affiliate of Boston
Associates. The apartment complexes which
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are owned by the operating partnerships to be invested in by Boston Capital can
be located anywhere in the United States, its territories or possessions.
Boston Associates intends to seek as much diversity as reasonably possible in
terms of the locations and sizes of the apartment complexes.
Boston Capital uses the following criteria to select particular operating
partnerships for its investment:
o 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);
o the financial strength of the operating general partner(s);
o 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;
o general rental market conditions in the area of the proposed apartment
complex, including vacancy rates;
o the operating expenses of comparable apartment complexes; and
o in the case of existing apartment complexes, the history and performance of
the apartment complex.
If Boston Capital proposes to invest in an operating partnership that owns or
expects to acquire and substantially renovate an older--ten or more years--
apartment complex, Boston Associates will investigate the condition of the
apartment complex and, if it determines that it is in the best interest of
Boston Capital 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
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measure of realized value. The appraised value of prospective apartment
complexes will not be provided in supplements to this Prospectus.
The size of the tax credit base and the percentage interest to be acquired by
Boston Capital in each operating partnership will be important factors in
determining the acquisition price for each operating partnership interest.
Boston Capital will generally attempt to acquire the following interests in
each operating partnership:
o a 90%-99% interest in the profits, credits and losses;
o a 15%-99% interest in the distributable cash flow of each operating
partnership; and
o the balance remaining with the operating general partner(s).
In addition, Boston Associates anticipates that the interest of a series 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).
In order to preserve and protect each series' interest in the profits, credits
and losses allocated, and the net cash flow distributed by the operating
partnerships, the Operating Partnership Agreement will contain provisions that
are intended to assure compliance with Section 704(b) of the tax code and the
regulations thereunder, and Counsel will advise Boston Associates 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 will be determined and allocated
substantially in accordance with the initial intent of the partners of the
operating partnership.
If construction or renovation of any apartment complex has not been completed
as of the date a series invests in the applicable operating partnership, Boston
Capital will obtain from the operating general partners assurances
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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.
These assurances are expected to be secured by one or more of the following
mechanisms for the benefit of Boston Capital and the construction and/or
permanent mortgage lender, and acceptable to Boston Associates, including but
not limited to:
o payment and performance bonds;
o a letter of credit for all or some portion of the guarantee or assurance;
o the establishment of a reserve of funds held by an independent escrow agent or
other party acceptable to Boston Associates; and
o the right of Boston Capital to withhold funds payable by Boston Capital 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 Boston Associates' 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. These security arrangements may not be sufficient to provide
security for one hundred per cent of the operating general partner's
obligations.
Boston Associates also 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 these operating
deficit guarantees may be
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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
Boston Associates reasonably believes such series will invest. The material
terms of any operating deficit guarantee will be disclosed in that supplement.
Each operating partnership will arrange for comprehensive casualty insurance
coverage which is customary for property similar to the applicable apartment
complex.
If a particular series invests in operating partnerships with the same or
affiliated operating general partners representing an 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 this Prospectus.
Repurchase Events
We anticipate that the operating general partner(s) of each operating
partnership will be obligated to repurchase the operating partnership interest
if the operating partnership:
o fails to qualify for tax credits in the year that the applicable apartment
complex is placed in service;
o fails to cause the applicable apartment complex to be placed in service or to
achieve certain occupancy levels by a date certain;
o fails to achieve permanent mortgage loan closing by a date certain; or
o fails to continue to qualify for tax credits during the period when capital
contributions of Boston Capital are due to the operating partnership.
Additionally, we anticipate that if any applicable government agency
disapproves, or fails to give any required approval of, the admission of Boston
Capital within 180 days of the admission of Boston Capital to an operating
partnership, then, unless Boston Associates waives this requirement, the
applicable operating general partner(s) will be obligated to repurchase the
operating partnership interest of Boston Capital and to
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refund to it the installments of capital contribution which have been paid.
Adjuster Provisions
Each Operating Partnership Agreement is expected to contain adjuster provisions
which will operate to reduce the amount of capital contributions that a series
is obligated to make to an operating partnership in the event that, during the
first several years of a series' investment but generally not less than sixty
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 Boston Capital 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 investors on a pro rata basis as a return of money
originally invested.
We anticipate that the Operating Partnership Agreements will provide that, in
the event that any such shortfall in the projected credit occurs after the
adjustment period, Boston Capital will be treated as having made a constructive
advance to the operating partnership with respect to that 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
that year which will be repaid from liquidation, sale or refinancing proceeds
with respect to that 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 tax credits expected to be generated by
each operating partnership, will not be applicable, or 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."
Loans
In determining whether or not to acquire an interest in a particular operating
partnership, Boston Capital and/or Boston Associates and/or its affiliates may
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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) prior to Boston Capital's acquisition of an interest(s). Boston
Capital and/or Boston Associates and/or its affiliate may also enter into
purchase contracts providing for a deposit.
The loan(s) may be repaid, with or without interest, by the applicable
operating partnership from capital contributions made by Boston Capital to the
operating partnership after the acquisition by Boston Capital of an interest
therein. In some cases, the interest expense incurred by Boston Associates
and/or its affiliates, in obtaining the funds with which to make such loan(s),
may be reimbursed to the applicable entity by Boston Capital. In any such case,
any reimbursement of interest expense by Boston Capital will be made only in
the following circumstances:
o after the acquisition by Boston Capital of an interest in the applicable
operating partnership, or in the event Boston Capital 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;
o from net offering proceeds allocated to the category of Acquisition Expenses;
and
o 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, Boston Associates and/or its
affiliate(s) in connection with any 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 Boston Capital's agreed-upon capital contributions to
the applicable operating partnership if the investment were made. Boston
Capital also may incur other costs, such as inspections, market studies, and
appraisals, which cannot be recouped if Boston Capital deter-
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mines not to invest in the particular operating partnership under
consideration.
Consistent with Boston Capital's investment objectives, Boston Associates 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 Boston Associates believes is both (1) feasible for the
particular property; and (2) beneficial for investors. The 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.
Capital Contributions
We anticipate making our capital contributions to each operating partnership in
approximately four installments, although we may pay the entire capital
contribution to an operating partnership in full upon our 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
specific events pertaining to qualifying for tax credits and/or to the
construction or operation of the apartment complex. We anticipate such events
to include:
o allocation of tax credits;
o occupancy of dwelling units;
o issuance of certificates of occupancy;
o construction loan closing;
o admission of a series to the operating partnership as a limited partner;
o substantial completion of construction or rehabilitation of the apartment
complex;
o final closing or funding of the permanent mortgage loan; and
o 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
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period, the less opportunity we will have to condition our capital
contributions to an operating partnership and/or to currently reduce our
capital contributions to an operating partnership pursuant to the above-
described reduction provisions.
As a condition to Boston Capital's payment of the initial installment of
capital contribution to an operating partnership, Boston Capital is expected to
receive an opinion from counsel to the operating partnership which is
anticipated to state, among other things, that:
o the interest of Boston Capital in the operating partnership is the interest of
a limited partner with no personal liability for the obligations of the
operating partnership;
o the operating partnership has good and marketable legal title to the apartment
complex; and
o the operating partnership is duly formed under the laws of its state of origin
as a limited partnership.
The operating general partners are expected to make certain representations and
warranties to Boston Capital regarding, among other matters:
o compliance with requirements of obtaining and retaining tax credits;
o the status of the operating partnership as a limited partnership in good
standing;
o the fact that there are no defaults existing or anticipated under any material
provisions of the project documents;
o the net worth of the operating general partners; and
o adherence to certain standards with regard to the construction, or
rehabilitation, development and operation of the apartment complex.
Boston Capital 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 of Boston Capital's share of tax credits generated by the apartment
complex.
Boston Capital's Limited Liability
Unless it is deemed, under applicable state law, that Boston Capital is taking
part in the management or
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control of an operating partnership's business, Boston Capital will not have
any liability for obligations of an operating partnership beyond its
agreed-upon capital contributions to the operating partnership. Therefore, with
the objective of limiting the liability of Boston Capital in each operating
partnership to the amount of its capital contributions to the operating
partnership, we anticipate that each Operating Partnership Agreement will state
that: (1) Boston Capital will have no right to take part in the management or
control of the business of the operating partnership, or to transact any
business in the name of the operating partnership; and (2) Boston Capital will
have certain rights under the terms of the Operating Partnership Agreements,
which are expected to include:
o the right to approve or disapprove any sale or refinancing of the applicable
apartment complex;
o 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;
o the right to approve or disapprove the dissolution of the applicable operating
partnership;
o the right to approve or disapprove amendments to the Operating Partnership
Agreement materially and adversely affecting Boston Capital's investment in
the operating partnership; and
o the right to direct the operating general partners to convene meetings and to
submit matters to a vote.
In addition, Boston Capital and investors are expected to have access to the
books and records of the operating partnerships and to receive annual and
quarterly reports.
BCTC 94, Inc., a Delaware corporation, and an affiliate of Boston Associates,
may be a special limited partner in some 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, we anticipate that the
operating general partner(s) will be required to assume responsibility for:
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o 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;
o 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; and
o the management and operation of the operating partnership, including the
oversight of the rent-up and operational stages of the apartment complex.
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 the 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 the withdrawing
operating general partner.
In consideration for the operating general partner(s) performance of various
services to the operating partnership, including the numerous obligations set
forth above, the operating general partner(s) or their affiliates should
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 of the operating partnership and/or available proceeds resulting
from the sale or refinancing of an apartment complex or the liquidation of the
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
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real estate commission, in an amount not to exceed 6% of the contract price for
the sale of the apartment complex. Neither Boston Associates nor its affiliates
will receive any such real estate brokerage commission or Sales Preparation
Fee.
We also anticipate that, as the operating general partners will have no direct
participation in Boston Capital or its affairs, including the offering, Boston
Capital and/or Boston Associates and/or its affiliates may indemnify the
operating general partners against liabilities arising from the offering and/or
Boston Capital'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 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 certificates available for the acquisition of
operating partnership interests which has not been so used, or committed for
use, within twenty-four months from the date of commencement of such series
offering(s), subject to Boston Capital's authority to substitute operating
partnership interests for previously identified operating partnership
interests, shall be promptly returned to investors in that series. If
subsequent series of certificates are offered, the funds will be returned only
to the investors in that series in which the funds were raised.
The return of funds that 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 those funds, as any interest will
be distributed as part of a series' net cash flow. Funds shall be deemed
committed for use if they are included in the Working Capital Reserve or if
written
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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 these 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 used for investment in operating
partnership interests and which have not been deposited into the Working
Capital Reserve will be promptly returned pro rata to investors, less expenses
of Boston Capital.
Any return of capital contributions previously made by Boston Capital to
operating partnerships during the first twenty-four months after the making of
such capital contributions, and any other funds which have been earned or
returned to Boston Capital with respect to operating partnership interests and
any liquidation, sale or refinancing proceeds otherwise received within
thirty-six months from Boston Capital's acquisition of operating partnership
interests shall, in the discretion of Boston Associates, 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 investors' money originally invested; provided
however, that in no event shall Boston Associates make any reinvestments in
operating partnership interests later than thirty-six months from the final
investment date. Any 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 however, that a
sufficient portion of these funds shall be distributed to investors to cover
their estimated income tax liabilities, if any, arising out of the receipt of
the funds.
Preliminary Investments and Reserves
Until investor funds are released by the Escrow Agent to Boston Capital, they
will be invested in short-term
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certificates of deposit or time or demand deposits in commercial banks and in
short-term government securities certificated by the full faith and credit of
the United States Government. 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. Boston Capital
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; in addition, most apartment
complexes will have their own additional reserve requirements.
Boston Capital may also use funds held in the Working Capital Reserve for
options, loans and/or other payments and interest expense incurred which may be
necessary to secure the acquisition of operating partnership interests. To the
extent that the reserves are not needed for said purposes, they will be
utilized to pay Boston Capital's expenses, including the annual Fund Management
Fee, to the extent other Boston Capital monies are not available.
Borrowing Policies
Boston Capital will finance its investments entirely out of the net offering
proceeds. However, Boston Capital can incur indebtedness for:
o the acquisition of operating partnership interests before sufficient net
offering proceeds have been raised as long as those loan(s) are repaid in
their entirety by Boston Capital from net offering proceeds;
o 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;
o working capital purposes;
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o the prevention of default with respect to liens against the apartment
complexes, if any; and
o the discharge of such liens entirely, or otherwise to protect Boston Capital's
investment in operating partnership interests.
Boston Capital may, but does not presently intend to, borrow from Boston
Associates or its affiliates. Any borrowing would be subject to the limitations
set forth under "Compensation and Fees."
Other Policies
o Boston Capital 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"; or underwrite the securities of
other issuers or offer certificates in exchange for property.
o Boston Capital and/or Boston Associates and/or its affiliates may agree to
make and/or guarantee certain interim loans which may be made to operating
general partners and/or the operating partnerships and/or prospective
operating partnerships not yet identified for possible investment by Boston
Capital, 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 the operating general
partners or operating partnerships to the extent Boston Capital acquires an
operating partnership interest.
o Boston Capital will not invest in operating partnership interests jointly with
other programs, except as described in "The Offering--Issuance of Certificates
in Series."
o Boston Capital may not repurchase or otherwise reacquire certificates.
o Boston Capital will distribute annually to investors certain reports providing
information as to each series of certificates, including audited financial
statements.
o Boston Capital may not sell, lease or lend its property to Boston Associates
or any affiliate of Boston Associates, or purchase or lease property from
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Boston Associates or its affiliates, or acquire property from a program in
which Boston Associates or its affiliates have an interest.
o Boston Capital will not invest in real estate mortgages; however, the
operating partnerships in which Boston Capital intends to invest will own
apartment complexes that are subject to mortgage indebtedness.
INVESTMENT IN OPERATING PARTNERSHIPS
Boston Capital anticipates acquiring interests in operating partnerships that
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 Boston Associates, a reasonable
probability exists that the investment under negotiation will be made, this
Prospectus will be supplemented to describe the proposed investment and the
anticipated terms of the investment.
Upon the termination of any series offering period, we will make no further
supplements to this Prospectus to investors in that series. Investors will not
have any right to vote on or otherwise approve or disapprove any particular
investment to be made by Boston Capital. Investors should not rely upon the
initial disclosure of any proposed investment as an assurance that Boston
Capital will ultimately consummate that 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 certificates will set forth any standards that 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 tax code, as origi-
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nally 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 tax credits after 1989 or 1990, respectively. Such
apartment complexes are hereinafter referred to as "New Projects." Except as
noted below, operating partnerships may use the tax credit in conjunction with
other government assistance programs that are described in the section entitled
"Government Assistance Programs."
The 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 tax code provides that the 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 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
apartment complexes in later years.
Properties financed with the proceeds of tax-exempt bonds fall outside of this
allocation restriction if 50% or more of the costs of the property are so
financed. Unlike other federal housing programs that are administered by 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
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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 Tax Credit Program
For a ten-year period known as the credit period, investors in a partnership
that 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 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
low-income tenants (the "Qualified Basis," discussed below under "Eligible
Basis and Qualified Basis").
The applicable percentage varies essentially according to two major factors:
(a) whether an apartment complex is newly constructed, which includes certain
substantially rehabilitated apartment complexes, or is an existing apartment
complex; and (b) whether or not an apartment complex is federally subsidized.
There are three basic tax credit categories:
(1) Non-federally subsidized new construction or substantial rehabilitation
apartment complexes receive a 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
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based on the applicable federal rate of interest in effect in that 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 August 2000, for example, the
applicable percentage is equal to 8.47%.
Substantial rehabilitation is defined in the tax code as capital expenditures
in connection with rehabilitation of a building, excluding the acquisition
costs aggregated over a period of up to twenty-four months of at least $3,000
per low-income unit or 10% 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.
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 tax credit in an amount up to a present value
over ten years of 30% of the Qualified Basis of the apartment complex (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 tax credit with a 30% present value; for
example, for apartment complexes placed in service in August 2000, the
applicable percentage is 3.63%.
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 some
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of the apartment complexes--proceeds of which are or were used directly or
indirectly with respect to the apartment complex. In some respects, the use of
the term "federally subsidized" in Section 42 of the tax 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 tax credit. 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.
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 also must
accomplish substantial rehabilitation 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 may
also 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 tax credit after the ten-year
credit
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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 fifteen-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.
Qualified Apartment Complexes
The 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 (1) 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 (2) 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"). In each case,
the 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 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 tax credits that 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
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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, that 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 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 tax 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, not later than at
the end of the first year of the credit period. Special rules are provided in
the case of apartment complexes that consist of multiple buildings.
The taxpayer may elect whether it will meet the 20-50 Set-Aside Test or the
40-60 Set-Aside Test; 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, commencing with the beginning
of the credit period, which is the first year the credit is taken with respect
to a building. Boston Capital intends to require the operating general partners
of each operat-
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ing partnership in which it 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.
For projects substantially rehabilitated, there is a separate fifteen-year
compliance period that commences in the year that the 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 the
substantial rehabilitation. With respect to new projects, the credit period for
the 30% Credit for acquisition may not commence until the tax credit for
substantial rehabilitation is allowed.
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 thirty years.
The owner of a property, however, may, one year prior to the end of the
fifteen-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 (1) the
outstanding mortgage debt on the property; (2) the cash invested with respect
to the apartment complex, increased by a cost of living adjustment, not to
exceed 5% in any year; plus (3) other capital contributions; minus (4) 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 thirty years, including the initial
fifteen-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
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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 fifteen-year
compliance period. Furthermore, the low-income restrictions would terminate
upon a foreclosure or deed-in-lieu of foreclosure.
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 twenty-four 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 tax 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. In contrast, the 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
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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 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 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 the 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.
Use of the Tax Credit
Taxpayers who own an interest in a qualified low-income apartment complex over
a ten-year period can claim tax credits. In the first year the 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
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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
tax credit to the applicable operating partnership in that first year would be
equal to one-half of the total tax credit for which the building would be
eligible for that year.
To the extent that there is such a reduction of the tax credit amount in the
first year, an additional tax credit in the amount of that 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 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
Boston Capital during any particular year in the credit period. See "Federal
Income Tax Matters--Allocation of Profits, Credits and Losses to Investor in
Year of Purchase of Certificates" and "--Allocation of Profits, Credits and
Losses Upon Sale of Certificates."
In order to use the tax credit fully, a taxpayer who is an individual, an S
corporation or a closely held corporation 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 that 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 tax credit.
Qualified commercial financing is not considered non-qualified nonrecourse
financing, and therefore a taxpayer will be considered to be at-risk for
purposes of
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the tax credit with respect to such financing. For purposes of the tax credit,
qualified commercial financing is defined as financing with respect to any
property if (1) the property is acquired by the taxpayer from a person who is
not a related person; and (2) the financing is borrowed from a qualified person
or represents a loan from any federal, state or local government
instrumentality.
A qualified person for purposes of the tax credit is a person who is actively
and regularly engaged in the business of lending money and who is not (1) the
person from whom the taxpayer acquired the property; or (2) a person who
receives a fee with respect to the taxpayer's investment in the property.
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 tax code, must be
allocated tax credit authority by the applicable state or local credit agency
in the jurisdiction in which the apartment complex is located. Boston Capital
will only acquire interests in operating partnerships owning apartment
complexes which have received a preliminary tax credit allocation by the
appropriate credit agency. Although an actual allocation of 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 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
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no assurance that the credit agency would make credit available during the
following year. We anticipate that each of the Operating Partnership Agreements
will provide that we may require the operating general partner(s) to repurchase
our interest in the operating partnership in the event that the apartment
complex is not placed in service in the year for which the tax credit is
allocated and does not meet the above-described 10% test. 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.
Qualified Allocation Plans
Credit agencies must 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 that
serve the lowest income tenants for the longest periods of time.
The credit agencies also must take other criteria into account in selecting
apartment complexes for an allocation. Boston Associates 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 tax credits in an amount that 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 following:
o source and use of funds;
o total financing for the apartment complex;
o proceeds expected to be generated as a result of tax benefits; and
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o the percentage of tax credits used for project costs other than the cost of
intermediaries.
Boston Associates 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 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 monitor compliance affirmatively and to report any noncompliance with
the tax credit program to the IRS.
State Housing Tax Credit Programs
Boston Capital may offer one or more series of certificates exclusively to
investors of a specific state and invest, through operating partnerships,
exclusively in apartment complexes that will generate both 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 a state generating historic
tax credits. As of the date of this Prospectus, Arkansas, California, Colorado,
Florida, Georgia, Hawaii, Massachusetts, Missouri, New York, North Carolina,
Utah, and Virginia are the only states which have adopted legislation
authorizing 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, Boston Associates anticipates that any series that 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 the series' investments than a series that does
not invest in apartment complexes qualifying for state housing tax credits.
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Similarly, we anticipate that any series which invests, through operating
partnerships, in apartment complexes qualifying under state housing tax credit
programs could realize a different aggregate amount of tax credits from 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 that offers any series anticipated to generate
both types of tax credits will discuss the achievement of Boston Capital'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 tax 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 tax credit. A certified historic structure is defined as a building which
(1) is listed in the National Register of Historic Places; or (2) 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 the
capital account, incurred for real property, and made in connection with a
qualified rehabilitated building. In general, a qualified rehabilitated
building is one that has been substantially rehabilitated. The rehabilitation
also must 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.
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 tax credit
for the year.
The use of the historic tax credit by individuals, including shareholders of S
corporations or closely
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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 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 (1) the amount of any nonrecourse
financing with respect to the property not exceed 80% of the credit base of the
property; and (2) the financing not be provided by a person who is related to
the taxpayer.
Historic tax credits used by investors are subject to full or partial recapture
by an investor who transfers one-third or more of his certificates within five
years of the date which the applicable apartment complex was placed in service,
in proportion to the percentage of certificates 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 that varies
depending on the date of sale or disposition. See "Federal Income Tax
Matters--Recapture of Tax Credits."
GOVERNMENT ASSISTANCE PROGRAMS
The tax credit can be used in conjunction with apartment complexes that are not
government assisted as well as those that receive assistance from federal,
state or local governments. Boston Capital intends to acquire interests in
operating partnerships owning apartment complexes that are assisted by federal,
state or local programs, although we 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 used with the tax credit.
In order to qualify for 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 tax 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 certain other govern-
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ment assistance program rules which will complicate or block the full use of
some assistance programs.
Although the following discussion presents several examples of the
inconsistencies, it is not inclusive. At the present time, the procedures for
the resolution of inconsistencies and the likelihood of favorable clarification
are not clear. Furthermore, there can be no assurance that the terms of the
applicable programs, or the regulations governing them, will not change. Boston
Associates 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 Boston Capital may undertake to
acquire interests.
Rural Housing Service ("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 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 fifty
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.
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An owner wishing to sell the apartment complex must obtain RHS approval. 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 twenty-year period following the
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, 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 fifty-year term of the
mortgage.
Although a RHS mortgage may not be prepaid during its fifty-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
partnership may encumber title to its apartment complex, admit or remove a
general partner or permit a general partner to maintain a certain percentage
interest in that operating partnership.
Section 515 apartment complexes are eligible only for the 30% Credit, because
they are the beneficiaries of a federal below-market-rate loan.
USHUD Mortgage Loan Insurance Programs and
Insurance Subsidy Programs
Boston Capital 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% Credit. However,
Boston Capital currently anticipates
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that any USHUD-insured apartment complexes it invests in 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.
(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 or more units. This
program provides housing for families of moderate income, families eligible
for assistance under the USHUD Section 8 Program 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 forty 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
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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 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 thirty days or such extended time period to which
USHUD and the mortgage lender consent, the
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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 that 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 forty 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.
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.
(4) Section 221(d)(3) Mortgage Insurance Program and 221(d)(3) (BMIR) Subsidy
Program.
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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 those
organizations.
(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 tax code
definition using financing pursuant to the Section 223(f) program, the 70%
Credit would be applicable with respect to the rehabilitation expenditures.
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 thirty-five
years.
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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.
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, Boston Capital 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 tax 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 tax code, if it is placed in service after acquisition by
Boston Capital 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 twenty years, commencing when
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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 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
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sanitary housing or is in default under any of its contractual undertakings to
USHUD.
Initially established prior to construction, 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.
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
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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 fifty units or fewer, 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) 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% 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.
Rent Supplement Programs
Section 236(f)(2) of the National Housing Act, as amended, and Section 101 of
the Housing and Urban
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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 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.
Transfer of Physical Assets Procedure
Federal regulations provide that certain types of transfers of ownership in
apartment complexes that 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.
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 pro-
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grams, including Sections 220, 221(d)(3), 221(d)(4) and 236.
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.
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 construc-
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tion 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 forty 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 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.
In order to maintain the tax-exempt nature of obligations issued by HFAs,
owners must comply with restrictions in the tax 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 tax code that
make this program more restrictive. Before passage of
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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 tax
credit--and adjustment for family size is required. In addition, the low-income
occupancy requirements must be met for at least a fifteen-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 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.
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%.
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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% Credit because the project
would be considered to be federally subsidized. 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.
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.
Generally, 90% of the families assisted under the HOME Program must have
incomes that do not exceed 60% area median income, with the remaining 10%
having incomes not exceeding 80% 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.
MANAGEMENT
The General Partner
Boston Capital Associates IV L.P. ("Boston Associates"), the general partner of
the partnership, is a Delaware limited partnership, the general partner of
which is Boston Capital Associates, a Massachusetts general
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partnership, whose only partners are Herbert F. Collins and John P. Manning,
the principals of Boston Capital Partners, Inc. 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 Boston Associates, 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 the audited Balance
Sheet of Boston Capital Associates and the notes thereto, which are
incorporated herein by reference.
The Investment Committee of Boston Capital Partners, Inc. will have exclusive
responsibility for selecting and approving investments for each series. The
Investment Committee will initially be comprised of the persons identified
below. In addition to selecting and approving investments, the Committee will
establish the terms and conditions pursuant to which such investments will be
made.
The members of the Investment Committee are:
Herbert F. Collins, Chairman, Boston Capital Partners, Inc.; John P. Manning,
President, Boston Capital Partners, Inc.; Christopher W. Collins, Executive
Vice President, Boston Capital Partners, Inc.
Boston Capital Partners, Inc. and Its Affiliates
Boston Capital is the successor in interest through merger of Greater Boston
Development, Inc., which was founded in 1974 by Herbert F. Collins and John P.
Manning, Boston Capital Partners, Inc. Chairman of the Board and President,
respectively.
Boston Capital Partners, Inc. 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 Partners, Inc. was
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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 Partners, Inc. 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 Partners, Inc. real estate portfolio.
Herbert F. Collins, age 70, 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 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
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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 51, is co-founder, President and Chief Executive Officer
of Boston Capital Corporation, where he is primarily responsible for strategic
planning and business development. 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 former 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. In
1998, President Clinton also appointed Mr. Manning to the President's Export
Council, which is the premiere committee comprised of major corporate CEOs to
advise the President in matters of foreign trade. Mr. Manning is also a member
of the Board of Directors of the John F. Kennedy Presidential Library in
Boston. In the civic community, Mr. Manning is a leader, serving on the Board
of Youthbuild Boston. Mr. Manning is a graduate of Boston College.
Richard J. DeAgazio, age 55, is Executive Vice President of Boston Capital
Corporation, Inc., and is President of Boston Capital Services, Inc., Boston
Capital's NASD registered broker/dealer. Mr. DeAgazio formerly served
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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 currently serves
as a member of the National Adjudicatory Council of the NASD. 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 on the Board of Directors of Kelmoore
Investment Company and Kansas City Technologies, Inc. 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.
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.
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Anthony A. Nickas, age 39, is Chief Financial Officer of Boston Capital
Partners, Inc. and serves as Chairman of the firm's Operating Committee. Mr.
Nickas is responsible for all the financial accounting and operational
functions of Boston Capital and has spent the past thirteen years in the real
estate syndication and investment business. His prior responsibilities at
Boston Capital include management of finance and accounting for 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 54, 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 twenty 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 39, 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. He graduated from
the University of Colorado and received his MBA from Northeastern University.
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Marc N. Teal, age 36, is Vice President of Partnership Accounting of Boston
Capital Partners, Inc. He oversees the accounting and financial reporting,
coordinates the annual audits, and oversees the investment of all reserves and
cash on hand 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 44, is Vice President and Director of Asset Management
and Tax for Boston Capital Partners, Inc. Ms. O'Rourke is responsible for the
operations of the department. Specific responsibilities include but are not
limited to: financial reporting, tax compliance, information systems and
partnership issues. Ms. O'Rourke has more than seventeen years experience in
taxation and accounting. She initially joined Boston Capital in 1995 as the
Director of Tax. Prior to joining Boston Capital, Ms. O'Rourke was the
Partnership Tax Controller at First Data Investor Services Group, Inc. where
she directed the tax compliance of real estate public partnerships and the
issuance of 200,000 investors' K-1's annually. Before that she held positions
as a Senior Tax Accountant with Culp, Elliott and Carpenter, P.C. and as 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 BOSTON ASSOCIATES AND ITS AFFILIATES
During the ten-year period from January 1, 1990 to December 31, 1999,
affiliates of Boston Associates and their respective predecessors in interest
have served as general partners of three public limited partnerships and
twenty-one private limited partnerships including sixteen corporate limited
partnerships and one direct placement corporate limited partnership for a total
of
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twenty-five real estate programs. All of the twenty-one private limited
partnerships 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 Boston Associates and their respective predecessors in interest
raised $1,946,892,413 in subscriptions from 55,897 investors during this
ten-year period. A total of 1,307 properties(1), with a total development cost
of $3,791,093,301 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, 23% in the Midwest, 12% in the
Southwest, and 8% in the West.
The foregoing information covering the period from January 1, 1990 to December
31, 1999, can be summarized as follows:
<TABLE>
<CAPTION>
PROGRAMS PROPERTIES INVESTORS
------------------ -------------------------- --------------------------
Total Average
Develop- Capital
Num- Num- ment Invested
Type ber ber Cost Number Capital Per Property
----------- ----- -------- ---------------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Public 3 889 $2,158,120,888 55,572 $ 959,464,518 $1,079,263
Private 21 418 $1,632,972,413 325 $ 987,427,895 $2,362,267
-- ----- -------------- ------ -------------- ----------
Total ..... 24 1,307 $3,791,093,301 55,897 $1,946,892,413 $1,489,589
</TABLE>
REGIONS
<TABLE>
<CAPTION>
Northeast Mid-Atlantic Southeast Midwest Southwest West
----------- -------------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Public ...... 11% 12% 35% 23% 12% 7%
Private 10% 12% 30% 24% 13% 11%
-- -- -- -- -- --
Total ....... 11% 12% 34% 23% 12% 8%
</TABLE>
Of these 24 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)
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Alabama .............. 20 Massachusetts ........ 15 Pennsylvania ......... 36
Arizona .............. 13 Michigan ............. 49 Puerto Rico .......... 8
Arkansas ............. 23 Minnesota ............ 14 Rhode Island ......... 5
California ........... 71 Mississippi .......... 64 South Carolina ....... 35
Colorado ............. 8 Missouri ............. 66 South Dakota ......... 4
Connecticut .......... 8 Montana .............. 4 Tennessee ............ 19
Delaware ............. 4 Nebraska ............. 6 Texas ................ 65
Florida .............. 51 Nevada ............... 4 Utah ................. 4
Georgia .............. 83 New Hampshire ........ 4 Vermont .............. 6
Illinois ............. 13 New Jersey ........... 12 Virginia ............. 65
Indiana .............. 8 New Mexico ........... 15 Virgin Islands ....... 10
Iowa ................. 18 New York ............. 65 Washington ........... 1
Kansas ............... 18 North Carolina ....... 47 West Virginia ........ 5
Kentucky ............. 54 North Dakota ......... 19 Wisconsin ............ 15
Louisiana ............ 80 Ohio ................. 8 Wyoming .............. 0
Maine ................ 23 Oklahoma ............. 38
Maryland ............. 22 Oregon ............... 1
</TABLE>
------------------
(1) Includes seventy-one properties which are jointly owned by two or more
investment partnerships or series within an investment partnership which
represent a total of eighty-one shared investments.
(2) The total number of properties by state does not reflect the eighty-one
shared investments of seventy-one operating partnerships. The net number of
properties reflected is 1,226.
The twenty-four 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 1,307 total properties acquired during this ten-year period,
fifty properties were refinanced.
Of the total offerings during the ten-year period, twenty-four invested in
government-assisted properties and had investment objectives which were similar
to the investment objectives of Boston Capital, 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.
Information concerning the public limited partnerships organized between
January 1, 1997 and December 31,
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<PAGE>
1999 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, 1999, interests in twenty-one of
the limited partnerships with similar investment objectives were sold to
approximately 325 investors in private offerings intended to be exempt from the
registration requirements of the Securities Act of 1933. A total of
$987,427,895 in subscriptions was raised. Interests were acquired in a total of
418 properties, with a total development cost of $1,632,972,413.
The private limited partnerships involved new construction or renovation of
apartment complexes, financed with mortgage indebtedness aggregating
approximately $848,955,982 in addition to the equity investment of the prior
limited partnerships of $987,427,895. 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, 1999, interests in three limited
partnerships with investment objectives similar to those of Boston Capital,
were sold to approximately 55,572 investors in public offerings registered
under The Securities Act of 1933. A total of $959,464,518 in subscriptions was
raised. A total of 889 properties were purchased at a total development cost of
$2,045,014,598.
Information regarding the public offerings is summarized as follows as of
December 31, 1999:
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<PAGE>
<TABLE>
<CAPTION>
Investors Properties Type of Properties
----------------------------------------------------------------------------------------------
Total
Develop- Recently Under Historic
ment Comp- Con- Tax
Program Closed Number Capital Number Cost leted struction Credit
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston
Capital Tax
Credit
Fund II
Limited
Partnership
(Series 9
through
14) ......... 1991 10,589 $176,037,018 295 $ 521,239,739 288 N/A 7
Boston
Capital Tax
Credit
Fund III L.
P. (Series
15 through
19) ......... 1993 13,744 $219,960,000 241 $ 550,956,681 229 N/A 12
Boston
Capital Tax
Credit
Fund IV
L.P. (Series
20 through
37) ......... 31,239 $563,467,500 353 $1,085,924,468 318 31 4
</TABLE>
During the four-year period ending December 31, 1999, affiliates of Boston
Associates sponsored one public investment limited partnership with similar
investment objectives. This public limited partnership owns interests in 218
operating partnerships which include eighteen properties jointly owned by two
or more investment partnerships or series within an investment partnership,
representing a total of eighteen shared investments. The total number of
properties by state does not duplicate the ten shared investments. The net
number of properties reflected is 200 located in:
<TABLE>
<S> <C> <C> <C> <C> <C>
Alabama ............... 0 Maryland .............. 2 Ohio .................. 2
Arizona ............... 2 Massachusetts ......... 0 Oklahoma .............. 5
Arkansas .............. 6 Michigan .............. 6 Oregon ................ 1
California ............ 3 Minnesota ............. 2 Pennsylvania .......... 4
Colorado .............. 1 Mississippi ........... 19 Puerto Rico ........... 1
Connecticut ........... 6 Missouri .............. 7 Rhode Island .......... 1
Florida ............... 2 Montana ............... 0 South Carolina ........ 1
Georgia ............... 7 Nebraska .............. 0 South Dakota .......... 0
Illinois .............. 2 Nevada ................ 0 Tennessee ............. 7
Indiana ............... 1 New Hampshire ......... 1 Texas ................. 23
Iowa .................. 2 New Jersey ............ 3 Utah .................. 1
Kansas ................ 2 New Mexico ............ 2 Vermont ............... 0
Kentucky .............. 14 New York .............. 10 Virginia .............. 15
Louisiana ............. 22 North Carolina ........ 4 Virgin Islands ........ 0
Maine ................. 4 North Dakota .......... 8 Wisconsin ............. 1
</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 $372,835,377 in addition to
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<PAGE>
the equity investment of the investing partnerships of $394,918,500. These
properties equalled 100% of the total development cost of properties acquired
by public limited partnerships in the four-year period ended December 31, 1999.
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. Boston Associates 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
Boston Associates and their respective predecessors in interest have raised
approximately $2.3 billion in equity from approximately 73,000 investors to
acquire interests in approximately 2,100 properties containing approximately
102,000 apartment units in 48 states, Puerto Rico, The Virgin Islands and
Washington, D.C., representing more than $5.14 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 these tables is not necessarily indicative of the
results that Boston Capital may experience. 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 these prior
partnerships is brief, and tax returns and financial statements from only the
initial years of some of these limited partnerships have been filed.
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<PAGE>
DESCRIPTION OF CERTIFICATES
The Certificates
Investors will invest in certificates, representing assignments of units of the
beneficial interest of Boston Capital 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 Boston Capital and will not engage in any other
business. Investors will be entitled to all the rights and economic benefits of
a limited partner of Boston Capital, including the rights to a percentage of
Boston Capital's income, gain, credits, losses, deductions and distributions.
No investor will be personally liable for the debts, liabilities, contracts or
other obligations of Boston Capital. 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 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.
Under the Fund Agreement, all of the ownership attributes of limited
partnership interests held by the Assignor Limited Partner are assigned to
investors, including the right to receive a percentage of Boston Capital's
income, gain, credits, losses, deductions, and distributions, as well as the
right to take certain actions without the approval of Boston Associates and the
right to inspect Boston Capital's books and records. All rights accorded
limited partners under the laws of the State of Delaware extend to the
investors under the terms of the Fund Agreement subject to the limitations set
forth under "Fiduciary Responsibility of Boston Associates." Investors of
different series will participate in different pools of operating partnership
interests. The rights and ownership attributes of investors in all series will
be identical in all other respects, except with respect to voting rights and
accounting matters applicable to any particular series.
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<PAGE>
Transfers
We anticipate the certificates of each series to be transferable, subject to
some restrictions, thirty days after the issuance of the final certificates
with respect to the applicable series. To the extent that transfers are
permitted, transferees of certificates will be recognized as investors on the
last business day of the calendar month during which Boston Capital or its
agent receives all necessary documentation with respect to the transfer--unless
such documentation is received fewer than five business days prior to the last
business day of a calendar month, in which case the transferee will be
recognized as the investor, on the last business day of the next calendar month
following such receipt.
Although we anticipate certificates to be issued in a form facilitating
trading, there are currently limitations on the transferability of certificates
necessitated by the tax credit recapture provisions in the tax code. See
"Federal Income Tax Matters--Federal Housing Tax Credit." The certificates of
all series may be listed on a national securities exchange or included for
quotation on NASDAQ only if deemed by Boston Associates to be in the best
interest of Boston Capital and the investors, which is not currently
anticipated.
If, however, prior to permitting the free transferability of certificates, our
interpretations of the tax code would indicate that free transferability would
cause Boston Capital to be treated as a corporation for federal income tax
purposes, transferability of certificates will be restricted. Even if
certificates are made freely transferable, in order to avoid recapture of tax
credits upon the transfer of certificates, no more than 50% of the certificates
will be permitted to be transferred in any twelve-month period.
No certificates will be listed for trading until Counsel renders its opinion
that it is substantially more likely than not that such listing will not cause
Boston Capital to be treated as a corporation for federal income tax purposes.
Should listing occur, Boston Associates has the authority to make cash and
property distributions and adjust capital accounts in order to permit
certificates to be economically equal for purposes of public trading.
Furthermore, there is no assurance that
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<PAGE>
exchange listing or inclusion on NASDAQ will be accomplished or will be deemed
by Boston Associates to be in the best interest of Boston Capital or the
investors. Accordingly, there is no assurance that the certificates will be
freely transferable. Furthermore, even if 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 certificates are otherwise permitted, neither a
transfer nor an assignment of certificates will be permitted if such transfer
or assignment would be in violation of any applicable federal or state
securities laws, including investor suitability requirements. We do not
anticipate that the suitability requirements will be applicable in the event
that the certificates are listed on a national securities exchange. Boston
Associates will be required to determine that transferees meet the
then-applicable investor suitability standards prior to permitting a transfer
of certificates.
Boston Associates will stop or defer a transfer or assignment of certificates
if it could result in the transfer of 50% or more of all limited partnership
interests in Boston Capital within a twelve-month period, and Boston Associates
believes that the resulting termination of Boston Capital for tax purposes
would result in recapture of tax credits by some investors or would otherwise
adversely affect the economic interests of the investors. In the event of a
suspension, Boston Associates will notify the transferring or assigning
investor 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 Boston Capital 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, Boston
Associates will give notice of the suspension to investors as soon as
practicable.
In its sole discretion, Boston Associates may at any time:
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<PAGE>
(1) halt trading in certificates;
(2) fail to list and/or cause the delisting of certificates from public trading
markets;
(3) cause each purchaser of certificates to be admitted to Boston Capital as a
beneficiary;
(4) require the investors to become limited partners;
(5) restrict the circumstances under which certificates 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 order to preserve the tax
status of Boston Capital as a partnership, prevent Boston Capital's
termination for federal income tax purposes, prevent the recapture of tax
credits, prevent federal income tax treatment of Boston Capital as an
association taxable as a corporation, insure that investors will be treated
as limited partners of Boston Capital for federal income tax purposes or
qualify Boston Capital as a pass-through entity.
Investors who wish to exchange their certificates for limited partnership
interests may do so after the termination of the applicable series offering
period by (1) delivering such documents as may be required by Boston
Associates; and (2) paying Boston Capital's expenses in accomplishing such
exchange, currently estimated to be $500. Such exchange will not be effective
until Boston Associates consents, which consent cannot be unreasonably withheld
or delayed. A holder of limited partnership interests may not reconvert his
limited partnership interests into certificates. Limited partnership interests
will not be transferable except by operation of law or with the consent of
Boston Associates, 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 certificates into
limited partnership interests shall be accomplished at such times as Boston
Associates shall determine, but not less frequently than semiannually.
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<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 profits
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 Boston Capital. Second, these allocations and distributions to Boston
Capital will be further allocated and distributed by Boston Capital between
Boston Associates 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 Boston Capital.
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 Boston Capital, and will be reduced by the amount of all losses and certain
credits of Boston Capital, in each case to the extent allocated to such
investor.
Boston Capital will make the following allocations and distributions separately
for each series of certificates:
From Boston Capital to the Investors
1. Annual Cash Payments and Distributions from Normal Operations. Boston
Capital will allocate or distribute to investors 99% of its net cash flow after
it pays expenses, if any, to Boston Associates and its affiliates. These
expenses include preparing tax returns, acquiring the property and paying the
Fund Management Fee. Boston Associates will receive 1% of
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<PAGE>
net cash flow after expenses are paid; provided, however, that investors have
already received enough to meet the priority return. Before investors do
receive the priority return, Boston Associates will receive some fees and
compensation for services.
We do not anticipate that any significant amount of net cash flow will be
distributed to the investors on an annual basis.
2. Profits, Credits and Losses. Boston Capital will allocate or distribute to
investors 99% of its profits, credits and losses from normal operations.
Gains and losses recognized by Boston Capital upon the sale, exchange or other
disposition of all or substantially all of the property owned by an operating
partnership or Boston Capital's interest in an operating partnership shall be
allocated in the order as follows:
(1) gain will be allocated to the partners and investors and Boston Associates
in the amount of their negative capital accounts;
(2) gain will be allocated to the investors in amounts equal to any unreturned
capital contributions;
(3) gain will be allocated 99% to the investors and 1% to Boston Associates.
Any losses will be allocated first to reduce any partners' or investors'
positive capital accounts in proportion to their interest in Boston Capital;
second in the amount of any unreturned capital contributions; and third, either
to any partners who bear(s) the economic risk of any remaining losses, if any,
or all in accordance with Boston Capital interests.
3. Distributions of Liquidation, Sale or Refinancing Proceeds. If there is a
sale or refinancing of an apartment complex or the sale of Boston Capital's
interest in an operating partnership, Boston Capital will use the proceeds in
the following order:
(1) pay all of its third party debts and liabilities;
(2) establish any necessary reserves;
(3) repay any loans to Boston Associates or its affiliates;
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<PAGE>
(4) distribute any unreturned capital contributions to the partners and
investors; and
(5) distribute 95% of the proceeds to investors and 5% to Boston Associates;
provided that Boston Associates' distribution will be subordinated to the
achievement of the priority return to investors.
Before investors do receive the priority return, Boston Associates will receive
some fees and compensation for services.
From the Operating Partnerships to Boston Capital
1. Annual Cash Payments and Distributions from Operations. We anticipate to
make payments and distributions 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 10%
to 99% to Boston Capital.
We do not anticipate that any significant amount of cash distributions will be
made to us 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 Boston Capital 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 in the order as follows:
(1) gain will be allocated to the partners in the amount of their negative
capital accounts;
(2) gain will be allocated to the partners in amounts equal to their unreturned
capital contributions; and
(3) gain will be allocated in accordance with the provisions of each Operating
Partnership Agreement,
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<PAGE>
which is anticipated to result in an allocation to Boston Capital 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 third, 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 in the order as follows:
(1) payment of all third-party debts and liabilities of the operating
partnership will be paid;
(2) establishment of any necessary reserves;
(3) 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;
(4) in some circumstances, distribution of any unreturned capital contributions
to the partners, with a minimum of 5% of any proceeds going to the operating
general partner(s) in operating partnerships receiving RHS financing; and
(5) distribution of the remainder, if any, in accordance with the terms of the
Operating Partnership Agreement, between 20% and 95% anticipated to go to
Boston Capital.
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.
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<PAGE>
Authority of the Boston Associates to Vary Allocations to Preserve and Protect
Partners' and Investors' Intent
In order to preserve and protect the determinations and allocations provided
for in the Fund Agreement, Boston Associates is authorized and directed to
allocate income, gain, loss, deduction, or credit arising in any year
differently from 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 Boston Capital, would cause
the determinations and allocations of each partner's and investors'
distributive share of such items not to be permitted by Section 704(b) of the
tax code and its Treasury Regulations. No amendment of the Fund Agreement or
approval of any partner or investor 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 Certificates
In the event that there is more than one date of issuance of certificates (an
"investment date"), any cash available for distribution, and all profits,
credits and losses allocable to the investors 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 certificates as of or
prior to the investment date occurring within such period, on the basis of an
interim closing of Boston Capital's books on such dates.
Profits, credits and losses will be allocated each month to the holder of
record of a certificate 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 certificates held by each investor.
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<PAGE>
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 certificate as
of the last day of each month in the ratio which the certificates held by such
person on the last day of the calendar month bears to the aggregate number of
certificates outstanding on the last day of the month.
FEDERAL INCOME TAX MATTERS
General Considerations
The following discussion is solely a discussion of the material federal tax
aspects of an investment in certificates by an investor, and is not a
comprehensive treatment of all tax considerations affecting an investment in
Boston Capital. In addition, although this discussion addresses issues with
respect to which Boston Capital 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. Boston Capital does not anticipate
requesting a ruling from the 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 tax 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 changes may or may not be retroactive with respect
to transactions prior to the effective date of the 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 tax code and subsequent
amendments thereof.
Although Boston Capital will be guided by competent tax advisors, uncertainty
exists concerning certain tax
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<PAGE>
aspects of the transactions being undertaken by Boston Capital. 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 Boston Capital and/or the operating partnerships, will be
audited. Some of the tax positions being taken by Boston Capital and/or the
operating partnerships may be challenged by the IRS, and there is no assurance
that any challenge will not be successful. Thus, there can be no assurance that
all of the anticipated tax benefits of a purchase of certificates will be
realized.
Counsel's overall evaluation regarding the availability to an investor of the
material tax benefits from an investment in Boston Capital, in the aggregate,
appears on page 191.
The tax consequences of an investment in certificates 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 certificates.
Brief Overview of Federal Income Tax Considerations
This section briefly summarizes certain of the federal income tax
considerations associated with an investment in Boston Capital. 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 tax 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 Boston Capital and the
operating partnerships to pass through all income, credits, losses and
deductions to the investors is dependent upon their classification as
partnerships for tax purposes. Boston Capital does not plan to
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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 Boston
Capital will receive an opinion from Counsel that Boston Capital 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,
Boston Capital will obtain an opinion of Counsel that the 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 Boston Capital were determined to be a corporation
for tax purposes, Boston Capital 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 Boston Capital, 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 certificates is dependent, in the first instance, on the following
general principles of partnership taxation:
1. Each of the operating partnerships must be classified as a partnership for
federal income tax purposes.
2. The allocation of the items of income, gain, tax credits, loss and deduction
to Boston Capital by each operating partnership must have substantial
economic effect or otherwise be in accordance with Boston Capital's interest
in such operating partnership.
3. Boston Capital's tax basis in each of the operating partnerships must exceed
the amount of losses allocated and cash distributed to Boston Capital from
that operating partnership.
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4. Boston Capital's amount at-risk in each of the operating partnerships must
exceed the amount of losses allocated and cash distributed to Boston Capital
from that operating partnership.
5. Boston Capital's amount at-risk with respect to expenditures of each
operating partnership that qualify for tax credits must equal or exceed the
amount of those expenditures allocated to Boston Capital. See
"Classification as a Partnership," "Calculation of Investor's Basis in the
Certificates," "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 more than
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 those deductions. Boston Capital 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 Boston Capital's
deductions and losses and use Boston Capital's tax credits. These limitations
are:
(a) Passive Activity Loss and Credit Limitation. The tax 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
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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 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 in each case subject to the
specific additional limitations referred to above. For example, 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 assuming he meets the other suitability
requirements.
Boston Capital 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 Boston
Capital 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
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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 that investor's basis in his or her certificates at the end of
the year. An investor's tax basis for his or her certificates generally will be
equal to the capital contribution made plus his or her share of Boston
Capital'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 of
Boston Capital's deductions and losses. See "Calculation of Investor's Basis in
Certificates" 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
Boston Capital'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 certificates. This
initial at-risk amount will increase by (1) such investor's share of Boston
Capital's income and gains and (2) increases in such investor's share of
qualified nonrecourse debt and will decrease by (1) such investor's share of
Boston Capital's deductions and losses, (2) the amount of cash and other
distributions made to such investor and (3) decreases in such investor's share
of qualified nonrecourse debt. The utilization of tax credits by an investor
who is an individual or a closely held corporation will also be subject to
at-risk limitations which provide that, in order to fully utilize
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the tax credits, the investor must be at-risk with respect to the tax credit
property.
Based upon Boston Capital's anticipated investments, 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 substantially all of
Boston Capital's allocations will be respected for tax purposes. Boston Capital
will not invest in an operating partnership without obtaining an opinion of
Counsel that substantially all of the 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, Boston Capital 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, the historic 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. 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.
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Boston Capital may invest in operating partnerships that incur rehabilitation
expenditures that will qualify for such historic tax credit, which would then
be available to 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. Boston Capital 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 these items depends, to a significant extent, upon factual
issues as the exact type and description of the services to be provided,
whether in fact the payments are made as compensation for such services or
whether such payments are actually cash distributions or syndication fees,
whether the services provided are ordinary and necessary to the business of the
partnership in question, and whether the amounts of the payments are
reasonable. Since these issues vary on a case by case basis, Counsel cannot
render an opinion on these issues. See "Certain Fees and Expenses" below for a
more complete discussion of these issues.
Sales or Disposition of Operating Partnership Property. Each operating
partnership's gain on a sale of property will be measured by the difference
between the sale proceeds (including the amount of any indebtedness to which
the property is subject) and the adjusted basis of the property. Consequently,
the amount of tax payable by an investor on his or her share of Boston
Capital'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
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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 Certificates. Any gain realized on a sale of
certificates by an investor who is not a "dealer" in the certificates or other
similar securities generally will be a capital gain. In determining the amount
received upon the sale or exchange of a certificate, an investor must include,
among other things, his or her allocable share of Boston Capital'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
certificates may result in the application of this rule. See "Sale or
Disposition of Certificates" for a more complete discussion of these issues.
Transferability--Termination of Boston Capital. The tax code provides that if
50% or more of the capital and profit interests in a partnership are sold or
exchanged within a single twelve-month period, such partnership generally will
terminate for federal income tax purposes. Consequently, under the Fund
Agreement, 50% or more of the certificates may not be sold or exchanged within
a single twelve-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
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to the sale or exchange of real property, capital gains which represents the
recapture of depreciation taken on such property will be taxed at a maximum
rate of 25%.
The maximum corporate tax rate is 35%, which commences at a taxable income of
over $10 million, income up to $10 million is taxed at 34%; income up to
$50,000 is taxed at 15% and income between $50,000 and $75,000 is taxed at 25%,
with the benefits of these graduated rates phased out beginning at $100,000.
Alternative Minimum Tax. Noncorporate and corporate taxpayers, except for
certain qualifying small corporations, are subject to an alternative minimum
tax. Tax credits cannot be used to offset alternative minimum tax liability.
Tax credits which cannot be used because of the alternative minimum tax
restrictions, may be carried back one year or forward twenty years, with
certain restrictions. See "Certain Other Tax Considerations--Alternative
Minimum Tax" below for a more complete discussion.
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 Boston Capital's income, gains, losses,
deductions and credits, regardless of whether he or she has received any cash
distributions from Boston Capital. 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 Boston
Capital's tax information returns are likely. Investors should note that a
federal income tax audit of Boston Capital's tax information returns may result
in an audit of the returns of some or all of the investors.
Tax Shelter Registration. The tax 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. Boston
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Capital will be treated as a tax shelter for purposes of these requirements.
Changes in Tax Law. There may be changes to the tax code in future years
(including amendments having a retroactive effect) which could adversely affect
an investment in Boston Capital.
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 tax code, regulations and existing interpretations thereof and
address fairly the principal aspects of each material federal income tax issue
relating to an investment in Boston Capital. Based on the assumptions and
representations described herein, Counsel is of the opinion that for federal
income tax purposes (1) Boston Capital will be classified as a partnership and
not as an association taxable as a corporation; (2) Boston Capital will not be
treated as a publicly traded partnership for purposes of Section 7704 or
Section 469(k) of the tax code; (3) each investor will be permitted to include
in his or her tax basis his or her share of the non-recourse liabilities of
Boston Capital, including Boston Capital's share of such liabilities of each
operating partnership; (4) it is more likely than not that profits and losses
and tax credits will be allocated among the investors substantially in
accordance with the Fund Agreement; and (5) the profits and losses (other than
the portion thereof classified as portfolio income) and tax credits of Boston
Capital will be treated as derived from a passive activity.
Boston Capital has not yet identified any particular investment in an operating
partnership, however, and the tax benefits available to investors necessarily
will depend in large part upon the characteristics of the particular
investments acquired. Prior to investing in any operating partnership, Boston
Capital will obtain
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an opinion of Counsel, which may be based on assumptions and on representations
from Boston Associates and the general partners of that operating partnership,
and on certain opinions of counsel to that operating partnership, substantially
to the effect that for federal income tax purposes (1) the operating
partnership will be classified as a partnership and not as an association
taxable as a corporation; (2) the operating partnership will be the owner of
the relevant apartment complex; (3) 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; (4) for purposes of determining its tax basis and amount at-risk
for the operating partnership, Boston Capital will be permitted to take into
account its properly allocable share of such operating partnership's
nonrecourse liabilities; and (5) 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) that the
apartment complex continues to comply with the income and rent restrictions, it
is more likely than not that an investor will be entitled to his or her share
(based on his or her interest in the losses of Boston Capital) of Boston
Capital's share (based on Boston Capital'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 (1) the allocation of basis among
various components of a property, particularly as between buildings, the cost
of
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which is depreciable, and the underlying land, the cost of which is not
depreciable; (2) the characterization of various expenses and payments made to
or by Boston Capital or an operating partnership (for example, the extent to
which such payments represent deductible fees or interest); (3) 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 (4) 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 Boston Capital or the allocation of
items of income, gain, credits, loss and deduction among the investors, 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 Boston Capital to realize its investment objectives. See also
"Risk Factors--Tax Risks Associated with Boston Capital's Investments."
Tax Rates
The 1993 Tax Act established a new 36% marginal tax bracket for individual
taxpayers. This rate applies to taxable income above approximately $140,000 for
a joint return and $115,000 for a single person's return. In addition, the 1993
Tax Act applies a further surtax of 10% by applying a 39.6% rate to income in
excess of $250,000 for individuals and married taxpayers filing jointly. The
1997 Taxpayer Relief Act provides that capital gains income is generally
subject to a maximum marginal tax rate of 20% for individuals. However, with
regard to the sale or exchange of real property, capital gains which represents
the recapture of depreciation taken on such property will be taxed at a maximum
rate of 25%.
The 1993 Tax Act continued the 15%, 28% and 31% tax rates under prior law,
indexed for inflation. The 15% rate applies until income exceeds approximately
$36,900 on a joint return and $22,100 on a single return. From that point,
taxable income is taxed at a 28% rate up to $89,150 and $53,500 for joint and
individual returns. Then the 31% rate applies until the
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$140,000 and $115,000 thresholds (see above) for the 36% rate are met.
The tax 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 Boston Capital and the operating partnerships as
partnerships, rather than as associations taxable as corporations, for federal
income tax purposes.
Boston Capital 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 Boston Capital will be classified as a partnership for federal income tax
purposes. In addition, Boston Capital 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. Boston Associates and Counsel are
aware that the IRS would not issue an advance ruling to Boston Capital 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
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entity will be classified as a partnership. These new regulations provide that
entities that are not required to be treated as corporations may now elect
their tax classification. For domestic entities, a newly created entity with at
least two members will automatically be treated as a partnership, unless it
elects to be treated otherwise. Neither Boston Capital nor the operating
partnerships will make such an election.
If the IRS were to challenge the classification of Boston Capital 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
Boston Capital or any of the operating partnerships, Boston Capital 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 investors. This would eliminate
substantially all of the tax benefits of a purchase of certificates.
Furthermore, such change in the tax status of Boston Capital and/or any of the
operating partnerships could create tax liability for an investor.
The 1987 Tax Act enacted new tax 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
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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. Boston Associates has represented that at least 90% of Boston
Capital's gross income will consist of qualifying "passive-type" income.
It is the opinion of Counsel that, if the foregoing representation is correct,
Boston Capital will not be treated as a corporation pursuant to Section 7704 of
the tax 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 Boston Capital, Boston
Capital 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
Boston Capital becomes taxable as a corporation, under the Fund Agreement,
Boston Associates may take any and all such actions it may deem necessary or
appropriate to qualify Boston Capital (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 Boston Capital into some other form
of pass-through entity, or imposing restrictions on the transferability of
certificates. Some forms of reorganization may cause Boston Capital (and
therefore investors) to recognize the appreciation in Boston Capital's assets
as taxable income. Boston Associates is required to effectuate any such
qualification, amendment or reorganization so that, to the extent possible and
legally permissible under the circumstances, the respective interests of the
investors and Boston Associates in the assets and income of Boston Capital (or
successor entity), immediately following such qualification, amendment or
reorganization, are substantially equivalent to such interests immediately
prior thereto.
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Classification of Investors as Partners
for Tax Purposes
The availability of any tax benefits to an investor is also dependent on the
investor being treated as a limited partner of Boston Capital for federal
income tax purposes. Under Delaware law, investors will not be partners of
Boston Capital. Rather, investors will hold an assignment from the Assignor
Limited Partner of an interest in the Assignor Limited Partner's limited
partnership interest in Boston Capital. Counsel is of the opinion, however,
that investors will be treated as partners of Boston Capital for federal income
tax purposes, and that their payments for certificates will be treated as
direct capital contributions to Boston Capital in exchange for such
certificates. If investors were not considered to be partners of Boston Capital
for federal income tax purposes, ownership of certificates 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 Boston Capital would
be passed through to them directly from Boston Capital. Such treatment might
cause Boston Capital's distributions to be included in the gross income of
investors for federal income tax purposes.
Fund Allocations and Distributions
(1) General. No federal income tax is paid by a partnership. Boston Capital
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 Boston Capital, 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 Boston Capital 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
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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 Boston Capital that an investor may report on his
federal income tax return his allocable share, as finally determined for
federal income tax purposes, of Boston Capital'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 Boston Capital 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 certificates
would be very substantially reduced.
In general, each investor must treat Boston Capital items on his return
consistently with the treatment of those items on Boston Capital's return. The
tax 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 certificates. 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 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.
(2) Calculation of Investor's Basis in His Certificates. 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 contrib-
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utes 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: (1)
distributions received by him from the partnership (including for this purpose
his allocable share of a decrease in nonrecourse liabilities); (2) his
allocable share of partnership losses; and (3) 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.
Boston Capital 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 Boston Capital that the tax basis
of each investor will include his allocable share of Boston Capital'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, Boston Capital 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. Boston Capital, and thus the
investors, would not be able to include any such guaranteed portion of such
debt in basis. See "Allocation of
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Profits, Credits, Losses and Other Items in Accordance with the Fund
Agreements."
Boston Capital 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 Boston Capital were
to be challenged and successfully reallocated by the IRS, it could result in a
reduction of such investor's basis in Boston Capital. Since an investor cannot
deduct losses in an amount greater than his adjusted tax basis at the end of
Boston Capital'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. See "Allocation of Profits, Credits, Losses and Other
Items in Accordance with the Fund Agreements," below.
(3) Allocation of Profits, Credits, Losses and Other Items In Accordance With
the Fund Agreement. Section 704(b) of the tax 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 Boston Capital by each operating
partnership, and to the investors by Boston Capital, respectively, in
accordance with their
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respective shares of the losses of each operating partnership, and of Boston
Capital, respectively.
Regulations under Section 704(b) of the tax 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 tax 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 Boston Capital 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 Boston Capital to the applicable operating partnership were insufficient to
offset fully the losses allocable to it pursuant to the applicable Operating
Partnership Agreement. Boston Associates anticipates that Boston Capital 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 Boston Capital and, through it, to the
investors.
Section 704(b) of the tax 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 partner-
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ship 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: (1) that all allocations have economic effect and (2) 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.
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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 consequences in order
to be substantial. An allocation is insubstantial if, as a result of the
allocation, the after-tax economic consequences of at least one partner may be
enhanced while there is a strong likelihood that the after-tax economic
consequences of no partner will be diminished. Furthermore, the Regulations
provide that allocations are insubstantial if they merely shift tax
consequences within a partnership taxable year or are likely to be offset by
other allocations in subsequent taxable years.
Regulations with respect to allocations of loss and deductions attributable to
nonrecourse debt provide that allocations cannot have economic effect because
it is the creditor (rather than any partner) who bears the economic risk of
loss with respect to such indebtedness, but the Regulations provide that
allocations of loss and deductions attributable to such debt will be deemed to
be made in accordance with the partners' interests in the partnership if the
following four requirements are met: (a) partnership capital accounts are
properly maintained and liquidation distributions are made in accordance with
capital account balances; (b) the allocations of loss and deduction
attributable to nonrecourse debt are made in a manner that is reasonably
consistent with some other significant partnership item attributable to
partnership property securing the nonrecourse debt that has substantial
economic effect;
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(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 tax 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
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(of income) to those partners that had previously received allocations of
losses or deductions attributable to the minimum gain with respect to such
debt.
In the case of Boston Capital, 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 tax code provide that tax credits,
other than tax credits specifically subject to the Regulations under Section 46
of the tax 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 investors 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 investors
of Boston Capital. However, if Boston Capital's (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
IRS 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.
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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 Boston
Capital will receive any cash flow distributions from the operating
partnerships for a substantial period of time. On this basis, the IRS could
contend that Boston Capital 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, Boston Capital 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 IRS 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, Boston Capital 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 Nixon Peabody LLP
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
investors) in Boston Capital 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. Boston Capital will obtain an opinion of
Nixon Peabody LLP 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
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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
Boston Capital and investors. However, the allocation of such losses and
credits to the operating general partner would be required only to the extent
that capital contributions of Boston Capital to the operating partnership were
insufficient to offset fully the losses allocable to it pursuant to the
Operating Partnership Agreement. Boston Associates anticipates that Boston
Capital will only make acquisitions of interests in operating partnerships
which will permit the substantially full allocation of federal housing tax
credits to Boston Capital 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 Boston Capital, or the partners of an affected operating
partnership, as applicable, are not significantly adjusted by reason of a
termination of Boston Capital 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 Boston Capital
in such operating
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partnerships are sufficient to permit the allocation of credits and losses to
Boston Capital. If such capital accounts are insufficient, Counsel would be
unable to render such opinion.
Because unanticipated circumstances may occur with respect to Boston Capital
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 investors) of Boston Capital and all
partners (including Boston Capital) of the operating partnerships. See "Sharing
Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals--Authority
of Boston Associates to Vary Allocations to Preserve and Protect Partners' and
Investors' 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 investors')
interests in Boston Capital or the applicable partners' interests in an
operating partnership, partnership income, gain, credit, loss or deduction (or
items thereof) could be reallocated to Boston Capital and/or its partners and
investors in a manner substantially less favorable than that set forth in the
applicable Operating Partnership Agreement and/or the Fund Agreement.
(4) 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 part-
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ner 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 Boston Capital cannot be foreseen, Counsel is unable to
predict at this time the outcome of any challenge by the IRS to Boston
Capital's or an operating partnership's treatment of any such loans.
(5) Allocation of Profits, Credits and Losses to Investors in Year of Purchase
of Certificates. Subject to the rules governing basis limitations and passive
losses, an investor will be entitled to deduct his pro rata share of Boston
Capital's losses in the year he purchases certificates, based upon the length
of time that he is an investor during the year. Although the tax 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 Boston
Capital, 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. Boston Capital intends
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to allocate such tax credits on the basis of the interest in losses of an
investor, or of Boston Capital in an operating partnership, as applicable,
beginning with the month in which such investor purchases certificates, or
Boston Capital acquires an interest in an operating partnership, as applicable.
The rules for allocating historic tax credits are different from those rules
for federal housing tax credits discussed above, however, and provide that only
investors who are admitted to Boston Capital 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, Boston
Capital 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."
(6) Allocation of Profits, Credits and Losses Upon Sale of Certificates. The
Fund Agreement provides that on the sale of certificates, Boston Capital'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 Boston Capital'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 Certificates" below in this
section.
Federal Housing Tax Credit
The tax 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."
Boston Capital will not acquire interests in an operating partnership unless it
receives an opinion from
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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 an investor will
be entitled to his share (based on his interest in the losses of Boston
Capital) of Boston Capital's share (based on Boston Capital'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 tax
code, must be allocated federal housing tax credit authority by the applicable
state or local credit agency. Failure of an apartment complex to receive State
Designation or to meet initially the applicable income and rent restrictions
would result in the denial of all federal housing tax credits with respect to
an apartment complex. This would materially reduce the tax benefits to an
investor of a purchase of certificates. At the time Boston Capital 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 Boston Capital'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 twelve months after an apartment complex is
placed in service. See "Investment
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Objectives and Acquisition Policies--Acquisition Policies." Although Boston
Associates 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 Boston Associates 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 ten-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 Tax Credit," the tax 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 investor 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. Investors acquiring certificates 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 "Fed-
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eral 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 Boston Capital 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 investors
will not be deemed to be at-risk with respect to their capital contributions
until such provision terminates, thus deferring their ability to utilize tax
credits for expenditures funded with their capital contributions. Based on the
Proposed Regulations under Section 465 of the tax 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
Boston Capital 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 Boston Capital'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 Boston Capital's operating
partnership interest (or in certain circumstances a reduction in the capital
contributions of Boston Capital 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 Boston
Capital 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
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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 Boston
Associates will be able to reinvest the proceeds in operating partnership
interests meeting the investment objectives of Boston Capital, 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."
Boston Capital 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) Boston Capital 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 investor
who acquired his certificates 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 Boston Capital) of Boston Capital's share (based on Boston Capital'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
Tax code Section 469 imposes limits on the ability of certain taxpayers as
described below to use losses and credits from so-called "passive activities"
to offset taxable income and tax liability arising from non-passive sources. A
passive activity includes (a) one which involves the conduct of a trade or
business in which the taxpayer does not materially participate, or (b) any
rental activity. With certain limited exceptions, a limited partner will not be
treated as materially participating in a limited partnership's activities. With
the exception of the portion of the partnership's income
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that is portfolio income, based on the anticipated activities of Boston
Capital, Counsel is of the opinion that the profits, credits and losses of
Boston Capital 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 Boston Capital will constitute the conduct
of a trade or business. Consequently the portfolio income of Boston Capital
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.
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Tax credits in excess of the $25,000 limit are subject to the general rules
governing passive activities. Under these general rules in tax 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 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 fed-
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eral 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 Boston Capital 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,
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stock held by related parties is taken into account pursuant to special stock
attribution rules. Members of a family who are a spouse, a brother or sister,
or an ancestor or lineal descendant of a shareholder are counted together with
that shareholder as a single shareholder. Unlike regular C corporations,
closely held C corporations may not use passive losses and credits to offset
tax liability attributable to portfolio income. Closely held corporations which
are not personal service corporations 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 49 of the tax 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
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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 tax 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 one year or
forward twenty years. For taxpayers subject to the passive loss rules, those
taxpayers with tax liabilities attributable to net passive income may use tax
credits to offset that tax, subject to the limitation on business credits
described above and the alternative minimum tax. Any excess passive tax credits
may be carried forward and used indefinitely, but not back, against tax
liability attributable to net passive income in future years, subject to the
above limitations in those years.
At-Risk Limitation on Credits and Losses
Sections 465 and 49 of the tax 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
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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 tax 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 tax code provides an
exemption from the at risk rule for real property, if it is financed with
certain third-party nonrecourse debt.
Under Section 49 of the tax 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 Boston Capital, the operating partnership or any partners,
and that such financing will qualify as qualified nonrecourse financing for
purposes of Section 465 and Section 49 of the tax 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 Boston Capital 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 Boston Capital and the
investors, but would not adversely affect the at-risk basis for purposes of
generating credits. Nonetheless, Boston Associates 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
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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 Partners, Inc. It is likely that such Development Fees will
accrue in one taxable year but be paid over a two to three-year period. The
operating partnerships intend to include the full amount of such accrued
Development Fees in Eligible Basis for purposes of federal housing tax credits,
and, where applicable, in basis for purposes of computing historic tax credits.
The IRS may contend that any portion of the Development Fee which will not be
paid currently is not properly includable in basis. If the IRS were successful,
the amount of the tax credits would be delayed or reduced. Because of the lack
of judicial or regulatory guidance with respect to this issue, Counsel is
unable to predict the outcome of such a challenge.
Purchase of Existing Apartment Complexes
From Tax-Exempt or
Governmental Entities
For purposes of the at-risk rules, qualified nonrecourse financing includes any
loan from a federal, state or local government and certain financing from a
"qualified person." The definition of qualified person generally excludes the
person from whom the taxpayer acquired the property. Therefore, purchase money
indebtedness is generally excluded from the at-risk basis for purposes of the
federal housing tax credits. However, Section 42 of the tax 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
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will be repaid on or before the earlier of maturity or the end of the initial
fifteen-year compliance period, then the full amount of such financing may be
included in the federal housing tax credit basis.
Boston Capital 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 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
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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 Boston Capital's investment in operating
partnership interests with respect to any series of certificates 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 certificates 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
Boston Capital.
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 tax 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
(1) is determined to be a publicly traded partnership (see discussion under
"Classification as a Partnership" above in this section), or (2) owns
"debt-financed property," that is, property in which there is "acquisition
indebtedness" (in accordance with Section 514(d) of the tax code), and the
partnership earns interest income from the debt-financed property
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or realizes gains or losses from the sale, exchange or other disposition of the
debt-financed property.
The tax code does not impose restrictions on the acquisition of interests in
partnerships such as Boston Capital 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 Boston Capital 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 certificates will not receive the
tax benefit of credits or deductions from Boston Capital because he cannot
claim such credits or deductions on his own individual income tax return and
they are of no benefit to the tax-exempt entity as long as it is exempt from
tax.
The trustee or custodian of a pension plan which purchases certificates 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) Boston Capital 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, or
treasury securities are pledged, 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
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low-income building for the remainder of such compliance period. Similarly, a
disposition by Boston Capital 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 Boston
Capital posts a bond as described above. In either event--the disposition of a
building or the disposition of Boston Capital's interest in an operating
partnership--the posting of the bond or the pledging of treasury securities
allows Boston Capital 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
fifteen 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 eleven
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
eleven and fifteen, the recapture is phased out ratably so that in year fifteen
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
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would also result in loss of credits for future years. However, correction of
the noncompliance within a "reasonable" time period would prevent the
occurrence of a recapture event.
Recapture of prior years' credits and loss of future years' credits would
materially reduce the tax benefits to an investor and the recapture could have
significantly adverse tax consequences to an investor.
Pursuant to Section 42(j)(5) of the tax 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 or pledging securities. Such partnerships are those
which have at least thirty-five partners. Because Boston Capital has at least
that many investors, Boston Capital intends to elect to be treated as the
taxpayer under Section 42(j)(5). Thus, no recapture will result to the
transferor investor on the disposition of certificates (as long as within a
twelve-month period at least 50% (in value) of the ownership is unchanged).
However, if a recapture event occurs during the period the transferee investor
owns certificates, the transferee investor will be required to recapture a
portion of the federal housing tax credits previously taken by the transferor
investor. 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 Boston Capital 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 apart-
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ment complex is not sold, or Boston Capital does not dispose of its interest in
the operating partnership, recapture will be triggered if a partner's or
investor'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 investor's interest in profits.
There is no recapture after the apartment complex has been in service for five
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
(1) General. The tax 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.
(2) Depreciation of Real and Personal Property. The recovery period over which
depreciation deductions will be taken with respect to the real property of the
apartment complexes is 27.5 years using the straight line method, pursuant to
the provisions of the tax 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 forty years using the straight line method.
The operating partnerships also will use shorter recovery periods and the
accelerated depreciation methods prescribed by the tax 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 seven-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 tax code prescribes the recovery period that a taxpayer may use
for its depreciable assets,
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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
(1) Construction Period Interest and Taxes. Pursuant to the tax 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 tax 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.
(2) Other Expenses Incurred During the Construction Period. Section 195 of the
tax code classifies certain expenditures as start-up expenditures that must
then
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be permanently capitalized or, at the election of the taxpayer, amortized over
a period of sixty months beginning with the month in which the active trade or
business begins. A start-up expenditure is defined to include an amount paid or
incurred in connection with "any activity engaged in for profit and for the
production of income before the day on which the active trade or business
begins in anticipation of such activity becoming an active trade or business,"
and which would be otherwise allowable as a deduction if paid or incurred in
connection with an existing active trade or business. Under tax 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 tax 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 sixty months.
Fees Paid from Capital Contributions or
Boston Capital or Operating
Partnership Cash Flow
Boston Capital intends to pay various fees to Boston Associates and/or its
affiliates, and the operating partnerships intend to pay the operating general
partner(s) and/or their affiliates certain fees. Boston Capital will pay an
Acquisition Fee to Boston Capital Partners, Inc., and certain other offering
and syndication fees to affiliates of Boston Associates, from the capital
contributions of the investors, for services rendered to Boston Capital in
acquiring and managing the business and assets of Boston Capital. It is
anticipated that the operating partnerships will pay Development Fees to the
operating general partners or their affiliates, from the capital contributions
of Boston Capital to the applicable operating partnership, for services
rendered to
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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, Boston Capital will pay an annual Fund Management Fee to
Boston Associates or its affiliates from the cash flow of Boston Capital, and
it is anticipated that the operating partnerships will pay annual Reporting
Fees to an affiliate of Boston Associates, 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.
Boston Capital 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 tax code. Further, any portion of
such fees related to services performed in the acquisition of property used in
an apartment complex owned by an operating partnership will be amortized over
27.5 years. The Acquisition Fee will be amortized over a period roughly
corresponding to the depreciable life of the apartment complex (and a portion
over forty years with respect to a non-profit operating partnership).
Offering expenses will be capitalized by Boston Capital and not deducted or
amortized. Organization expenses will be amortized over sixty months.
Under Section 267 of the tax 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. Boston Capital 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 tax code.
All expenditures of Boston Capital and the operating partnerships must
constitute ordinary and necessary business expenses in order to be deducted
when
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incurred, unless the deduction of any such item is otherwise expressly
permitted by the tax 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 Boston Associates 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. Boston Associates 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 Boston Capital 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
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necessary to the business of Boston Capital 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 Certificates
Pursuant to the 1997 Taxpayer Relief Tax Act, gain or loss recognized by an
investor on the sale of certificates will generally be taxed at the same rate
as the investor'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 investor's allocable share of Boston Capital's share of any
existing nonrecourse liabilities of the apartment complexes is included in the
amount realized, and an investor may offset against any gain by the amount of
any suspended passive losses. An investor who does not have suspended passive
credits or losses to offset any gain may realize taxable gain and the sale may
not result in cash proceeds sufficient to pay the tax obligations arising from
such sale. Investors 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
certificates, if such disposition, in connection with other dispositions of
their interests by other investors, results in 50% or more of all interests in
Boston Capital being disposed of within a twelve-month period. See "Calculation
of Investor's Basis in His Certificates," "Passive Loss and Tax Credit
Limitations" and "Recapture of Tax Credits" above.
A gift of certificates 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 investors may
not be able to dispose of their certificates, Boston Capital anticipates
issuing certificates in a form permitting trading. See "Description of
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Certificates--Transfers." If 50% or more of the total interests in Boston
Capital profits and capital (including certificates) are sold or exchanged
within a twelve-month period, Boston Capital will terminate for federal income
tax purposes. If a termination occurs, the assets of Boston Capital will be
deemed to be constructively contributed to a new partnership, and then the
interests in this new partnership are deemed to be distributed to the partners.
Boston Associates has the authority under the Fund Agreement to (1) halt
trading of the certificates; (2) fail to list and/or cause the delisting of
certificates from public trading markets; (3) cause each purchaser of
certificates to be admitted to Boston Capital as a limited partner; (4) require
investors to become limited partners; or (5) take such other action as may be
necessary or appropriate in order to preserve the status of Boston Capital 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. An investor would not realize gain upon
the deemed distribution of Boston Capital's assets unless the portion of Boston
Capital's cash constructively distributed to an investor exceeds his adjusted
basis in his certificates. Boston Associates 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 tax 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 certificates. Boston Capital 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,
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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 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 Boston Capital's 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 Boston Capital 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
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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 tax 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 tax code. In the case of
Boston Capital, such limitation would be applied to each investor individually
rather than to Boston Capital. 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.
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 Boston Capital will be subject to the
passive activity loss restriction, most interest expense incurred by Boston
Capital will not be subject to the
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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
Boston Capital may make various elections for federal income tax reporting
purposes which could result in various items of Boston Capital's income, gain,
credit, loss and deduction being treated differently for tax and partnership
purposes than for accounting purposes. The tax code provides for optional
adjustments to the basis of Boston Capital's property for measuring both
depreciation and gain upon distributions of Boston Capital's property (Section
734) and transfers of Boston Capital's interests (including certificates)
(Section 743), provided that a Boston Capital election has been made pursuant
to Section 754. The general effect of such an election is that transferees of
Boston Capital's interests (including certificates) are treated, for purposes
of computing depreciation and gain, as though they had acquired a direct
interest in Boston Capital's assets, and Boston Capital is treated for such
purposes, upon certain distributions to partners (including investors), as
though it had newly acquired an interest in Boston Capital's 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
investor) or his transferee. Any such election, once made, is irrevocable
without the consent of the IRS. If Boston Associates does not agree to make
such an election, any benefits which might be available to the investors by
reason of such an adjustment to basis will be foreclosed. In addition, if the
election is not made, an investor may have greater difficulty in selling his
certificates, since a purchaser will obtain no current tax benefits from his
investment to the extent that such investment exceeds his allocable share of
Boston Capital's basis in its assets and since, upon a subsequent disposition
of the property by Boston Capital, such purchaser may be required to recognize
taxable income to the extent of such excess even though he does not realize any
economic profit.
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IRS Audit Considerations
(1) Boston Capital Tax Returns and Audits. The IRS may audit the information
returns filed by Boston Capital. Such an audit could result, among other
things, in the disallowance of certain deductions. In addition, it could
possibly lead to an audit of an investor's tax return with respect to
non-Boston Capital items.
The IRS has audited 31 limited partnerships with which affiliates of Boston
Associates are associated. Twenty-five of these audits have now been settled
with the IRS without material change and six are still pending.
(2) Audit Procedures for Boston Capital 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 Boston
Capital's or operating partnerships' information returns have become more
likely. Investors should note that a federal income tax audit of Boston
Capital'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 Boston Capital and unrelated
items. An audit of Boston Capital's return will be a single proceeding at the
Boston Capital level. Boston Associates, as to Boston Capital, 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, Boston Associates, 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
Boston Capital or operating partnership items, as applicable.
(3) Penalties Due to Substantial Understatement of Tax Liability. Section 6662
of the tax 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
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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 (a) an item if there is
or was "substantial authority" for the tax treatment of such item, or (b) 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 tax code ("Section 6662 Tax Shelter"). Section 6662 of the
tax 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 Boston Capital
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 Boston Capital 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
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Boston Capital is a Section 6662 Tax Shelter were to be litigated.
If Boston Capital is determined to be a Section 6662 Tax Shelter, the penalty
under Section 6662 for a substantial understatement will not apply to the
extent that the understatement is attributable to an item if (a) there is or
was "substantial authority" for the treatment of the item, and (b) the taxpayer
reasonably believed that the tax treatment of such item was more likely than
not the proper treatment.
The Secretary of the Treasury has promulgated regulations under Section 6662
that set forth his interpretation of the phrase "substantial authority," but
both because such regulations are relatively recent and because "substantial
authority" ultimately must be determined by judicial decisions, there still
remains considerable uncertainty concerning the meaning of that phrase. Thus,
as stated above, Counsel is unable to predict the outcome if the question of
whether there were substantial authority for certain material tax issues were
to be litigated, if Boston Capital 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.
(4) Penalties Due to Overstatement of Value. Under Section 6662 of the tax
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. Boston
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Associates 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.
(5) 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 tax 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.
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
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which, along with others, should normally be taken into account, although the
Regulations state that no one factor is determinative. These factors include:
o the manner in which the taxpayer carries on the activity;
o the expertise of the taxpayer or his advisors;
o the time and effort expended by the taxpayer in carrying on the activity;
o the expectation that assets used in the activity may appreciate in value;
o success of the taxpayer in carrying on other similar or dissimilar activities;
o the taxpayer's history of income or losses with respect to the activity;
o the amount of profits, if any, which are earned;
o the financial status of the taxpayer; and
o 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 tax 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 IRS's
decisions. To the extent that the IRS relied in its Revenue Ruling on
Congress's 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
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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 Boston
Capital 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 certificates will be
realized by qualified investors (i.e., individual investors 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 investor is based upon, and assumes the continuing
applicability to an investment in Boston Capital of, existing federal income
tax law. Counsel's opinion assumes that the capital account balances (as that
term is defined in the Fund Agreement and the Operating Partnership Agreements)
of the partners are not significantly adjusted by reason of a termination of
Boston Capital or the operating partnerships or by reason of capital
contributions (such as, for example, unanticipated advances of capital from
Boston Associates, 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 Boston Capital 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."
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Certain Other Tax Considerations
Certain other provisions of the tax code should be considered by investors in
determining whether to purchase certificates.
(1) 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 $0.25 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 that an investor can use in a tax
year may not exceed the difference between regular income tax liability and
tentative minimum tax. Tax credits that could not be utilized for the
applicable year may be carried back one year or forward twenty 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 an investor are likely to be (1) the adjustment
to taxable income for depreciation on real property, using a forty-year life
and the straight-line method, and per-
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sonal property, using the 150% declining balance method; and (2) for
corporations, the addition to taxable income of 75% of the amount by which
adjusted current earnings exceeds alternative minimum taxable income.
(2) Interest on Debt Related to Purchasing or Carrying Tax Exempt Obligations.
Section 265(a)(2) of the tax code disallows any deduction for interest paid by
a taxpayer on indebtedness incurred or continued for the purpose of purchasing
or carrying tax-exempt obligations. Boston Capital will not purchase or carry
any such obligations. However, such provision could apply to any investor 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 an investor owning tax-exempt obligations, the IRS might take
the position that his allocable portion of the interest paid by Boston Capital
on its borrowings or any interest paid by an investor in connection with the
purchase of certificates should be viewed as incurred to enable him to continue
carrying tax-exempt obligations, and that such investor should not be allowed
to deduct his full allocable share of such interest. The outcome of these
issues would depend upon facts concerning each investor, and Counsel will not
render an opinion on this issue. An investor 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 tax code.
(3) 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 certificates
may be subject to a federal gift tax imposed pursuant to the rules generally
applicable to all gifts of property. A gift of certificates does not trigger
suspended passive losses or credits, and does not result in any recapture of
credits previously taken.
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A gift of certificates may be treated as a sale of the certificates. For
purposes of computing gain or loss realized upon the gift, the amount realized
would include the donating investor's share of the nonrecourse liabilities from
which the investor is relieved. Consequently, an investor could recognize
taxable income as a result of making a gift of his interest.
In the event of the death of the owner of certificates, the fair market value
of the certificates 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
certificates the same fair market values determined for federal estate tax
purposes. If the certificates 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 certificates.
(4) Suitability of an Investment in Certificates By Tax-Exempt Entities. It is
not likely that a tax-exempt entity would be able to utilize tax credits,
therefore an investment in certificates 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, tax credits could be used to offset
the federal tax on such income. See "Federal Income Tax Matters--Investment by
Tax--Exempt Entities."
(5) Minor Children. Under the tax code, unearned income of a child under
fourteen years of age is taxed to the child at the parent's highest marginal
tax rate. The child is treated as a separate taxpayer from his parents and thus
the limitation on the use of tax credits to offset tax under the passive
activity rules of tax 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
certificates may be used to reduce the child's taxes on up to $25,000 of income
regardless
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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.
(6) Foreign Investors. The tax consequences of the purchase of certificates by
a foreign citizen or resident might differ significantly from those described
in this Prospectus. See "Suitability of an Investment in
Certificates--Availability and Applicability to Investors of Federal Income Tax
Credits."
"Tax Shelter" Registration
Section 6111 of the tax 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 Boston
Capital registered as a Registration Tax Shelter with the IRS, it was given
Registration Tax Shelter identification number 93355000022, which investors
must include on their tax returns for the period of time in which they are
investors. In addition, Boston Capital will be required to keep a list of
investors' 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
IRS.
Upon the sale or transfer of certificates, selling investors must provide the
purchaser with the tax shelter registration number (as well as the name,
address and taxpayer identification number) of Boston Capital, and inform the
purchaser that he must attach a Form 8271 to his tax return.
In addition, investors who transfer their certificates 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.
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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 certificates, or that the Treasury Department
will not promulgate new regulations with similar adverse effects.
Any such future legislation or regulations enacted or promulgated after the
issuance of the legal opinions anticipated to be rendered in connection with
the assignment of certificates to investors 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 certificates, 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 Boston Capital.
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
Boston Capital anticipates offering 7,500,000 certificates in two series,
namely Series 39 and Series 40. Each series will consist of at least 250,000
certificates and may consist of all certificates not already purchased by
investors. The minimum purchase for each investor is 500 certificates ($5,000),
except that employees of Boston Associates or its affiliates, and/or
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previous investors in public limited partnerships sponsored by Boston Capital
Partners, Inc., may purchase a minimum of 200 certificates ($2,000). Additional
investments must be made in multiples of 100 certificates ($1,000).
Series 39 will be offered first and Series 40 will begin after Series 39 is
finished. Series 39 will begin in August 2000 and is expected to continue
through January 2001, but Series 39 could be concluded earlier or extended by
Boston Associates for an indefinite period of time, and is subject to the
condition that subscriptions for at least 250,000 certificates be accepted by
Boston Associates no later than twelve months from the commencement of each
series.
Subscription proceeds will be placed in an interest-bearing escrow account with
the escrow agent, and released to Boston Capital only on a closing date. Within
seventy-five days after the end of the fiscal quarter following a closing date,
subscribers who were admitted as investors will be paid interest accrued on
their escrowed funds until the applicable closing date, less any escrow fees
and expenses. Subscriptions for certificates will be accepted or rejected by
Boston Associates, in its sole discretion, within thirty days of receipt, but
the issuance of certificates to an investor shall be subject to acceptance of
subscriptions for a sufficient number of certificates to effectuate a closing.
If not accepted or rejected within thirty days of receipt by Boston Capital,
any subscriptions shall be deemed to be accepted. Boston Capital will refund
all monies paid on rejected subscriptions within ten days of such rejection
without interest. Until subscriptions for at least 250,000 certificates in any
series are received, no subscriber will be recognized as an investor and funds
paid by the subscribers will be deposited with the escrow agent.
No certificates in any series will be sold unless Boston Associates receives
and accepts subscriptions for at least 250,000 certificates prior to the
expiration or termination of the applicable series offering period. If
subscriptions for fewer than 250,000 certificates have been received and
accepted from qualified investors by the expiration or termination of the
applicable
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series offering period, no certificates 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, Boston Associates has received and accepted
subscriptions for at least 250,000 certificates in its sole discretion, Boston
Associates may release the subscription proceeds from escrow and the
subscribers will be admitted as investors (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 as an initial closing date.
After the initial closing and prior to the expiration or termination of the
applicable series offering period, Boston Associates may, but is not required
to, accept additional subscriptions for such series in excess of 250,000
certificates--up to the total of authorized certificates not already purchased
by investors and admit such subscribers as investors with subscription proceeds
being released from escrow and subscribers admitted as investors not later than
the last day of the calendar month following the date upon which their
subscriptions were accepted by the Boston Associates.
Boston Associates and its affiliates and employees of its affiliates may
purchase certificates aggregating not more than 15% of the certificates
authorized for sale in any series, excluding certificates which comprise any
part of the minimum offering of 250,000 certificates with respect to a
particular series; provided, however, that the affiliated persons must hold the
certificates for investment purposes only, and not for immediate resale. These
persons will acquire certificates on the same terms and conditions as other
investors, 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 Boston Capital. In
addition, investors will not have to pay selling commissions equal to 7% ($0.70)
per certificate, if they use the services of a NASD-registered investment
advisor that charges the investor a fee for its services. The net offering
proceeds to Boston
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Capital with respect to both kinds of purchases will be the same as for
certificates sold to other investors.
The offering amount of each series may be increased, in the sole discretion of
Boston Associates, up to the total amount of authorized but unissued
certificates at any time prior to the expiration or termination of the
applicable series offering period.
Boston Capital will account for, and issue information with respect to, each
series of certificates separately. Organization and offering expenses, Boston
Capital's working capital reserve and other general expenses of Boston Capital
may be allocated pro rata among the series based on the number of certificates
in each series.
To the extent that additional certificates are sold in additional series, each
such series may be required to reimburse prior series for its pro rata portion
of organization and offering expenses. All of Boston Capital's operating
expenses attributable to operating partnership interests allocated to a
particular series of certificates will be charged to that series. Boston
Associates 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 certificates. Voting rights with
respect to matters that are only applicable to a particular series of
certificates will be exercisable only by investors as to such series.
All series of certificates will:
o have substantially identical investment objectives in generating tax credits,
and possibly state housing tax credits;
o provide for no duplication of property management or other fees;
o provide for substantially identical compensation to Boston Associates and its
affiliates; and
o provide for investment in operating partnership interests under substantially
the same terms and conditions.
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Additionally, operating partnership interests may be invested in jointly by
series of certificates, or may be invested in jointly by a series of
certificates with another similar offering, 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; and (5)
the investment of each program is on substantially the same terms and
conditions.
There is a potential risk that investors in a series of certificates 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 certificates of different series will share in different pools of operating
partnership interests and, therefore, investors in different series might
receive different returns on their investments.
Because each series of Boston Capital will be treated as though it were a
separate partnership sharing in a separate and distinct pool of operating
partnership interests and because the purchase of certificates in any one
series will not entitle an investor to any interest in any other series of
Boston Capital, historical financial information regarding Boston Capital,
which is comprised of prior series, is not provided in this Prospectus.
However, information regarding the prior performance of each series within
Boston Capital and their affiliates is provided under the section of this
Prospectus entitled "Prior Performance of Boston Associates and its Affiliates"
and "Appendix I--Tabular Information Concerning Prior Limited Partnerships." In
addition, audited financial information regarding Boston Associates and the
Assignor Limited Partner is provided in Appendix I. Any investor may obtain a
copy of Boston Capital'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.
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Selling Arrangements
The certificates are offered on a best efforts basis through Boston Capital
Services, Inc., the Dealer-Manager. The Dealer-Manager is an affiliate of
Boston Associates. The Dealer-Manager will receive as compensation selling
commissions of 7% of the public offering price of the certificates sold hereby
($0.70 per certificate) except that for purchases of more than 10,000
certificates ($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 certificates will not change Boston Capital's net
proceeds, but will be reflected by a reduction in the price per certificate on
such purchases as set forth in the table below.
<TABLE>
<CAPTION>
Number of Certificates Selling Price
Purchased Commission Per Certificate
--------- ---------- ---------------
<S> <C> <C> <C>
First 10,000 certificates ....... 7.0% ($0.70 per certificate) $10.00
Next 10,000 certificates ........ 6.5% ($0.65 per certificate) $ 9.95
Next 10,000 certificates ........ 5.5% ($0.55 per certificate) $ 9.85
Next 10,000 certificates ........ 4.5% ($0.45 per certificate) $ 9.75
Next 10,000 certificates ........ 3.5% ($0.35 per certificate) $ 9.65
Next 10,000 certificates
and over ...................... 2.5% ($0.25 per certificate) $ 9.55
</TABLE>
Reductions apply in a graduated manner, i.e., for purchases above 10,000
certificates, selling commissions of $0.70 per certificate will nonetheless be
payable on the first 10,000 certificates purchased and, thereafter, $0.65 per
certificate will be payable on each certificate purchased from 10,100 to 20,000
certificates; $0.55 per certificate will be payable on each certificate
purchased from 20,100 to 30,000; $0.45 per certificate will be payable on each
certificate purchased from 30,100 to 40,000; $0.35 per certificate will be
payable on each certificate purchased from 40,100 to 50,000; and $0.25 per
certificate will be payable on each certificate purchased in excess of 50,100.
In order to purchase certificates, 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 certificates must be
accompanied by tender of the sum of $10 (less any applicable quantity discount)
per certificate ($8.95 in the case of Boston Associates, its affiliates and
employees of its affiliates).
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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. Provisions of the Fund
Agreement are summarized under the caption "Summary of Provisions of the Fund
Agreement."
The Dealer-Manager also will receive (1) an accountable due diligence expense
reimbursement in an amount up to 0.5% of the public offering price of the
certificates sold; (2) a non-accountable expense allowance in an amount up to
1% of the public offering price of the certificates sold; and (3) a
Dealer-Manager Fee in an amount equal to 2% of the public offering price of the
certificates 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 certificates and the
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 Boston Capital
will
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not be affected by such reduction and all such sales must still be made through
Soliciting Dealers. Neither Boston Associates, 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 Boston Capital.
At the sole discretion of each Soliciting Dealer, the Soliciting Dealers and
their employees may purchase certificates aggregating not more than 10% of the
certificates authorized for sale in any series on the same terms and conditions
as other investors, 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 Boston Capital of each such sale,
however, will be the same as for the certificates sold to the public. Any
purchases of certificates by Soliciting Dealers and their employees will not be
considered in order to meet the minimum offering of a particular series.
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 certificates 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 entered into by Boston Capital and Boston Associates 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
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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 certificates 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." These 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."
Upon recognition as an investor, a subscriber for certificates 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 seventy-five 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 Boston Capital to which the
investors are entitled as described under "Sharing Arrangements: Profits,
Credits, Losses, Net Cash Flow and Residuals."
SUMMARY OF PROVISIONS OF THE
FUND AGREEMENT
By tendering payment for certificates and by acceptance of the confirmation of
purchase or delivery of the certificate, an investor 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 investors will become Assignees of the Assignor Limited Partner
of Boston Capital 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.
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Prospective investors should study the form of Fund Agreement carefully before
subscribing for certificates. 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.
Withdrawal of Boston Associates
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 investors, Boston Associates may withdraw or sell, transfer or
assign its interest upon giving sixty 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:
(1) such person agrees to and executes the Fund Agreement;
(2) 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
(3) that such person has sufficient net worth and meets all other requirements
of the IRS necessary for Boston Capital to continue to be classified as a
partnership for federal income tax purposes; provided that the interests of
the investors are not adversely affected.
Subject to Section 6.02 of the Fund Agreement, Boston Associates may designate
additional persons to be general partners, whose interests shall be such as
shall be agreed upon by Boston Associates and such additional general partners,
provided that the interests of the investors shall not be adversely affected.
Removal of Boston Associates
A majority in interest of the limited partners, including the Assignor Limited
Partner, voting as instructed by the investors, is entitled to remove Boston
Associates from Boston Capital and elect a new general partner.
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Upon the removal of Boston Associates, any rights--including, but not limited
to, rights to its Fund Interest and fees--or liabilities of Boston Associates
which matured prior to such removal will not be affected. See "Voting Rights
and Meetings."
Liability of Partners and Investors
to Third Parties
Boston Associates will be liable for all general obligations of Boston Capital
to the extent not paid by Boston Capital. Boston Associates will not be liable
for any nonrecourse obligations of Boston Capital contracted for with third
parties.
No limited partner or investor is personally liable for the debts, liabilities,
contracts or any other obligations of Boston Capital; a limited partner and
investor 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 investor, he takes part in the control of the business of Boston
Capital. However, the Delaware Revised Uniform Partnership Act provides that if
a limited partner receives a distribution from Boston Capital at the time that
such distribution was in violation of Section 17-607(a) of the Act or the Fund
Agreement, then that limited partner shall be liable to Boston Capital 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
Boston Capital other than liabilities to limited partners on account of their
interests, and nonrecourse liabilities, exceed the fair value of Boston
Capital's assets, excluding that portion of the fair value subject to
nonrecourse liability. It is expected that similar liabilities would be
applicable to investors.
Withdrawal of Capital and Redemption
of Investors' Interest
Each investor may look solely to the assets of Boston Capital or the assets of
Boston Capital attributable to his series of certificates, as the case may be,
for any distributions, and will have no recourse against any other investor or
any limited partner of Boston Capital.
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No limited partner or investor has the right to request withdrawal of his
capital from Boston Capital, and as set forth in Section 3.04(b) of the Fund
Agreement, Boston Associates 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, as provided in the Fund
Agreement; nor is any limited partner or investor entitled to receive property
other than cash upon dissolution and termination of Boston Capital. Boston
Capital does not intend to purchase or redeem the interests of limited partners
or investors. Nothing described above alters the limitation on liability of
Boston Associates or its affiliates pursuant to Section 5.08(a) of the Fund
Agreement.
Management of Boston Capital
Boston Associates has the sole right to manage the business of Boston Capital.
Mergers and Rollups
Section 10.02(h) of the Fund Agreement prohibits the merger or combination of
Boston Capital with any other entity.
Voting Rights and Meetings
Investors have no right to participate in the management or control of Boston
Capital's business. The Fund Agreement provides, however, that the Assignor
Limited Partner will vote its limited partnership interest as directed by the
investors. Accordingly, the limited partners, including the Assignor Limited
Partner voting on behalf of and as instructed by the investors, owning a
majority in interest of the total interests of Boston Capital will have the
right to vote to:
o approve or disapprove the sale of all or substantially all of the assets of
Boston Capital at any one time; 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;
o amend the Fund Agreement, except that, without the approval of any limited
partner affected thereby, no such amendment may (1) alter the rights and
obliga-
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tions of such limited partner under the Fund Agreement; (2) modify the order
of distributions of cash or allocations of profits, credits and losses to such
limited partner; (3) or modify the method of determining distributions of cash
and allocations of profits, credits and losses to such limited partner; and
(4) 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
Boston Capital's business or otherwise modify their limited liability;
o remove a general partner and elect a replacement; or
o dissolve Boston Capital.
Notwithstanding the foregoing, Boston Associates 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. Boston Associates may
at any time call a meeting of investors or call for a vote without a meeting of
the investors. See Section 12.02 of the Fund Agreement.
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: (1) sale of all or substantially all of the assets of Boston
Capital; (2) amendment to the partnership agreement; (3) change in the nature
of its business; (4) removal of a general partner; (5) dissolution of the
partnership; and (6) admission of a general or a limited partner.
There will be no annual or other periodic meetings of the investors. However,
Boston Associates must call meetings of the investors for any purpose upon
written request of limited partners, including the Assignor Limited Partner
voting on behalf of and as instructed by the investors, owning in the aggregate
10% or more in interests. In addition, Boston Associates shall, upon written
request of limited partners owning in the aggregate 10% or more in interests,
submit any matter
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upon which they are entitled to vote to the limited partners and investors for
a vote without a meeting. The Assignor Limited Partner will call for a meeting
or a vote if so instructed by the investors holding the requisite percentage of
interests. With respect to matters applicable to any particular series of
certificates, the above-described provisions will be applicable only to
investors 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 the 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, Boston Associates may amend the
Fund Agreement without the consent of the limited partners or investors to:
o add or substitute general partners and limited partners if such addition or
substitution is in compliance with the provisions of the Fund Agreement;
o add to the general partners' representations, duties or obligations or to
surrender any right or power granted to them;
o 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 Boston Capital; or
o 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 investors.
Dissolution and Liquidation
Boston Capital shall continue in full force and effect until December 31, 2043,
or until dissolution or adjudication of incompetence of a sole general partner;
the
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passing of ninety 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 Boston Capital'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 investors to dissolve
Boston Capital; or the occurrence of any other event causing dissolution of
Boston Capital under the laws of the State of Delaware. Boston Capital would
also be dissolved upon the removal or withdrawal of Boston Associates, unless
Boston Associates 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 investors.
In the event of the occurrence of the bankruptcy, death, dissolution,
withdrawal, removal or adjudication of incompetence of Boston Associates, 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 investors,
to continue Boston Capital and designate a successor general partner, the
liquidator shall liquidate Boston Capital's assets and distribute its proceeds
in accordance with the priorities set forth in the Fund Agreement.
Tax Election
Upon a transfer of one or more certificates or limited partnership interests by
the investors, Boston Capital is authorized, but does not intend, to make the
election provided for under Section 754 of the tax code to adjust the basis of
Boston Capital's property.
Tax Matters Partner Designation
Pursuant to Section 6231 of the tax code and its regulations and Section 9.06
of the Fund Agreement, Boston Associates shall designate itself as the tax
matters partner for purposes of federal income tax audits of Boston Capital
income, gain, loss, deduction or credit.
Books and Records
Boston Capital's fiscal year begins April 1 of each year.
Boston Capital will use the accrual method of accounting.
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Boston Capital's books and records shall include information relating to the
status of each apartment complex, information with respect to any sales of
goods or services by Boston Associates or its affiliates to Boston Capital, and
a list of the names and addresses of all limited partners and investors.
Boston Capital's books and records shall be maintained at the office 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
investors, and are binding upon and inure to the benefit of their heirs,
executors, administrators, successors and assigns.
Power of Attorney
Each investor, by acquiring certificates, irrevocably appoints and empowers
Boston Associates as its 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 this offering made hereby, the Dealer-Manager and Soliciting
Dealers may make use
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of a brochure entitled "Boston Capital Tax Credit Fund IV" and prepared by
Boston Capital, which describes certain aspects of Boston Capital, Boston
Associates and its affiliates. In certain jurisdictions such supplemental
material may not be available. The offering of certificates will be made only
by means of this Prospectus. Although the information contained 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
this Prospectus.
EXPERTS
The financial statements of Boston Capital, the Assignor Limited Partner, and
Boston Associates included in this Prospectus have been included in reliance on
the reports of Reznick Fedder & Silverman, independent certified public
accountants, given on the authority of the firm as experts in auditing and
accounting.
The balance sheet of Boston Associates included in this Prospectus has been
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 Nixon Peabody LLP in Washington, D.C., and have been included
herein, to the extent such statements constitute matters of law, in reliance
upon the authority of the 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 Boston Capital will
contain an opinion of independent certified public accountants and
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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 Boston Capital to Boston Associates and its
affiliates, together with a description of any new agreements with affiliates.
The annual report will also summarize Boston Capital's activities during the
year.
Boston Capital's fiscal year will end on March 31 each year. Tax information
will be provided to the investors within seventy-five days following the close
of each calendar year. Boston Capital will distribute to the investors, (1)
within forty-five days after the end of each of the first three fiscal quarters
of each year, unaudited quarterly financial information with respect to Boston
Capital, together with a summary report of its quarterly operations; and (2)
within 120 days after the end of the fourth fiscal quarter of each year,
audited financial information with respect to Boston Capital and a statement of
the services rendered to Boston Capital by Boston Associates and its affiliates
and the payments by Boston Capital 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.
LEGAL MATTERS
Legal matters in connection with the offering of the certificates will be
passed upon by Nixon Peabody LLP, 401 9th Street, N.W., Suite 800, Washington,
D.C 20004, as counsel to Boston Capital. In addition, Nixon Peabody LLP in
Washington, D.C. prepared the description of federal income tax consequences
under the caption "Federal Income Tax Matters."
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 these
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securities offered. 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.
Boston Capital 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
Additional definitions of terms can be found in Article II of the Fund
Agreement.
"Acquisition Fee" means the total of all fees and commissions paid by any party
in connection with Boston Capital'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 Boston Associates
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 necessary variances and necessary
financing for a specific apartment complex, either initially or at a later
date.
"Affiliate" means, when used with respect to a specified person, (1) any person
that directly or indirectly controls or is controlled by or is under common
control with the specified person, (2) any person that is an officer of,
director of, partner in or trustee of, or
214
<PAGE>
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, (3) 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, (4) 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 (5) 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 Boston Capital, Boston Associates or any affiliate of any of them.
"Boston Associates" means Boston Capital Associates IV L.P., a Delaware limited
partnership, in its capacity as the general partner of Boston Capital.
"Boston Capital" 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.
"Capital Account" means a separate account maintained and adjusted (1) for each
Limited Partner and the separate subaccount of the capital account of the
Assignor Limited Partner maintained and adjusted for each investor in
accordance with the terms of the Fund Agreement, and (2) for each partner of an
operating partnership in accordance with the terms of the applicable Operating
Partnership Agreement.
"Capital Transaction" means: (1) the sale by Boston Capital of all or part of
its interest in an operating partnership, or any other transaction affecting
Boston Capital, including its receipt 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 (2) 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
215
<PAGE>
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 the operating partnership of capital contributions.
"Dealer-Manager" means Boston Capital Services, Inc. ("BCS"), a Massachusetts
corporation which is an affiliate of Boston Associates.
"Escrow Agent" means Wainwright Bank & Trust Company, Boston, Massachusetts, in
its capacity as such.
"Front End Fees" means fees and expenses paid by any party for any services
rendered during and in connection with Boston Capital'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 Boston Associates. For purposes of this
definition "Acquisition Fees" means the total of all fees and commissions paid
by any party in connection with Boston Capital's acquisition of operating
partnership interests (including the Asset Acquisition Fee, payable by Boston
Capital from Gross Proceeds to Boston Associates 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 Boston Associates in connection
with the actual development of apartment complexes by operating partnerships.
Included in the computation of such fees or commissions shall be any real
estate fee, selection fee, nonrecurring management fee or any fee of a similar
nature, however designated. For purposes of this definition, "Acquisition
Expenses" means the total of all legal fees and expenses, travel and
communication expenses in connection with the negotiations, costs of real
estate consultants and appraisals, engineering and market studies, accountants'
fees, title and recording fees and miscellaneous expenses associated with
Boston Capital'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
216
<PAGE>
an operating general partner that will be reimbursed by Boston Capital or
included in the purchase price of the apartment complexes or operating
partnership interests, to the extent such expenses are not includable in Boston
Capital's tax credit basis with respect to that apartment complex.
"Interest" or "Fund Interest" means the entire ownership interest of a limited
partner in Boston Capital at any particular time, including the right of such
limited partner to any and all benefits to which a limited partner may be
entitled under the Fund Agreement and the Act, together with the obligations of
such limited partner to comply with all the terms and provisions of the Fund
Agreement. Reference to a majority, or specified percentage, in interest of the
limited partners means (subject to the provisions of Section 12.11 of the Fund
Agreement with respect to matters applicable to any particular series of
certificates) 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 investors). The term "Interest" may also mean the beneficial interest of an
investor 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 Boston Capital in an operating partnership.
"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 Boston Capital:
(i) the gross proceeds (A) resulting from the liquidation of Boston Capital's
assets, (B) received by
217
<PAGE>
Boston Capital from an operating partnership as a result of the occurrence of a
capital transaction as to such Operating Partnership, (C) resulting from any
sale of the interest of the Boston Capital 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 Boston Capital incident to
such capital transaction, before any application or distribution of such
proceeds pursuant to the Fund 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.
"Net Cash Flow" means, with respect to any year or other applicable period, (a)
all revenues received by Boston Capital during such period, plus (b) any
amounts which Boston Associates 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 Boston Capital paid from revenues
during the period, including any expenses paid to Boston Associates, but not
including such amounts paid from the Working Capital Reserve, (ii) all cash
payments made from revenues of Boston Capital 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 Boston
Capital. on behalf of the Assignor Limited Partner from the investors in
connection with the offering, exclusive of Selling Commissions, as described in
"The Offering-Selling Arrangements."
"Organization and Offering Expenses" means (a) an accountable due diligence
expense reimbursement to the Dealer-Manager in an amount up to $.05 per
certificate 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
certificate sold; (d) an accountable expense reimbursement to Boston Associates
and its affiliates; and
218
<PAGE>
(e) accountable expenses paid by Boston Capital directly or by Boston
Associates and affiliates in connection with the organization of Boston
Capital, the structuring of Boston Capital's investments and the offering of
certificates, as more specifically described under the caption "Compensation
and Fees--Organization, Offering and Acquisition Phase."
"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.
"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 3% of the gross sales price of the
apartment complex.
"Working Capital Reserve" means funds of Boston Capital 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 Boston Capital, 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 Boston
Associates, be added to net cash flow or liquidation, sale or refinancing
proceeds.
219
<PAGE>
REZNICK FEDDER & SILVERMAN
Certified Public Accounts o A Professional Corporation
4520 East West Highway, Suite 300, Bethesda, Maryland 20814-3319
Phone (301) 652-9100, Fax (301) 652-1848
BOSTON CAPITAL ASSOCIATES IV L.P.
INDEPENDENT AUDITORS' REPORT
December 31, 1999
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, 1999. 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, 1999, in conformity with generally accepted accounting
principles.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 31, 2000
I-1
<PAGE>
BOSTON CAPITAL ASSOCIATES IV L.P.
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Investment in limited partnership (note C) ....... $527,585
========
Partner's deficit (note B)
General partner ................................. (5,276)
Limited partner ................................. (522,309)
--------
(527,585)
========
$ -0-
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
Note A--Organization and Summary of Significant Accounting Policies
Boston Capital Associates IV L.P. (the "Partnership") was organized under the
laws of the State 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.
Investment in Limited Partnership
The Partnership accounts for its investment in Boston Capital Tax Credit Fund
IV L.P. (the "Limited Partnership") using the equity method, whereby the
partnership adjusts the investment cost for its share of the operating
partnership's results of operations and for any distributions received or
accrued.
The Limited Partnership maintains its financial statements based on a March 31
year end and the Partnership utilizes a calendar year end.
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 Limited Partnership
On October 5, 1993, the Partnership was admitted as the general partner in
Boston Capital Tax Credit Fund IV L.P. The Limited Partnership 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. The negative investment balance of $527,585
represents losses from the Limited Partnership in excess of capital contributed
as of March 31, 1999.
I-2
<PAGE>
BOSTON CAPITAL ASSOCIATES IV L.P.
BALANCE SHEET
December 31, 1999
Note C--Investment in Limited Partnership (Continued)
The summarized combined balance sheet of the Limited Partnership at March 31,
1999 and the summarized combined statement of operations for the year then
ended are as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
<S> <C>
INVESTMENT IN OPERATING LIMITED PARTNERSHIP ............... $352,630,004
OTHER ASSETS
Cash ..................................................... 14,152,267
Investments available-for-sale ........................... 47,977,925
Notes receivable ......................................... 14,174,473
Acquisition costs ........................................ 5,644,971
Other assets ............................................. 21,921,945
------------
103,817,581
------------
$456,501,585
============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Capital contributions payable ............................ $ 73,541,468
Line of credit ........................................... 200,000
Accounts payable--affiliates ............................. 5,280,848
Accounts payable and accrued expenses .................... 411,758
------------
79,434,074
PARTNERS' EQUITY .......................................... 377,067,511
------------
$456,501,585
STATEMENT OF OPERATIONS
INCOME
Interest income .......................................... $ 4,604,150
------------
Share of losses from operating limited partnerships ....... (16,178,884)
------------
EXPENSES
Fund management fee ...................................... 3,702,096
Amortization ............................................. 200,643
General and administrative expenses ...................... 1,444,688
Professional fees ........................................ 555,193
------------
5,902,620
------------
NET LOSS .................................................. $(17,477,354)
============
</TABLE>
I-3
<PAGE>
BCTC IV ASSIGNOR CORP.
INDEPENDENT AUDITORS' REPORT
December 31, 1999
To the Stockholder
BCTC IV Assignor Corp.
We have audited the accompanying balance sheet of BCTC IV Assignor Corp. as of
December 31, 1999. 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, 1999, in conformity with generally accepted accounting principles.
REZNICK, FEDDER & SILVERMAN
Bethesda, Maryland
March 31, 2000
I-4
<PAGE>
BCTC IV ASSIGNOR CORP.
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in limited partnership (note B) .................... $ 100
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Subscription 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>
The accompanying notes are an integral part of this 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 "Limited Partnership"). 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 Limited Partnership 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-5
<PAGE>
KEVIN P. MARTIN & ASSOCIATES, P.C.
Certified Public Accountants
Business Consultants
SOUTH SHORE EXECUTIVE PARK
KEVIN P. MARTIN, CPA TEN FORBES WEST
KEVIN P. MARTIN, JR, CPA, MST BRAINTREE, MA 02184-2696
------------------- -------------------
KENNETH J. DAVIN, CPA TELEPHONE (617) 380-3520
GARRETT H. DALTON, III, CPA, MB FACSIMILE (617) 380-7836
LISA A. MARTIN, CPA, MST 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,
1999 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, 1999 and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Kevin P. Martin & Associates, P.C.
Braintree, Massachusetts
February 15, 2000
I-6
<PAGE>
C & M ASSOCIATES
d/b/a BOSTON CAPITAL ASSOCIATES
(A MASSACHUSETTS GENERAL PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash ...................................... $1,046,032
Service fees receivable ................... 9,223
----------
Total current assets ..................... 1,055,255
----------
OTHER ASSETS:
Investments ............................... 63,923
----------
63,923
----------
$1,119,178
==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--affiliates .............. $ 436
Total current liabilities ................ 436
----------
PARTNERS' EQUITY ........................... 1,118,742
----------
$1,119,178
==========
</TABLE>
See accompanying notes.
I-7
<PAGE>
C & M ASSOCIATES
d/b/a BOSTON CAPITAL ASSOCIATES
(A MASSACHUSETTS GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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. The Partnership has no policies requiring collateral or
other security to secure accounts receivable.
No individual private limited partnerships were syndicated through C & M
Associates during 1999. 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, 1999 are fully collectible.
I-8
<PAGE>
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." The Partnership maintains its cash balances in one
financial institution located in Boston, Massachusetts.
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 fair market value, which approximates cost.
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 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 $35 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, 1999, there
is no outstanding liability of C & M Associates under the line of credit. There
is, however, $22,838,061 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.
$436 of accounts payable at December 31, 1999 are payable to the related party.
I-9
<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 Boston
Associates 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,
1997, and ending December 31, 1999 (five-year period ending March 31, 1999 for
Table III) relating to public programs in the aggregate sponsored by Boston
Associates and its affiliates which had similar investment objectives to those
of Boston Capital. 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
Boston Capital also involve material risks similar to those inherent in an
investment in Boston Capital. See the section of this Prospectus entitled "Risk
Factors."
The programs listed in these Tables were organized by Boston Associates 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, 1999, Boston Associates and its affiliates sponsored one public
partnership. The following table identifies the number of operating partnership
interests acquired in programs sponsored by Boston Associates and its
affiliates as of December 31, 1999, and emphasizes Boston Capital's philosophy
of broad diversification:
<TABLE>
<CAPTION>
% Equity # of Operating Average Equity
Committed Partnerships Per Operating
Program 12/31/99 Acquired # of States Partnership
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Boston Capital Tax
Credit Fund IV L.P.:
Series 29 .......... 100.0% 22 9 $1,814,314
Series 30 .......... 100.0% 20 13 $1,332,694
Series 31 .......... 99.7% 26 10 $1,691,119
Series 32 .......... 99.2% 16 12 $2,835,774
Series 33 .......... 100.0% 10 10 $2,373,666
Series 34 .......... 99.6% 14 8 $2,507,281
Series 35 .......... 94.5% 10 7 $3,109,093
Series 36 .......... 87.1% 9 6 $2,028,906
Series 37 .......... 61.0% 4 4 $2,553,298
</TABLE>
I-10
<PAGE>
Although the percent of Equity Committed as of December 31, 1999 for Series 31,
Series 32, Series 34, Series 35, Series 36, and Series 37 is 99.7%, 99.2%,
99.6%, 94.5%, 87.1% and 61.0% 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 Boston Capital 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.
It should not be assumed that Investors in Boston Capital 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-11
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
Table I includes information concerning the experience of the Boston Associates
and its affiliates in raising and investing funds for public limited
partnerships having similar investment objectives to Boston Capital.
Information is included for the sole public offering organized between January
1, 1997 and December 31, 1999, which invested in 131 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, 1997 Through December 31, 1999
<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 $44,057,750
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 ................ $38,955,823 $24,710,316 $46,605,968
Additional capital (5) ............ $ 212,502 $ 252,424 $ 322,632
----------- ----------- -----------
Total other sources ............... $39,168,325 $24,962,740 $46,928,600
Amount available for
investment from offering
proceeds ........................ $34,928,250 $23,179,406 $38,550,531
----------- ----------- -----------
Total development costs ........... $74,096,575 $48,142,146 $85,479,131
=========== =========== ===========
Percentage leverage (6) ........... 52.57% 51.33% 54.52%
Average length of offering (days) . 121 80 130
Months to invest 90% of
amount available ................ 20 19 3
</TABLE>
I-12
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
January 1, 1997 Through December 31, 1999
<TABLE>
<CAPTION>
Public Offerings
------------------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 32) (Series 33) (Series 34)
1998 1998 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered (1) ......... $47,431,000 $26,362,000 $35,273,000
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 ................ $31,676,300 $15,375,503 $33,192,864
Additional capital (5) ............ $ 151,209 $ 590 $ 38,577
----------- ----------- -----------
Total other sources ............... $31,827,509 $15,376,093 $33,231,441
Amount available for
investment from offering
proceeds ........................ $41,502,125 $23,066,750 $21,037,625
----------- ----------- -----------
Total development costs ........... $73,329,639 $38,442,843 $64,095,316
=========== =========== ===========
Percentage leverage (6) ........... 43.29% 40.0% 51.79%
Average length of offering
(days) .......................... 156 91 143
Months to invest 90% of
amount available ................ 9 3 8
</TABLE>
I-13
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
January 1, 1997 Through December 31, 1999
<TABLE>
<CAPTION>
Public Offerings
------------------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 35) (Series 36) (Series 37)
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered (1) ............... $ 33,004,625 $ 21,068,375 $ 16,748,000
Dollar amount raised (100%) ............. 100% 100% 100%
Less: Offering expenses
Selling commissions and
reimbursements retained by affiliates 2.00% 2.00% 2.00%
Other selling commissions .............. 8.00% 8.00% 8.00%
Legal and organizational ............... 2.50% 2.50% 2.50%
------------ ------------ ------------
Total offering expenses ................. 12.50% 12.50% 12.50%
============ ============ ============
Amount available for investment
from limited partners ................. 87.50% 87.50% 87.50%
Acquisition fees (2) .................... 8.50% 8.50% 8.50%
Acquisition expenses (3) ................ 2.00% 2.00% 2.00%
Working capital reserves ................ 4.00% 4.00% 4.00%
Cash payments to operating
partnerships (4) ...................... 73.00% 73.00% 73.00%
------------ ------------ ------------
Total acquisition costs ................. 87.50% 87.50% 87.50%
============ ============ ============
Mortgage financing ...................... $ 21,041,860 $ 15,785,934 $ 14,074,903
Additional capital (5) .................. $ 200,973 $ 34,127 $ 118
------------ ------------ ------------
Total other sources ..................... $ 21,242,833 $ 15,820,061 $ 14,075,021
Amount available for investment
from offering proceeds ................ $ 48,879,047 $ 18,434,828 $ 14,654,500
------------ ------------ ------------
Total development costs ................. $ 50,121,880 $ 34,254,889 $ 28,729,521
============ ============ ============
Percentage leverage (6) ................. 41.98% 46.08% 48.99%
Average length of offering (days) ....... 127 90 86
Months to invest 90% of amount
available ............................. N/A N/A N/A
</TABLE>
NOTES TO TABLE I
Note 1: The dollar amount offered and raised includes the entire amount of
investors' contributions paid.
Note 2: Acquisition fees are amounts paid to the general partners and
affiliates for selecting, evaluating, negotiating and closing the investment
partnerships' acquisition of operating partnership interests.
Note 3: Acquisition expenses consist of legal and accounting fees, travel,
market studies and other expenses to be paid to third parties.
Note 4: Cash payments to non-affiliated operating partnerships include capital
contributions. The amount shown for 1999 includes 4.26% 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-14
<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, 1997 and December
31, 1999 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, 1997 Through December 31, 1999
<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 $44,057,750
Amounts paid and/or payable
to sponsor and affiliates from
proceeds (1): ................
Underwriting fees (2) .......... 1,397,130 927,176 1,542,021
Acquisition fees ............... 3,393,030 2,251,714 3,744,909
Acquisition expense
reimbursement ................ 798,360 529,815 881,155
Asset management fee ........... 756,075 371,682 680,272
Dollar amount of cash
generated from operating
partnerships before payments
to sponsors (3) .............. 0 4,319 442
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 32) (Series 33) (Series 34)
1998 1998 1998
------------- ------------- --------------
<S> <C> <C> <C>
Dollar amount raised (1) ....... $47,431,000 $26,362,000 $35,273,000
Amounts paid and/or payable
to sponsor and affiliates from
proceeds (1):
Underwriting fees (2) .......... 1,660,085 922,670 1,234,555
Acquisition fees ............... 4,031,635 2,240,770 2,998,205
Acquisition expense
reimbursement ................ 948,620 527,240 705,460
Asset management fee ........... 510,634 234,116 228,620
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-15
<PAGE>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
January 1, 1997 Through December 31, 1999
<TABLE>
<CAPTION>
Public Offerings
----------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(Series 35) (Series 36) (Series 37)
1999 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
Dollar amount raised (1) ....... $33,004,625 $21,068,375 $16,748,000
Amounts paid and/or payable
to sponsor and affiliates from
proceeds (1):
Underwriting fees (2) .......... 1,155,162 737,393 586,180
Acquisition fees ............... 2,805,393 1,790,812 1,423,580
Acquisition expense
reimbursement ................ 660,093 421,368 334,960
Asset management fee ........... 117,719 26,339 0
Dollar amount of cash
generated from operating
partnerships before payments
to sponsors (3) .............. 0 0 0
Amounts paid to sponsors from
operations (4) ............... 0 0 0
</TABLE>
NOTES TO TABLE II
Note 1: Table II is presented as if all capital contributions were received and
all fees payable from offering proceeds to the General Partner, its Affiliates,
and their predecessors in interest were paid in the year in which the offerings
were completed; such transactions actually occur over several years.
Note 2: Underwriting fees include non-accountable expense allowances, research
report fees, due diligence fees, selling commissions, purchaser representative
fees, and capital commitment fees. These amounts do not include commissions
paid to an affiliated dealer-manager which were subsequently paid to
non-affiliated brokers. These fees are paid over one to three years.
Note 3: The dollar amount of cash generated from operating partnerships is the
total amount of cash distributions received by the investment partnerships
during the three-year period. For example: 1999 would include 1997-1999 cash
distributions for the partnership organized in 1997. 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-16
<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 January 1, 1995 and
December 31, 1999. The public investment partnerships own interests in 286
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-17
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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,
1996 1997 1998 1999 2000
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ..................... 395,171 190,215 78,002 17,417 15,493
Profit on sale of properties ....... 0 0 0 0
Less:
Losses from operating
partnerships (1) ................. (483,614) (1,847,436) (1,705,493) (1,587,640) (1,416,388)
Operating Expenses (3) ............ (447,957) (326,623) (287,098) (276,879) (277,516)
Interest Expense .................. 0 0 0 0 0
Depreciation (2) .................. (9,804) (13,072) (13,072) (13,072) (6,246)
Net Income--GAAP Basis ............. (546,204) (1,996,916) (1,927,661) (1,860,174) (1,684,657)
Taxable Income
from operations (4) .............. (348,385) (2,316,483) (2,351,906) (2,102,618) (1,955,884)
gain on sale ..................... 0 0 0 0 0
Cash generated from
operations (6) ................... (410,825) (266,198) 31,227 (57,158) (117,431)
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 ...................... (410,825) (266,198) 31,277 (57,158) (117,431)
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 ......... (410,825) (266,198) 31,227 (57,158) (117,431)
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 .................... (410,825) (266,198) 31,227 (57,158) (117,431)
</TABLE>
<TABLE>
<CAPTION>
Tax & Distribution Data Per For the Tax period ended December 31,
$1,000 invested (7) 1995 1996 1997 1998 1999
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results .......
Federal Credit (5) .............. 31 90 129 131 131
State Credit .................... 0 0 0 0 0
Ordinary Income (loss) .......... (13) (69) (70) (62) (58)
from operations ................ (13) (69) (70) (62) (58)
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 ............. 98.34%
</TABLE>
I-18
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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 1999 2000
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ..................... 139,594 193,065 50,741 31,706 19,162
Profit on sale of properties ....... 0 0 0 0
Less:
Losses from operating
partnerships (1) ................. (149,023) (797,796) (1,342,281) (1,475,502) (1,388,143)
Operating Expenses (3) ............ (128,659) (310,902) (270,839) (266,929) (241,567)
Interest Expense .................. 0 0 0 0 0
Depreciation (2) .................. (5,769) (12,980) (12,979) (12,980) (10,204)
Net Income--GAAP Basis ............ (143,857) (928,613) (1,575,358) (1,723,705) (1,620,752)
Taxable Income from
operations (4) ................... (205,977) (1,059,389) (1,572,243) (1,515,478) (1,614,284)
gain on sale ..................... 0 0 0 0 0
Cash generated from
operations (6) ................... 102,553 (293,553) 53,614 73,611 62,689
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 .................. 102,553 (293,553) 53,614 73,611 62,689
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 ........ 102,553 (293,553) 53,614 73,611 62,689
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 .................... 102,553 (293,553) 53,614 73,611 62,689
</TABLE>
<TABLE>
<CAPTION>
Tax & Distribution Data Per For the Tax period ended December 31,
$1,000 invested (7) 1995 1996 1997 1998 1999
--------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ............ 11 50 112 127 127
State Credit .................. 0 0 0 0 0
Ordinary Income (loss) ........ (8) (49) (72) (70) (74)
from operations .............. (8) (49) (72) (70) (74)
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 .......... 99.28%
</TABLE>
I-19
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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 1999 2000
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ..................... 130,046 442,637 134,963 89,058 50,146
Profit on sale of properties ....... 0 0 0 0 0
Less:
Losses from operating
partnerships (1) ................. 22,315 (767,183) (1,550,724) (1,653,302) (1,926,540)
Operating Expenses (3) ............ (109,194) (425,636) (367,116) (351,373) (295,377)
Interest Expense .................. 0 0 0 0 0
Depreciation (2) .................. (2,622) (10,488) (10,488) (10,488) (15,218)
Net Income--GAAP Basis ............. 40,545 (760,670) (1,793,365) (1,926,105) (2,186,989)
Taxable Income from
operations (4) ................... 10,287 (453,738) (2,196,058) (1,896,679) (2,042,304)
gain on sale ..................... 0 0 0 0 0
Cash generated from
operations (6) ................... (177,485) 74,185 (239,940) 113,561 59,068
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 ............ (177,485) 74,185 (239,940) 113,561 59,068
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 ......... (177,485) 74,185 (239,940) 113,561 59,068
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 ................ (177,485) 74,185 (239,940) 113,561 59,068
</TABLE>
<TABLE>
<CAPTION>
Tax Distribution Data For the Tax period ended December 31,
Per $1000 invested (7) 1996 1997 1998 1999
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ........... 13 108 125 123
State Credit .................. 0 0 0 0
Ordinary Income (loss) ........ (15) (73) (62) (67)
from operations .............. (15) (73) (62) (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 ........... 98.86%
</TABLE>
I-20
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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 1999 2000
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ..................... 8,666 962,666 534,030 284,747 55,149
Profit on sale of properties ....... 0 0 0 0 0
Less:
Losses from operating
partnerships (1) ................. 0 (493,405) (869,148) (1,448,218) (1,312,467)
Operating Expenses (3) ............ (35,876) (665,060) (662,078) (536,966) (509,586)
Interest Expense .................. 0 0 0 0 0
Depreciation (2) .................. 0 (14,198) (18,931) (18,931) (17,362)
Net Income--GAAP Basis ............. (27,210) (209,997) (1,016,127) (1,719,368) (1,784,266)
Taxable Income from
operations (4) ................... 0 (760,605) (1,551,349) (1,680,968) (2,145,091)
gain on sale ..................... 0 0 0 0 0
Cash generated from
operations (6) ................... (13,967) 63,427 (99,875) 47,051 238,454
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 ............ (13,967) 63,427 (99,875) 47,051 238,454
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 ......... (13,967) 63,427 (99,875) 47,051 238,454
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 ................ (13,967) 63,427 (99,875) 47,051 238,454
</TABLE>
<TABLE>
<CAPTION>
Tax Distribution Data For the Tax period ended December 31,
Per $1000 invested (7) 1996 1997 1998 1999
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ........... 21 59 100 113
State Credit .................. 0 0 0 0
Ordinary Income (loss) ........ (19) (39) (42) (53)
from operations .............. (19) (39) (42) (53)
from recapture ............... 0 0 0 0
Capital gain (loss) ........... 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) ....... 0 0 0 0
Investment income ............ 0 0 0 0
Return of capital ............ 0 0 0 0
Source (on cash basis):
Sales ........................ 0 0 0 0
Refinancing .................. 0 0 0 0
Operations ................... 0 0 0 0
Other ........................ 0 0 0 0
Amount remaining invested in
program properties ........... 99.17%
</TABLE>
I-21
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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 1999 2000
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Revenues ................................ 269,562 323,118 103,948 33,758
Profit on sale of properties .................. 0 0 0 0
Less:
Losses from operating partnerships (1) ....... (9,016) (689,756) (1,421,601) (971,679)
Operating Expenses (3) ....................... (277,112) (404,945) (382,976) (391,152)
Interest Expense ............................. 0 0 0 0
Depreciation (2) ............................. (7,761) (15,522) (15,522) (14,946)
Net Income--GAAP Basis ........................ (24,327) (787,105) (1,716,151) (1,344,019)
Taxable Income
from operations (4) ......................... (177,866) (783,283) (1,215,031) (1,478,369)
gain on sale ................................ 0 0 0 0
Cash generated from
operations (6) .............................. (118,251) 32,425 74,982 (1,156)
Cash generated from sales ..................... 0 0 0 0
Cash generated from refinancing ............... 0 0 0 0
Cash generated from operations,
sales and refinancing ....................... (118,251) 32,425 74,982 (1,156)
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 (275,000) (275,000)
Cash generated (deficiency) after cash
distributions ............................... (118,251) 32,425 (200,018) (276,156)
Less: Special items (not including sales and
refinancing) (identify and quantify) ........ 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items ............. (118,251) 32,425 (200,018) (276,156)
</TABLE>
<TABLE>
<CAPTION>
Tax Distribution Data For the Tax period ended December 31,
Per $1000 invested (7) 1996 1997 1998 1999
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ............ 8 20 68 98
State Credit .................. 0 0 0 0
Ordinary Income (loss) ........ (7) (32) (49) (60)
from operations .............. (7) (32) (49) (60)
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): ....... 0 0 0 0
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 ........... 95.66%
</TABLE>
I-22
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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 1999 2000
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Revenues ................................ 254,197 1,280,997 683,347 237,326
Profit on sale of properties .................. 0 0 0 0
Less:
Losses from operating partnerships (1) ....... (1,567) (351,007) (793,965) (1,993,839)
Operating Expenses (3) ....................... (155,959) (645,593) (593,265) (490,040)
Interest Expense ............................. 0 0 0 0
Depreciation (2) ............................. (5,081) (20,326) (20,326) (3,300)
Net Income--GAAP Basis ........................ 91,590 264,071 (724,209) (2,249,853)
Taxable Income
from operations (4) ......................... (15,956) (488,790) (1,205,879) (2,381,621)
gain on sale ................................ 0 0 0 0
Cash generated from operations (6) ............ (142,303) 619,169 422,423 (432,810)
Cash generated from sales ..................... 0 0 0 0
Cash generated from refinancing ............... 0 0 0 0
Cash generated from operations, sales and
refinancing ................................. (142,303) 619,169 422,423 (432,810)
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 ............................... (142,303) 619,169 422,423 (432,810)
Less: Special items (not including sales and
refinancing) (identify and quantify) ........ 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items ............. (142,303) 619,169 422,423 (432,810)
</TABLE>
<TABLE>
<CAPTION>
Tax Distribution Data For the Tax period ended December 31,
Per $1000 invested (7) 1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ................ 7 12 88
State Credit ...................... 0 0 0
Ordinary Income (loss) ............ (12) (94) (59)
from operations .................. (12) (94) (59)
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): ........... 0 0 0
Sales ............................ 0 0 0
Refinancing ...................... 0 0 0
Operations ....................... 0 0 0
Other ............................ 0 0 0
Amount remaining invested in program
properties ....................... 99.29%
</TABLE>
I-23
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
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 1999 2000
----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Revenues ................................ 1,992 800,608 560,635 194,496
Profit on sale of properties .................. 0 0 0 0
Less:
Losses from operating partnerships (1) ....... 0 (626,915) (1,418,793) (2,192,069)
Operating Expenses (3) ....................... (1,058) (441,805) (540,871) (496,163)
Interest Expense ............................. 0 0 0 0
Depreciation (2) ............................. 0 (8,633) (15,215) (3,206)
Net Income--GAAP Basis ........................ 934 (276,745) (1,414,244) (2,496,942)
Taxable Income
from operations (4) ......................... 0 (397,786) (1,794,720) (2,641,876)
gain on sale ................................ 0 0 0 0
Cash generated from operations (6) ............ 96,625 3,645,201 50,360 (243,517)
Cash generated from sales ..................... 0 0 0 0
Cash generated from refinancing ............... 0 0 0 0
Cash generated from operations,
sales and refinancing ....................... 96,625 3,645,201 50,360 (243,517)
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 (238,041)
Cash generated (deficiency) after cash
distributions ............................... 96,625 3,645,201 50,360 (481,558)
Less: Special items (not including sales and
refinancing) (identify and quantify) ........ 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items ............. 96,625 3,645,201 50,360 (481,558)
</TABLE>
<TABLE>
<CAPTION>
Tax Distribution Data For the Tax period ended December 31,
Per $1000 invested (7) 1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) .............. 2 49 84
State Credit ...................... 0 0 0
Ordinary Income (loss) ............ (10) (44) (66)
from operations .................. (10) (44) (66)
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): ........... 0 0 0
Sales ............................ 0 0 0
Refinancing ...................... 0 0 0
Operations ....................... 0 0 0
Other ............................ 0 0 0
Amount remaining invested in program
properties ....................... 98.93%
</TABLE>
I-24
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
PUBLIC OFFERINGS CLOSED DURING 1997
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 30 and 31)
<TABLE>
<CAPTION>
For the Financial Statement
period ended March 31,
--------------------------------------------------------------------------------------
Series 30 Series 31
------------------------------------------- -----------------------------------------
1998 1999 2000 1998 1999 2000
------------- ------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues ........................... 459,716 476,758 204,382 200,996 1,115,174 248,452
Profit on sale of properties ............. 0 0 0 0 0 0
Less:
Losses from operating partnerships (1) 100,573 (432,433) (1,074,429) (43,087) (1,020,163) (2,795,630)
Operating Expenses (3) .................. (223,345) (335,339) (382,110) (224,172) (544,122) (584,385)
Interest Expense ........................ 0 0 0 0 0 0
Depreciation (2) ........................ (5,613) (13,857) (21,139) (3,426) (13,702) 0
Net Income--GAAP Basis ................... 331,331 (304,871) (1,273,296) (69,689) (462,813) (3,131,563)
Taxable Income
from operations (4) .................... (42,975) (666,406) (1,762,799) (141,712) (706,718) (3,691,755)
gain on sale ........................... 0 0 0 0 0 0
Cash generated from operations (6) ....... (1,821) 267,031 (73,068) 194,462 (73,719) (180,327)
Cash generated from sales ................ 0 0 0 0 0 0
Cash generated from refinancing .......... 0 0 0 0 0 0
Cash generated from operations, sales
and refinancing ........................ (1,821) 267,031 (73,068) 194,462 (73,719) (180,327)
Less: Cash distributions to investors from
operating cash flow .................... 0 0 0 0 0 0
from sales and refinancing ............. 0 0 0 0 0 0
from other ............................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions .......................... (1,821) 267,031 (73,068) 194,462 (73,719) (180,327)
Less: Special items (not including sales
and refinancing) (identify and
quantify) .............................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items ........ (1,821) 267,031 (73,068) 194,462 (73,719) (180,327)
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended December 31,
-----------------------------------------------------------
Series 30 Series 31
----------------------------- -----------------------------
Tax Distribution Data 1997 1998 1999 1997 1998 1999
Per $1000 invested (7) --------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ............... 0 19 75 0 28 81
State Credit ..................... 0 0 0 0 0 0
Ordinary Income (loss) ........... (2) (21) (16) (3) (16) (38)
from operations ................. (2) (21) (16) (3) (16) (38)
Capital gain (loss) ............. 0 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) ........... 0 0 0 0 0 0
Investment income ............... 0 0 0 0 0 0
Return of capital ............... 0 0 0 0 0 0
Source (on cash basis): .......... 0 0 0 0 0 0
Sales ........................... 0 0 0 0 0 0
Refinancing ..................... 0 0 0 0 0 0
Operations ...................... 0 0 0 0 0 0
Other ........................... 0 0 0 0 0 0
Amount remaining invested in
program properties .............. 99.32% 99.34%
</TABLE>
I-25
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
PUBLIC OFFERINGS CLOSED DURING 1998
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 32 through Series 33)
<TABLE>
<CAPTION>
For the Financial Statement
period ended March 31,
---------------------------------------------------------------------------------
Series 32 Series 33
------------------------------------------------- -----------------------------
1998 1999 2000 1999 2000
--------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ......................... 2,782 727,112 342,051 256,081 312,853
Profit on sale of properties ........... 0 0 0 0 0
Less:
Losses from operating
partnerships (1) ...................... 0 56,660 (1,245,350) 187,290 (595,041)
Operating Expenses (3) ................ (23,978) (505,039) (554,745) (239,965) (396,338)
Interest Expense ...................... 0 0 0 0 0
Depreciation (2) ...................... 0 (8,897) (29,738) (9,308) (26,578)
Net Income--GAAP Basis ................. (21,196) 269,836 (1,487,782) 194,098 (705,104)
Taxable Income
from operations (4) ................... 0 (451,885) (1,514,735) (147,561) (661,228)
gain on sale .......................... 0 0 0 0 0
Cash generated from operations (6) ..... (1,033,617) 1,149,015 261,990 (85,106) 75,787
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 ................ (1,033,617) 1,149,015 261,990 (85,106) 75,787
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 ................... (1,033,617) 1,149,015 261,990 (85,106) 75,787
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 . (1,033,617) 1,149,015 261,990 (85,106) 75,787
</TABLE>
<TABLE>
<CAPTION>
For the Tax Period ended December 31,
----------------------------------------------
Series 32 Series 33
--------------------- ----------------------
Tax Distribution Data 1998 1999 1998 1999
Per $1000 invested (7) -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ................ 21 41 19 37
State Credit ...................... 0 0 0 0
Ordinary Income (loss) ............ (10) (31) (2) (25)
from operations .................. (10) (31) (2) (25)
from recapture ................... 0 0 0 0
Capital gain (loss) ............... 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) ............ 0 0 0 0
Investment income ................ 0 0 0 0
Return of capital ................ 0 0 0 0
Source (on cash basis):
Sales ............................ 0 0 0 0
Refinancing ...................... 0 0 0 0
Operations ....................... 0 0 0 0
Other ............................ 0 0 0 0
Amount remaining invested in program
properties ....................... 99.36% 99.08%
</TABLE>
I-26
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
PUBLIC OFFERINGS CLOSED DURING 1999
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 34 through Series 35)
<TABLE>
<CAPTION>
For the Financial Statement
period ended March 31,
---------------------------------------------------------------
Series 34 Series 35
----------------------------- -------------------------------
1999 2000 1999 2000
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Gross Revenues ......................... 156,247 385,293 1,803 567,711
Profit on sale of properties ........... 0 0 0 0
Less:
Losses from operating
partnerships (1) ..................... (218) (468,712) 0 (194,048)
Operating Expenses (3) ................ (116,080) (573,910) (8,570) (410,088)
Interest Expense ...................... 0 0 0 0
Depreciation (2) ...................... 0 (41,853) 0 (225,179)
Net Income--GAAP Basis ................. 39,949 (699,182) (6,767) (261,604)
Taxable Income
from operations (4) .................. 1,650 (787,448) 0 (309,302)
gain on sale ......................... 0 0 0 0
Cash generated from operations (6) ..... (114,918) (33,256) (2,095,601) 1,894,591
Cash generated from sales .............. 0 0 0 0
Cash generated from refinancing ........ 0 0 0 0
Cash generated from operations,
sales and refinancing ................ (114,918) (33,256) (2,095,601) 1,894,591
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 ................... (114,918) (33,256) (2,095,601) 1,894,591
Less: Special items (not including
sales and refinancing) (identify and
quantify) ............................ 0 0 0 0
Cash generated (deficiency) after
cash distributions
and special items .................... (114,918) (33,256) (2,095,601) 1,894,591
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended December 31, 1999
Tax Distribution Data ------------------------------------------
Per $1000 invested (7) Series 34 Series 34 Series 35
----------- ----------- -------------
1998 1999 1999
---- ---- ----
<S> <C> <C> <C>
Federal Income Tax Results
Federal Credit (5) ............ 0 16 4
State Credit .................. 0 0 0
Ordinary Income (loss) ........ 15 (19) (9)
from operations .............. 15 (19) (9)
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 ........... 99.81% 100.00%
</TABLE>
I-27
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
From Opening Through March 31, 2000
PUBLIC OFFERINGS CLOSED DURING 1999
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (Series 36 through Series 38)
<TABLE>
<CAPTION>
For the Financial Statement
period ended March 31,
--------------------------------------------
Series 36 Series 37 Series 38
------------- ------------- ------------
2000 2000 2000
------------- ------------- ------------
<S> <C> <C> <C>
Gross Revenues ......................... 175,394 145,974 1,437
Profit on sale of properties ........... 0 0 0
Less:
Losses from operating
partnerships (1) ..................... (160,352) (44,958) 0
Operating Expenses (3) ................ (240,981) (154,532) (83,131)
Interest Expense ...................... 0 0 0
Depreciation (2) ...................... (78,850) 0 0
Net Income--GAAP Basis ................. (304,789) (53,516) (81,694)
Taxable Income
from operations (4) ................... (149,757) (9,645) 0
gain on sale .......................... 0 0 0
Cash generated from operations (6) ..... (119,222) (4,554) 361,642
Cash generated from sales .............. 0 0 0
Cash generated from refinancing ........ 0 0 0
Cash generated from operations,
sales and refinancing ................ (119,222) (4,554) 361,642
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 ................... (119,222) (4,554) 361,642
Less: Special items (not including
sales and refinancing) (identify and
quantify) ............................ 0 0 0
Cash generated (deficiency) after
cash distributions
and special items .................... (119,222) (4,554) 361,642
</TABLE>
<TABLE>
<CAPTION>
For the Tax period ended
December
31, 1999
-----------------------------
Tax Distribution Data
Per $1000 invested (7) Series 36 Series 37
<S> <C> <C>
Federal Income Tax Results
Federal Credit (5) ............ 2 0
State Credit .................. 0 0
Ordinary Income (loss) ........ (8) (1)
from operations .............. (8) (1)
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% 100.00%
</TABLE>
I-28
<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.
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, 1999.
I-29
<PAGE>
TABLE III-A
Table III-A summarizes the actual tax credit results during the period January
1, 1988 through December 31, 1999, of the four public partnerships sponsored by
affiliates of Boston Associates.
<TABLE>
<CAPTION>
Final
Closing
Program Equity Raised Date
-------------------- --------------- ------------
<S> <C> <C>
BCTC 1 ............. 12,999,000 Dec. 1988
BCTC 2 (CA)2 ....... 8,303,000 Apr. 1989
BCTC 3 ............. 28,822,000 May 1989
BCTC 4 ............. 29,788,160 Jun. 1989
BCTC 5 (CA)2 ....... 4,899,000 Jul. 1989
BCTC 6 ............. 12,935,780 Sept. 1989
BCTC II 7 .......... 10,361,000 Dec. 1989
BCTC II 9 .......... 41,574,018 May 1990
BCTC II 10 ......... 24,288,998 Aug. 1990
BCTC II 11 ......... 24,735,003 Dec. 1990
BCTC II 12 ......... 29,710,003 May 1991
BCTC II 14 ......... 55,728,996 Dec. 1991
BCTC III 15 ........ 38,705,000 Jun. 1992
BCTC III 16 ........ 54,293,000 Dec. 1992
BCTC III 17 ........ 50,000,000 May 1993
BCTC III 18 ........ 36,162,000 Oct. 1993
BCTC III 19 ........ 40,800,000 Dec. 1993
BCTC IV 20 ......... 38,667,000 Jun. 1994
BCTC IV 21 ......... 18,927,000 Sept. 1994
BCTC IV 22 ......... 25,644,000 Dec. 1994
BCTC IV 23 ......... 33,366,000 Jun. 1995
BCTC IV 24 ......... 21,697,000 Sept. 1995
BCTC IV 25 ......... 30,248,000 Dec. 1995
BCTC IV 26 ......... 39,959,000 Jun. 1996
BCTC IV 27 ......... 24,607,000 Sept. 1996
BCTC IV 28 ......... 39,999,000 Jan. 1997
<CAPTION>
Actual Tax Credits (%)(3&4)
----------------------------------------------------------------------------------------------------------
Program 1988 1989 1990(1) 1991 1992 1993 1994 1995 1996 1997 1998
-------------------- ------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BCTC 1 ............. .9 11.0 22.0 14.2 14.2 14.2 14.2 14.2 14.2 14.2 12.1
BCTC 2 (CA)2 ....... 4.2 24.8 29.5 27.0 17.1 11.1 10.5 10.2 10.2 10.2
BCTC 3 ............. 12.0 18.5 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.5
BCTC 4 ............. 7.8 17.4 13.9 12.6 12.6 12.4 12.4 12.4 12.4 12.4
BCTC 5 (CA)2 ....... 7.0 24.1 25.2 21.5 15.2 11.1 10.7 10.4 10.4 10.1
BCTC 6 ............. 2.9 15.3 14.9 13.5 13.1 13.0 13.0 13.0 12.8 12.8
BCTC II 7 .......... 6.2 11.9 17.1 11.9 12.1 12.2 12.2 12.2 12.2 12.2
BCTC II 9 .......... 9.3 11.6 11.9 12.5 13.5 13.7 13.8 13.8 13.7
BCTC II 10 ......... 3.1 10.4 12.0 14.1 14.6 14.8 14.7 14.7 14.6
BCTC II 11 ......... 4.5 7.9 12.3 12.8 13.3 13.3 13.3 13.3 13.3
BCTC II 12 ......... 4.7 11.0 12.1 14.3 14.8 14.7 14.8 14.7
BCTC II 14 ......... 3.8 9.1 12.5 14.0 14.4 14.5 14.5 14.3
BCTC III 15 ........ 3.1 9.2 13.4 14.4 14.8 14.8 14.8
BCTC III 16 ........ 1.4 4.4 8.6 13.9 14.2 14.2 14.3
BCTC III 17 ........ 3.2 8.3 13.6 14.1 14.1 14.1
BCTC III 18 ........ .1 7.3 12.8 13.4 13.4 13.5
BCTC III 19 ........ 1.8 10.2 12.6 13.4 13.5
BCTC IV 20 ......... 2.3 8.4 13.4 13.4 13.5
BCTC IV 21 ......... 3.5 9.2 11.5 12.0
BCTC IV 22 ......... 4.6 10.4 12.1 12.7
BCTC IV 23 ......... 3.1 9.1 13.0 13.2
BCTC IV 24 ......... 1.7 5.1 11.3 12.9
BCTC IV 25 ......... 1.4 10.9 12.6
BCTC IV 26 ......... 2.6 6.0 10.1
BCTC IV 27 ......... 0.9 2.0 6.9
BCTC IV 28 ......... .7 4.9
<CAPTION>
Actual
Tax
Credits
(%)(3&4) Overall Tax
-------- Cumulative time Credit
Program 1999 Cumulative invested thru 1999 Objective
-------------------- -------- ------------ ------------------- ------------
<S> <C> <C> <C> <C>
BCTC 1 ............. 1.1 146.5 10 yrs. 130-150
BCTC 2 (CA)2 ....... 9.7 164.5 10 yrs. 8 mos. 170
BCTC 3 ............. 6.0 139.3 10 yrs. 7 mos. 130-150
BCTC 4 ............. 9.6 135.9 10 yrs. 6 mos. 130-150
BCTC 5 (CA)2 ....... 9.6 155.3 10 yrs. 5 mos. 150-170
BCTC 6 ............. 11.4 135.7 10 yrs. 3 mos. 130-150
BCTC II 7 .......... 7.2 127.4 10 yrs. 130-140
BCTC II 9 .......... 12.8 126.6 9 yrs. 7 mos. 130-150
BCTC II 10 ......... 13.2 126.2 9 yrs. 4 mos. 130-150
BCTC II 11 ......... 13.2 117.2 9 yrs. 130-150
BCTC II 12 ......... 14.7 115.8 8 yrs. 7 mos. 140-160
BCTC II 14 ......... 14.3 111.4 8 yrs. 140-160
BCTC III 15 ........ 14.7 99.2 7 yrs. 6 mos. 140-160
BCTC III 16 ........ 14.1 85.1 7 yrs. 140-160
BCTC III 17 ........ 14.1 81.5 6 yrs. 7 mos. 140-160
BCTC III 18 ........ 13.5 74.0 6 yrs. 2 mos. 140-160
BCTC III 19 ........ 13.5 65.0 6 yrs. 140-160
BCTC IV 20 ......... 13.5 64.5 5 yrs. 6 mos. 130-150
BCTC IV 21 ......... 12.2 48.4 5 yrs. 3 mos. 130-150
BCTC IV 22 ......... 12.8 52.6 5 yrs. 130-150
BCTC IV 23 ......... 13.2 51.6 4 yrs. 6 mos. 130-150
BCTC IV 24 ......... 12.9 43.9 4 yrs. 3 mos. 130-150
BCTC IV 25 ......... 12.4 37.3 4 yrs. 130-150
BCTC IV 26 ......... 11.5 30.2 3 yrs. 6 mos. 120-140
BCTC IV 27 ......... 9.9 19.7 3 yrs. 3 mos. 120-140
BCTC IV 28 ......... 8.9 14.5 2 yrs. 11 mos. 120-140
</TABLE>
I-30
<PAGE>
<TABLE>
<CAPTION>
Final
Closing
Program Equity Raised Date
--------------------- ----------------- ------------
<S> <C> <C>
BCTC IV 29 .......... 39,918,000 Jun. 1997
BCTV IV 30 .......... 26,490,750 Sept. 1997
BCTC IV 31(5) ....... 44,057,750 Jan. 1998
BCTC IV 32(5) ....... 47,431,000 Jun. 1998
BCTC IV 33(5) ....... 26,362,000 Sept. 1998
BCTC IV 34(5) ....... 35,273,000 Feb. 1999
BCTC IV 35(5) ....... 33,004,625 Jun. 1999
BCTC IV 36(5) ....... 21,068,375 Sept. 1999
----------
Total ............... $1,050,824,458
<CAPTION>
Actual Tax Credits (%)(3&4)
--------------------------------------------------------------------------------------------
Program 1988 1989 1990(1) 1991 1992 1993 1994 1995 1996 1997 1998 1999 Cumulative
--------------------- ------ ------ --------- ------ ------ ------ ------ ------ ------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BCTC IV 29 .......... 1.9 5.0 8.5 15.4
BCTV IV 30 .......... .1 1.9 7.6 9.6
BCTC IV 31(5) ....... 2.9 8.1 11.0
BCTC IV 32(5) ....... 2.6 4.2 6.8
BCTC IV 33(5) ....... 2.3 3.7 6.0
BCTC IV 34(5) ....... 1.6 1.6
BCTC IV 35(5) ....... 0.5 0.5
BCTC IV 36(5) ....... 0.2 0.2
<CAPTION>
Overall Tax
Cumulative time Credit
Program invested thru 1999 Objective
--------------------- ------------------- -------------
<S> <C> <C>
BCTC IV 29 .......... 2 yrs. 6 mos. 110-130
BCTV IV 30 .......... 2 yrs. 3 mos. 110-130
BCTC IV 31(5) ....... 1 yr. 11 mos. 110-130
BCTC IV 32(5) ....... 1 yr. 6 mos. 110-120
BCTC IV 33(5) ....... 1 yr. 3 mos. 110-120
BCTC IV 34(5) ....... 10 mos. 100-120
BCTC IV 35(5) ....... 6 mos. 100-110
BCTC IV 36(5) ....... 3 mos. 100-110
</TABLE>
I-31
<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 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.
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-32
<PAGE>
================================================================================
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
AGREEMENT OF LIMITED PARTNERSHIP
================================================================================
As of December 16, 1993
<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-2
1.04 Term .................................................... A-2
ARTICLE II
DEFINED TERMS ..................................................... A-2
2.01 Defined Terms ........................................... A-2
ARTICLE III
PARTNERS AND CAPITAL .............................................. A-17
3.01 General Partner ......................................... A-17
3.02 Limited Partner ......................................... A-17
3.03 Assignees ............................................... A-18
3.04 Partnership Capital ..................................... A-21
3.05 Liability of Partners and Assignees ..................... A-23
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS,
CREDITS AND LOSSES ................................................ A-24
4.01 Allocations of Profits, Credits and Losses and
Distributions of Cash Available for Distribution ....... A-24
4.02 Distributions of Liquidation, Sale or Refinancing
Proceeds ............................................... A-25
4.03 Allocation of Gains and Losses .......................... A-26
4.04 Determination of Allocations and Distributions
Among Partners and Assignees ........................... A-27
4.05 Capital Accounts ........................................ A-30
4.06 Authority of General Partners to Vary Allocations to
Preserve and Protect Partners' Intent .................. A-30
4.07 Allocations Between and Among Series .................... A-31
4.08 Special Allocations ..................................... A-31
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL
PARTNER ........................................................... A-33
5.01 Management of the Partnership ........................... A-33
5.02 Authority of the Managing General Partner ............... A-36
5.03 Authority of General Partner and Its Affiliates to
Deal with Partnership and Operating Partnerships A-40
5.04 General Restrictions on Authority of General Partner A-43
5.05 Management Obligations .................................. A-46
5.06 Delegation of Authority ................................. A-48
5.07 Other Activities ........................................ A-49
5.08 Limitation on Liability of General Partner and
Assignor Limited Partner; Indemnification .............. A-49
5.09 Tax Status of Partnership ............................... A-51
5.10 Fiduciary Duty; Derivative Action ....................... A-51
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.11 Agency Agreement ........................................ A-51
5.12 Restrictions on Authority to Deal with General
Partner and Affiliates ................................. A-52
5.13 Additional Restrictions on the General Partner .......... A-52
5.14 Accounting Fee Advances ................................. A-53
5.15 Asset Acquisition Fee ................................... A-54
5.16 Partnership Management Fee .............................. A-54
ARTICLE VI
CHANGES IN GENERAL PARTNERS ........................................ A-54
6.01 Withdrawal of the General Partner ....................... A-54
6.02 Admission of a Successor or Additional General
Partner ................................................ A-55
6.03 Consent of Assignees and Limited Partners to
Admission of Successor or Additional General
Partner ................................................ A-56
6.04 Removal of a General Partner ............................ A-56
6.05 Effect of Removal, Bankruptcy, Death, Withdrawal,
Dissolution or Incompetency of a General Partner ....... A-57
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNERS' INTERESTS AND
TRANSFERABILITY OF BACS ............................................ A-58
7.01 Assignments of the Interest of Assignor Limited
Partner ................................................ A-58
7.02 Conversion of BACs ...................................... A-59
7.03 Assignees of Limited Partners; Substitute Limited
Partners ............................................... A-59
7.04 Joint Ownership of Interests ............................ A-60
7.05 Assignability of BACs ................................... A-61
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP ..................... A-62
8.01 Events Causing Dissolution .............................. A-62
8.02 Liquidation ............................................. A-63
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING REPORTS, TAX
MATTERS ............................................................ A-65
9.01 Books and Records ....................................... A-65
9.02 Accounting Basis and Fiscal Year ........................ A-66
9.03 Bank Accounts ........................................... A-66
9.04 Reports ................................................. A-67
9.05 Section 754 Elections ................................... A-68
9.06 Designation of Tax Matters Partner ...................... A-68
9.07 Duties of Tax Matters Partner ........................... A-68
9.08 Authority of Tax Matters Partner ........................ A-69
9.09 Expenses of Tax Matters Partner ......................... A-70
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
AND ASSIGNEES ...................................................... A-70
10.01 Meetings ................................................ A-70
10.02 Voting Rights of Limited Partners and Assignees ......... A-72
10.03 Voting by the Assignor Limited Partner on Behalf
of BAC Holders ......................................... A-75
10.04 Management of the Partnership ........................... A-76
10.05 Other Activities ........................................ A-76
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE XI
ASSIGNMENT OF BENEFICIAL INTERESTS TO ASSIGNEES
AND RIGHTS OF ASSIGNEES ............................................... A-76
11.01 Assignment of Beneficial Interests to Assignees ............ A-76
11.02 Rights of Assignees of the Assignor Limited Partner ........ A-77
11.03 Fiduciary Duty of Assignor ................................. A-78
11.04 Preservation of Tax Status and Preservation of
Partnership Status ........................................ A-78
ARTICLE XII
MISCELLANEOUS PROVISIONS .............................................. A-79
12.01 Appointment of Managing General Partner as
Attorney-in-Fact .......................................... A-79
12.02 Signatures; Amendments ..................................... A-80
12.03 Ownership by Limited Partners or Assignees of
General Partners or Its Affiliates ........................ A-81
12.04 Binding Provisions ......................................... A-82
12.05 Applicable Law ............................................. A-82
12.06 Counterparts ............................................... A-82
12.07 Separability of Provisions ................................. A-82
12.08 Captions ................................................... A-82
12.09 Disallowance of Expenses ................................... A-83
12.10 Entire Agreement ........................................... A-83
12.11 Series Treated as Separate Partnerships; Exceptions ........ A-83
</TABLE>
iii
<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
A-1
<PAGE>
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-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
certificates 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
A-2
<PAGE>
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 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 nec-
A-3
<PAGE>
essary 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 certificate 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 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
A-4
<PAGE>
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 certificate, 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 Per-
A-5
<PAGE>
son 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.
"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 includ-
A-6
<PAGE>
able 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.
"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.
A-7
<PAGE>
"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 organizational 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 Partner-
A-8
<PAGE>
ship'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 admitted 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 certificates, the
Limited Partners (including the Assignor Limited Partner)
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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.
"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.
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"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.
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"Notice" means a writing, containing the information required by this Agreement
to be communicated to any Person, personally delivered to such Person or sent by
registered, certified or regular mail, postage prepaid, to such Person at the
last known address of such Person. The date of personal delivery or the date of
mailing thereof, as the case may be, shall be deemed the date of 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.
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"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 certificates
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
related documents and the cost of filing and recording such BACs 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
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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 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
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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;
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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.
"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.
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"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.
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
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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 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
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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
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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 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.
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(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 Limited
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
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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 Inter-
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ests 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 Assignees 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 obliga-
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tion 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
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
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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
Partner and/or its Affiliates
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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:
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(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 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
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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, 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
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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
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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 credited 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
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(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.
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
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provision is intended to comply with the minimum gain charge BAC 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
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been 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 charge BAC
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
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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.
(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
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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 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.
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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 Operat-
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ing 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
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
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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
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
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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
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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.
(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 con-
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tract 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
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 Part-
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nership's Accountants. The costs of verification of costs reimbursed to the
General Partner or its Affiliates contained in the annual report may be
reimbursed only to the extent, when added to the costs of such goods or services
rendered, that the sum does not exceed the competitive rate for such services.
(d) All services provided by the General Partner or any Affiliates pursuant to
Section 5.03(c) shall be rendered pursuant to this Agreement or a written
contract, which contract precisely describes the services to be rendered and all
compensation to be paid and shall contain a clause allowing termination without
penalty on 60 days Notice to the General Partner by the vote of the majority in
Interest of the Limited Partners and the BAC Holders (the Assignor Limited
Partner acting according to the direction of the BAC Holders). The General
Partner and its Affiliates shall not have the right to contract or otherwise
deal with the Partnership for the sale of goods or services, except for those
dealings, contracts or provision of services on terms described in this
Agreement.
(e) The following prohibitions shall apply with respect to the General Partner
and its Affiliates: (i) neither the General Partner nor any such Affiliate shall
be given an exclusive right to sell, or exclusive employment to sell, any
Apartment Complex; (ii) the Partnership shall not lend money to the General
Partner or any Affiliate of the General Partner; (iii) neither the General
Partner nor any Affiliate of the General Partner shall make any loan to the
Partnership if such loan provides for a prepayment penalty or the interest rates
and other finance charges and fees in connection with such loan are in excess of
the rate or fees at which the Partnership could have borrowed from an
independent bank under comparable circumstances or, if lower, the rate which the
General Partner or such Affiliate paid to obtain the funds to make the loan to
the Partnership compounded monthly; and (iv) no compensation or fees may be paid
by the Partnership or an Operating Partnership to the General Partner or its
Affiliates except as described in this Agreement or in the Prospectus, and in no
event shall the aggregate compensation payable to the Partnership, the General
Partner or its Affiliates exceed the amounts permitted under Section IV of the
NASAA Guidelines.
(f) Notwithstanding any provisions of this Section 5.03, neither the General
Partner nor any of its Affiliates shall:
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(i) receive any rebate or give-up, or participate in any reciprocal
arrangement, of which would circumvent the provisions of the Partnership
Agreement;
(ii) receive any compensation for providing insurance brokerage services to
the Partnership, unless such services and compensation are provided in
compliance with Section 5.03(b), and (x) the cost of providing such
services is no greater than the lowest quotes obtained from two
unaffiliated insurance agencies and the coverage and terms are comparable,
and (y) at least 75% of the insurance brokerage service gross revenues of
the General Partner or its Affiliates are derived from other than insurance
brokerage services provided to Affiliates;
(iii) provide "financing" to the Partnership, as that term is defined in
Section I.B.17. of the NASAA Guidelines as the indebtedness encumbering
program properties, the principal amount of which is scheduled to be paid
over a period of not less than 48 months, and not greater than 50 percent
of the principal amount of which is scheduled to be paid during the first
24 months. Nothing in this definition shall be construed as prohibiting a
bonafide prepayment provision in the financing agreement;
(iv) charge the Partnership for, or take from any other Person, any
property management fee with respect to Partnership property or assets,
except as provided in Section 5.03(b); or (v) pay or award, directly or
indirectly, any commission or other compensation (other than normal sales
commissions and reimbursement of expenses payable to registered
broker-dealers which may include cash incentives under a program submitted
for review and approval by the National Association of Securities Dealers,
Inc. ("NASD") in accordance with Section 5(f) of Appendix F to Section 34
of the NASD Rules of Fair Practice) to any Person engaged by a potential
investor for investment advice as an inducement to such advisor to advise
such investor to purchase BACs.
(g) Notwithstanding any provision in this Agreement, in no event shall the
General Partner or its Affiliates provide services or receive compensation other
than as allowed by Sections V.E.2 and V.J. of the NASAA Guidelines.
5.04. General Restrictions on Authority of General Partner.
In exercising management and control of the Partnership, the General Partner,
on behalf of the Partnership and in further-
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ance 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
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
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<PAGE>
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
Partnership 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
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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 maxi-
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mum 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 publicly
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:
(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.
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(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 BAC 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 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.
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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 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.
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(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
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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
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 Part-
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nership 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 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 forma-
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tion 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 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.
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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
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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.
(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
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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 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
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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 Bank-
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rupt, deceased, dissolved or incompetent General Partner which matured 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
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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 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 BACs 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 Partner-
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ship 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 BACs 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 designation, 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 Inter-
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ests 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
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(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.
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, with-
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drew 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 BAC 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.
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 BAC 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
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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.
(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.
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(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
representative 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 BAC 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;
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(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(f); and
(vi) the Partnership books.
(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
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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 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
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for Distribution for such year (which need not be audited), (iii) a report of
the activities of the Partnership during such year, and (iv) a statement (which
need not be audited) showing distributions per Unit by admission date at any
time during such year in respect of such year, which statement shall identify
distributions from (a) Cash Available for Distribution generated during the
year, (b) Cash Available for Distribution generated during prior years which
has been held as reserves, (c) proceeds from a Capital Transaction, (d) lease
payments on net leases with builders and sellers, and (e) the Working Capital
Reserve and other sources.
(e) A copy of each report referred to in this Section 9.04 shall be filed with
all securities commissions requiring such filing at the time required by such
commissions.
(f) If BACs are issued in series, all reports described in this Section 9.04
shall set forth required information for each series separately, as applicable.
9.05. Section 754 Elections.
In the event of a transfer of all or any part of the Interest of an Assignee,
the Partnership may, but is not required to elect, pursuant to Section 754 of
the Code (or any corresponding provision of succeeding law), to adjust the
basis of the Partnership property.
9.06. Designation of Tax Matters Partner.
The Managing General Partner is hereby authorized to designate itself or any
other General Partner, as Tax Matters Partner of the Partnership, as provided
in regulations pursuant to Section 6231 of the Code. Each Partner and Assignee,
by the execution of this Agreement consents to such designation of the Tax
Matters Partner and agrees to execute, certify, acknowledge, deliver, swear to,
file and record at the appropriate public offices such documents as may be
necessary or appropriate to evidence such consent.
9.07. Duties of Tax Matters Partner.
(a) To the extent and in the manner provided by applicable law and regulations,
the Tax Matters Partner shall furnish the name, address, profits interest and
taxpayer identification number of each Partner and Assignee to the Secretary of
the Treasury or his delegate (the "Secretary").
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(b) To the extent and in the manner provided by applicable law and regulations,
the Tax Matters Partner shall keep each Partner and Assignee informed of the
administrative and judicial proceedings for the adjustment at the Partnership
or Operating Partnership level of any item required to be taken into account by
a Partner and Assignee for income tax purposes (such administrative proceeding
referred to hereinafter as a "tax audit" and such judicial proceeding referred
to hereinafter as "judicial review").
(c) If the Tax Matters Partner, on behalf of the Partnership, receives a notice
with respect to a Partnership tax audit from the Secretary or from the Tax
Matters Partner of the Operating Partnership, the Tax Matters Partner shall,
within 30 days of receiving such notice forward a copy of such notice to the
Persons who hold or held an interest (through their Interest in the Partnership
or the BACs) in the Profits, Losses and Credits of such Operating Partnership
for the Operating Partnership taxable year to which the notice relates.
9.08. Authority of Tax Matters Partner.
The Tax Matters Partner is hereby authorized, but not required:
(a) to enter into any settlement with the Internal Revenue Service or the
Secretary with respect to any tax audit or judicial review, in which agreement
the Tax Matters Partner may expressly state that such agreement shall bind the
other Partners or Assignees, except that such settlement agreement shall not
bind any Partner or Assignee who (within the time prescribed pursuant to the
Code and regulations thereunder) files a statement with the Secretary providing
that the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on the behalf of such Partner or Assignee;
(b) in the event that a notice of a final administrative adjustment at the
Partnership or Operating Partnership level of any item required to be taken
into account by a Partner or Assignee for tax purposes (a "final adjustment")
is mailed to the Tax Matters Partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment with the Tax
Court, the District Court of the United States for the district in which the
Partnership's principal place of business is located, or the United States
Claims Court;
(c) to intervene in any action brought by any other Partner or Assignee for
judicial review of a final adjustment;
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(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.
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
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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 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
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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
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required under the Act) (it being understood that the Assignor Limited Partner
is voting at the direction of the 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 Part-
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ner 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 Association. 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 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.
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(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 represent 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
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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:
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(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;
(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.
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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.
(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.
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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 BACs 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, admission or dissolution and
termination are in accordance
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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 mani-
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fest 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.
(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 BACs 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
A-81
<PAGE>
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-82
<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.
A-83
<PAGE>
(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.
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-84
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A-85
<PAGE>
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A-86
<PAGE>
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A-87
<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 Fax Number (optional) E-mail Address
--------------------------------------------------------------------------------
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 Alabama, 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
--------------------------------------------------------------------------------
Fax Number (optional) E-mail Address
---------------------------------------------------------------
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>
[back cover]
[logo: BOSTON CAPITAL TAX CREDIT FUND IV]
BOSTON CAPITAL
TAX CREDIT FUND IV L.P.
--------------------------------------------------------------------------------
PROSPECTUS
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary .................................................................... 9
Additional Summary Information for Corporate Investors ..................... 25
Suitability of an Investment in Certificates ............................... 28
Estimated Use of Proceeds .................................................. 33
Risk Factors ............................................................... 35
Fiduciary Responsibility of Boston Associates .............................. 45
Conflicts of Interest ...................................................... 47
Compensation and Fees ...................................................... 55
Investment Objectives and Acquisition Policies ............................. 59
Investment in Operating Partnerships ....................................... 79
Tax Credit Programs ........................................................ 79
Government Assistance Programs ............................................. 94
Management ................................................................. 109
Prior Performance of Boston Associates and Its Affiliates .................. 116
Description of Certificates ................................................ 121
Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals 125
Federal Income Tax Matters ................................................. 130
The Offering ............................................................... 197
Summary of Provisions of the Fund Agreement ................................ 205
Sales Literature ........................................................... 212
Experts .................................................................... 212
Investor Reports ........................................................... 213
Legal Matters .............................................................. 214
Registration Statement ..................................................... 214
Glossary ................................................................... 214
Appendix I--Reports of Independent Certified Public Accountants, Financial
Statements and Tabular Information Concerning Prior Limited
Partnerships ................................................... I-1
Exhibit A--Fund Agreement .................................................. A-1
Exhibit B--Investor Form ................................................... B-1
</TABLE>
[logo: Boston Capital | Services, Inc.]
One Boston Place, Suite 2100
Boston, MA 02108-4406
(617) 624-8900 or (800) 866-2282
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
7,500,000 beneficial assignee certificates ("BACs").
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ............. $ 22,125
NASD Filing Fee ................................................. 10,500
*Printing ....................................................... 100,000
*Accounting Fees and Expenses ................................... 25,000
*Blue Sky Expenses (including legal fees) ....................... 50,000
*Counsel Fees and Expenses ...................................... 125,000
*Transfer Agent and Registrar Fees .............................. 10,000
Miscellaneous including advertising ............................. 50,000
Total .......................... $392,625
--------
</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.
Item 33. Indemnification of Directors and Officers.
Section 5.08 of the Partnership Agreement provides in
part that neither the General Partner, its Affiliates
nor the Assignor Limited Partner, shall be liable,
responsible or accountable in damages or otherwise to
the Partnership or any of the Limited Partners
(including assignees of the Assignor Limited Partner)
for any act or omission performed or omitted by any
General Partner or the Assignor Limited Partner in good
faith and in the best interests of the Partnership and
the Assignees, provided that such General Partner's or
Assignor Limited Partner's conduct did not constitute
fraud, bad faith, negligence, misconduct or breach of
fiduciary duty. The Partnership shall indemnify and hold
harmless the General Partner, and its Affiliates,
including the Assignor Limited Partner, from
---------------------
* Estimated.
<PAGE>
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.
*(a) Financial Statements
All Financial Statements (which include all
information required by any schedule) are
included in the Prospectus, including the
following:
---------------------
* Previously filed.
2
<PAGE>
Boston Capital Associates IV L.P. - Report of
Independent Certified Public Accountants.
Boston Capital Associates IV L.P. Balance Sheet,
December 31, 1999.
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, 1999.
Boston Capital Associates - Notes to Balance Sheet.
Boston Capital Associates Balance Sheet,
December 31, 1999.
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, 1999.
BCTC IV Assignor Corp. - Notes to Balance Sheet.
(b) Description of Exhibits
*1. Form of Dealer-Manager Agreement between
Boston Capital Services, Inc. and the
Registrant (including, as an exhibit thereto,
the form of Soliciting Dealer Agreement).
2. Inapplicable.
*3. Organization Documents -
Certificate of Limited Partnership of Boston
Capital Tax Credit Fund IV L.P.
Certificate of Limited Partnership of Boston
Capital Associates IV L.P.
Certificate of Incorporation and By-Laws of
BCTC IV Assignor Corp. (the Assignor Limited
Partner).
3
<PAGE>
*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 Nixon Peabody LLP
Items (b)6 and 7 are inapplicable.
*8. Opinion re tax matters.
Form of Opinion of Nixon Peabody LLP
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. None.
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 Nixon Peabody LLP (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.
4
<PAGE>
Item 36. Undertakings.
The Registrant undertakes (a) to file any prospectuses
required by Section 10(a)(3) of the Securities Act of
1933 as post-effective amendments to the Registration
Statement; (b) that for the purpose of determining any
liability under the Act each such post-effective
amendment may be deemed to be a new registration
statement relating to the securities offered therein and
the offering of such securities at that time may be
deemed to be the initial bona fide offering thereof; (c)
that all post-effective amendments will comply with the
applicable forms, rules, and regulations of the
Commission in effect at the time such post-effective
amendments are filed, and (d) to remove from
registration by means of a post-effective amendment any
of the securities being registered which remain at the
termination of the offering.
The Registrant undertakes to send to each Investor at
least on an annual basis a detailed statement of any
transactions with the General Partner or its Affiliates,
and of fees, commissions, compensation and other
benefits paid, or accrued to the General Partner or its
Affiliates for the fiscal year completed, showing the
amount paid or accrued to each recipient and the
services performed.
The Registrant undertakes to provide to the Investors
the financial statements required by Form 10-K for the
first full fiscal year of operations of the Partnership.
The Registrant undertakes to file a sticker supplement
pursuant to Rule 424(c) under the Act during the
distribution period with respect to any applicable
series describing each property not identified in the
Prospectus at such time as there arises a reasonable
probability that such property will be acquired and to
consolidate all such stickers into a post-effective
amendment filed at least once every three months, with
the information contained in such amendment provided
simultaneously to the existing Investors. Each sticker
supplement should disclose all compensation and fees
received by the General Partner and its Affiliates in
connection with any such acquisition. The post-effective
amendment shall include audited financial statements
meeting the requirements of Rule 3-14 of Regulation S-X
only for properties acquired during the distribution
period.
The Registrant also undertakes to file, after the end of
the distribution period with respect to any applicable
series, a current report on Form 8-K containing the
financial statements and any additional information
required by Rule 3-14 of Regulation S-X, to reflect each
commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period
involving the use of 10 percent or more (on a cumulative
basis) of the net proceeds 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.
5
<PAGE>
The Registrant undertakes that the prospectus will be
supplemented at the close of any series to state the
number of participants in that series, the amount of
BACs sold therein, the cumulative amount sold under all
series sold under the subject registration statement,
and the amount of BACs to be offered in the next series.
The Registrant undertakes that if at the commencement of
the offering of any series (which will not take place
until completion of the offering of any prior series
with the same investment objectives and the filing of
the supplement contemplated by the preceding
undertaking) the series to be offered has a reasonable
probability of acquiring an interest in an Operating
Partnership, the offering will not commence until after
a post-effective amendment to the registration statement
has been filed and declared effective. Any such
post-effective amendment shall contain such information
as would be required in an original registration
statement with respect to the Operating partnership
being acquired (including audited financial statements
complying with Rule 3-14 of Regulation S-X).
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected
in the form of Prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in
the Registration 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.
6
<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.
7
<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 Pre-Effective Amendment
No. 1 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 21st day of July 2000.
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
8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Pre-Effective
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE: TITLE: DATE:
/s/ Herbert F. Collins General Partner and July 21, 2000
--------------------- 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 July 21, 2000
--------------------- 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 A. Nickas Executive July 21, 2000
--------------------- Vice President
Anthony A. Nickas Principal Financial Officer
and Principal Accounting Officer
of BCTC IV Assignor Corp.
9
