As filed with the Securities and Exchange Commission on July 18, 1996
Registration No. 33-89968
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------------
INDEPENDENCE TAX CREDIT PLUS L.P. IV
and
INDEPENDENCE ASSIGNOR INC.
(Exact name of registrants as specified in their governing instruments)
625 Madison Avenue
New York, New York 10022
(212) 421-5333
(Address of principal executive offices)
J. Michael Fried
c/o Related Independence L.L.C.
625 Madison Avenue
New York, New York 10022
(Name and address of agent for service)
COPY TO:
Arnold J. Levine, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Approximate date of commencement of proposed sale to the public: July 6, 1995.
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|
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form S-11 Item No. Caption in Prospectus
<S> <C>
1. Forepart of Registration Statement and Cover page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside front cover page; outside back cover page
of Prospectus
3. Summary Information, Risk Factors and Summary of the Offering; Risk Factors;
Ratio of Earnings to Fixed Charges Description of BACs
4. Determination of Offering Price Not Applicable
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution The Offering and Plan of Distribution
8. Use of Proceeds Estimated Use of Proceeds; Compensation and
Fees to the General Partner and Affiliates;
Investment Objectives and Policies
9. Selected Financial Data Not Applicable
10. Management's Discussion and Analysis of Management's Discussion and Analysis of
Financial Condition and Results of Financial Condition of the Partnership
Operations
11. General Information as to Registrant Summary of the Prospectus; Management of the
Partnership; Summary of Partnership Agreement
12. Policy with Respect to Certain Activities Investment Objectives and Policies; Risk Factors;
Reports; Summary of Partnership Agreement;
The Offering and Plan of Distribution
13. Investment Policies of Registrant Investment Objectives and Policies; Summary of
the Partnership Agreement
14. Description of Real Estate Not Applicable
15. Operating Data Not Applicable
16. Tax Treatment of Registrant and Its Federal Income Tax Considerations; Low-Income
Security Holders Housing and Historic Rehabilitation Tax Credits
17. Market Price of and Dividends on the Not Applicable
Registrant's Common Equity and Related
Stockholder Matters
18. Description of Registrant's Securities Profits, Losses and Distributions; Description of
BACS; Summary of Partnership Agreement
19. Legal Proceedings Management of the Partnership
20. Security Ownership of Certain Beneficial Not Applicable
Owners and Management
21. Directors and Executive Officers Management of the Partnership
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
22. Executive Compensation Compensation and Fees to the General Partner
and Affiliates; Management of the Partnership
23. Certain Relationships and Related Compensation and Fees to the General Partner
Transactions and Affiliates; Management of the Partnership
24. Selection, Management and Custody of Investment Objectives and Policies; Prior Limited
Registrant's Investments Partnerships; Management of the Partnership
25. Policies with Respect to Certain Conflicts of Interest; Summary of Partnership
Transactions Agreement
26. Limitations of Liability Fiduciary Responsibility of the General Partner
and Affiliates; Summary of Partnership
Agreement
27. Financial Statements and Information Index to Financial Statements; Balance Sheets of
Partnership and the General Partner
28. Interest of Named Experts and Counsel Not Applicable
29. Disclosure of Commission Position on Fiduciary Responsibility of the General Partner
Indemnification for Securities Act Liabilities and Affiliates; The Offering and Plan of
Distribution
30. Other Expenses of Issuance and Part II of Registration Statement
Distribution
31. Sales to Special Parties Part II of Registration Statement
32. Recent Sales of Unregistered Securities Part II of Registration Statement
33. Indemnification of Directors and Officers Part II of Registration Statement
34. Treatment of Proceeds from Stock Being Not Applicable
Registered
35. Financial Statements and Exhibits Part II of Registration Statement
36. Undertakings Part II of Registration Statement
</TABLE>
-iii-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
Sticker Supplement
May 24, 1996
to the Prospectus
dated July 6, 1995
The Prospectus of the Partnership, dated July 6, 1995, has been
supplemented by Master Supplement No. 2 thereto dated July 14, 1996. Master
Supplement No. 2 is part of, and should be read together with, the Prospectus
of the Partnership, dated July 6, 1995. Capitalized terms used and not
defined in Master Supplement No. 2 have the same meanings as in the
Prospectus. Set forth below is a summary of the principal items of
information contained in Master Supplement No. 2.
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Summary of Supplement
Status of the Offering
This section of Master Supplement No. 2 contains information with respect to
the Closings of the sale of BACs held through the date hereof, and the
application of such sales to investments in Local Partnerships.
Consummated and Prospective Investments in Local Partnerships
This section of Master Supplement No. 2 contains information related to the
acquisition by the Partnership of Local Partnership Interests in three Local
Partnerships, and the prospective acquisition by the Partnership of Local
Partnership Interests in one additional Local Partnership.
Management's Discussion and Analysis
This section of Master Supplement No. 2 contains an updated Management's
Discussion and Analysis with respect to the Partnership for the year ended
March 31, 1996.
Financial Statements
This section of Master Supplement No. 2 contains updated financial statements
of the Partnership.
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<PAGE>
$1,000 per BAC A Partnership Offering of
Minimum Purchase: 5 BACs Minimum of $5,000,000 in BACs
Independence Tax Credit Plus L.P. IV
This Prospectus describes an investment in securities of Independence Tax
Credit Plus L.P. IV. The security is called a beneficial assignment
certificate (or BAC), which is essentially a limited partner interest. The
Partnership may sell up to $100,000,000 in BACs; however, no BACs will be
sold unless at least $5,000,000 in BACs is sold. Investors' money will be
placed in an escrow account until $5,000,000 is raised. Capitalized terms
used in the Prospectus are defined in the "Glossary."
The Partnership will use investors' money to buy interests in Apartment
Complexes built or rehabilitated for low- and moderate-income people. About
79.5% of the Partnership's capital will be used for this purpose. About 17%
to 18% of the Partnership's capital will be used to pay fees and reimburse
expenses of the General Partner and 2.5% to 3.5% will be used to establish
working capital reserves.
AN INVESTMENT IN THE PARTNERSHIP INVOLVES CERTAIN RISKS, INCLUDING THE
FOLLOWING:
(bullet) The Tax Credit rules are complicated, and not everyone can use
Tax Credits.
(bullet) The Tax Credits may not start until 1996, and will be realized
over a minimum of ten years. The Partnership is not expected to
achieve its full level of annual Tax Credits until 1998.
(bullet) There is no public market for BACs and, therefore, they may be
difficult to sell.
(bullet) The BACs will be transferable only with the consent of the
General Partner.
(bullet) The Apartment Complexes will have mortgage indebtedness and may
not have the benefit of government rent subsidies. A lender can
foreclose on an Apartment Complex if the mortgage payments are
not made resulting in the loss of future Tax Credits and
recapture of Tax Credits previously received.
(bullet) No one can say when or whether the investors will get their
capital back from the sale of the interests in the Apartment
Complexes. The only benefit from the investment may be Tax
Credits.
(bullet) The operation of the Partnership involves transactions between
the Partnership and the General Partner or its Affiliates which
may involve conflicts of interest.
See "RISK FACTORS" (located on pages 17-22), "WHO SHOULD INVEST," "INVESTMENT
OBJECTIVES AND POLICIES," "SUMMARY OF THE PARTNERSHIP AGREEMENT" and
"CONFLICTS OF INTEREST."
Proceeds to
Price to Selling Partnership
Public Commissions (1) (2)
--------------------------- ------------ --------------- ------------
Per BAC $ 1,000 $ 80 $ 920
Total (at Minimum Offering)
(5,000 BACs) $ 5,000,000 $ 400,000 $ 4,600,000
Total (at Maximum Offering)
(100,000 BACs) $100,000,000 $8,000,000 $92,000,000
--------------------------- ------------ ------------- -----------
(footnotes on following page)
The date of this Prospectus is July 6, 1995.
<PAGE>
Federal tax law encourages investments in qualifying low-income properties by
providing Tax Credits to investors in the Apartment Complexes. The
Partnership will pass through to investors virtually all of the Tax Credits
it is entitled to by law. Investors may also get tax losses that can offset
passive taxable income from other investments they might have. At the end of
the term of the Partnership (15 or more years from the date of this
Prospectus), the Partnership will endeavor to realize sale or refinancing
proceeds from the Apartment Complexes and will distribute the net proceeds.
The Offering will commence on the date of this Prospectus and terminate on
April 15, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE 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.
THESE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OF ARIZONA, BUT THE
FACT OF REGISTRATION IS NOT TO BE DEEMED A FINDING BY THE ARIZONA CORPORATION
COMMISSION OR THE DIRECTOR OF THE SECURITIES DIVISION THAT THIS PROSPECTUS IS
TRUE OR ACCURATE, NOR DOES THE REGISTRATION MEAN THAT THE COMMISSION OR THE
DIRECTOR HAS PASSED ON THE MERITS OF OR OTHERWISE APPROVED THE SECURITIES
DESCRIBED IN THIS PROSPECTUS.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR
CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY
FLOW FROM AN INVESTMENT IN THIS PROGRAM, IS NOT PERMITTED.
THESE ARE SPECULATIVE SECURITIES.
Footnotes to table:
(1) Offers and sales of the BACs will be effected through Related Equities
Corporation (the "Dealer Manager") and such other registered broker-
dealers (the "Selling Agents") as the Dealer Manager may designate. The
Dealer Manager will receive selling commissions and wholesaling and
marketing fees (together, the "Selling Commissions") for each BAC of up
to $75 per BAC and may reallow up to the full Selling Commissions to the
Selling Agents. Affiliates of the General Partner and employees of the
Dealer Manager and the Selling Agents may purchase BACs without paying
Selling Commissions. In circumstances described under the heading "The
Offering and Plan of Distribution" BACs holders will be entitled to
receive quantity discounts of Selling Commissions in the form of purchase
price reductions. A BACs holder entitled to a quantity discount will
receive it through a reduction of the
<PAGE>
aggregate cash purchase price which such BACs holder will be required to
pay to purchase BACs. In addition to Selling Commissions, the Dealer
Manager will receive a non-accountable expense allowance in respect of
Organization and Offering Expenses equal to 2.5% of the Gross Proceeds
(see footnote (2)). From such expense allowance, the Dealer Manager will
retain a non-accountable marketing and due diligence expense allowance in
an amount equal to 0.5% of the Gross Proceeds and may retain up to the
full remaining 2.0% of such expense allowance for reimbursement of
accountable marketing expenses. The Dealer Manager may reallow all or a
portion of the non-accountable marketing and due diligence and
accountable marketing expense allowances to one or more of the Selling
Agents. See "The Offering and Plan of Distribution--Dealer Manager
Services."
The General Partner of the Partnership is an Affiliate of the Dealer
Manager. See "Compensation and Fees to the General Partner and
Affiliates," "Management of the Partnership" and "Conflicts of Interest."
The General Partner has agreed to indemnify the Dealer Manager and the
Selling Agents against certain liabilities, including in certain cases
liabilities under the Securities Act of 1933, as amended. See "The
Offering and Plan of Distribution."
(2) This amount is net of Selling Commissions but before deducting any
Organization and Offering Expenses. The Dealer Manager will receive a
non-accountable expense allowance in respect of Organization and Offering
Expenses in an amount equal to 2.5% of the Gross Proceeds. The Dealer
Manager will be responsible for the payment of all Organization and
Offering Expenses of the Partnership up to 2.5% of the Gross Proceeds,
the Partnership will pay Organization and Offering Expenses in excess of
2.5% up to an amount equal to 3.5% of the Gross Proceeds, and the Dealer
Manager will be responsible for the payment of all Organization and
Offering Expenses of the Partnership in excess of 3.5% of the Gross
Proceeds. From its Organization and Offering Expense allowance equal to
2.5% of Gross Proceeds, the Dealer Manager will retain a non- accountable
marketing and due diligence expense allowance equal to 0.5% of Gross
Proceeds and may retain up to the full remaining 2.0% as an allowance for
reimbursement of accountable marketing expenses. Both the non-accountable
marketing and due diligence and accountable marketing expense allowances
are included within the definition of Organization and Offering Expenses.
The Dealer Manager may reallow all or a portion of the non- accountable
marketing and due diligence and accountable marketing expense allowances
to one or more of the Selling Agents. See "Compensation and Fees to the
General Partner and Affiliates" and "Estimated Use of Proceeds."
<PAGE>
TABLE OF CONTENTS
Page
-----
SUMMARY OF THE OFFERING 5
Terms of the Offering 5
Who Should Invest 5
Estimated Use of Proceeds 6
Compensation and Fees to the General Partner and Affiliates 6
Risk Factors 7
Low-Income Housing and Historic Rehabilitation Tax Credits 8
Investment Objectives and Policies 9
Conflicts of Interest 11
Fiduciary Responsibility of the General Partner and
Affiliates 12
Management of the Partnership 12
Prior Performance Summary 13
Profits, Losses and Distributions 13
Federal Income Tax Considerations 14
Description of BACs 15
Summary of Partnership Agreement 15
Limitations on Rights of BACs Holders and Limited Partners 16
RISK FACTORS 17
Risks Related to the Tax Credits 17
Risks Related to the Local Partnership Investments 20
Risks of a Partnership Investment 21
TERMS OF THE OFFERING 22
WHO SHOULD INVEST 23
ESTIMATED USE OF PROCEEDS 33
COMPENSATION AND FEES TO THE GENERAL PARTNER AND AFFILIATES 37
CONFLICTS OF INTEREST 46
General Partner and Local General Partners 46
Absence of Independent Dealer Manager 46
Conflicting Interests 47
Other Activities 48
Prior and Subsequent Entities 49
Compensation 49
Claims Against Certain Persons 50
Employment of Professionals 50
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER AND AFFILIATES 50
MANAGEMENT OF THE PARTNERSHIP 52
Officers and Directors of the General Partner 53
Net Worth of the General Partner 56
1
<PAGE>
LOW-INCOME HOUSING AND HISTORIC REHABILITATION TAX CREDITS 56
Qualifying Low-Income Projects 61
Subsequent Increases In Low-Income Housing Tax Credit 66
Utilization of the Low-Income Housing Tax Credit 66
Low-Income Credit Subject to State Allocation 70
Recapture of Low-Income Tax Credits 72
Historic Rehabilitation Tax Credit 75
INVESTMENT OBJECTIVES AND POLICIES 77
Investment Objectives 77
Financing Structure; Non-Subsidized Local Partnerships;
Government Subsidy Programs 81
Identification of Investments 98
Structure of Local Partnerships 98
Structure of Acquisitions 101
Acquisition of Development-Stage Complexes 106
Acquisition of Existing Complexes 108
Acquisition of Historic Complexes 111
Mortgage Financing of Complexes and Acquisitions 113
Operating Deficit Guarantees 114
Rights of Special Limited Partner 115
Other Investment Policies 118
Disposition of Apartment Complexes/Local Partnership
Interests 119
Changes in Investment Objectives and Policies 123
Interim Investments and Reserves 123
PRIOR PERFORMANCE SUMMARY 125
Affiliates of the General Partner 125
Summary of Public Real Estate Limited Partnerships 126
Summary of Public Financing Programs 126
Summary of Private Real Estate Limited Partnerships 126
Comparison of Investment Objectives 127
Public Real Estate Limited Partnerships 127
Public Financing Programs 133
Private Real Estate Limited Partnerships 139
Additional Information 139
Three Year Summary of Acquisitions 139
Additional Information on Programs 140
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF
THE PARTNERSHIP 140
Capital Resources 140
Liquidity 142
PROFITS, LOSSES AND DISTRIBUTIONS 143
Local Partnership Level 143
Partnership Level 146
2
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS 149
Classification of the Partnerships 154
Taxation of the Partnership 158
Limitations on Losses and Credits from Passive Activities 160
At Risk Limitations 164
Allocations of Profits and Losses 166
Fees and Expenses 170
Depreciation, Interest and Tax Deductions and Ownership 173
Disposition of a Property, a Local Partnership Interest or
BACs 176
Alternative Minimum Tax 178
Investment in the Partnership by Minor Children 179
Not-For-Profit Activities 180
Certain Partnership Tax Elections 180
Termination of the Partnership 181
Tax Returns, Tax Information, Audits and Proceedings 182
Deductions Allocable to Tax-Exempt Income 186
STATE AND LOCAL TAX CONSEQUENCES 187
REPORTS 187
DESCRIPTION OF BACS 189
Description of Units 190
SUMMARY OF PARTNERSHIP AGREEMENT 191
Formation 192
Responsibilities of the General Partner 192
Limitations on Authority 193
Partnership Expenses 196
Rights of the BACs Holders and Limited Partners 197
Voting Rights 197
Liabilities of Limited Partners and BACs Holders 198
Term and Dissolution 198
Transferability of General Partner's Interests 199
Transferability of Units and BACs 201
Designation of Tax Matters Partner 202
Applicable Law 202
Books and Records 202
THE OFFERING AND PLAN OF DISTRIBUTION 202
The Offering 202
Dealer Manager Services 203
Escrow Arrangements 205
LEGAL OPINIONS 207
EXPERTS 207
SALES LITERATURE 207
ADDITIONAL INFORMATION 207
GLOSSARY 208
3
<PAGE>
INDEX OF FINANCIAL STATEMENTS F-1
Independence Tax Credit Plus L.P. IV F-3
Independence Assignor Inc F-7
Related Independence L.L.C F-10
PRIOR PERFORMANCE TABLES P-1
Appendix A--Index P-2
TABLE I--Experience in Raising and Investing Funds P-3
Notes To Table I P-4
TABLE II--Compensation to Sponsor and Affiliates P-5
Notes To Table II P-6
TABLE III--Operating Results of Prior Programs P-7
Notes to Table III P-14
PARTNERSHIP AGREEMENT--EXHIBIT A A-1
SUBSCRIPTION AGREEMENT--EXHIBIT B
4
<PAGE>
SUMMARY OF THE OFFERING
Terms of the Offering
The Partnership is offering its securities on a "best efforts" basis,
whichmeans that no one is guaranteeing that any specified amount of capital will
be raised. No BACs will be sold unless at least $5,000,000 in BACs is sold. The
Partnership may sell up to $100,000,000 in BACs. The smaller the amount of
capital raised, the fewer interests in different Apartment Complexes may be
acquired, resulting in less diversification of the Partnership's investments.
When an investor subscribes to buy BACs, his or her money will be placed in
an escrow account until $5,000,000 is raised by the Partnership (which could
take several months). During that time, interest will be earned at savings
account rates. The interest will be paid to the investor when a Closing takes
place. After $5,000,000 is raised, the Partnership will hold Closings no less
frequently than every month or so until the General Partner decides to conclude
the Offering. See "Terms of the Offering."
Who Should Invest
You should only invest in the Partnership if you believe you will have a tax
liability against which the Tax Credits can be applied. It is possible that the
only benefit of an investment in BACs will be the Tax Credits. You must also
recognize the following:
(bullet) If you are an individual, there is a limit on the amount of Tax
Credits you can use in any year. If you have no other investments
that generate Tax Credits and the highest federal income tax rate
applicable to you is 31%, the Partnership estimates that you should
not invest more than $52,000 in the Partnership to avoid reaching
the maximum Tax Credit allowable. If the highest federal income tax
rate applicable to you is lower than (or higher than) 31%, then the
maximum amount you should invest would be less than (or more than)
$52,000, as set forth in "Investment Objectives and
Policies--Investment Objectives." If you have adjusted gross income
of $200,000 or more, there are additional restrictions on your use
of one kind of Tax Credits the Partnership may generate. See
"Low-Income Housing and Historic Rehabilitation Tax Credits."
(bullet) While Tax Credits may be used to reduce your regular income tax
liability, they may not be used to offset the incremental tax
liability imposed as a result of the alternative minimum tax. If you
don't know if you are (or may in the future be) subject to the
alternative minimum tax, you should talk to a professional tax
adviser to find out.
(bullet) If you are an individual, your ability to use the passive tax losses
that the Partnership will generate is limited to reducing passive
taxable income (not wages, salaries, dividends and interest).
5
<PAGE>
(bullet) You cannot put an investment in BACs into your IRA, Keogh or other
retirement plans.
(bullet) Closely-held corporations are subject to other limits on the use
of Tax Credits.
The section of the Prospectus entitled "Who Should Invest" contains a
detailed explanation of certain limitations for each category of investor, and
describes the minimum net worth and income requirements that various states
impose on investors. In particular, that discussion addresses the rules
applicable to investors other than individuals (including closely-held and
widely-held corporations and other entities). Please read very carefully the
portions of that section that are applicable to you.
Estimated Use of Proceeds
Of each dollar raised by the Partnership, about 79.5% actually will be
invested in interests in Apartment Complexes, 2.5%-3.5% will be held in working
capital reserves, and the rest will be used to pay fees, commissions and
expenses to the Sponsor and broker-dealers of the Offering and others. See
"Estimated Use of Proceeds" for a precise breakdown of the Partnership's
estimate as to the use of the capital it raises.
Compensation and Fees to the General Partner and Affiliates
The General Partner of the Partnership will manage the business of the
Partnership, and the Partnership will pay the General Partner and certain of its
Affiliates compensation for partnership management and other services. The
section of the Prospectus entitled "Compensation and Fees to the General Partner
and Affiliates" details the exact terms of each item of compensation payable to
these entities by the Partnership. The following are the most significant items
of compensation:
(bullet) A substantial portion of the 17%-18% of the capital raised by the
Partnership that is not invested in Apartment Complexes or held in
Partnership reserves will be paid as fees to the General Partner or
its Affiliates, including securities brokerage commissions, offering
expense reimbursements, consulting and monitoring fees and expense
reimbursements.
(bullet) The General Partner will be entitled to receive a Partnership
Management Fee each year equal to 0.5% of the Invested Assets of the
Partnership (the sum of the equity invested by the Partnership in
Apartment Complexes plus the mortgage debt encumbering the Apartment
Complexes). For example, if $5,000,000 is raised, this amount could
be 0.5% of $26,975,000 or so, or about $135,000 per year. It is
expected that during the first 3-4 years of the Partnership, the
operations of the Apartment Complexes will not generate sufficient
cash flow to pay the Partnership Management Fee and that this fee
will be paid during such years from the working capital reserves
established from the proceeds of this offering. However the General
Partner will not use
6
<PAGE>
reserves for this purpose in amounts that would cause the level of
reserves to fall below 1% of the proceeds of this offering.
(bullet) The General Partner and certain of its Affiliates will get about 1%
of the Tax Credits, 1% of any Cash Distributions generated by the
Apartment Complexes, and 1% of the net proceeds of the sale of the
interests in Apartment Complexes until the investors have received
distributions of sale proceeds equal to the purchase price for their
BACs and a Cumulative Return of 10% simple interest per annum from
all distributions (and after that point the General Partner will get
about 15% of the net sale proceeds).
There are a number of other, smaller items of compensation and expense
reimbursement that the General Partner and certain of its Affiliates may
receive during the term of the Partnership. See "Compensation and Fees to the
General Partner and Affiliates."
Risk Factors
An investment in the Partnership has many risks. The "Risk Factors" section
of this Prospectus contains a discussion of the most important risks and is
organized into three parts: "Risks Related to the Tax Credits" (the risks
arising from the tax laws as they apply to the Partnership and its investments),
"Risks Related to the Local Partnership Investments" (the risks of the types of
investments in real estate that the Partnership will make), and "Risks of a
Partnership Investment" (the risks related to investment in a limited
partnership and to the provisions of the Partnership Agreement of the
Partnership). Please refer to those sections of the Prospectus for a discussion
of:
o Tax Credit Risks:
(bullet) The risks of not qualifying for, losing and "recapturing" of the Tax
Credits.
(bullet) The risk that Tax Credits will not pass through to investors because
the Partnership or a Local Partnership does not qualify as a
partnership for tax purposes.
(bullet) The risk of tax limitations on the recognition and use of Tax
Credits and losses.
o Investment Risks:
(bullet) The risk that no one can say when or whether the investors will
receive their capital back from the sale of the interests in the
Apartment Complexes, and that the only benefit from the investment
may be Tax Credits.
(bullet) The risk of investing in real estate that is subject to mortgage
indebtedness. As a result of such mortgage indebtedness the
Partnership may not be able to receive its capital investment in an
Apartment Complex back when such indebtedness matures. Additionally,
a Local Partnership may not generate sufficient cash flow to pay
mortage payments when they are due.
7
<PAGE>
(bullet) The risk of lack of diversification as a result of the Partnership
having only a few investments, and the risk of not being able to
find suitable investments for the Partnership.
(bullet) The risk of reliance on Local General Partners whom the investors
cannot evaluate.
o Partnership Risks:
(bullet) The risk that an investor will not be able to sell his or her
investment because there is no established market for BACs and
transferability is limited under the Partnership Agreement and the
applicable tax laws.
(bullet) The risk of reliance on the General Partner, which will exercise all
management rights of the Partnership without the participation or
control of the investors.
(bullet) Risk of exercise by investors of certain voting rights, including
the right to amend the Partnership Agreement or remove the General
Partner, which may be exercised by a majority in interest of the
investors even if 49% of the investors object.
Low-Income Housing and Historic Rehabilitation Tax Credits
The Internal Revenue Code of 1986, as amended (the "Code") authorizes
investors in partnerships such as the Partnership to have the benefit of Tax
Credits when they invest in qualifying low-income housing in order to encourage
investments of the type the Partnership will make. The laws authorizing Tax
Credits and the rules the Internal Revenue Service (the "IRS") has adopted to
administer the Tax Credits are extremely complicated. The most important of
these rules define the types of Apartment Complexes that qualify for Tax
Credits, the incomes and kinds of tenants that must live in the Apartment
Complexes, the rents that can be charged to those tenants and the costs of
construction or rehabilitation of the Apartment Complexes that can generate Tax
Credits, and are described in the section of the Prospectus entitled "Low-Income
Housing and Historic Rehabilitation Tax Credits." The Partnership must comply
with all applicable provisions of these rules for the investors to get the Tax
Credits. Management of the Partnership is experienced in working with these
rules, and will do their best to follow them. However, there can be no assurance
that all of the rules will be able to be complied with.
The rules for the Tax Credits have a concept called "recapture" that applies
when Tax Credit rules are not adhered to during the 15 year period after Tax
Credits start to be taken. "Recapture" means that an investor who previously
took Tax Credits has to pay additional taxes equal to a fraction of the Tax
Credits generated by the non-complying Apartment Complex. Therefore, the failure
of an Apartment Complex to follow the rules (which may be beyond the control of
the General Partner) could result both in a loss of future Tax Credits that the
Partnership had counted on and in a "recapture" of some of the Tax Credits
already taken. See "Risk Factors--
8
<PAGE>
Risks Related to the Tax Credits" and "Low-Income Housing and Historic
Rehabilitation Tax Credits."
Investment Objectives and Policies
The Partnership's investment objectives are to acquire interests in Apartment
Complexes so as to entitle investors to Tax Credits over the period from 1995 to
2007. The Partnership also will endeavor to invest in Apartment Complexes that
will return the capital of the investors at the end of the Partnership. The
Appraised Value of Apartment Complexes at the time of acquisition by the
Partnership is expected to include the value of the Tax Credits associated with
them, and there can be no certainty that the component of the value of the
Apartment Complexes can be realized by the Partnership upon sale or other
disposition of the Apartment Complexes. It is possible that the only benefit of
an investment in BACs will be the Tax Credits. In that event, a substantial
portion of the Tax Credits will represent a return of the money originally
invested by BACs holders. In order for BACs holders to receive anything from
their investment other than Tax Credits, the Partnership has to be able to sell
the Properties for more than the total indebtedness encumbering such Properties
at the time of the sale. As discussed earlier in this summary, each Apartment
Complex must comply with the Tax Credit rules during the 15-year period after
Tax Credits start to be taken, and the failure of an Apartment Complex to follow
the rules can result both in a loss of future Tax Credits and in a "recapture"
of some of the Tax Credits already taken. See "Risk Factors--Risks Related to
the Tax Credits" and "Low-Income Housing and Historic Rehabilitation Tax
Credits."
When the Partnership will begin generating Tax Credits and in what amounts
depends on when the Partnership raises its capital, acquires its interests in
Apartment Complexes, and when qualifying tenants move into the Apartment
Complexes. The Partnership believes that an example of the timing of the Tax
Credits that investors might get would be $10 to $30 per BAC (1% to 3% as a
percentage of capital invested) in 1995, Tax Credits of approximately $40 to $80
per BAC (4% to 8%) in 1996, Tax Credits of approximately $110 to $130 per BAC
(11% to 13%) in 1997, $140 to $150 per BAC (14% to 15%) in each year from 1998
to 2005, $70 to $100 per BAC (7% to 10%) in 2006 and $10 to $30 per BAC (1% to
3%) in 2007. The above-referenced percentages do not represent a rate of return
or a yield on investment. No one can say what the Tax Credits will actually be.
The Partnership will attempt to invest in Apartment Complexes on terms that
will result in the investors receiving about $140 to $150 per $1,000 BAC (14% to
15%) in Tax Credits each year while the Partnership is
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receiving its full entitlement of Tax Credits. This investment criteria is not
the same as a rate of return or a yield on a normal investment. One common
measure of the benefits of an investment is the "internal rate of return" of the
investment. An internal rate of return is the discount rate at which the cost of
an investment (the purchase price of a BAC) equals the present value of the
benefits produced by that investment. If Tax Credits are generated at the level
sought by the Partnership but no other benefits are realized from an investment
in BACs, the after-tax internal rate of return over the life of the investment
would be approximately 7.0%. See "Investment Objectives and Policies--Investment
Objectives" for a more detailed discussion of the meaning of, and the
assumptions used in, calculating the internal rate of return.
The Partnership will not invest in Apartment Complexes that have been built
or rehabilitated by developers that are affiliated with the General Partner.
Normally the owner of the Apartment Complex will be a limited partnership or a
limited liability company (referred to as a "Local Partnership" in this
Prospectus) of which the developer or an affiliated company is the general
partner or the member with primary management responsibilities (referred to as
the "Local General Partner" in this Prospectus). The Partnership will make its
investment by contributing capital to the Local Partnership and becoming the
majority (usually 99%) limited partner or member holding the majority in
economic interest in the Local Partnership. The principal difference between a
limited partnership and a limited liability company is that the general partner
of a limited partnership (but not the limited partners) is generally liable for
the obligations of the limited partnership, while none of the members of a
limited liability company are generally liable for the obligations of the
limited liability company. The Apartment Complexes may be located in urban areas
or in smaller cities or communities. No Apartment Complexes have been selected
yet.
Usually a Local Partnership will borrow 50% to 80% of the cost of
construction of the Apartment Complex. A substantial portion of the Local
Partnership's capital will pay construction or rehabilitation costs, a portion
will be used to establish working capital reserves and a significant portion
will be used to pay development fees (that is, gross profits) to the Local
General Partner. It is generally expected that development fees paid to the
Local General Partner will be in the range of 15%-20% of total development
costs. Some of the Local Partnerships may benefit from traditional government
subsidy programs such as rental subsidies (called "Conventional Government
Subsidy Programs" in this Prospectus), but many will not. Those that do not will
depend entirely on their rental income to cover their expenses of operation,
including paying their monthly mortgage payments. If a Local Partnership cannot
pay its monthly mortgage payments, the lender may foreclose, which would cause a
"recapture" of a fraction of the Tax Credits generated by its Apartment Complex.
The foreclosure risk is greater where affordable housing tenants make up most of
the ten-
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ants (as will be the case with most of the Apartment Complexes), because
affordable housing tenants pay lower rental rates than market-rate tenants.
The Partnership will attempt to protect its investment in three principal
ways. First, it will invest its capital in each Local Partnership in stages
based on completion of construction, rental of apartments to qualified tenants
and demonstrated experience in covering operating costs through rental income.
In this way, the Partnership will try to put as little capital at risk as
possible in the stages of an Apartment Complex's life cycle that are most
uncertain. Second, the Partnership will require the Local General Partner or its
Affiliates to provide some limited guarantees that the Apartment Complex will
not incur deficits during its initial period of operations. Third, the
Partnership will require the Local General Partner to agree to obtain the
Partnership's permission to make certain major decisions (such as the decision
to sell the Apartment Complex). These consent rights will be exercised by an
affiliated company of the General Partner (called the "Special Limited Partner")
which is used to protect the limitation on the Partnership's liability for debts
of the Local Partnership (which could be lost if the Partnership exercised these
rights directly); provided, however, that if the Local Partnership is a limited
liability company, these consent rights may be exercised directly by the
Partnership.
The "recapture" laws and rules of the Tax Credits prohibit the sale of an
Apartment Complex before the end of the fifteenth year after the Tax Credits
initially are taken; and the Tax Credit rules and other restrictions placed upon
the Property, including restrictions placed by government financing, in certain
situations, may limit the renting of units in an Apartment Complex to affordable
housing tenants at restricted rents for 30 years or longer. In addition,
although the rules may allow a sale of an Apartment Complex after 15 years, when
or how the Partnership will be able to realize any sale proceeds from an
Apartment Complex is difficult to determine. The Partnership may be unable to
liquidate its investment well beyond the fifteenth year (even though the Tax
Credits only last for ten years), and sometimes buildings like the Apartment
Complexes are difficult to sell. Although the General Partner will attempt to
liquidate the Partnership's investments after the fifteenth year, there can be
no assurance that such a liquidation will take place on terms acceptable to the
Partnership, if at all. See "Investment Objectives and Policies."
Conflicts of Interest
The General Partner will have conflicts of interest in its management of the
Partnership, including interests that are inconsistent with those of the
investors in some respects and its engagement in other activities that may be in
conflict with those of the Partnership. The section of this Prospectus entitled
"Conflicts of Interest" discusses the most important of these conflicts of
interest and how the General Partner intends to deal with them, including the
following:
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(bullet) Affiliates of the General Partner are now engaged and expect to be
engaged in numerous other business activities. As a result, the
General Partner and such Affiliates may experience conflicts of
interest in allocating management time as between the Partnership
and these other activities.
(bullet) Certain of these other business activities may be competitive with
the Partnership or the Properties. This would be the case, for
example, where the General Partner or its Affiliates are involved in
the management of other investment programs with investment
objectives similar to those of the Partnership, or in the ownership
or management of multi-family rental housing that is located in the
same area as one or more of the Properties. In these cases,
conflicts could arise for the General Partner in allocating a
business opportunity that would be suitable for the Partnership as
well as another investment program, or in providing leasing services
for two or more Apartment Complexes that are closely located.
(bullet) The General Partner and its Affiliates will be entitled to receive
various items of compensation and fees for partnership management
and other services, as detailed in the section of the Prospectus
entitled "Compensation and Fees to the General Partner and
Affiliates." These compensation arrangements were not negotiated on
an arm's-length basis. Also, the economic interests of the General
Partner and its Affiliates in the Partnership could present
conflicts for these persons in certain decisions they will make in
managing the Partnership and its affairs. For example, because the
General Partner is entitled to an annual Partnership Management Fee,
the termination of the Partnership under certain circumstances may
not be in the best interest of the General Partner even though it
might then be advantageous for the investors.
Fiduciary Responsibility of the General Partner and Affiliates
The General Partner will act as a fiduciary to the Partnership. However, the
Partnership will be obligated to provide certain indemnities to the General
Partner, and, as detailed under "Conflicts of Interest," the General Partner
will be permitted to engage in certain activities that may involve conflicts of
interest, such as sponsoring other investment programs or investing in Apartment
Complexes that generate Tax Credits, without providing the benefits of such
activities to the Partnership.
Management of the Partnership
The General Partner of the Partnership is Related Independence L.L.C., an
affiliated company of Related Capital Company, a New York general partnership
("Related") located at 625 Madison Avenue, New York, New York 10022 (telephone
212-421-5333). See "Management of the Partnership" for a description of the
people who will be responsible for the management of the Partnership's business.
The financial statements of the General Part-
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ner are contained in the Appendix to this Prospectus. The financial resources of
the General Partner will be limited to an obligation by a majority owner of a
member of the General Partner to contribute a limited amount of capital if
necessary to permit the General Partner to satisfy its obligations. The General
Partner is not obligated to obtain any more capital than is represented by this
obligation.
Prior Performance Summary
Since 1972, Related and its Affiliates have sponsored or provided investment
banking and financial advisory services to more than 250 public and private real
estate investment programs. As of March 31, 1995, these programs raised over
$2.4 billion from approximately 100,800 investors, and had a real estate
portfolio valued at a cost of $6.0 billion. Of these prior programs, 33 had as
an objective the generation of Tax Credits.
The 33 Tax Credit partnerships raised over $1.1 billion from approximately
41,000 investors. These partnerships have acquired interests in a total of 300
properties eligible for Tax Credits, for an aggregate purchase price of
$2,333,585,616 (consisting of cash payments of $928,923,021 and assumed mortgage
indebtedness of $1,404,662,595). The properties are located in Alabama (13),
Arkansas (1), California (17), Colorado (1), Connecticut (2), Delaware (4),
Florida (36), Georgia (2), Illinois (4), Kansas (3), Kentucky (1), Louisiana
(5), Maryland (5), Massachusetts (5), Michigan (15), Mississippi (2), Missouri
(9), Nebraska (1), New Jersey (11), New York (65), North Carolina (2), Ohio
(11), Oklahoma (3), Oregon (8), Pennsylvania (36), Rhode Island (1), South
Carolina (2), Tennessee (9), Texas (3), Utah (4), Virginia (3), Washington (3),
Wisconsin (3) and Puerto Rico (10). Of these 300 properties, approximately 64%
were development stage complexes, approximately 19% were existing complexes and
approximately 17% were eligible for Historic Rehabilitation Tax Credits as well
as Housing Tax Credits, based on aggregate purchase price at the time of
acquisition. None of the Tax Credit partnerships has yet sold any of its
property investments. To date, each of the Tax Credit partnerships has met its
investment objectives and none has experienced material adverse business
developments.
The section of this Prospectus entitled "Prior Performance Summary" contains
a discussion of all of the prior real estate investment programs which the
affiliated companies of the General Partner have sponsored during the last ten
years. The Prior Performance Tables attached to this Prospectus following the
Financial Statements contain certain tabular and statistical data regarding the
prior public investment programs of these affiliated companies that had
generating Tax Credits as an objective.
Profits, Losses and Distributions
Under the Partnership Agreement, 99% of all Tax Credits are allocated to the
investors, and 1% to the General Partner. The Partnership's Cash Flow (which
generally means the difference between the Partnership's
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cash receipts and its expenses), if any, will be distributable 99% to the
investors and 1% to the General Partner. The Partnership's Sale or Refinancing
Proceeds (which generally means the net proceeds that the Partnership receives
from the liquidation of its investments, after the payment of any expenses of
the Partnership) will be distributable, after the payment of any deferred
Partnership Management Fees, 99% to the investors and 1% to the General Partner
until the investors have received their 10% Cumulative Return to the extent not
provided by distributions of Cash Flow and a return of the investors' investment
in the Partnership, and the balance will be applied to the payment of certain
deferred fees to the General Partner and then distributed 85% to the investors
and 15% to the General Partner.
Investors should note that the use of the term "Cumulative Return" is not
intended to connote that there is any guarantee or assurance that this return
will be provided to investors. Rather, the concept of the Cumulative Return
means that if proceeds are available they will be distributed to investors to
the extent of the Cumulative Return before distributions are made to the General
Partner at a level higher than 1% of the proceeds. Cash Distributions from
operations or Sale or Refinancing Proceeds, if any, will be made only after
payment of the Partnership's expenses and fees, including those to the General
Partner. The section of this Prospectus entitled "Compensation and Fees to the
General Partner and Affiliates" contains a table showing fees and expenses that
will be paid by the Partnership prior to making distributions. All distributions
from operations or Sale or Refinancing Proceeds are contingent upon the results
of the Partnership's investments and cannot be assured.
The section of this Prospectus entitled "Profits, Losses and Distributions"
contains further detail regarding the provisions of the Partnership Agreement
relating to tax allocations and distribution policies, and also a description of
the expected allocation and distribution policies of the Local Partnerships.
Federal Income Tax Considerations
The ability of the Partnership and the Local Partnerships (whether any such
Local Partnership is a partnership or limited liability company) to pass through
all income, losses, deductions and Tax Credits (subject to certain restrictions,
a dollar of Tax Credits produces a dollar reduction in an investor's federal
income tax liability) to the investors is dependent upon each of the Local
Partnerships and the Partnership being classified as partnerships for federal
income tax purposes. The Partnership does not plan to apply for a ruling from
the IRS concerning its status or the status of the Local Partnerships as
partnerships for federal income tax purposes. Although the Partnership will
receive opinions from tax counsel on these issues, these opinions will be based
on various assumptions and representations and will not be binding on the IRS or
the courts.
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The Code divides income and losses into three categories--active, passive,
and portfolio--and divides Tax Credits into two categories--active and passive.
Losses from the Partnership generally will be passive losses and Tax Credits
will be passive credits for purposes of these rules. Generally, 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. However, an
exception to these passive activity rules 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 and meets certain additional
requirements.
The passive loss and credit limitations apply to taxpayers who are
individuals, personal service corporations, estates and trusts. Regular "C"
corporations which are not personal service corporations are not subject to
these rules, although closely-held "C" 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.
Both corporate and non-corporate taxpayers are subject to alternative minimum
tax. Tax Credits cannot be used to offset alternative minimum tax liability.
For a more detailed description of these and other important federal income
tax considerations applicable to an investment in the Partnership, see the
section of this Prospectus entitled "Federal Income Tax Considerations." This
section also contains a description of the legal opinions as to federal income
tax matters that the Partnership will receive, which, when read together,
address the material federal income tax issues as to which there is a reasonable
possibility of challenge by the IRS.
Description of BACs
Each BAC will represent all of the economic and virtually all of the
ownership rights attributable to a $1,000 Unit of limited partner interest in
the Partnership. Each Unit will be owned by Independence Assignor Inc., an
Affiliate of the General Partner, acting as Assignor Limited Partner.
Subscribers for BACs in the Offering will become assignees of the Assignor
Limited Partner upon the Closing of the sale of the BACs purchased by them. See
the section of this Prospectus entitled "Description of BACs" for a more
detailed discussion of the attributes of the BACs and the status of investors as
BACs holders.
Summary of Partnership Agreement
The Partnership Agreement that will govern the relationship between the
investors and the General Partner is a complex legal document, which the section
of this Prospectus entitled "Summary of Partnership Agreement" summarizes at
some length. Certain pertinent portions of the Partnership Agreement are also
summarized under "Reports" and "Description of BACs."
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Investors should particularly be aware of the following terms of the
Partnership Agreement:
(bullet) Voting rights: The Partnership Agreement gives a majority in
interest of the investors the right to (i) approve amendments to the
Partnership Agreement, subject to certain limitations, (ii) approve
the dissolution of the Partnership, (iii) approve the removal of the
General Partner with or without cause and approve its replacement,
(iv) direct the Special Limited Partner to remove a Local General
Partner, and (v) approve or disapprove the sale of all or
substantially all of the assets of the Partnership other than in
connection with a dissolution of the Partnership. Investors who do
not vote with the majority in interest of their fellow investors
nonetheless will be bound by the majority vote.
(bullet) Changes in investment objectives and policies: The General Partner
cannot change the investment objectives or policies of the
Partnership unless an amendment to the Partnership Agreement is
approved by a majority in interest of the investors and the General
Partner. If an amendment to the Partnership Agreement is made,
investors who do not vote with the majority in interest of their
fellow investors nonetheless will be bound by the majority vote.
(bullet) Transferability of BACs: The BACs will be transferable, but only
with the consent of the General Partner (and in no event to a
foreign person or a tax-exempt entity). The Partnership Agreement
requires the General Partner to withhold its consent if the transfer
would affect adversely the tax status of the Partnership. There will
be no market for the BACs, and there can be no assurance that an
investor who desires to transfer his or her BACs will be able to
find a purchaser or whether the price will be acceptable to the
seller.
The Partnership Agreement provides that the Partnership may be merged into or
consolidated with one or more other business entities if the merger or
consolidation is approved by the General Partner and a majority in interest of
the investors. Delaware law does not provide dissenters' rights or rights of
appraisal in connection with such a transaction unless such rights are provided
for contractually. If such merger or consolidation would qualify as a "Roll-Up
Transaction" under the Partnership Agreement, an investor may have certain
rights of appraisal or other rights described in the Partnership Agreement.
Limitations on Rights of BACs Holders and Limited Partners
No investor will have any control over the business of the Partnership or any
right to act for the Partnership. The rights of the investors to affect the
policies or conduct of business of the Partnership will be limited to the right
to vote on the matters described immediately above under "Summary of Partnership
Agreement." In order to bring a matter to a vote of the investors, 10% or more
in interest of the investors must request it. Although technically only limited
partners of a Partnership can vote,
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the BACs holders will be able to direct the vote of their interest as they
desire.
The Partnership Agreement states that the books and records of the
Partnership must be kept at the principal office of the Partnership (625 Madison
Avenue, New York, New York 10022) and be available for examination by any
investor or his or her representative at any and all reasonable times. The
Partnership Agreement also states that any investor or his or her representative
is entitled to receive a copy of the list of names and addresses of all
investors in the Partnership upon the payment of the cost of duplication and
mailing.
RISK FACTORS
An investment in BACs involves a number of important risks, some of which are
very technical. The sections of this Prospectus entitled "Low- Income Housing
and Historic Rehabilitation Tax Credits" and "Federal Income Tax Considerations"
describe in detail the federal income tax aspects of an investment in BACs and
should be reviewed carefully. This section of this Prospectus presents a summary
overview of the most important risk factors each investor in BACs should
consider.
Risks Related to the Tax Credits
Recapture (or Retroactive Loss) of a Portion of the Tax Credits
The laws and rules with respect to Tax Credits provide that some of the Tax
Credits that the Partnership expects to claim can be taken away retroactively if
certain events occur and are not cured. If any of these events should occur, a
portion of the Tax Credits the Partnership was anticipating will not be
available, and a portion of the Tax Credits the Partnership and the BACs holders
have already claimed on their tax returns will have to be returned (meaning that
BACs holders will have to pay taxes equal to this portion of the Tax Credits
taken in a prior year) together with interest. This retroactive loss provision
is called a "recapture" provision.
The following are examples of events that could occur that would cause a
retroactive loss or recapture of Tax Credits:
(bullet) A Property is sold or foreclosed on before the end of the 15-year
compliance period.
(bullet) An error is found in the way the Local Partnership calculated the
Tax Credits.
(bullet) During the 15-year Compliance Period, apartments in the Property are
rented to people who do not meet the income tests for Tax Credits or
the rents charged are greater than the maximum rents allowed.
If a recapture event occurs at a Property, the additional taxes payable by a
BACs holder will be calculated as follows:
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(i) The IRS will look at the Tax Credits claimed by the BACs holder (and any
prior owner of such BAC) for the Property before the recapture event and figure
out how much less in Tax Credits the BACs holder would have claimed for the
Property for those years if those Tax Credits were spread out and claimed over
15 years instead of 10 years.
(ii) The IRS will assess an additional tax equal to that difference.
(iii) If Historic Rehabilitation Tax Credits were claimed, an additional tax
up to 100% of the credits will be assessed. The amount of the Historic
Rehabilitation Tax Credits that would have to be recaptured will be reduced by
20% for each full year that elapses after the first year such credits were
taken.
(iv) The IRS will charge interest on the additional tax.
In addition, the Partnership and the BACs holders will not be able to claim a
portion of the Tax Credits they were anticipating for the period after the
recapture.
Each Local General Partner will be required to agree to use its best efforts
not to cause any recapture event to happen, but recapture events may still occur
in breach of such requirement.
Special recapture rules apply to Properties where Historic Rehabilitation Tax
Credits are claimed. If the Partnership or the Local Partnership sells its
interest in an Historic Complex within five years after the Historic
Rehabilitation Tax Credits were claimed, or if a BACs holder sells or disposes
of his or her BACs within the first five years of the Partnership's entitlement
and ownership of BACs, a portion of the Historic Rehabilitation Tax Credits for
that Property (or for that BACs holder) will be recaptured (based on a sliding
scale that is reduced by 20% for each year the Property has been owned). See
"Low-Income Housing and Historic Rehabilitation Tax Credits--Recapture of
Low-Income Tax Credits," and "--Historic Rehabilitation Tax Credits."
Tax Credits Do Not Reduce Alternative Minimum Tax
While Tax Credits may be used to reduce regular income tax liability, they
may not be used to reduce regular tax liability below the Alternative Minimum
Tax. Determining whether a taxpayer is subject to the Alternative Minimum Tax
can only be made by the taxpayer and his or her tax advisers. Corporations
also are subject to an Alternative Minimum Tax. See "Federal Income Tax
Considerations--Alternative Minimum Tax."
Passive Loss Rules May Restrict the Use of Tax Credits
The passive loss rules may restrict the use of Tax Credits above certain
limits for investors that are individuals, and restrict the use of Tax Credits
by trusts, estates, corporations that are subject to the rules of Subchapter S
of the Code and personal service corporations. In certain circumstances,
closely-held corporations also may be restricted in their use of Tax Credits
under the passive loss rules.
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See "Low-Income Housing and Historic Rehabilitation Tax Credits-- Utilization
of the Low-Income Housing Tax Credit" and "Federal Income Tax Considerations--At
Risk Limitations."
Risk that the Partnership Does Not Qualify as a Partnership
for Tax Purposes
Although the Partnership will obtain an opinion of counsel that the
Partnership will be treated as a partnership for tax purposes rather than a
corporation, there is no guaranty that this treatment will be respected. If the
Partnership were not treated as a partnership for tax purposes, the tax benefits
that BACs holders expect from their investment in the Partnership would be lost
because Tax Credits and tax losses could not be passed through to BACs holders.
See "Federal Income Tax Considerations-- Classification of the Partnerships."
Other Risks Related to the Tax Credits
The rules applicable to when and how much Tax Credits can be claimed for a
particular Property are very complicated, and the Partnership will be making
many decisions in this regard that could later be challenged by the IRS. The
following are examples of decisions that if successfully challenged by the IRS
could result in tax treatment different from that anticipated by the
Partnership:
(bullet) The IRS may reject the Partnership's claim that various fees and
other expenses were part of the basis for Tax Credits (reducing the
amount of Tax Credits the Partnership could claim).
(bullet) The IRS may reject the Partnership's claim that the existence of
limited guarantees by a Local General Partner against deficits does
not reduce the basis of the Properties for Tax Credits or require
the reallocation of Tax Credits to the Local General Partner.
(bullet) The IRS may reject the Partnership's claim that it is entitled to
include in its Tax Credit basis the amount of financing provided by
certain sellers of a Property.
(bullet) In cases where the closing was in escrow pending approval by the
Department of Housing and Urban Development ("HUD"), the IRS could
say that the ownership (and right to Tax Credits) only began later
when HUD approval was obtained.
In each of these cases, and in other similar cases, the Partnership and the
IRS each could find precedent supporting its position, and the result would
depend on the actual facts involved and the decision of a court. If the
Partnership's positions are found to be wrong, it could reduce significantly the
amount of Tax Credits that BACs holders can claim. The IRS has sought to
challenge some of the positions taken by prior Tax Credit partnerships sponsored
by Affiliates of the General Partner with respect to the calculation of Tax
Credits. To date, none of these challenges has resulted in any significant
reduction in the amount of Tax Credits claimed or antici-
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pated to be claimed by these other partnerships. However, there can be no
assurance that a significant reduction will not be required in the future.
Possibility of Future Tax Reform
The federal income tax rules relating to the Tax Credits have been modified
by legislation many times in recent years and may be further modified by
legislative, judicial or administrative action at any time. Prospective
investors should be aware that any such future change may affect the
consequences of an investment in the Partnership.
If the Tax Credit program is changed before all of the Net Proceeds of the
Offering are invested in Properties, the Partnership will not invest in
Properties to which the new rules apply if the General Partner determines that
the new rules materially adversely affect the tax and/or economic consequences
of investing in those Properties. This could limit the availability of
investments to the Partnership and the diversity of its investments. See
"Investment Objectives and Policies--Identification of Investments."
Risks Related to the Local Partnership Investments
Risks of Real Estate Investment
An investment in BACs is fundamentally an investment in real estate. In order
for BACs holders to receive anything from their investment other than Tax
Credits (including a return of their investment), the Partnership must sell the
Properties for more than the total indebtedness encumbering such Properties at
the time of the sale in order to offset the organization and offering costs
incurred by the Partnership (equal to about 11% of the Partnership's capital).
The Partnership may be unable to do so because of the following risks:
(bullet) Real estate is a cyclical investment, and property values generally
rise and fall in ways that no one can control or predict.
(bullet) The Tax Credit law prohibits the Partnership and the Local
Partnerships from selling the Properties during the 15 years of the
Compliance Period, and then requires, unless waived, that the
Properties be offered for sale for approximately a one-year period
of time at the same price originally paid for them plus an annual
cost of living inflation factor (beginning in year 14).
(bullet) If a Property receives government assistance or financing, the terms
of the government assistance or financing (e.g., tenant eligibility,
approvals for rent increases, limitations on the percentage of
income which low- and moderate-income tenants may pay as rent) could
limit the revenue from the Property and depress its value. There can
be no assurance that government assistance programs which are
intended to benefit a Property will be continued by the assistance
provider and that if such assistance is not continued that the
Property will generate sufficient additional revenue to substitute
for the discontinued government assistance so as to meet its
mortgage or operating obligations.
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(bullet) The Properties will be at least 15 years old when they are sold, and
may not sell for the same price as new properties. Factors outside
the Partnership's control (demand for apartments and real estate
values generally) will determine whether the Properties can be sold
for more than the Partnership invested in them. The Properties may
be required to be leased to low-income tenants at restricted rentals
for periods in excess of the 15 year Compliance Period.
Risks of Mortgage Indebtedness
Each Local Partnership will borrow a portion (probably 50% or more) of the
cost of its Property. Similar to a person with a mortgage on his or her home,
each Local Partnership must have sufficient cash flow to pay its mortgage. If
not, the bank will take back the Property through foreclosure procedures and the
Tax Credits for that Property will be lost and some Tax Credits will be
recaptured. See "Recapture (or Retroactive Loss) of a Portion of the Tax
Credits" above. Some properties in prior programs of the Sponsor have
experienced cash flow difficulties. See "Prior Performance Summary." Some of the
mortgages may have variable interest rates, which interest rates could increase
faster than rental rates of the apartments.
Risks of Not Finding Enough Local Partnership Investments
The Partnership must locate Local Partnership investments after it sells the
BACs. If it cannot find sufficient investments, or the price of the investments
is higher than the Partnership expected, there will be fewer Tax Credits than
expected for the BACs holders.
Risk of Depending on Local General Partners
The Local General Partners, who have not been identified yet, will be
principally responsible for the success or failure of their Local Partnerships.
Generally, the Local General Partner or its Affiliates will be the developer and
manager of its Local Partnership and Property, and will agree to put some
limited amount of money in the Local Partnership, if needed. See "Investment
Objectives and Policies--Structure of Acquisitions." The Local General Partners
may be small companies and may make mistakes. If a Property experiences problems
which the Local General Partner cannot or will not solve, and the Partnership's
reserves are insufficient to solve the problem, the Tax Credits and investment
in the Property may be lost.
Risks of a Partnership Investment
The most important risk of a Partnership investment such as the BACs is that
there will be no public market for BACs and no public market is expected to
develop. Therefore, a BACs holder probably will not be able to sell his or her
BACs if he or she needs or wants to. An investment in BACs is a long-term (at
least 15 years), illiquid investment.
There are other risks of an investment in a Partnership:
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(bullet) The Partnership may pass through to BACs holders taxable income
(meaning BACs holders will have to pay taxes) and yet not distribute
to BACs holders any money to pay the tax.
(bullet) If the Partnership is audited, the likelihood of a BACs holder being
audited is increased. The IRS tries to audit as many partnerships as
it can, and a BACs holder's chances of being personally audited by
the IRS increase because of investing in the Partnership.
(bullet) BACs holders will have only limited voting rights, and will not
get to re-elect management of the Partnership every year. See
"Summary of Partnership Agreement--Voting Rights."
(bullet) A BACs holder may have more limited rights than a limited partner
to bring actions on behalf of the Partnership. See "Fiduciary
Responsibility of the General Partner and Affiliates."
TERMS OF THE OFFERING
The Partnership is offering a minimum of 5,000 BACs (the "Minimum Offering")
and a maximum of 100,000 BACs (the "Maximum Offering") at $1,000 each. The
minimum investment is five BACs ($5,000).
The Offering is being made on a "best efforts," minimum/maximum basis by the
Dealer Manager (i.e., no broker-dealer participating in the Offering will be
under any obligation to purchase any BACs from the Partnership). The Offering
will commence on the date of this Prospectus and terminate on April 15, 1997 or
such earlier date determined by the Dealer Manager. The Dealer Manager may
terminate the Offering, in its discretion, on the date (the "Offering
Termination Date") that is the earlier of (i) the date on which the Minimum
Offering is sold, (ii) any date selected by the Dealer Manager that is at least
120 days after the date of the commencement of the Offering or (iii) the date on
which the Maximum Offering is sold. However, if the minimum number of 5,000 BACs
is not subscribed for on or before six months from the date of the commencement
of the Offering (unless such date is otherwise lawfully extended to a date not
later than 12 months after the commencement of the Offering), then all payments
received will be refunded promptly to subscribers in full together with their
pro rata share of all interest earned on the subscription proceeds, subject to
any required back-up withholding for federal income tax purposes. See "The
Offering and Plan of Distribution--Escrow Arrangements."
By noon of the next business day or by noon of the second business day after
receipt of the subscription by the Dealer Manager, an investor's funds will be
deposited in escrow and held in trust for the benefit of the investor with
United States Trust Company of New York (the "Escrow Agent"). The General
Partner will have ten days to determine whether or not to accept a subscription.
Funds received from subscribers whose subscriptions are rejected will be
returned promptly to such subscriber.
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The General Partner, the Dealer Manager, the Selling Agents, and any of their
Affiliates may, but are not obligated to, purchase BACs at the offering price
and will become BACs holders to the extent of such purchases; however, not more
than 500 BACs so purchased will be included for purposes of determining whether
the Minimum Offering of the Partnership has been attained, and such BACs must be
held for investment purposes only and not with a view to redistribution or
resale. The right of the General Partner and its Affiliates to vote BACs
purchased by them will be restricted. See "Summary of Partnership
Agreement--Voting Rights."
After receipt of subscriptions acceptable to the General Partner for at least
5,000 BACs, the General Partner may elect to have an Initial Closing. At the
Initial Closing, the Escrow Agent will release to the Partnership from escrow
funds deposited for the account of purchasers of BACs and distribute to
purchasers the pro rata portion of any interest actually earned on their
subscription proceeds prior to such Closing (subject to any required back-up
withholding for federal income tax purposes). After the Initial Closing,
subscribers' funds will be delivered to the Escrow Agent as described above
pending the next Closing; at each subsequent Closing, a pro rata portion of
interest actually earned on subscription proceeds (subject to any required
back-up withholding for federal income tax purposes) will be released from
escrow for distribution to purchasers included in such Closing. Closings with
respect to such additional subscriptions are expected to be held no less
frequently than monthly until the termination of the Offering. See "The Offering
and Plan of Distribution--Escrow Arrangements."
Proceeds of the Offering will be held in trust by the Partnership for the
benefit of investors, to be used only for the purposes described in this
Prospectus.
WHO SHOULD INVEST
Investment in the BACs is suitable only for individuals, partnerships,
corporations, limited liability companies, trusts or other entities ("Persons")
of adequate financial means who have no need for liquidity with respect to this
investment and who will be able to use the tax benefits potentially available to
investors in low-income housing. See "Low-Income Housing and Historic
Rehabilitation Tax Credits" and "Federal Income Tax Considerations." The Dealer
Manager and each Selling Agent will be required to use reasonable efforts to
determine that the purchase of BACs is a suitable and appropriate investment for
each subscriber, based on information provided by the subscriber regarding such
subscriber's financial situation and investment objectives. The Partnership
Agreement of the Partnership places limitations on the transferability of BACs.
No public market is expected to develop for BACs. The sale or transfer of BACs
will not result in recapture of Housing Tax Credits by the transferor; however,
the transferee may be required to recapture a portion of the Housing Tax Credits
previously claimed by the transferor with respect to such BACs if
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an event of recapture (other than a disposition of the BACs) occurs while the
transferee owns the BACs. The sale or transfer of BACs will result in recapture
of Historic Rehabilitation Tax Credits by the transferor if such sale or
transfer occurs within five years after the Properties with respect to which
such credits were claimed were placed in service. See "Risk Factors--Risks of a
Partnership Investment," "Risk Factors--Risks Related to the Tax Credits" and
"Low-Income Housing and Historic Rehabilitation Tax Credits--Recapture of
Low-Income Tax Credits" and "--Historic Rehabilitation Tax Credit."
The amount of an investment in the Partnership should vary in accordance with
a number of factors, the most important of which is the investor's expected tax
liability over the Credit Period of the Properties (which is, in general,
expected to be the period from 1995 to 2008). Tax Credits and losses generated
by an investment in the Partnership are, in general, fully allowable to offset
income and taxes on income from passive activities. However, the Code limits the
amount of Tax Credits that certain investors may use to offset taxes on active
non-rental income or portfolio income. The limitation applies to individuals,
trusts, estates, corporations subject to the rules of Subchapter S of the Code
and personal service corporations. Closely-held corporations may use Tax Credits
to offset taxes on active business income but may not use Tax Credits to offset
taxes on portfolio income. In the case of individual investors, an amount of Tax
Credits equal to the equivalent of $25,000 of deductions ($12,500 in the case of
married individuals filing separately who do not live together; zero in the case
of married individuals filing separately who live together at any time during
the taxable year) may be used to offset taxes on active non- rental income or
portfolio income (such amount is referred to herein as the "$25,000
Deduction-Equivalent Allowance"). For example, for individual investors with
income subject to the 31% tax rate, this is equivalent to allowing the investor
up to $7,750 (.31 x $25,000) in Tax Credits. Set forth below is the amount of
Tax Credits that may be used, under the $25,000 Deduction-Equivalent Allowance,
by an individual investor with income subject to the applicable income tax rate:
Tax Credits Allowed by the $25,000
Income Tax Rate Deduction-Equivalent Allowance:
- -------------------- ----------------------------------
15% ................ $3,750 (.15 x $25,000)
28% ................ $7,000 (.28 x $25,000)
31% ................ $7,750 (.31 x $25,000)
36% ................ $9,000 (.36 x $25,000)
39.6% .............. $9,900 (.396 x $25,000)
An investor that has invested previously in a program or a property
generating Tax Credits less than the full annual amount allowed may invest in
the Partnership or in another program generating Tax Credits until the
investor's full annual allotment is utilized. An investor's ability to use Tax
Credits also may be limited under the general business tax credit rules. See
"Low-Income Housing and Historic Rehabilitation Tax Credits--Utilization
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of the Low-Income Housing Tax Credit" and "Federal Income Tax
Considerations--Limitations on Losses and Credits from Passive Activities." Tax
Credits that are not allowed to be used in the current year as a result of the
passive activity limitation can be carried forward to be used in subsequent
taxable years to offset passive income or be applied against the $25,000
Deduction-Equivalent Allowance for such year. Tax Credits that cannot be used in
the current year as a result of the limitations under the business tax credit
rules can be carried back three years and forward 15 years. Savings and loan
associations and other thrift institutions to which Section 593 of the Code
applies are restricted in their use of Historic Rehabilitation Tax Credits to
50% of the amount of Historic Rehabilitation Tax Credit that would otherwise be
available. See "Low-Income Housing and Historic Rehabilitation Tax
Credits--Historic Rehabilitation Tax Credits."
The ability of individual investors to utilize the $25,000
Deduction-Equivalent Allowance with respect to Historic Rehabilitation Tax
Credits from the Partnership's activities against taxes on income other than
passive activity income in any year is reduced to the extent the investor's
adjusted gross income (disregarding passive losses) exceeds $200,000 and is
completely eliminated by the time such investor's adjusted gross income reaches
$250,000 (this reduction is pro rata to the excess of gross income over
$200,000) in such year. Thus, only individuals with an adjusted gross income of
$200,000 or less may fully utilize the $25,000 Deduction-Equivalent Allowance
with respect to Historic Rehabilitation Tax Credits recognized by the
Partnership, if any, against active or portfolio income. Historic Rehabilitation
Tax Credits that are not allowed to be used in the current year as a result of
the passive activity limitation may be carried forward to be used in subsequent
taxable years in which the investor has income from passive activities or has an
adjusted gross income of less than $250,000. The Partnership may also make
investments in Historic Complexes. However, so long as the adjusted gross income
limitation remains applicable to Historic Rehabilitation Tax Credits, the
Partnership will not make investments that are designed to generate Historic
Rehabilitation Tax Credits in excess of 5% of the aggregate Tax Credits expected
to be recognized by the Partnership over the Credit Period for all Properties.
Neither Housing Tax Credits nor Historic Rehabilitation Tax Credits may be
used to offset the incremental tax liability imposed as a result of the
alternative minimum tax. The ability of taxpayers subject to the alternative
minimum tax to use the Tax Credits may therefore be limited. Tax Credits that
cannot be used in the current year as a result of this alternative minimum tax
limitation may be carried back three years and forward 15 years. The Revenue
Reconciliation Act of 1993 replaced the single individual alternative minimum
tax rate with a two-tiered individual alternative minimum tax rate: 26% on the
alternate minimum taxable income (reduced by an exemption amount that phases out
in the case of high-income individuals) up to and including $175,000 and 28% on
the amount of alternative mini-
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mum taxable income in excess of $175,000. See "Federal Income Tax
Considerations--Alternative Minimum Tax."
An investment in the Partnership may be suitable for investors under 14 years
of age who have unearned income in excess of $1,000 and whose parents are not
subject to the alternative minimum tax. As a result of the Tax Reform Act of
1986, unearned income in excess of $1,000 of a child under 14 years of age is
taxed to the child at the parent's highest marginal tax rate. However, the
limitation on the use of Historic Rehabilitation Tax Credits is determined with
regard to the child's adjusted gross income, rather than the parent's adjusted
gross income. Thus, Historic Rehabilitation Tax Credits generated by an
investment in the Partnership may be used to reduce the child's taxes on up to
$25,000 of income, regardless of the parent's annual adjusted gross income. It
should be noted, however, that the child may in certain cases be subject to
alternative minimum tax on such unearned income, which tax may not be reduced by
the child's Tax Credits. See "Federal Income Tax Considerations--Investment in
the Partnership by Minor Children."
An investment in the Partnership may be suitable for bank holding companies
or, certain affiliates of thrift institutions whose deposits are insured by the
Federal Deposit Insurance Corporation, subject to certain limitations as to
amount and to restrictions as to investment authority under state or federal
law, as applicable. Further information on this subject is available from
representatives of the Dealer Manager.
Because a significant portion of the expected benefit of an investment in the
Partnership is the Tax Credits, the purchase of BACs would be an unsuitable
investment for persons unable to use the Tax Credits or persons whose ability to
use the Tax Credits would be severely restricted. In addition, particularly
because of the recent passage of tax reform legislation, each prospective BACs
holder should obtain the advice of his or her own tax advisor as to his or her
particular circumstances in relation to the tax consequences described in the
"Federal Income Tax Considerations" section and the effect of an investment in
the Partnership on his or her personal tax situation. An investment in the
Partnership should not be considered suitable for tax-exempt entities.
Persons for whom an investment in the Partnership may be suitable are:
(i) Noncorporate investors, shareholders of Subchapter S corporations, and C
corporations that are personal service corporations that reasonably expect
either to have substantial unsheltered passive activity income or to have income
tax liability during those years against which the Tax Credits from the
Partnership can be utilized;
(ii) Corporations that are not closely-held and are not personal service
corporations and that reasonably expect for most of the next ten years to have
sufficient federal taxable income from all sources to utilize the Tax Credits
and losses from the Partnership's investments; and
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(iii) Corporations that are closely-held but are not personal service
corporations that reasonably expect for most of the next ten years to have other
federal taxable income arising from the active conduct of a trade or business
and/or to have sufficient unsheltered passive activity income to utilize the Tax
Credits and losses anticipated from the Partnership's investments.
For purposes of the above provisions, a corporation is treated as
"closely-held" if at any time during the last half of its taxable year more than
50% in value of its outstanding stock is owned directly or indirectly by five or
fewer individuals. For purposes of the above provisions, a "personal service
corporation" means any corporation the principal activity of which is the
performance of personal services and in which the employee owners own more than
10% of the outstanding stock of the corporation.
An investment in the Partnership may not be suitable for an individual
investor with substantial losses from active rental real estate activities
because such losses must be applied against the $25,000 Deduction- Equivalent
Allowance before the Tax Credits. However, an investment in the Partnership may
be suitable for an individual investor whose losses from active rental real
estate activities are generated by a property that was placed in service on or
prior to December 31, 1989 and who is expected to have an adjusted gross income
in excess of $200,000 for most of the next 12 years, since such losses may not
be able to be utilized by such an individual investor. See "Low-Income Housing
and Historic Rehabilitation Tax Credits--Utilization of the Low-Income Housing
Tax Credit."
BACs will be sold only to subscribers who represent that they meet the
following suitability standard: the subscriber has (a) a net worth (exclusive of
home, home furnishings and personal automobiles) of at least $45,000, and an
annual gross income of at least $45,000, or (b) a net worth (exclusive of home,
home furnishings and personal automobiles) of at least $150,000, or (c) is
purchasing in a fiduciary capacity for a Person having the net worth and annual
gross income set forth in clause (a) or the net worth set forth in clause (b).
Various states have established suitability standards for subscribers which
are different from those established by the Partnership and which must be met by
subscribers residing in any such state.
Arizona: Each subscriber must represent in writing that (a) the subscriber
has either (i) a net worth of at least $225,000 (exclusive of home, car and home
furnishings) or (ii) an annual gross income of at least $75,000 and a net worth
of at least $75,000 (as computed above), and (b) that the investment in the
Partnership represents no more than 10% of the subscriber's net worth (exclusive
of home, car, home furnishings and value of other investments in limited
partnership interests). In addition, the Issuer along with one or more
representatives, advisors or agents must have a reasonable belief that each
Arizona subscriber alone or with one or more representatives, advisors or
agents, has the knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of the Offering.
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California: Each subscriber must have either (a) a minimum net worth of at
least $60,000 (excluding home, home furnishings and automobiles) and had during
the last tax year, or it is estimated that the subscriber will have during the
current tax year, taxable income of $60,000 or (b) a net worth of at least
$175,000 (as computed above).
Iowa: Each subscriber must have either (a) a net worth (exclusive of home,
home furnishings and personal automobiles) of at least $60,000 and an annual
gross income of at least $60,000 or (b) a net worth of least $225,000 (as
computed above). In addition, the General Partner, the Dealer Manager or one of
the Selling Agents will be required to ascertain that each Iowa subscriber can
reasonably benefit from an investment in the Partnership, and the following will
be relevant to such determination: (i) the subscriber has the capacity of
understanding the fundamental aspects of the Partnership, which may be evidenced
by nature of employment experience, level of education, access to advice from
qualified sources, such as attorney, accountant and tax adviser, and prior
experience with investments of a similar nature; (ii) the subscriber has
apparent understanding of the fundamental risks and lack of liquidity of an
investment in the Partnership, that the business and affairs of the Partnership
will be controlled by the General Partner, and of the tax consequences of an
investment in the Partnership; and (iii) the subscriber has the financial
capability to invest in the Partnership.
Maine: Each subscriber must have either (a) a net worth of at least $60,000
(excluding home, home furnishings and automobiles) and an annual gross income of
at least $60,000 or (b) a net worth of at least $225,000 (as computed above).
Massachusetts: Each subscriber must have (a) a net worth (exclusive of home,
home furnishings and personal automobiles) of at least $60,000 and an annual
gross income of at least $60,000 or (b) a net worth of at least $225,000 (as
computed above). In addition, no Massachusetts subscriber may invest more than
10% of his net worth (exclusive of the subscriber's home, home furnishings and
personal automobile).
Minnesota: Each subscriber must have either (a) a net worth (exclusive of
home, home furnishings and personal automobiles) of at least $60,000 and an
annual gross income of at least $60,000 or (b) a net worth of least $225,000 (as
computed above). In addition, the General Partner, the Dealer Manager or one of
the Selling Agents will be required to ascertain that each Minnesota subscriber
can reasonably benefit from an investment in the Partnership, and the following
will be relevant to such determination: (i) the subscriber has the capacity of
understanding the fundamental aspects of the Partnership, which may be evidenced
by nature of employment experience, level of education, access to advice from
qualified sources, such as attorney, accountant and tax adviser, and prior
experience with investments of a similar nature; (ii) the subscriber has
apparent understanding of the fundamental risks and lack of liquidity of an
investment in the Part-
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nership, that the business and affairs of the Partnership will be controlled by
the General Partner, and of the tax consequences of an investment in the
Partnership; and (iii) the subscriber has the financial capability to invest in
the Partnership.
Mississippi: Each subscriber must have (a) a net worth (exclusive of home,
home furnishings and personal automobiles) of at least $60,000 and an annual
gross income of at least $60,000 or (b) a net worth of at least $225,000 (as
computed above).
Missouri: Each Missouri subscriber must have either (a) a net worth of at
least $60,000 and a minimum annual gross income of $60,000 or (b) a net worth of
at least $225,000, excluding in all such computations of net worth the value of
the subscriber's home, home furnishings and automobiles.
Nebraska: Each subscriber must have either (a) a net worth of at least
$60,000 (excluding home, home furnishings and automobiles) and an annual gross
income of at least $60,000 or (b) a net worth of at least $225,000 (as computed
above).
New Hampshire: Each subscriber must have either (a) a net worth of at least
$225,000 or (b) an annual gross income of at least $60,000 and a net worth of at
least $60,000 (all computations of net worth exclude the value of a subscriber's
home, furnishings and automobiles).
New Jersey: Each subscriber must have either (a) a net worth of at least
$60,000 (excluding home, home furnishings and automobiles) and an annual gross
income of at least $60,000 or (b) a net worth of at least $175,000 (as computed
above).
New York: Each New York subscriber must have either (a) a minimum annual
gross income of $45,000 and a net worth of at least $45,000 or (b) a net worth
of at least $150,000, excluding in all such computations of net worth the value
of the subscriber's home, home furnishings and automobiles.
North Carolina: Each subscriber must have either (a) a net worth of at least
$225,000 or (b) an annual gross income of at least $60,000 and a net worth of at
least $60,000 (all computations of net worth exclude the value of a subscriber's
home, home furnishings and automobiles).
Ohio: No Ohio subscriber may invest more than 10% of his net worth
(exclusive of subscriber's home, home furnishings and personal automobiles).
Oklahoma: Each subscriber must have either (a) a net worth of at least
$150,000 or (b) an annual gross income of at least $45,000 and a net worth of at
least $45,000 (all computations of net worth exclude the value of an investor's
home, furnishings and automobiles).
Oregon: Each Oregon subscriber must have either (a) a net worth of at least
$45,000 (excluding home, home furnishings, and automobiles) and an annual gross
income of at least $45,000 or (b) a net worth of at least $150,000 (as computed
above).
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Pennsylvania: Each subscriber must have (a) a net worth (exclusive of home,
home furnishings and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000 or (b) a net worth of at least $150,000 (as
computed above). In addition, no Pennsylvania subscriber may invest more than
10% of his net worth (exclusive of the subscriber's home, home furnishings and
personal automobile). Because the Minimum Offering is less than $10,000,000,
Pennsylvania investors are cautioned to carefully evaluate the Partnership's
ability to fully accomplish its stated investment objectives and to inquire as
to the current dollar volume of subscriptions for BACs.
South Dakota: Each subscriber must have either (a) a net worth of at least
$60,000 (excluding home, home furnishings and automobiles) and have had during
the last tax year, or estimate that he or she will have during the current tax
year, gross income of $60,000 or (b) a net worth of at least $225,000 (as
computed above).
Texas: Each Texas subscriber must have either (a) a minimum annual taxable
income of $45,000 and a net worth of at least $45,000 or (b) a net worth of at
least $150,000 (excluding in all such computations of net worth the value of the
subscriber's home, home furnishings and automobiles).
Texas investors are advised that Tax Credits are the primary benefit of an
investment in the Partnership. The Partnership may not be a suitable investment
to an investor who expects to be subject to the alternative minimum tax. See
"Risk Factors--Risks Related to the Tax Credits," "Low-Income Housing Credits
and Historic Rehabilitation Tax Credits-- Utilization of the Low-Income Housing
Credit" and "Federal Income Tax Considerations."
Washington: Each subscriber must have either (a) a net worth of at least
$60,000 (excluding home, home furnishings and automobiles) and an annual gross
income of at least $60,000 or (b) a net worth of at least $225,000 (as computed
above).
Certain other states may impose additional subscriber suitability
requirements for an investment in the BACs. BACs will be sold only to a
subscriber who, based on information obtained from or known about such
subscriber, is reasonably believed by the Dealer Manager to meet the suitability
standards set forth above.
Residents of Arizona, Arkansas, Iowa, Maine, Massachusetts, Michigan,
Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North Carolina,
Oklahoma, Oregon, South Dakota, Tennessee, Texas and Washington who wish to
purchase BACs will be required to execute a Subscription Agreement, the form of
which is attached as Exhibit B to this Prospectus. Investors who are required to
execute the Subscription Agreement may do so by completing and signing the
Subscription Agreement attached to the Partnership's Client Brochure.
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Each investor will be deemed to certify that such investor is not a "Foreign
Person," as defined in the Partnership Agreement. See "Glossary."
A subscriber may transfer his BACs only to Persons who meet the suitability
standards in effect in his state at the time of transfer. The General Partner is
not aware of any such suitability standards that apply at the date hereof or of
other state law restrictions on transfer other than the provisions of California
law summarized in the next paragraph. However, each broker-dealer participating
in a transfer of BACs will be required to determine that the purchase of BACs by
the transferee is a suitable and appropriate investment for the transferee,
based on information provided by the transferee regarding his or her financial
situation and investment objectives, and to inform the transferee of the limited
liquidity of BACs. Moreover, certain provisions of the Partnership Agreement
impose significant limitations on transfer of BACs and requirements with regard
to transferees of BACs. Although no recapture of Housing Tax Credits will occur
as a result of a transfer of BACs, transferees will be required to recapture a
portion of the Housing Tax Credits previously claimed by the transferor with
respect to such BACs if an event of recapture (other than a disposition of BACs)
occurs while the transferee owns such BACs. The transfer of BACs will result in
recapture of Historic Rehabilitation Tax Credits if such transfer occurs within
five years after the Properties with respect to which such credits were claimed
were placed in service. See "Risk Factors--Risks Related to the Local
Partnership Investments--Risks of a Partnership Investment" and "--Risks Related
to the Tax Credits--Recapture (or Retroactive Loss) of a Portion of the Tax
Credits" and "Summary of Partnership Agreement--Transferability of Units and
BACs."
The issuance of all BACs offered hereby and any subsequent transfers to or
between Persons who are residents of California, or who are either domiciled or
actually present in California, will be subject to the following legend
condition (as required by the California Corporations Commissioner) restricting
transfer.
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF A LIMITED PARTNERSHIP
INTEREST, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
The foregoing suitability standards represent minimum suitability
requirements for subscribers, and the satisfaction of such standards does not
necessarily mean that the BACs are a suitable investment for a subscriber. The
General Partner may apply higher suitability standards in its sole discretion.
Payment for subscriptions may be made: (a) by delivery to the Dealer
Manager or an investor's Selling Agent of a check made payable to "United
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States Trust Company of New York, Escrow Agent for Independence Tax Credit Plus
L.P. IV," or (b) by authorizing his Selling Agent to debit his account at such
dealer, in each case in the amount of $1,000 for each BAC he wishes to purchase,
subject to the volume discounts described herein, in a total amount of not less
than the minimum subscription of five BACs ($5,000). American Express Financial
Advisors Inc. and other Selling Agents who are permitted to receive customer
funds, by reason of having the requisite level of "net capital" under the
applicable federal securities regulations, may instruct their customers to make
their subscription checks for BACs payable directly to the Selling Agent. A
subscriber who authorizes any Selling Agent to debit his securities account must
have his subscription payment in his account on, but not before, the specified
settlement date and such account will be debited on that date, which will occur
not later than three (3) business days following notification to such Selling
Agent and the investor of the initial approval of the subscription. Funds
debited from an investor's account for the purchase of BACs will be deposited
into the escrow account by noon of the next business day or by noon of the
second business day after receipt of the subscription by the Selling Agent.
Investors who do not maintain an account with their Selling Agent may open such
account to subscribe for BACs. No Selling Agent may authorize the subscription
for BACs or debit a subscriber's discretionary account without the prior written
approval of such subscriber.
The minimum investment is five BACs ($5,000). No sale of BACs may be
completed until at least five business days after the subscriber has received
this Prospectus and any supplements hereto.
32
<PAGE>
ESTIMATED USE OF PROCEEDS
The following table sets forth the estimated application of the Gross
Proceeds of the sale of the minimum number of BACs and the maximum number of
BACs. Regardless of the particular level of Gross Proceeds that is raised by
this Offering, it is anticipated that 79.5% of all Gross Proceeds will be
invested by the Partnership in Apartment Complexes.
Minimum Maximum
------------------ ---------------------
Dollar Dollar
Amount % Amount %
---------- ----- ------------ -----
Gross Proceeds (1) ........ $5,000,000 100.0 $100,000,000 100.0
Expenses:
Selling Commissions (1) .. 300,000 6.0 6,000,000 6.0
Wholesaling and
Marketing Fees (1) ..... 75,000 1.5 1,500,000 1.5
Organization and
Offering Expenses (2) .. 175,000 3.5 2,500,000 2.5
---------- ----- ------------ -----
Public Offering Expenses .. 550,000 11.0 10,000,000 10.0
Amount Available for
Investment .............. $4,450,000 89.0 $ 90,000,000 90.0
========== ==== ============ =====
Acquisition Expenses (3) .. 50,000 1.0 1,000,000 1.0
Acquisition Fees (4) ...... 300,000 6.0 6,000,000 6.0
Working Capital Reserve
(5) (6) ................. 125,000 2.5 3,500,000 3.5
---------- ----- ------------ -----
Proceeds Invested in
Apartment Complexes (5).. $3,975,000 79.5% $ 79,500,000 79.5%
========== ==== ============ =====
(1) The aggregate selling commissions and wholesaling and marketing fees are
referred to collectively herein as the "Selling Commissions." The Dealer
Manager may reallow up to the full Selling Commissions to the Selling
Agents. Gross Proceeds do not take into account quantity discounts in
Selling Commissions payable by BACs holders or purchases net of Selling
Commissions by Affiliates of the General Partner and employees of the Dealer
Manager and Selling Agents. See "The Offering and Plan of Distribution."
Although the Selling Commissions paid by BACs holders may vary, the proceeds
to the Partnership, net of Selling Commissions and quantity discounts, will
be the same. In addition to Selling Commissions, the Dealer Manager will
retain from its Organization and Offering Expense allowance equal to 2.5% of
Gross Proceeds a non-accountable marketing and due diligence expense
allowance equal to 0.5% of Gross Proceeds and may retain up to the full
remaining 2.0% as an allowance for reimbursement of accountable marketing
expenses. The Dealer Manager may reallow all or a portion of the
non-accountable marketing and due diligence and accountable marketing
expense allowances to one or more of the Sell-
33
<PAGE>
ing Agents (see footnote (2)). The Dealer Manager is an Affiliate of the
General Partner. See "The Offering and Plan of Distribution."
(2) Organization and Offering Expenses include legal, accounting, printing,
escrow, filing, registration, qualification, advertising and other expenses
of the organization of the Partnership and the offering of BACs, and a
non-accountable marketing and due diligence allowance to be retained by the
Dealer Manager in an amount up to 0.5% of Gross Proceeds. See "The Offering
and Plan of Distribution." The Dealer Manager will receive a non-accountable
expense reimbursement allowance in respect of Organization and Offering
Expenses, in an amount equal to 2.5% of Gross Proceeds. The Dealer Manager
will be responsible for the payment of all Organization and Offering
Expenses of the Partnership up to 2.5% of the Gross Proceeds, the
Partnership will pay Organization and Offering Expenses in excess of 2.5% up
to an amount equal to 3.5% of the Gross Proceeds and the Dealer Manager will
be responsible for the payment of any Organization and Offering Expenses of
the Partnership in excess of 3.5% of the Gross Proceeds. From its
Organization and Offering Expense allowance equal to 2.5% of Gross Proceeds,
the Dealer Manager will retain a non-accountable marketing and due diligence
expense allowance equal to 0.5% of Gross Proceeds and may retain up to the
full remaining 2.0% as an allowance for reimbursement of accountable
marketing expenses. Both the non- accountable marketing and due diligence
and accountable marketing expense allowances are included within the
definition of Organization and Offering Expenses. The Dealer Manager may
reallow all or a portion of the non-accountable marketing and due diligence
and accountable marketing expense allowances to one or more of the Selling
Agents. See "Compensation and Fees to the General Partner and Affiliates."
In no event will total public offering expenses (the aggregate of Selling
Commissions and Organization and Offering Expenses) exceed 11% of Gross
Proceeds.
(3) Acquisition Expenses may include amounts paid by the Partnership or a Local
Partnership for legal fees and expenses, travel and communications expenses,
costs of appraisals, accounting fees and expenses, title insurance, and
miscellaneous other acquisition expenses. In general, the General Partner
anticipates that such expenses will be included in the credit bases on which
the Tax Credits are computed.
(4) Acquisition Fees consist of the total of all fees and commissions paid by
any Person to any Person in connection with the selection or purchase by the
Partnership or Local Partnerships of any Local Partnership Interest or
Property. Included in the computation of such fees or commissions will be
any real estate commissions, acquisition fees, selection fees, Development
Fees and Construction Fees paid to Persons affiliated with the Sponsor,
non-recurring management fees, consulting fees or any other similar fees or
commissions, however
34
<PAGE>
designated. The General Partner will receive Consulting and Monitoring Fees
for its services in assisting the Local Partnerships in acquiring the
Properties and in supervising the construction of the Properties in an
amount equal to up to 6.0% of the Gross Proceeds, subject to the limits set
forth in the following sentence. The amount of the Consulting and Monitoring
Fees payable to the General Partner will be reduced by the amount of all
Acquisition Fees payable by the Partnership to Persons other than the
General Partner to the extent necessary to achieve the commitment to
Investment in Properties provided for in the following sentence, except that
the Partnership reserves the right if interests in Existing Complexes are
acquired to approve the payment of limited additional Acquisition Fees to
non-Affiliates in an aggregate amount not to exceed 0.5% of the Gross
Proceeds, provided that the amount of such additional fees is included in
the eligible expenditures upon which Housing Tax Credits are calculated
(such additional fees would be in lieu of amounts that would otherwise be
contributed to capital of Local Partnerships and accordingly will not
increase the price to the Partnership of its investments). In no event will
the aggregate of all Front End Fees result in the commitment to Investment
in Properties, of an aggregate amount less than: the greater of (x) 69.5% of
Gross Proceeds and (y) 82.5% of Gross Proceeds reduced by .1625% for each 1%
of indebtedness encumbering the Properties (e.g., 80% indebtedness: 80 x
.1625% = 13%; 82.5% - 13% = 69.5%). The percentage of indebtedness
encumbering Properties for such purpose will be calculated by dividing the
amount of financing by the amount of Invested Assets, less Front End Fees
and Reserves of the Partnership in excess of 5% of Gross Proceeds. In
general, it is expected that the amount of the Consulting and Monitoring
Fees payable to the General Partner will be contributed by the Partnership
to the Local Partnership, and will in turn be paid to the General Partner by
the Local Partnership. As additional consideration for such selection,
evaluation, negotiation and closing services, the General Partner will
receive the interest in Sale or Refinancing Proceeds described under
"Compensation and Fees to the General Partner and Affiliates."
(5) The percentage of the Gross Proceeds dedicated to capital contributions to
Local Partnerships and purchase price of Local Partnership Interests and/or
Properties may be decreased, and the working capital Reserves of the
Partnership increased, to the extent that the Net Proceeds can be invested
in Properties on terms that will give rise to Tax Credits at a level that is
estimated to be sufficient to provide each BACs holder with Tax Credits that
are commensurate with the annual Tax Credit objective of the Partnership
described in "Investment Objectives and Policies--Investment Objectives;"
provided, however, that in no event will the aggregate capital contributions
to Local Partnerships and purchase price of Local Partnership Interests
and/or Properties, when added to the level of Reserves up to 5% of Gross
Proceeds, equal less
35
<PAGE>
than the greater of (x) 69.5% of Gross Proceeds and (y) 82.5% of Gross
Proceeds reduced by .1625% for each 1% of indebtedness encumbering the
Properties (as more fully described in note 4 above). The percentage of
Gross Proceeds that is invested in Apartment Complexes represents the
portion of such Gross Proceeds that will be contributed to the Local
Partnerships as equity, and which the Local Partnerships will complement
with mortgage financing and other sources of funding. See "Investment
Objectives and Policies-- Financing Structure; Non-Subsidized Local
Partnerships; Government Subsidy Programs." The combined financing obtained
by each Local Partnership and the equity contributed to it by the
Partnership will be applied to pay the hard costs of the building material
used to construct or rehabilitate the Property owned by such Local
Partnership, to pay builders' and contractors' fees (generally in the range
of 10% of total contract costs as builders' fees and 10% of total contract
costs as builders' overhead reimbursement), to pay development fees
(generally in the range of 15%-20% of total development costs) and to pay
for the other services required in connection with the construction or
renovation project or the financing of such project. In most instances, the
development fees will be paid to an Affiliate of the Local General Partner;
in some instances, the builders' fees and expense reimbursement also will be
paid to an Affiliate of the Local General Partner. None of these fees or
expenses will be paid to any Affiliate of the General Partner.
(6) Reserves may be used to pay Organization and Offering Expenses that are in
excess of 2.5% of Gross Proceeds up to an amount equal to 3.5% of Gross
Proceeds, provided that in no event will the aggregate capital contribution
to Local Partnerships and purchase price of Local Partnership Interests
and/or Properties, net of Front End Fees, when added to the actual level of
Reserves (up to 5% of Gross Proceeds) as of the time the last Property or
Local Partnership Interest is acquired, equal less than the greater of (x)
69.5% of Gross Proceeds and (y) 82.5% of Gross Proceeds reduced by .1625%
for each 1% of indebtedness encumbering the Properties (as more fully
described in note 4 above). Reserves may be used to pay operating expenses
of the Partnership, including Partnership Management Fees, provided that
Reserves may not be used to pay Partnership Management Fees if the use of
Reserves for such purpose would cause the Reserves to be less than 1% of
Gross Proceeds. See "Compensation and Fees to the General Partner and
Affiliates." In addition, the Local Partnerships are expected to maintain
working capital reserves independent of those maintained by the Partnership
to the extent that (i) the terms of mortgage debt encumbering the Apartment
Complexes or applicable provisions of government assistance programs so
require or (ii) the General Partner and the Local General Partners determine
that the same is necessary or advisable. See "Investment Objectives and
Policies--Interim Investments and Reserves."
36
<PAGE>
COMPENSATION AND FEES TO THE GENERAL
PARTNER AND AFFILIATES
The following table sets forth the types and estimates of the amounts of all
fees, compensation, income, distributions and other payments that the General
Partner and its Affiliates will or may receive in connection with the business
and operations of the Partnership and the Local Partnerships. SUCH FEES,
COMPENSATION, INCOME, DISTRIBUTIONS AND OTHER PAYMENTS WERE NOT DETERMINED BY
ARM'S-LENGTH BARGAINING. See "Conflicts of Interest." In addition to the
following items of compensation and other payments, each Local General Partner
that is not an Affiliate of a General Partner may be entitled to certain
compensation for services rendered and the sale of Local Partnership Interests,
reimbursement for expenses advanced and distributive shares of Local Partnership
income and profit. See "Profits, Losses and Distributions."
<TABLE>
<CAPTION>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
<S> <C> <C>
OFFERING STAGE
Selling commissions, Dealer Manager, an Selling commissions will be up to
wholesaling and marketing Affiliate of the General 6.0% of the aggregate purchase
fees and expense Partner, and the Selling price of BACs sold by the
reimbursements Agents that are Affiliates Partnership; the actual amount
of the General Partner depends upon the number of BACs
sold; maximum of $6,000,000 if the
maximum number of BACs is sold
without any quantity discount.
Wholesaling and marketing fees will
be up to 1.5% of the aggregate
purchase price of BACs sold by the
Partnership; the actual amount
depends upon the number of BACs
sold; maximum of $1,500,000 if the
maximum number of BACs is sold. In
addition, the Dealer Manager will
receive a non-accountable expense
allowance in respect of
Organization and Offering Expenses,
from which it will retain a
non-accountable marketing and due
diligence expense allowance
calculated as a percentage of the
Gross Proceeds and may retain a
further portion, also calculated as
a percentage of the Gross Proceeds,
as an accountable marketing expense
allowance (see footnote (2)). The
Dealer Manager may reallow all or a
portion of such non-accountable
marketing and due diligence and
37
<PAGE>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
accountable marketing expense
allowances to one or more of the
Selling Agents. In no event will
the aggregate amount paid to or
retained by the Dealer Manager
exceed 10% of the Gross Proceeds
plus 0.5% of Gross Proceeds for
reimbursement of bona fide due
diligence expenses of the Dealer
Manager. (1)
Non-Accountable Dealer Manager and Non-accountable expense allow-
Organization and Offering Affiliates ance in respect of expenses
Expense allowance incurred in connection with or
related to the formation and
qualification of the Partnership
and the offering and sale of BACs
in an amount equal to 2.5% of the
Gross Proceeds ($125,000 if the
minimum number of BACs is sold and
$2,500,000 if the maximum number of
BACs is sold). (2)
ACQUISITION STAGE
Consulting and Monitoring General Partner and Up to 6.0% of the Gross Proceeds in
Fees Affiliates consideration of the services of
the General Partner in assisting
the Local Partnerships in acquiring
the Properties and in supervising
the construction of the Properties;
up to $300,000 if the minimum
number of BACs is sold and
$6,000,000 if the maximum number of
BACs is sold. (3)
Acquisition Expenses General Partner and Reimbursement of actual expenses
Affiliates incurred in connection with the
Partnership's acquisition of
investments.
OPERATIONAL STAGE
Partnership Management Fees General Partner After all other expenses of the
Partnership are paid, an annual
amount up to a maximum of 0.5% of
Invested Assets. If the maximum
number of BACs is sold and the
Partnership uses the maximum degree
of leverage of 5.5 to 1, Invested
Assets would be approximately
$513,500,000, and
38
<PAGE>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
the annual Partnership Management
Fee would be approximately
$2,567,500. It is not likely that
the Partnership will use the maximum
degree of leverage. If the maximum
number of BACs is sold and the
Partnership uses the expected degree
of leverage of 1.5 to 1, Invested
Assets would be approximately
$200,000,000, and the annual
Partnership Management Fee would be
approximately $987,500. (4)
Annual Local Special Limited Partner Up to $5,000 per year from each
Administrative Fees Local Partnership to the Special
Limited Partner. The precise amount
of the Annual Local Administrative
Fee payable by a Local Partnership
will be determined from
year-to-year by the Special Limited
Partner based upon its evaluation
of such Local Partnership's ability
to pay such fee. (4) (5)
Mortgage origination Affiliates of the In consideration of mortgage
compensation General Partner origination services, if any,
provided by Affiliates of the
General Partner, an amount equal to
either (A) the lesser of 90% of the
compensation, price or fee of any
nonaffiliated person who is
rendering comparable services on
competitive terms in the same
geographic location or 90% of the
compensation, price or fee charged
by the General Partner or its
Affiliates for rendering comparable
services on competitive terms or (B)
if at least 95% of gross revenues
attributable to the business of
rendering such services is derived
from persons other than Affiliates
of the General Partner, the
compensation, price or fee charged
by any nonaffiliated person who is
rendering comparable services on
competitive terms in the same
geographic location. If the maximum
number of BACs is sold, the
Partnership uses the maximum degree
of leverage, and Affiliates of the
General Partner originate all of
39
<PAGE>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
the mortgage indebtedness
encumbering the Properties for fair
market compensation, the aggregate
mortgage origination compensation
would be approximately $3,000,000.
It is not likely that the
Partnership will use the maximum
degree of leverage and it is highly
unlikely that Affiliates of the
General Partner will originate all
of the mortgage indebtedness
encumbering the Properties.
Insurance brokerage services Affiliates of the In consideration of insurance
in connection with obtaining General Partner brokerage services, if any,
insurance on the Properties provided by Affiliates of the
General Partner, an amount not to
exceed the lowest quote obtained
from two unaffiliated insurance
agencies.
Reimbursement of (i) the General Partner The lesser of (i) the actual costs
actual costs of goods and and Affiliates incurred or (ii) 90% of the amount
materials used for or by the that a independent third party
Partnership and supplied by would charge for such services. The
persons not affiliated with General Partner estimates that such
the General Partner, (ii) costs and expenses will vary from
the allocable portion of $200,000 to $350,000 annually.
certain salaries and
benefits, and direct travel,
meals, lodging and telephone
expenses of employees (i.e.,
non- controlling persons) of
the General Partner on
Partnership business, and
(iii) direct out-of-pocket
expenses incurred for legal,
accounting, bookkeeping,
computer, printing and
public relations services.
Property Management Fee Affiliates of the In consideration of the property
General Partner management services to be provided,
an amount equal to up to 5% of the
annual gross revenues of any
Property that is managed by an
Affiliate of the General Partner,
but not in excess of the property
40
<PAGE>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
management fees that would be
charged by an independent third
party rendering comparable services
in the same geographic location and
that could reasonably be made
available to the Local Partnership.
From such amount, such Affiliates
will be required to discharge all
fees and expenses incurred in
connection with bookkeeping
services and fees paid to
non-related Persons for property
management services. Actual amounts
to be received depend upon the
results of operations of the
Properties and cannot be estimated
at this time. (5) (6)
Share of Tax Credits and Special Limited Partner .01% of all allocations by Local
Distributions from Cash Flow Partnerships of Tax Credits and
.01% of cash distributions from
their Properties.
Share of Tax Credits and General Partner 1% of all allocations by Local
Distributions from Cash Flow Partnerships of Tax Credits and
by the Partnership cash distributions from the
Partnership.
Interest and other financing General Partner and An amount not in excess of the
charges or fees on Voluntary Affiliates interest or other financing charges
Loans, if any or fees that would be charged by
unrelated lending institutions on
comparable loans for the same
purpose and the same locality;
actual amounts depend upon whether
Voluntary Loans are made, and the
circumstances thereof, and cannot be
determined at this time.
Local General Partner's General Partner or Special Up to 1% of any such distributions
Distributive Share of Limited Partner by a Local Partnership for any
Operating Cash Flow, fiscal year, plus incentive fees
Profits, Losses and Tax agreed upon by such Local
Credits, if the General Partnership and the Partnership;
Partner or the Special actual dollar amount depends upon
Limited Partner removes a the operations of the Local
Local General Partner and Partnership and is not determinable
substitutes itself for such at this time. (7)
Local General Partner
41
<PAGE>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
SALE OR REFINANCING STAGE
Disposition Fees General Partner and If the General Partner or any
Affiliates Affiliate provides a substantial
amount of services in the sales
effort, up to the lesser of (i) 1/2
of the competitive real estate
commission or (ii) 3% of the sale
price received in connection with
the sale or disposition of
Properties or Local Partnership
Interests, but in no event will the
Disposition Fee and all amounts
payable to unaffiliated real estate
brokers in connection with any such
sale exceed in the aggregate the
lesser of the competitive rate or 6%
of such sale price; actual amounts
depend upon the sales prices of
Properties and are not determinable
at this time. Disposition Fees will
be payable solely from Sale or
Refinancing Proceeds remaining after
the BACs holders have received Cash
Distributions from all sources in an
amount equal to a 6% noncompounded,
cumulative return (calculated from
the end of the calendar quarter in
which each respective BACs holder
made his Capital Contribution) plus
Cash Distributions of Sale or
Refinancing Proceeds in an amount
equal to all of their Capital
Contributions.
Local General Partner's General Partner or Up to 1% of all distributions by
Distributive Share of Special Limited Partner each such Local Partnership of the
Proceeds of Sale or net proceeds of the sale or
Refinancing, in the event refinancing of its Property until
that the General Partner or the Partnership has received such
Special Limited Partner distributions in an aggregate
removes a Local General amount sufficient to provide the
Partner and substitutes Partnership with a return of its
itself for such Local allocable Gross Proceeds with
General Partner respect to its investment in such
Local Partnership plus the return
thereon agreed upon by such Local
Partnership and the Partnership, and
thereafter the percentage of any
remaining such proceeds agreed upon
by such Local Partnership and
42
<PAGE>
Entity or Entities Method of
Receiving Determination
Compensation and Estimated
Form of Compensation or Reimbursement Dollar Amount
- ---------------------------- --------------------------- -----------------------------------
the Partnership; actual amounts
depend upon the results of
operations of such Local
Partnership and cannot be
determined at this time. (7)
Share of Sale and General Partner 1% of all distributions of Sale or
Refinancing Proceeds Refinancing Proceeds by the
distributed by the Partnership until the BACs holders
Partnership have received distributions of Sale
or Refinancing Proceeds from the
Partnership in an aggregate amount
equal to (i) their 10% Cumulative
Return for any year not theretofore
satisfied through the distribution
by the Partnership to BACs holders
of Cash Distributions and prior
distributions of Sale or Refinancing
Proceeds and (ii) an amount equal to
the aggregate Capital Contributions
of the BACs holders (as reduced by
prior distributions of Sale or
Refinancing Proceeds and returns of
uninvested capital), and 15% of all
such distributions thereafter. See
"Profits, Losses and Distributions."
</TABLE>
- ------------
(1) The maximum Selling Commissions shown are subject to certain quantity
discounts. See "The Offering and Plan of Distribution." Although the amount
of Selling Commissions may vary according to the number of BACs purchased by
a given BACs holder, the proceeds to the Partnership net of Selling
Commissions and quantity discounts, if any, will be the same.
(2) Such expenses include, but are not limited to, the expenses of registration
and qualification of the BACs under applicable federal and state laws and of
the marketing, advertising, distribution, sales and processing of the BACs,
including a non-accountable marketing and due diligence allowance in the
amount of 0.5% of Gross Proceeds that will be retained by the Dealer
Manager. The Dealer Manager will be responsible for the payment of all
Organization and Offering Expenses of the Partnership up to 2.5% of the
Gross Proceeds, the Partnership will pay Organization and Offering Expenses
in excess of 2.5% up to an amount equal to 3.5% of the Gross Proceeds and
the Dealer Manager will be responsible for the payment of all Organization
and Offering Expenses of the Partnership in excess of 3.5% of the Gross
Proceeds. From its Organization and Offering Expense allowance equal
43
<PAGE>
to 2.5% of Gross Proceeds, the Dealer Manager will retain a non-accountable
marketing and due diligence expense allowance equal to 0.5% of Gross
Proceeds and may retain up to the full remaining 2.0% as an allowance for
reimbursement of accountable marketing expenses. Both the non-accountable
marketing and due diligence and accountable marketing expense allowances are
included within the definition of Organization and Offering Expenses. The
Dealer Manager may reallow all or a portion of the non-accountable marketing
and due diligence and accountable marketing expense allowances to one or
more of the Selling Agents.
(3) The compensation to the General Partner in consideration of its services in
assisting the Local Partnerships in acquiring the Properties and in
supervising the construction of the Properties will consist of (i) an amount
equal to 6.0% of Gross Proceeds, and (ii) the General Partner's share of
Partnership distributions of Sale or Refinancing Proceeds. A portion of
Consulting and Monitoring Fees may be paid at the time of each Closing of
the purchase and sale of BACs on a proportional basis. In no event will the
aggregate of all Consulting and Monitoring Fees exceed an amount such that
the amount of the Partnership's Front End Fees result in a commitment to
Investment in Properties of an aggregate amount less than: the greater of
(x) 69.5% of Gross Proceeds and (y) 82.5% of the Gross Proceeds reduced by
0.1625% for each 1% of indebtedness encumbering the Properties (e.g., 80%
indebtedness: 80 x .1625% = 13%; 82.5%-13% = 69.5%). The percentage of
indebtedness encumbering Properties for such purpose will be calculated by
dividing the amount of financing by the amount of Invested Assets, less
Front End Fees and Reserves of the Partnership in excess of 5% of Gross
Proceeds.
(4) The Partnership Management Fee will be an annual amount up to a maximum of
0.5% of Invested Assets. If the minimum number of BACs is sold and the
Partnership uses the maximum degree of leverage, Invested Assets would be
approximately $26,975,000 and the annual Partnership Management Fee would be
approximately $135,000. The General Partner may determine to defer payment
of all or a portion of the Partnership Management Fee for any year based on
the Partnership's cash resources. Unpaid Partnership Management Fees for any
year will accrue without interest for payment in future years. In no event
will the total of Partnership Management Fees and Annual Local
Administrative Fees paid for any year exceed 0.5% of Invested Assets, and
the General Partner will not be entitled to receive any Partnership
Management Fee in any year in respect of any Property for which the General
Partner or any of its Affiliates receives a property management fee in such
year. As discussed in Note (7) below, the General Partner may, in certain
circumstances, replace a Local General Partner with an Affiliate of the
General Partner or the General Partner itself. Partnership Management Fees
for any year will be reduced to the extent that the
44
<PAGE>
sum of (i) the aggregate amount of operating cash flow received by
Affiliates of the General Partner or the General Partner itself from Local
Partnerships and (ii) the amount of operating cash flow received by the
General Partner from the Partnership exceeds 1% of all Distributions of
operating cash flow by the Partnership for such year. Partnership Management
Fees may be paid from Reserves, provided that Reserves may not be used to
pay Partnership Management Fees if the use of Reserves for such purpose
would cause the Reserves to be less than 1% of Gross Proceeds, or Sale or
Refinancing Proceeds.
(5) The General Partner has agreed to waive the Annual Local Administrative Fee
payable by a Local Partnership to the Special Limited Partner for any year
in which such Local Partnership's Property was managed by an Affiliate of
the General Partner. In any year in which the General Partner or an
Affiliate of the General Partner is entitled to property management fees in
respect of a Property, the General Partner will not be entitled to receive
any Partnership Management Fee in respect of such Property.
(6) The payment of two of the percentage points of the property management
fees to such Affiliate for any period will be subordinated to the extent
necessary to avoid cash flow deficits in such period by the Local
Partnership. See "Investment Objectives and Policies--Structure of
Investments in Local Partnerships."
(7) Circumstances may arise in the future where the General Partner determines
that it is necessary to replace a Local General Partner. The General Partner
does not expect that it would replace a Local General Partner with an
affiliate of the General Partner or itself (and has no obligation to do so).
However, should the General Partner replace a Local General Partner with an
Affiliate of the General Partner or itself, the distributions and other
compensation received by such Affiliated Local General Partner (including,
without limitation, its distributive share of operating cash flow, profits,
losses and Tax Credits, agreed-upon incentive fees and proceeds of a Sale or
Refinancing) will be deemed to have been received by the General Partner,
and the total of cash compensation payable in the aggregate from both the
lower-tier Local Partnership and upper-tier Partnership levels and deemed to
have been received by the General Partner will not be permitted to exceed
the limitations on aggregate sponsor compensation permitted under Sections
IV.E.2 and IV.C.3.c of the NASAA Guidelines. Because the Partnership will
comply with the requirements of Section IV.C.3.c of the NASAA Guidelines
relating to increased investment in properties, the General Partner will be
entitled to receive cash distributions not in excess of (A) 11% of Cash
Distributions of Cash Flow and 1% of the Cash Distributions from Sale or
Refinancing Proceeds and (B) 15% of the Cash Distributions from Sale or
Refinancing Proceeds remaining after the Limited Partners and the BACs
holders have
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received Cash Distributions from all sources in an amount equal to a 6%
noncompounded, cumulative return (calculated from the end of the calendar
quarter in which each respective BACs holder made his Capital Contribution)
plus a return of their Capital Contributions from Cash Distributions from
Sale or Refinancing Proceeds.
The General Partner will cause to be made an annual review of all Cash
Distributions payable to the General Partner and its Affiliates from the
Partnership and the Local Partnerships for the purpose of ensuring that the
aggregate amount of all such Cash Distributions is within the limitations set
forth in the preceding paragraph.
CONFLICTS OF INTEREST
The Dealer Manager is an Affiliate of the General Partner. The General
Partner is an Affiliate of Independence SLP IV L.P. (which will act as Special
Limited Partner of each Local Partnership which is a limited partnership), and
is engaged, directly or with its Affiliates, in various real estate activities,
including the sale of other real estate limited partnership interests and
arranging for the private purchase and sale of interests in real estate. For a
description of the General Partner and its Affiliates see "Management of the
Partnership" and "Prior Performance Summary."
The General Partner, its Affiliates and the Local General Partners will have
various other conflicts of interest, including the following:
General Partner and Local General Partners
The General Partner, Local General Partners and their Affiliates may be
committed to the continuing management of other limited partnerships with
similar investment objectives to the Local Partnerships. In addition, such
persons may be general partners of other partnerships which own or lease
multi-family housing complexes located in the same market area and in
competition with the Properties. The General Partner and Local General Partners
will be required by the terms of the Partnership Agreement and the Local
Partnership Agreements, respectively, to manage the affairs of the respective
partnerships to the best of their abilities, to use their best efforts to carry
out the purposes of such partnerships and to devote such time as is, in their
judgment, necessary to the business of the Partnership or the Local
Partnerships. See "Management of the Partnership."
Absence of Independent Dealer Manager
The Dealer Manager will receive commissions and other compensation for the
sale of BACs, and the General Partner, which is an Affiliate of the Dealer
Manager, expects to receive various types of fees and compensation in its
capacity as the General Partner. The Dealer Manager has not retained independent
counsel and subscribers, therefore, will not have the benefit of the same degree
of independent investigation of the Partnership as is customarily made by
independent dealer managers. However, the Dealer Manager, as a member of the
National Association of Securities Dealers,
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Inc. (the "NASD"), is required to perform an investigation of the Partnership in
accordance with the due diligence standards and guidelines adopted by the NASD.
Also, the Dealer Manager intends to engage unaffiliated Selling Agents to
participate in the Offering, and it is expected that these Selling Agents will
conduct separate investigations of the Partnership prior to participating in the
Offering.
Conflicting Interests
The interests of the BACs holders may be contrary in some respects with the
interests of the General Partner. Also, the interests of the Partnership in a
Local Partnership may be contrary in some respects with the interests of the
Local General Partners.
The General Partner and certain of its Affiliates, by reason of their
interests in the Partnership and in the Local Partnerships in which Independence
IV SLP will be a Special Limited Partner, their receipt of fees from the
Partnership and the Local Partnerships and in some cases, their ongoing business
relationship with Local General Partners, have and will have conflicts of
interest in connection with their performance of certain activities, including,
particularly, negotiation and payment of the purchase price and interest thereon
for the Local Partnership Interests and the removal of certain Local General
Partners.
In addition, a transaction such as a sale of a Property or liquidation of a
Local Partnership may produce profits for the General Partner, the Local General
Partners and/or their Affiliates at a time when it produces adverse tax
consequences for the BACs holders. A continuation of business by the Partnership
or a Local Partnership may be advantageous to the General Partner, the Local
General Partners and/or their Affiliates even though termination of the
Partnership or a Local Partnership might be advantageous to the BACs holders.
Also, circumstances may arise where termination of business by the Partnership
or a Local Partnership may be advantageous to the General Partner, the Local
General Partners and/or their Affiliates, while continuation of the Partnership
or a Local Partnership might be advantageous to the BACs holders. The General
Partner will require that the Sale or Refinancing of a Property without the
approval of the Special Limited Partner (or, where a Local Partnership is a
joint venture or a limited liability company without the Special Limited Partner
as a special member, the Partnership) be prohibited. While the Special Limited
Partner will consent to the Sale or Refinancing of a Property only if it is
consistent with the Partnership's investment objectives and policies, as an
Affiliate of the General Partner, it may have a conflict of interest in
determining whether to consent to a particular Sale or Refinancing of a
Property. See "Investment Objectives and Policies--Rights of Special Limited
Partner."
It is not expected that specific policies or procedures will be adopted for
the purpose of resolving or mitigating the conflicts of interest identified in
the two preceding paragraphs. However, in negotiating investments in Local
Partnership Interests and in exercising rights obtained for the benefit
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of the Partnership in connection with such investments, including the right to
remove a Local General Partner in certain circumstances and to consent to a Sale
or Refinancing of a Property, the General Partner and Independence SLP will be
accountable to the Partnership as fiduciaries and must act in the best interests
of the BACs holders.
Affiliates of the General Partner are expected to be engaged as the property
manager of some Properties. Such engagement will provide for the payment of a
property management fee. In no event may the annual fee paid to an affiliated
property manager exceed the lesser of 5% of the annual gross revenues of the
Property and the property management fees that would be charged by an
independent third party rendering comparable services in the same geographic
location and that could reasonably be made available to the Local Partnership.
See "Compensation and Fees to the General Partner and Affiliates." Conflicts
nevertheless may exist between the interests of the General Partner on the one
hand and the interests of the Partnership on the other when, for example, the
termination of the manager and engagement of a non-affiliated manager would
appear to be advantageous to the Partnership as a result of more expert property
services.
Other Activities
Although the General Partner and the Local General Partners are required to
devote such time as may be necessary for the proper performance of their duties,
such Persons and their respective Affiliates are entitled to and do engage in
other business activities and are not prohibited from engaging in activities in
real estate which are or may be competitive with the Properties. Therefore, such
persons may experience conflicts of interest with respect to the allocation of
management time, services and functions among the Partnership, the Local
Partnerships and other projects. See "Management of the Partnership" and "Prior
Performance Summary." Such other activities may now or in the future be in
direct competition with the Partnership and the Local Partnerships. SUCH
ACTIVITIES MAY BE DETRIMENTAL TO THE SUCCESS OF THE PARTNERSHIP. However, the
General Partner and its Affiliates (excepting such Affiliates that are publicly
or privately syndicated limited partnerships) will not undertake an equity
investment in any low-income housing property that reasonably meets the
investment objectives of the Partnership unless the Partnership does not have
funds available to consummate the transaction on a timely basis.
In the event that there are two or more partnerships with which the General
Partner or its Affiliates are affiliated, which have the same investment
objectives and policies as the Partnership and which have funds available at the
same time for investment, and investment opportunities become available in other
Local Partnerships holding similar properties, conflicts of interest may arise
as to which partnership should proceed to invest in the Local Partnership
involved. With respect to such investment decisions, the General Partner will
review the investment portfolio of such entities and
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will allocate the opportunity to the entity that has had funds available for
investment longer, except as described under "Prior and Subsequent Entities"
below.
Prior and Subsequent Entities
Affiliates of the General Partner have formed, and the General Partner and
Local General Partners may in the future form, or perform services for,
additional partnerships or other entities which invest in or develop
multi-family rental housing, including partnerships structured for investment by
corporate and institutional investors. If a Property and any multi-family
housing complex of such other entities are located in the same vicinity and
offer similar housing for rent to persons of generally the same income level,
conflicts of interest could arise in connection with the rental effort made on
behalf of each Property. In any such event, the General Partner and Local
General Partners will, consistent with their fiduciary obligations, use their
best efforts to assure that rental efforts made on behalf of a Property are
adequate and appropriate under the circumstances. If the Partnership and
Independence Tax Credit Plus L.P. III ("Independence III"), a partnership of
which an Affiliate of the General Partner is the general partner, have funds
available for investment at the same time, the General Partner is obligated to
offer Properties that are suitable for each of such entities first to
Independence III. As of the date of this Prospectus, the Sponsor of Independence
III has identified for investment Properties whose aggregate acquisition price
would account for at least 48% of the amount of Net Proceeds that the Sponsor
anticipates, at the date of this Prospectus, will be raised by Independence III
and that would be available for investment in Properties. Also, the obligations
of the General Partner or its Affiliates and the Local General Partners with
regard to such entities and other real estate apartment complexes with respect
to which they have similar obligations could adversely affect their financial
ability to meet their undertakings to the Partnership and Local Partnerships,
respectively.
Compensation
The arrangements as to compensation of the General Partner and its Affiliates
were not negotiated on an arm's-length basis, and therefore the General Partner
was subject to a conflict of interest in the determination of the level of fees
and other compensation to be paid to the General Partner and its Affiliates. See
"Compensation and Fees to the General Partner and Affiliates." The fees and
other compensation to be paid to the General Partner or its Affiliates are
subject to, and have been designed to be consistent with, the applicable
limitations imposed by various regulatory authorities, including state
securities law authorities. Moreover, the General Partner believes that the
level of fees and other compensation to be paid to the General Partner and its
Affiliates is generally comparable to the overall level of fees and compensation
charged by sponsors of other publicly-offered investment programs whose
investment objectives are similar to those of the Partnership.
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Claims Against Certain Persons
The General Partner has made certain representations and undertakings in
connection with the Offering and the operation of the Partnership that could
give rise to claims that might require the Partnership to institute litigation
against the General Partner. Similar claims could arise against a Local General
Partner. The BACs holders might in these or other circumstances be required to
retain separate counsel to pursue such claims.
Employment of Professionals
It is expected that the Partnership will employ or retain attorneys,
accountants and other advisors who may customarily be employed or retained by
the General Partner or its Affiliates. In connection with their employment by
the Partnership, such professionals' review, investigation and due diligence in
performance of their duties may not be as meaningful as would review,
investigation or due diligence performed by totally independent professionals.
If a dispute should arise between the Partnership and the General Partner or any
Affiliate of the General Partner, separate counsel may, depending upon the
nature of the dispute, be retained for one or both of the parties.
FIDUCIARY RESPONSIBILITY OF THE
GENERAL PARTNER AND AFFILIATES
The General Partner will be accountable to the Partnership as a fiduciary and
consequently must exercise good faith and integrity in managing the
Partnership's affairs.
The Partnership Agreement provides that the General Partner has fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in its immediate possession or control and will not
employ, or permit another to employ, such funds or assets in any manner except
for the exclusive benefit of the Partnership.
The Uniform Act expressly provides that a limited partner may bring an action
in the Court of Chancery of the State of Delaware in the right of a limited
partnership (a partnership derivative action) to recover a judgment in its favor
if the general partners with authority to do so have refused to bring the action
or if an effort to cause the general partners to bring the action is not likely
to succeed. The Uniform Act does not expressly provide that an assignee of a
limited partner interest (e.g., a BACs holder) may institute such a legal action
on behalf of a limited partnership. However, in a recent decision, the Court of
Chancery of the State of Delaware dismissed a derivative action brought by an
assignee of a limited partner for lack of standing.
The General Partner may have an effective defense against any action for
breach of fiduciary duty if it demonstrates that it acted in good faith and in a
manner that it reasonably believed to be in the best interests of
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the Partnership and the BACs holders. The nature of the fiduciary duties of
general partners is an evolving area of the law and subscribers who have
questions concerning the responsibilities of the General Partner should consult
with their legal counsel.
The Partnership Agreement provides that the Partnership will be required to
indemnify the General Partner and its Affiliates performing services on behalf
of the Partnership (hereinafter collectively referred to as "Indemnitees")
against any liability, responsibility, or accountability in damages or otherwise
incurred by them or by the Partnership by reason of any act performed or omitted
to be performed by them, provided that (i) if such damage arose out of any
action or inaction of any Affiliate, such action or inaction must have occurred
while such party was engaged in activities which could have been engaged in by
the General Partner in its capacity as such; (ii) if such liability, loss or
damage arose out of any action or inaction of the General Partner or its
Affiliates, (a) the General Partner or its Affiliates (acting within the scope
of the General Partner's authority) must have determined, in good faith, that
such course of conduct which caused the loss or liability was in the best
interests of the Partnership, (b) the General Partner or its Affiliates (acting
within the scope of the General Partner's authority) were acting on behalf of or
performing services for the Partnership, and (c) such course of conduct did not
constitute fraud, negligence or misconduct by the General Partner or its
Affiliates; and (iii) any such indemnification shall be recoverable only from
the assets of the Partnership and not from the assets of the BACs holders. The
Partnership will not be permitted to pay for any insurance covering liability of
the General Partner or its Affiliates for actions or omissions for which
indemnification is not permitted; provided, however, that the Partnership may
purchase and pay for such types of insurance, including extended coverage
liability and casualty and workers' compensation, as would be customary for any
person owning comparable assets and engaged in a similar business, and the
Partnership may name the General Partner or its Affiliates as additional insured
parties thereunder, provided that such addition does not add to the premiums
payable by the Partnership.
Notwithstanding the foregoing, the Partnership will not be permitted to
indemnify an Indemnitee or any person acting as a broker-dealer for any such
liabilities incurred by them in connection with any losses, liabilities or
expenses arising from or out of an alleged violation of federal or state
securities laws unless: (a) there has been a successful adjudication on the
merits of each count involving securities laws violations as to the particular
entity seeking indemnification; (b) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular entity seeking indemnification; or (c) a court of competent
jurisdiction approves a settlement of the claims against the entity seeking
indemnification and finds that indemnification of the settlement and related
costs should be made. Any person seeking indemnification must apprise the court
as to the current position of the Securities and Exchange Com-
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mission, the National Association of Securities Dealers, Inc., the Massachusetts
Securities Division, the Missouri Securities Division, the Tennessee Securities
Division and of any other state securities regulatory authority in which BACs
were offered or sold as to indemnification for violations of securities law.
AS DISCUSSED IN THE PRECEDING PARAGRAPHS, THE PARTNERSHIP AGREEMENT PROVIDES
FOR INDEMNIFICATION OF THE GENERAL PARTNER BY THE PARTNERSHIP FOR LIABILITIES IT
INCURS IN DEALINGS WITH THIRD PARTIES ON BEHALF OF THE PARTNERSHIP. TO THE
EXTENT THAT THE INDEMNIFICATION PROVISIONS PURPORT TO INCLUDE INDEMNIFICATION
FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IN THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS CONTRARY TO PUBLIC
POLICY AND THEREFORE UNENFORCEABLE.
The Partnership Agreement provides that the provision of advances from the
Partnership to the General Partner or its Affiliates for legal expenses and
other costs incurred as a result of a legal action is permissible if the
following three conditions are satisfied: (1) the legal action relates to the
performance of duties or services by the General Partner or its Affiliates on
behalf of the Partnership; (2) the legal action is initiated by a third party
who is not a BACs holder; and (3) the General Partner or its Affiliates
undertake to repay the advance funds to the Partnership in cases in which they
would not be entitled to indemnification hereunder.
The provisions on limitation of liability of the General Partner and
indemnification set forth above are fully applicable to the Tax Matters Partner
in its capacity as such.
MANAGEMENT OF THE PARTNERSHIP
The General Partner of the Partnership is Related Independence L.L.C. (the
"General Partner"), a Delaware limited liability company. The General Partner is
an affiliate of Related and of The Related Companies, L.P., a New York limited
partnership, the general partner of which is a corporation majority-owned by
Stephen M. Ross. The business address of the Partnership and the General Partner
is 625 Madison Avenue, New York, New York 10022 and their telephone number is
212-421-5333. The General Partner will manage and control the affairs of the
Partnership directly and by engaging other Affiliates.
Affiliates of the General Partner are currently the general partners of seven
publicly-offered affiliated partnerships having investment objectives and
policies similar to those of the Partnership. In addition, the General Partner
and its Affiliates may be the general partners of other subsequently formed
publicly-or privately-offered affiliated partnerships or other entities having
the same or similar investment objectives and policies as the Partnership.
Members, officers and directors of the General Partner or its
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members who hold positions in more than one entity will devote such of their
time as shall be necessary to conduct the affairs of the Partnership and to
perform the required services, although other management responsibilities will
limit the time they are able to devote to the Partnership's affairs. See
"Conflicts of Interest" and "Prior Performance Summary."
For information concerning the activities of General Partner and its
Affiliates in certain areas of real estate investment, see "Conflicts of
Interest" and "Prior Performance Summary."
Officers and Directors of the General Partner
The General Partner is a Delaware limited liability company which was formed
on February 23, 1995. The members of the General Partner are Related General II
L.P., a Delaware limited partnership ("RGII"), J. Michael Fried, Alan P. Hirmes
and Stuart J. Boesky. Under the provisions of the Limited Liability Company
Agreement of the General Partner, each of the members of the General Partner may
bind the General Partner. RCMP, Inc., a Delaware corporation ("RCMP") is the
sole general partner of RGII. The executive officers and directors of the
General Partner or RCMP are as follows:
Stephen M. Ross Director and President of RCMP
J. Michael Fried President and Member of General Partner
Andrew D. Augenblick Director and Executive Vice President of RCMP
Michael J. Wechsler Director and Executive Vice President of RCMP
Alan P. Hirmes Senior Vice President and Member of
General Partner
Stuart J. Boesky Vice President and Member of General Partner
Ryne Nishimi Vice President of General Partner
Marc D. Schnitzer Vice President of General Partner
Lawrence Lipton Assistant Vice President and Treasurer of
General Partner
Robert Bordonaro Assistant Vice President of General Partner
Jackie Gaines Assistant Vice President of General Partner
Lynn A. McMahon Secretary of General Partner
Susan J. McGuire Assistant Secretary of General Partner
STEPHEN M. ROSS, 54, is a Director and President of RCMP. Mr. Ross is also
President, Director and shareholder of The Related Realty Group, Inc., the
general partner of The Related Companies, L.P. He graduated from the
University of Michigan School of Business Administration with a Bachelor of
Science degree and from Wayne State University School of Law with a Juris
Doctor degree. Mr. Ross then received a Master of Laws degree in taxation
from New York University School of Law. He joined the accounting firm of
Coopers & Lybrand in Detroit as a tax specialist and later moved to New York,
where he worked for two large Wall Street investment banking firms in their
real estate and corporate finance departments. Mr. Ross formed The Related
Companies, Inc., the predecessor of The Related Com-
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panies, L.P., in 1972 to develop, manage, finance and acquire subsidized and
conventional apartment developments.
J. MICHAEL FRIED, 50, is President and a Member of the General Partner. Mr.
Fried is the sole shareholder of one of the general partners of Related, the
real estate finance and acquisition affiliate of The Related Companies, L.P. In
that capacity, he is generally responsible for all of the syndication, finance,
acquisition and investor reporting activities of Related and its Affiliates. Mr.
Fried practiced corporate law in New York City with the law firm of Proskauer
Rose Goetz & Mendelsohn from 1974 until he joined The Related Companies, Inc.,
in 1979. Mr. Fried graduated from Brooklyn Law School with a Juris Doctor
degree, Magna Cum Laude; from Long Island University Graduate School with a
Master of Science degree in Psychology; and from Michigan State University with
a Bachelor of Arts degree in History.
ANDREW D. AUGENBLICK, 33, is a Director and Executive Vice President of
RCMP. Mr. Augenblick is also an Executive Vice President of The Related
Companies, L.P. Prior to joining Related in 1985, he was with McKinsey &
Company. Mr. Augenblick graduated from Dartmouth College where he received a
Bachelor of Arts degree and from the Harvard Graduate School of Business
Administration where he received a Masters degree in Business Administration.
MICHAEL J. WECHSLER, 55, is a Director and Executive Vice President of RCMP.
Mr. Wechsler joined the predecessor of The Related Companies, L.P. in 1987 as
Chief Operating Officer and Executive Vice President and is the Chief Operating
Officer and Executive Vice President of The Related Realty Group, Inc. Prior to
that, he was Senior Vice President and a Managing Director of the Real Estate
Division of Chemical Bank with overall responsibility for administration and
lending activities of the Division in 25 states and New York City. He supervised
a diversified portfolio of construction and real estate loans of over $3.5
billion. Mr. Wechsler attended the Massachusetts Institute of Technology where
he received a Bachelor of Science degree in Civil Engineering and received his
Masters in Business Administration from the Harvard Graduate School of Business
Administration.
ALAN P. HIRMES, 40, is a Senior Vice President and a Member of the General
Partner. Mr. Hirmes has been a Certified Public Accountant in New York since
1978. Prior to joining Related Capital Corporation, a corporation majority-owned
by Stephen M. Ross, in October 1983, Mr. Hirmes was employed by Weiner & Co.,
certified public accountants. Mr. Hirmes is also the sole shareholder of one of
the general partners of Related. Mr. Hirmes graduated from Hofstra University
with a Bachelor of Arts degree.
STUART J. BOESKY, 37, is a Vice President and Member of the General Partner.
Mr. Boesky practiced real estate and tax law in New York City with the law firm
of Shipley & Rothstein from 1984 until February 1986 when
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he joined Related Capital Corporation. From 1983 to 1984 Mr. Boesky practiced
law with the Boston law firm of Kaye, Fialkow, Richard & Rothstein and from 1978
to 1980 was a consultant specializing in real estate at the accounting firm of
Laventhol & Horwath. Mr. Boesky is the sole shareholder of one of the general
partners of Related. Mr. Boesky graduated from Michigan State University with a
Bachelor of Arts degree and from Wayne State School of Law with a Juris Doctor
degree. He then received a Master of Laws degree in Taxation from Boston
University School of Law.
RYNE A. NISHIMI, 36, is a Vice President of the General Partner. Mr. Nishimi
is a Senior Vice President of, and serves as the National Marketing Director
for, Related Equities Corporation, the Dealer Manager, and has held other
positions in marketing since joining Related Capital Corporation in 1983. From
1981 to 1983, Mr. Nishimi worked for Fox & Carskadon Financial Corporation as a
Marketing Manager in its real estate syndication operation. Mr. Nishimi
graduated from Santa Clara University School of Business Administration with a
Bachelor of Science degree.
MARC D. SCHNITZER, 33, is a Vice President of the General Partner. Mr.
Schnitzer is responsible both for financial restructurings of real estate
properties and directing Related's acquisitions of properties generating Housing
Tax Credits. Mr. Schnitzer received a Masters of Business Administration from
The Wharton School of the University of Pennsylvania in December 1987 before
joining Related in January 1988. From 1983 to January 1986, he was a financial
analyst for the First Boston Corporation in New York. Mr. Schnitzer graduated
summa cum laude with a Bachelor of Science in Business Administration from the
School of Management at Boston University in May 1983.
LAWRENCE J. LIPTON, 37, is an Assistant Vice President and Treasurer of the
General Partner. Mr. Lipton also serves as a controller of The Related
Companies, L.P. Mr. Lipton has been a Certified Public Accountant in New York
since 1989. Prior to joining Related, Mr. Lipton was employed by Deloitte &
Touche from 1987 to 1991. Mr. Lipton graduated from Rutgers College with a
Bachelor of Arts degree and from Baruch College with a Masters of Business
Administration degree.
ROBERT BORDONARO, 40, is an Assistant Vice President of the General Partner.
Mr. Bordonaro is also a controller of the Related Companies, L.P. Mr. Bordonaro
has been a Certified Public Accountant in New York since 1977. Prior to joining
Related, Mr. Bordonaro was employed by the accounting firms of Weiner & Co. from
1982-1985 and Arthur Young from 1975 to 1981. Mr. Bordonaro graduated from New
York University with a Bachelor of Science degree in 1974 and with a Masters of
Business Administration degree in 1975.
JACKIE L. GAINES, 34, is an Assistant Vice President of the General Partner.
Ms. Gaines is also a controller of The Related Companies, L.P. Ms. Gaines has
been a Certified Public Accountant since 1982. Prior to joining
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Related, Ms. Gaines was controller of TCF National Properties, Inc. Ms. Gaines
was employed by McGladrey & Pullen, certified public accountants from 1982 to
1986. Ms. Gaines graduated from the University of Illinois with a Bachelor of
Science degree in Accounting.
LYNN A. McMAHON, 38, is Secretary of the General Partner. Ms. McMahon has
served as assistant to J. Michael Fried since 1983. From 1978 to 1983, she was
employed at Sony Corporation of America in its Government Relations Department.
SUSAN J. McGUIRE, 47, is Assistant Secretary of the General Partner. Ms.
McGuire has served as Office Manager and Assistant to the President of The
Related Companies, Inc. since January 1977. From May 1973 to January 1977, she
was employed as an administrative assistant with Condren, Walker & Co., Inc., an
investment banking firm in New York City. Ms. McGuire graduated from William
Cullen Bryant High School in Woodside, New York, and attended Queensboro
Community College.
Net Worth of the General Partner
The General Partner has been capitalized through the contribution by RGII of
a demand, non-interest-bearing promissory note contributed to it by The Related
Companies, L.P. If Gross Proceeds are $50,000,000, the capitalization of the
General Partner will be $2,750,000. See "Federal Income Tax
Considerations--Classification of the Partnerships." The Related Companies, L.P.
is the sole limited partner of RGII and the sole shareholder of RCMP, the
general partner of RGII. The Related Companies, L.P. has represented that as of
December 31, 1994, it had a net worth of not less than $40,000,000, determined
in accordance with generally accepted accounting principles. Prospective
investors should be aware that a significant portion of assets of The Related
Companies, L.P. is not liquid, and there can be no assurance that The Related
Companies, L.P. will have the liquidity necessary to pay all or any portion of
the demand promissory note held by the General Partner if it is called upon to
do so. In addition, The Related Companies, L.P. may, at any given time, have
contingent liabilities that, if simultaneously called upon, could result in The
Related Companies, L.P. having insufficient liquid assets to meet all of its
current liabilities in a timely fashion.
LOW-INCOME HOUSING AND HISTORIC
REHABILITATION TAX CREDITS
The Tax Reform Act of 1986 (the "1986 Act") replaced most existing federal
tax incentives for low-income housing with a low-income housing credit for
property that is acquired, constructed or rehabilitated after December 31, 1986.
The 1986 Act added, in Section 42 of the Code, a tax credit for investors in
certain low-income housing projects (the "Housing Tax Credit"). As of the date
of this Prospectus, regulations have not yet been issued or proposed with
respect to many aspects of the Housing Tax
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Credit program. Accordingly, the discussion set forth below is based on the
statutory text, the relevant legislative history and congressional staff
commentary and recently issued regulations and IRS rulings that address limited
aspects of the Housing Tax Credit program.
The Revenue Reconciliation Act of 1993 (the "1993 Act") made several
significant changes to the federal tax law that affect the Housing Tax Credit
Program, including the permanent extension of the Housing Tax Credit Program.
Unless otherwise noted, the 1993 Act changes to the Housing Tax Credit Program
are in general effective for buildings that received credit allocations from
state housing credit ceilings after June 30, 1992 or, with respect to buildings
that are not subject to the state housing credit limitations because a
significant portion of the building is financed with tax- exempt bonds,
buildings placed in service after June 30, 1992, provided the bonds are issued
after such date. The most significant of the 1993 Act amendments are discussed
herein.
The following paragraphs briefly summarize the Housing Tax Credit. Specific
aspects of the credit are described in more detail in this section under the
captions "Qualifying Low-Income Projects," "Subsequent Increases in Low-Income
Housing Tax Credit," "Utilization of the Low- Income Housing Tax Credit,"
"Low-Income Credits Subject to State Allocation" and "Recapture of Low-Income
Tax Credits."
In general, an owner of a low-income housing project is entitled to receive a
Housing Tax Credit in each year of a ten-year period equal to the annual credit
percentage times the portion of the basis of an Apartment Complex that qualifies
for the credit.
The amount of the annual credit percentage is determined by two major
factors: (i) whether a project is newly constructed or substantially
rehabilitated, or is an existing project and (ii) whether a project is federally
subsidized or not. There are three basic credit categories:
1. New owners who acquire existing projects are eligible to receive a credit
that will have a present value equal to 30% of the qualified basis of the
acquired project. Under the Revenue Reconciliation Act of 1989 (the "1989 Act"),
new owners are eligible to receive such credit for an existing project only if
with respect to such project they incur substantial rehabilitation expenditures
which are eligible for the Housing Tax Credit. In such case, the existing
portion of the project will be eligible for the "4%- Equivalent Housing Tax
Credit" and the substantial rehabilitation will be eligible for the
"9%-Equivalent Housing Tax Credit" (as defined below). However, under the 1989
Act, the Credit Period for the existing portion of the project will not begin
before the first taxable year of the Credit Period for the rehabilitation
expenditures incurred with respect to such project. The Treasury Department is
required to make a monthly determination of the appropriate annual percentage
that will yield a 30% present value over ten years utilizing a discounting
methodology set forth in the Code. The
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credit percentage available with respect to a project is then determined by the
percentage in effect for the month in which the project is placed in service by
the new owners. The taxpayer may with the consent of the appropriate housing
credit agency elect to use, in lieu of the applicable credit percentage for the
placed-in-service date, the applicable credit 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 housing credit agency. For convenience,
this credit will be referred to as the "4%- Equivalent Housing Tax Credit;"
however, because the credit percentage is determined by the applicable interest
rates for the month in which the property is placed in service (or, if elected,
the month in which a binding agreement as to the property's credit allocation is
entered into), this credit may be greater or less than 4% for projects placed in
service in 1988 and thereafter. For example, the 4%-Equivalent Housing Tax
Credit was 3.81% for property placed in service in December 1994 or subject to a
binding agreement entered into in December 1994.
An existing project is not eligible for the 4%-Equivalent Housing Tax Credit
if the project was last placed in service during the preceding ten-year period,
or if it underwent certain substantial rehabilitation work during that period,
although the Secretary of the Treasury may waive this rule with respect to
certain federally-assisted properties in order to avert certain foreclosures and
with respect to certain other properties. For purposes of this rule, a placement
in service will be disregarded if it is as a result of (i) death, (ii) an
acquisition by a governmental unit or qualified non-profit organization whose
acquisition of the project was at least ten years after the project was
previously placed in service and the income from the project was tax-exempt to
such unit or organization or (iii) a foreclosure occurring at least ten years
after the previous placed-in-service date, provided the project is resold within
12 months of such foreclosure.
The ten-year rule may also be waived for a federally-assisted building if the
mortgage on the building is eligible within one year of the application for
waiver for prepayment under the Emergency Low Income Housing Preservation Act of
1987 or under the Housing Act of 1949 and either HUD or FmHA certifies that the
building will be converted to market use absent the waiver. If this waiver is
granted, the mortgagor must agree in writing not to prepay the mortgage. The
ten-year rule also may be waived for a building acquired from a failed financial
institution or from a receiver or conservator of such an institution if the
Secretary of the Treasury determines that such acquisition is necessary to avert
an expenditure of Federal funds by a Federal agency or regulatory authority.
In order to be eligible for the 4%-Equivalent Housing Tax Credit, existing
buildings must be acquired by "purchase" from other than a related party.
Partnerships are considered related for this purpose if the same persons own,
directly or indirectly, more than 10% of the capital or profits interests in
both partnerships. A partnership and a partner are considered related if the
partner owns more than 10% of the capital or profits interests in the
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partnership. The requirements for existing projects (i.e., the ten-year
placed-in-service date requirement, the "purchase" requirement and the
acquisition from an unrelated party requirement) do not apply where the
Partnership acquires an interest in a Local Partnership owning an Existing
Complex, where such requirements were met with respect to the Local
Partnership's acquisition of the Existing Complex and where the Existing Complex
was placed in service by the Local Partnership prior to the date the Partnership
acquired its interest in the Local Partnership. Although generally a new owner
is eligible for Housing Tax Credits only if such new owner incurs substantial
rehabilitation expenditures with respect to such project, in the case as
described above, the Partnership would be entitled to claim Housing Tax Credits
allocable to the remaining years of the Credit Period with respect to such
Existing Complex and would not need to incur substantial rehabilitation
expenditures in connection therewith. It is expected that, where the Partnership
acquires an interest in an Existing Complex, such acquisition will be either
through the establishment of a new Local Partnership that will acquire title to
the Existing Complex using the Partnership's capital contributions to the new
Local Partnership or through the acquisition of a Local Partnership Interest in
a Local Partnership that owns an Existing Complex where the requirements for
existing projects were met with respect to the Local Partnership's acquisition
of the Existing Complex and such complex was placed in service by the Local
Partnership prior to the Partnership's acquisition of its Local Partnership
Interest.
2. Non-federally subsidized new construction or substantial rehabilitation
projects are eligible for a credit that will have a present value equal to 70%
of the qualified basis of the project. The credit for substantial rehabilitation
is available to an owner of an existing project without any transfer of
ownership, or it may be utilized by a new owner after a change of ownership. The
Treasury Department is required to make a monthly determination of the
appropriate annual percentage that will yield a 70% present value over ten years
utilizing a discounting methodology set forth in the Code. The credit percentage
available with respect to a project is then determined by the percentage in
effect for the month in which the project is placed in service by the new
owners. The taxpayer may with the consent of the appropriate housing credit
agency elect to use, in lieu of the applicable credit percentage for the
placed-in-service date, the applicable credit 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 housing credit agency. For convenience,
this credit will be referred to as the "9%-Equivalent Housing Tax Credit;"
however, because the credit percentage is determined by the applicable interest
rates for the month in which the property is placed in service (or, if elected,
the month in which a binding agreement as to the property's credit allocation is
entered into), this credit may be greater or less than 9% for property placed in
service in 1988 and thereafter. For example, the 9%-Equivalent Housing Tax
Credit
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was 8.89% for property placed in service in December 1994 or subject to a
binding agreement entered into in December 1994.
A rehabilitation is a substantial rehabilitation only if the expenditures
incurred during a 24-month period that are allocable to the rehabilitation equal
or exceed the greater of $3,000 per low-income unit or 10% of the unadjusted
basis of the building. In the case of a building acquired by a taxpayer from a
governmental unit or an agency thereof, the taxpayer may be eligible for Housing
Tax Credits if a rehabilitation is a substantial rehabilitation and the
rehabilitation expenditures average at least $3,000 per low-income unit (even if
this is less than 10% of the unadjusted basis of the building). The taxpayer,
however, may claim only the 4%-Equivalent Housing Tax Credit on both the
existing portion of the building and the qualified rehabilitation expenditures.
3. Federally subsidized new construction or substantial rehabilitation
projects are eligible for the 4%-Equivalent Housing Tax Credit. For purposes of
the Housing Tax Credit, the term "federally subsidized" under the 1986 Act is
used in a manner somewhat different than its customary definition. For purposes
of the Housing Tax Credit, federal subsidies include only tax-exempt financing
and below-market federal loans the proceeds of which are used directly or
indirectly with respect to the project or the operation thereof. Under the 1989
Act, loans funded by certain Community Development Block Grants are not treated
as federal subsidies. State and local low-income loans and other state and local
subsidies are not included. Rental subsidies provided by HUD pursuant to Section
8 of the U.S. Housing Act of 1937 are not considered federal subsidies for
purposes of the Housing Tax Credit. However, properties receiving moderate
rehabilitation assistance under Section 8 of the U.S. Housing Act of 1937 will
no longer be eligible for Housing Tax Credits (although properties that receive
Section 8 moderate rehabilitation assistance and continue to be subject to laws
enacted prior to the 1989 Act ("Pre-1989 Act Law") are not affected by this 1989
Act amendment). For projects subject to the 1990 Act amendments an exception to
this rule is provided for projects receiving assistance under the Stewart B.
McKinney Homeless Assistance Act of 1988. After August 10, 1993, a building will
not be treated as "federally subsidized" solely because assistance is received
with respect to the building under the HOME Investment Partnership Act, provided
that at least 40% of the residential units in the building are occupied by
individuals with 50% or less of the area median income. With respect to a
building located in New York City, the 40% limitation is reduced to a limit of
25% or more. For a discussion of the various federal or state housing assistance
programs, see "Investment Objectives and Policies--Financing Structure;
Non-Subsidized Local Partnerships; Government Subsidy Programs."
An owner may elect to exclude amounts funded by federally subsidized loans
from a project's eligible basis in calculating the Housing Tax Credit amount and
then use the 9%-Equivalent Housing Tax Credit against the remaining basis. This
alternative might be utilized, for example, in the case
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of second mortgage loans funded by Housing Development Grants or Urban
Development Action Grants discussed under "Investment Objectives and
Policies--Financing Structure; Non-Subsidized Local Partnerships; Government
Subsidy Programs."
Qualifying Low-Income Projects
The Housing Tax Credit is available only with respect to qualified low-income
housing projects as defined in Section 42(g) of the Code. Qualified low-income
housing projects are generally residential rental projects in which either (a)
20% or more of the aggregate residential rental units are occupied by
individuals with incomes of 50% or less of area median income, as adjusted for
family size (the "20-50 set-aside test"), or (b) 40% or more of the aggregate
residential rental units are occupied by individuals with incomes of 60% or less
of area median income, as adjusted for family size (the "40-60 set-aside test")
(units occupied by individuals meeting this 50% or 60% income test are referred
to herein as the "Low-Income Units"). This requirement, referred to as the
"minimum set-aside," must be met in order for any portion of the project to be
eligible for the credit, although even if this requirement is met the credit
will be available only with respect to the Low-Income Units in the housing
project. All units comprising the minimum set-aside must be suitable for
residential occupancy and used on a non-transient basis. A unit will not be
considered to be used on a transient basis if the unit contains sleeping
accommodations and kitchen and bathroom facilities and is located in a building
used exclusively to facilitate the transition of homeless individuals to
independent living. A single room occupancy unit will not be treated as used on
a transient basis merely because it is rented on a month-by-month basis. Under
the 1993 Act, a housing unit occupied entirely by full-time students may qualify
for the credit if the full-time students are single parents and their minor
children and none of the tenants is a dependent of a third party. For projects
located in New York City, the "40-60 set-aside test" will be met if 25% 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. A
special minimum set-aside rule is provided for projects that elect to satisfy
stricter set-aside and rent restriction requirements. Under this rule, a project
is considered a qualified low-income housing project if 15% or more of the
aggregate Low-Income Units are occupied by individuals with incomes of 40% or
less of area median income, as adjusted for family size, and the average rent
charged to tenants in the residential rental units that are not Low-Income Units
is at least 300% of the average rent charged to low-income tenants for
comparable units (the "deeply skewed set-aside test"). The 1989 Act liberalized
the deeply skewed set-aside test by providing that a project will qualify under
the test if 15% or more of the aggregate Low-Income Units are occupied by
individuals with incomes of 40% or less of area median income and the average
rent charged for rental units that are not Low-Income Units is at least 200% (as
opposed to 300% under Pre-1989 Act Law) of the average rent charged to
low-income tenants for
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comparable units. Beginning on August 10, 1993, the IRS is authorized to waive
the annual recertification of tenant income for tenants in buildings that are
occupied entirely by low-income tenants. According to the Conference Committee
Report accompanying the 1993 Act, third-party verification of a tenant's income
from his combined assets is not necessary if (i) the combined assets do not
exceed $5,000 and (ii) the tenant provides a signed, sworn statement to this
effect to the building owner.
In order to qualify for the Housing Tax Credit, the gross rent charged to
tenants of qualified Low-Income Units comprising the minimum set- aside cannot
exceed 30% of the applicable income limits (the "50% or less" or the "60% or
less" limits, as elected by the taxpayer) applicable to the relevant family size
(the "rent restriction test"). Currently, apartment size, rather than family
size, is used for determining the gross rent limitation, although actual family
size continues to be used as the basis for determining qualification as a
low-income tenant. Gross rent for this purpose includes the cost of any
utilities, other than telephone. Federal assistance payments such as those under
Section 8 and state and local rental assistance payments under programs
comparable to Section 8 are not included in gross rent. Gross rent also does not
include any fee paid to the owner of a project by a governmental or charitable
organization to provide supportive services to a low-income tenant. For this
purpose, a "supportive service" means any service provided under a program
designed to enable residents of a residential rental property to remain
independent and avoid placement in a hospital, nursing home or intermediate care
facility for the mentally or physically handicapped. The gross rent paid by the
tenant may exceed 30% of the applicable income limits where the federal subsidy
program under which the federal assistance payments are being made requires a
rental increase as the tenant's income increases coupled with a corresponding
reduction in the amount of the federal assistance payment. Gross rents are not
required to be reduced below the initial gross rent for a project even if the
area median gross income declines.
A project must meet the minimum set-aside test and the rent restriction test
at all times during the 15-year Compliance Period and must continue to meet the
minimum set-aside test and rent restriction test for an additional 15-year
period following the close of the 15-year Compliance Period. This extended
low-income use period will terminate (i) upon acquisition of the building if the
building is acquired by foreclosure or (ii) at any time before the end of the
15-year Compliance Period if, upon the owner's request (which request may be
made at any time after the fourteenth year of the 15-year Compliance Period),
the state housing credit agency is unable to locate within one year from the
date of such request a purchaser who will maintain the building as a low-income
building at a purchase price that is not less than the debt encumbering the
property plus the owner's equity in the project adjusted for cost of living
increases (up to a maximum 5% increase in any year). However, in the case of a
termination of the extended low-income use period, the amendment prohibits (a)
the eviction
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of existing tenants for other than good cause and (b) any increases in the gross
rent (except as such increases are permitted under current law) for such tenants
during the three-year period following the close of the 15-year Compliance
Period. The state housing credit agency may require as a condition to its
entering into a binding allocation of credits that the owner waive the right to
request that the state housing credit agency institute such procedures.
Projects must meet the minimum set-aside test and rent restriction test not
later than the close of the first year of the Credit Period with respect to such
projects. Special rules are provided to determine whether a project consisting
of multiple buildings placed in service on different dates meets this test.
Specifically, if within 12 months of the placed-in-service date of a prior
building, the project meets the set-aside requirement with respect to the first
building and any subsequent buildings placed in service within the 12-month
period, then the first building and included subsequent buildings are part of a
qualified low-income project. Any subsequent building not included in
determining whether the project satisfies the set-aside requirement with respect
to prior buildings would have its own 12-month period before it would be
required to be included in the set-aside determination for the project.
Buildings which would be treated as a single project but for their lack of
proximity will be treated as a single project, provided that all the units are
rent-restricted residential rental units.
The taxpayer may elect which of the minimum set-aside tests (i.e., the 20-50
set-aside test or the 40-60 set-aside test) it proposes to meet for each
project, but once made, the election is irrevocable. The General Partner expects
that, at or prior to the closing of the acquisition of a Local Partnership
Interest by the Partnership, the Local Partnership will be required to make an
election to meet the 40-60 set-aside test. The 40-60 set-aside test results in a
greater amount of rent allowed to be charged under the rent restriction test.
The qualified basis amount of a project with respect to which the credit is
computed is generally the proportion of the "eligible basis" in a qualified
low-income housing building attributable to Low-Income Units. This proportion is
the lesser of (1) the proportion of occupied Low-Income Units to all residential
rental units (whether or not occupied) in the building, or (2) the proportion of
floor space in the occupied Low-Income Units to the total floor space of all of
the residential rental units (whether or not occupied) in the building.
In general, the "eligible basis" of a building is its adjusted basis
determined without regard to the adjusted basis of any nonresidential portion of
the property. It does not include the cost of land in a project. The eligible
basis of an Existing Complex includes the cost of acquisition of the building
through a purchase and the cost of any rehabilitation to such building that does
not qualify as "substantial" for purposes of the Housing Tax Credit and that is
incurred before the close of the first taxable year of the Credit
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Period with respect to such building. For a substantial rehabilitation project,
the eligible basis of the "substantial rehabilitation" is the cost of such
rehabilitation. Eligible basis for a new construction project is the adjusted
basis of the project as of the close of the first taxable year of the Credit
Period.
Generally, only costs that are required to be capitalized and depreciated are
includible in eligible basis. The statute and legislative history do not give
any guidance as to the types of fees that are includible in eligible basis. The
Partnership intends to take the position that the portion of Acquisition Fees
(including the Consulting and Monitoring Fee) and development fees for
construction of a project that are directly related to the acquisition or
construction of an Apartment Complex and that are capitalizable and depreciable
are includible in eligible basis. However, there is a risk that the IRS may
assert that all or a portion of such costs are not includible in eligible basis.
In the case of a building located in a "difficult development area" or a
"qualified census tract," the eligible basis of a new building or the eligible
basis of rehabilitation expenditures in the case of an existing building
undergoing substantial rehabilitation will be deemed to be 130% of the eligible
basis claimed for depreciation. For this purpose, the term "difficult
development area" means any area designated by HUD as an area which has high
construction, land or utility costs relative to the area median gross income.
The term "qualified census tract" means any census tract which is designated by
HUD and, for the most recent year for which census data are available on
household income in such tract, in which 50% or more of the households have an
income which is less than 60% of the area median gross income for such year. The
portion of a metropolitan statistical area which may be designated as a
qualified census tract may not exceed an area having 20% of the population of
such metropolitan statistical area. The portion of a metropolitan or
nonmetropolitan statistical area which may be designated as a difficult
development area may not exceed an area having 20% of the population of such
metropolitan or nonmetropolitan statistical area. After August 10, 1993,
however, buildings that receive assistance under the HOME Investment Partnership
Act and have at least 40% of the building's residential units occupied by
individuals with 50% or less of the area median income are not eligible for the
130% eligible basis increase provision available for buildings located in a
difficult development area or a qualified census tract.
Because the starting point in the determination of eligible basis is the
adjusted basis of a building, eligible basis will be reduced by the adjustments
to basis described under Section 1016 of the Code, other than the adjustment for
depreciation. For example, eligible basis will be reduced by the reduction in
basis equal to any Historic Rehabilitation Tax Credits allowed with respect to
an Historic Complex. The eligible basis of any building is also reduced by an
amount equal to the portion of the adjusted basis
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of the building attributable to residential rental units in the building that
are not Low-Income Units and that are above the average quality standard of the
Low-Income Units in the building. A portion of the adjusted basis attributable
to such units may be included in eligible basis provided that the excess cost of
such units over the average cost of the Low-Income Units does not exceed 15% of
the average cost of the Low-Income Units and the taxpayer elects to exclude such
excess cost from eligible basis.
Further, for purposes of determining qualified basis under Section 42 of the
Code, the eligible basis includes not only the adjusted basis of the residential
rental units but also the adjusted basis of depreciable common areas for use by
the tenants and other facilities reasonably required by the project. The costs
of amenities in units that are not Low-Income Units may be included only if the
amenities are comparable to the costs of amenities in the Low-Income Units.
Also, the allocable costs of tenant facilities such as swimming pools or other
recreational facilities and parking areas may be included only if there is no
separate fee for use of these facilities and they are available on a comparable
basis to all tenants in the project.
Residential rental property may qualify for the credit even though a portion
of the building in which the residential rental units are located is available
for commercial use, although no portion of the cost of such nonresidential
property may be included in the eligible basis. The Conference Report of the
1986 Act states that it is the intention of the conferees that the costs of
mixed use facilities would be allocated according to a reasonable method that
properly reflects the proportionate benefit to be derived directly or indirectly
by the nonresidential rental property and the residential units.
Eligible basis is reduced by the amount of any federal grant with respect to
the property or the operation thereof, regardless of whether such grant is
includible in gross income. The reduction applies to the year in which the grant
is made and all subsequent years. A federal grant (as distinguished from a
federal rental subsidy) includes any grant funded in whole or in part by the
federal government, to the extent funded with federal funds. Grants which must
be subtracted from eligible basis include any Community Development Block
Grants, Urban Development Action Grants, Rental Rehabilitation Grants and
Housing Development Action Grants. See "Investment Objectives and
Policies--Financing Structure; Non-Subsidized Local Partnerships; Government
Subsidy Programs."
Housing Tax Credits are available with respect to a building even if the
tenants of the building have a right of first refusal to purchase the building
at the end of the Compliance Period, provided that the purchase price is not
less than the sum of (a) the principal amount of outstanding indebtedness
secured by the building (not including debt incurred within the five years
immediately preceding the sale) and (b) all federal, state and local taxes
attributable to the sale. The Revenue Reconciliation Act of 1990 (the "1990
Act") also permits qualified nonprofit organizations, governmental
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agencies, tenant cooperatives and resident management corporations to have such
right of first refusal.
As a result of the Technical and Miscellaneous Revenue Act of 1988 ("TAMRA"),
owners of qualified low-income housing projects may be subject to certain
information reporting requirements with respect to the project and the
imposition of a penalty for the failure to provide the required information.
Subsequent Increases In Low-Income Housing Tax Credit
The Code provides that where there is an increase in the qualified basis of a
low-income housing project as of the close of any year in the Compliance Period
with respect to that project (after the first year of the Credit Period), the
credit allowable for such year (and for each remaining year in the Compliance
Period) is increased by an amount equal to two-thirds of the applicable
percentage of that increase. A part-year phase-in rule similar to that discussed
below under "Utilization of the Low-Income Housing Tax Credit" also applies to
the credit available during the first year of any such increase. An increase in
qualified basis may occur as a result of, for example, an increase in a
taxpayer's amount at risk or an increase in the number of Low-Income Units
rented to eligible tenants at qualified rent levels.
Utilization of the Low-Income Housing Tax Credit
The Housing Tax Credit is available during a ten-year period (the "Credit
Period"), beginning with the year in which a property is placed in service or,
if the taxpayer elects, the succeeding taxable year. The first year the credit
is available, the allowable credit amount is determined using an averaging
convention to reflect the number of months during the year after the property is
placed in service by the taxpayer that the units constituting the qualified
basis were occupied by low-income individuals. It appears that this rule
generally will cause a reduction in the credit available in the year of
acquisition of an existing building even if the units in such building were in
fact occupied by low-income tenants during the period prior to the Partnership's
acquisition of its interest in the Local Partnership owning the building.
Housing Tax Credits may be taken in the first year only if the minimum set-aside
and rent restriction tests are met with respect to the building as of the close
of the first year of the Credit Period with respect to such building. To the
extent there is a reduction of the credit amount in the first year, additional
credit is available in the eleventh taxable year.
The amount of Housing Tax Credits available to individuals, S corporations or
"closely-held corporations" (i.e., corporations in which five or fewer
shareholders, directly or indirectly, own more than 50% of the stock) is limited
by the amount that the taxpayer has "at risk" with respect to his investment in
such low-income housing. Generally, the qualified basis of any low-income
housing property is reduced for "at risk" purposes by the amount of any
nonqualified nonrecourse financing with respect to such
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property. Such a reduction would reduce the Housing Tax Credit available to a
person subject to the at risk rules. It is not clear how this rule will be
applied in the context of a partnership or a limited liability company in which
some partners or members are subject to the at risk rules and others are not.
However, a taxpayer will be considered to be "at risk" for purposes of the
Housing Tax Credit with respect to "qualified commercial financing," even if
nonrecourse. For purposes of the Housing Tax Credit, qualified commercial
financing is defined as financing with respect to any property if (a) such
property is acquired by the taxpayer from a person who is not related to the
taxpayer, and (b) such financing is borrowed from a "qualified person" or
represents a loan from any federal, state or local government instrumentality
(or is guaranteed by such instrumentality). It is not clear whether, for this
purpose, an institution operated by the Federal Savings and Loan Insurance
Corporation or any other government agency constitutes a government
instrumentality. A qualified person for purposes of the Housing Tax Credit is a
person who is actively and regularly engaged in the business of lending money
and who is not (a) a person from whom the taxpayer acquired the property or (b)
a person who receives a fee with respect to the taxpayer's investment in the
property or (c) a person related to either of such persons. An exception is
provided for financing borrowed from a non-profit organization whose exempt
purpose includes fostering low-income housing. Such financing is considered
"qualified commercial financing" even if it is seller financing, provided such
financing (a) is not in excess of 60% of the basis of the qualified low-income
building; (b) is secured by the building; and (c) is fully repaid on or before
the earliest of (i) the date the financing matures, (ii) the 90th day after the
close of the 15-year Compliance Period with respect to the building or (iii) the
date of its refinancing or the sale of the building.
It is anticipated that the amount of the Housing Tax Credit allowable to the
Partnership will be limited under the "at risk" rules to the amount of the
Partnership's actual cash payments in respect of its Local Partnership
Interests, the portion of the Partnership's capital contribution to the Local
Partnership used to pay costs that are properly capitalized into the basis of
the Apartment Complexes and the "qualified commercial financing," as described
above, that exists with respect to the Apartment Complexes, but that such at
risk amount will generally not include any nongovernmental seller financing. The
General Partner anticipates that, in general, the Partnership will pay the full
amount of the purchase price for its interest in a Local Partnership owning an
Existing Complex at the time of its acquisition thereof or, in the case of a
Local Partnership owning a Development-Stage Complex, by the last day of the
taxable year in which the Compliance Period commences for such Development-Stage
Complex. See "Investment Objectives and Policies--Structure of Acquisitions."
Proskauer Rose Goetz & Mendelsohn LLP, counsel to the Partnership, has not
rendered an opinion on this issue or on the qualification of any Apartment
Complex for
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the Housing Tax Credit because these issues depend upon the specific nature of
each Property and its financing, none of which are known at this time. However,
as a condition to the closing of the acquisition of each Local Partnership
Interest, the General Partner will obtain an opinion of counsel to the
Partnership or to the Local Partnership as to the eligibility of its Apartment
Complex for the Housing Tax Credit and as to the status of the indebtedness
encumbering the Apartment Complex as qualified nonrecourse financing.
The ability of taxpayers to use Housing Tax Credits and Historic
Rehabilitation Tax Credits is subject to two separate limitations. The first set
of rules provides that the general business tax credits allowable in any taxable
year may not exceed a taxpayer's net income tax (which is defined as his regular
tax liability plus any alternative minimum tax and minus certain credits) less
the greater of the taxpayer's tentative minimum tax for the taxable year or 25%
of the taxpayer's net regular tax liability that exceeds $25,000 (such
limitation is referred to herein as the "general business tax credit
limitation"). Tax Credits limited by this rule can be carried back three years
and forward for 15 years. The second set of rules limits the amount of Tax
Credits that certain taxpayers may use to offset taxes on active non- rental
income or portfolio income (such limitation is referred to herein as the
"passive activity limitation"). Under the passive activity limitation, subject
to the exception described below for individual taxpayers, Tax Credits generally
may be used to offset taxes only on income from passive activities and may not
be used to offset taxes on active income or portfolio income. This limitation
applies to individuals, trusts, estates, corporations subject to the rules of
Subchapter S of the Code and personal service corporations. Closely-held
corporations may use Tax Credits to offset taxes on active business income but
may not use Tax Credits to offset taxes on portfolio income. In the case of
individual taxpayers, the "$25,000 Deduction-Equivalent Allowance" may be used
to offset taxes on active non-rental income or portfolio income. For individual
taxpayers with income subject to the 28% tax rate, this is equivalent to
allowing such taxpayers up to $7,000 (.28 x $25,000) in such Tax Credits. For
individual taxpayers with income subject to the 39.6% tax rate, this is
equivalent to allowing such taxpayers up to $9,900 (.396 x $25,000) in Tax
Credits. Tax Credits that are not allowed to be used in the current year as a
result of the passive activity limitation may be carried forward indefinitely
and used to offset passive income or be applied against the $25,000 Deduction-
Equivalent Allowance in subsequent taxable years.
Under Pre-1989 Act Law, the ability of individual investors to utilize the
$25,000 Deduction-Equivalent Allowance with respect to both Housing Tax Credits
and Historic Rehabilitation Tax Credits from a partnership's activities against
taxes on income other than passive activity income in any year is reduced to the
extent the investor's adjusted gross income exceeds $200,000 and is completely
eliminated by the time such investor's adjusted gross income reaches $250,000
(this reduction is pro rata to the excess
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of gross income over $200,000) in such year. Adjusted gross income can be
generally defined as gross income less deductions for trade or business
expenses, certain employee expenses, alimony expenses, losses from the sale of
property, and expenses and losses attributable to rental or royalty property.
However, for this purpose, adjusted gross income is calculated without regard to
IRA deductions, taxable social security benefits and any passive activity
losses. Under the 1989 Act, with respect to Housing Tax Credits (but not
Historic Rehabilitation Tax Credits) generated by properties to which the 1989
Act amendments apply and thereafter, this phase- out will not apply and all
taxpayers will be able to use an amount of such Housing Tax Credits equal to the
equivalent of $25,000 of deductions (i.e., $9,900 for taxpayers with income
subject to the 39.6% tax rate; $7,000 for taxpayers with income subject to the
28% tax rate) to offset active or portfolio income regardless of their adjusted
gross income.
Losses and Tax Credits derived from the Partnership can be fully used by
individual BACs holders to offset income and taxes on income from passive
activities. Losses from active real estate rental activities are also eligible
for the $25,000 Deduction-Equivalent Allowance (assuming that such losses are
not restricted by the phase-out of the $25,000 Deduction-Equivalent Allowance).
To the extent such losses and Tax Credits exceed such individual BACs holder's
passive activity income, they can be used to the extent of such BACs holders'
$25,000 Deduction-Equivalent Allowance after which they can be used or carried
forward pursuant to the passive activity loss limitation rules. The $25,000
Deduction-Equivalent Allowance is an aggregate for both losses and credits. If a
taxpayer has both eligible losses and credits, the losses must be used before
the credits (and credits other than Tax Credits must be used before the Tax
Credits). Taxpayers who derive such losses from other investments may therefore
not be able to fully utilize Tax Credits from the Partnership. In the case of
any married individual filing a separate return, the $25,000 Deduction-
Equivalent Allowance is reduced to $12,500 and the adjusted gross income
limitation described above is reduced from $200,000 to $100,000. In the case of
married individuals filing separately who live together at any time during the
taxable year, the amount of the $25,000 Deduction-Equivalent Allowance is
reduced to zero.
The amendment eliminating the phase-out of the $25,000 Deduction-Equivalent
Allowance does not apply to Historic Rehabilitation Tax Credits. Thus, only
individuals with an adjusted gross income of $200,000 or less (disregarding
passive losses) may fully utilize that amount of Historic Rehabilitation Tax
Credit against active or portfolio income. For individual taxpayers with
adjusted gross incomes between $200,000 and $250,000, the Historic
Rehabilitation Tax Credit amount usable against active or portfolio income
phases out ratably to zero.
Tax Credits are not a preference item for purposes of the alternative
minimum tax, but they cannot be used to offset that tax. See "Federal Income
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Tax Considerations--Alternative Minimum Tax." Corporations, other than S
corporations or professional service corporations, can generally use the Tax
Credits against taxes (except the alternative minimum tax) on all income and can
use losses to reduce taxable income. However, closely- held corporations can
only use the Tax Credits against active business and passive activity income and
not against portfolio income. Credits generated through S corporations and by
personal service corporations are subject to the same limitations applicable to
individuals. For a more complete discussion of these limitations on the
utilization of the credit, see "Federal Income Tax Considerations--Limitations
on Losses and Credits from Passive Activities."
Low-Income Credit Subject to State Allocation
In order to be eligible for Housing Tax Credits, a low-income housing project
must be allocated specific amounts of Housing Tax Credit authority by the state
or local credit agency for the jurisdiction in which the project is located,
except to the extent of eligible basis financed with proceeds of tax-exempt
bonds subject to the tax-exempt bond volume cap provisions of the Code. The
aggregate credit allocation is $1.25 per resident of each state. In determining
the amount of credit authority required in order for a project to utilize fully
the credits potentially available with respect to the project, only the credit
attributable to the first full year of the Credit Period of a project is counted
against this limit. However, the full amount of the credit attributable to the
first full year is counted even if the allowable credit amount for the year was
reduced to reflect the number of months during the year that the units
constituting the qualified basis were occupied by low-income individuals.
Additional credit authority is necessary with respect to credits arising in
subsequent years. The state or local housing credit agency has authority to
allocate Housing Tax Credit authority to a project based upon a percentage that
is lower than the applicable credit percentage determined under Code Section 42.
However, it will be a condition of closing of an investment in an Apartment
Complex by the Partnership that, in cases where credit authority is required,
the Apartment Complex has been allocated credit authority by the appropriate
housing credit agency sufficient to provide Housing Tax Credits at the level
used in calculating the purchase price for the acquisition.
An allocation of Housing Tax Credit authority is not required for any portion
of the eligible basis of a low-income building that is financed with the
proceeds of tax-exempt bonds subject to the tax-exempt bond volume cap
provisions of Code Section 146 provided that the principal payments on such
financing are applied within a reasonable period of time to redeem the bonds.
Under Pre-1989 Act Law, no allocation of Housing Tax Credit authority is
required for a low-income building if 70% or more of the aggregate basis of the
building and land on which the building is located is financed with the proceeds
of such tax-exempt bonds. The 1989 Act expands this exception to include
low-income buildings if 50% or more
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of the aggregate basis of the building and underlying land is financed with the
proceeds of such tax-exempt bonds.
Under the 1986 Act, a credit allocation is generally valid only if the
project is placed in service in the year for which the credit is allocated by
the credit agency. Accordingly, it is possible that a project may be allocated
credit for a year but not be placed in service until the following year, and in
such circumstances the initial credit allocation would be invalid. In such a
case, there is no assurance that the housing credit agency will make credits
available during the following year. However, projects that receive an
allocation of credit authority during or after 1988 will have a valid credit
allocation provided that the project is placed in service not later than the
close of the second calendar year after the year in which the project received a
state housing credit allocation and the taxpayer's basis in the project as of
the close of the calendar year in which the credit allocation is made is more
than 10 percent of his reasonably expected basis in such project as of the close
of the calendar year in which the project is placed in service.
Each housing credit agency is required to adopt an allocation plan containing
selection criteria for ranking the various projects applying for credit
allocations. The selection criteria must include project location (e.g., broad
geographic distribution, designated targeted areas such as inner cities,
Community Development Block Grant neighborhoods, distressed communities, pockets
of poverty, and rural areas), housing needs characteristics (e.g., low vacancy
rate, income mix of tenants within the project, and meeting state, regional, or
local housing needs and priorities), project characteristics (e.g., whether the
project increases the stock of low-income housing, whether substantial
rehabilitation expenditures are needed by the project, energy conservation,
quality of units, and type of financing), sponsor characteristics (e.g.,
nonprofit sponsorship and minority participation in development and management),
and tenant populations with special housing needs (e.g., elderly, handicapped,
disabled, homeless, large families, and the displaced).
The allocation plan must give the highest priority to projects expending the
highest percentage of the credit dollar amount on project costs (rather than
costs of intermediaries). In addition, the allocation plan in allocating credit
amounts must give preference to projects serving the lowest income tenants and
projects obligated to serve tenants for the longest periods.
The housing credit agency also may not allocate more credit to a project than
it determines is necessary for the financial feasibility of the project and its
viability as a qualified low-income housing project throughout the Credit
Period. In making this determination, the agency will consider the sources and
uses of the funds, the available federal, state, and local subsidies committed
to the project, and the total financing planned for the project as well as the
proceeds or receipts expected to be generated by reason of tax benefits. Under
the 1990 Act, the agency must also consider
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the percentage of the housing credit dollar amount used for project costs other
than the costs of intermediaries. Under the 1993 Act, housing agencies are
required to consider the reasonableness of the developmental and operational
costs of a project as an additional factor in making its determination as to the
proper amount of low-income housing tax credits to allocate to a project.
In addition, state housing credit agencies are allowed a one-year carry-over
of any unused Housing Tax Credit allocation (and in certain circumstances a
carry-over of a portion of the unused Housing Tax Credit allocation from other
states).
Recapture of Low-Income Tax Credits
The owners of a qualified low-income housing project will be required to
recapture a portion of any Housing Tax Credits previously taken (i.e., will be
required to pay an additional amount of tax equal to the credit "recaptured")
and will be unable to claim all or a portion of the originally scheduled credits
in future years if the project ceases to meet qualification requirements, or if
there is a decrease in the qualified basis of the project (for example, if a
Low-Income Unit ceases to meet the set-aside rules), or if there is a reduction
in the Local Partnership's interest in the project at any time during the
15-year Compliance Period with respect to the project. It is unlikely that, in
the event that BACs holders are required to recapture a portion of any Housing
Tax Credits, the Partnership will have cash to distribute to fund such recapture
tax liability. Recapture of a portion of any credits will generally occur in any
year during the applicable Compliance Period if and to the extent that at the
close of the year any of the following events occur:
1. the project fails to meet the minimum set-aside requirements or fails
to meet the rent restriction test;
2. there is a change of ownership, in whole or in part, of the project
(i.e., through disposition of a Property by a Local Partnership, of a
Local Partnership Interest by the Partnership or of a BAC) (with
exceptions noted below);
3. there is a decrease in the qualifying basis of the project, but the
minimum set-aside requirements continue to be met; or
4. there is a failure to fully repay both the principal of and interest on
nonrecourse seller financing borrowed from a nongovernmental nonprofit
organization within the required time period.
The first listed recapture event results in the recapture of a portion of the
credit taken with respect to the qualifying basis of the entire project. The
second listed recapture event results in a recapture of a portion of the credit
taken with respect to the portion of the project that has changed ownership. The
third listed recapture event results in the recapture of a portion of the credit
taken with respect to the Low-Income Units that go out
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of compliance or to other decreases in the qualifying basis of the project. When
one of the first three listed recapture events occurs, the amount of credit
recaptured is the accelerated portion of the credit (described below) for all
prior years of the project. The fourth listed recapture event results in a
recapture of the full amount of the credit taken that is attributable to the
financing. It is not clear under the Code whether the recapture will apply only
to Housing Tax Credits attributable to the portion of the financing that is not
repaid within the required time period or whether it will apply to Housing Tax
Credits attributable to the entire amount of the financing, including the
portion repaid. With respect to the first three listed recapture events, in
addition to the payment of an additional amount of tax equal to the accelerated
portion of the credit (which additional tax cannot be offset by any other
credits other than the refundable credits available under Sections 31-35 of the
Code), interest on the recaptured credit must be paid, beginning from the due
date for filing the return for the year in which any recaptured amount was
claimed. Interest is calculated at the overpayment interest rate established
under Section 6621 of the Code (two percentage points over the federal
short-term rate). Such interest is not deductible. The accelerated portion of
the credit in any year is the amount of the credit determined for the year less
the amount that would have been determined for the year if all credits had been
allowed ratably over the 15-year Compliance Period. Because credits on the
initial qualified basis of a building are claimed ratably over a ten-year period
rather than over the 15-year Compliance Period, the amount of the credit
recaptured during each of the first 11 years is one-third of the credit
determined for the year. The portions of the Housing Tax Credits that must be
recaptured in any year of non- compliance are as follows:
Year of Event
Giving Portion
Rise to Recapture Recaptured
----------------- ----------
After Year 15 0
15 1/15
14 2/15
13 3/15
12 4/15
1-11 1/3
With respect to the fourth listed recapture event, in addition to the payment
of an additional amount of tax equal to the full amount of the credit taken that
is attributable to the nongovernmental nonrecourse seller financing, interest on
the recaptured credit must be paid, beginning from the due date for filing the
return for the first year for which such credit was claimed. Interest is
calculated at the deficiency interest rate established under Section 6621 of the
Code (three percentage points over the federal short-term rate) and is not
deductible.
There are certain circumstances in which it is possible to avoid the
recapture rules. For example, no recapture occurs if non-compliance with the
set-aside requirement or the reduction of qualified basis is corrected
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within a "reasonable period," a term not defined in the Code. There also are
provisions that permit changes in tenants' income to occur and permit vacancies
in Low-Income Units to occur without causing credit recapture as long as no
vacant unit of comparable or smaller size in the project is rented to a
non-qualifying tenant. Recapture also is not required for certain de minimis
changes in qualified basis resulting from changes in floor space of the
Low-Income Units. The IRS is authorized to waive any recapture of the Housing
Tax Credit in the case of de minimis errors in complying with the minimum
set-aside test.
Where there is a transfer of an Apartment Complex, the Partnership may be
able to avoid recapture by posting a bond with the Secretary of the Treasury in
an amount satisfactory to the Treasury Department, if it can reasonably be
expected that the Apartment Complex will continue to be operated as a qualified
low-income property for the remainder of the Compliance Period. Such
bond-posting procedure could be used to avoid recapture on the disposition of an
Apartment Complex or on the disposition by the Partnership of its interest in a
Local Partnership. The General Partner expects to approve the utilization of
such a procedure in appropriate circumstances. It is likely that any amounts
paid pursuant to any such bond that are not ultimately reimbursed by the
Partnership will constitute taxable income or gain to the Partnership. See
"Investment Objectives and Policies--Disposition of Apartment Complexes/Local
Partnership Interests."
Recapture of the credit will not be required if a reduction in qualified
basis occurs as a result of a casualty loss, to the extent such loss is restored
by reconstruction or replacement within a reasonable period of time established
by the Secretary of the Treasury.
Generally, any change in ownership of a building during the Compliance Period
is an event of recapture. Thus, a disposition by the Partnership of its interest
in a Local Partnership during the Compliance Period will result in recapture of
the accelerated portion of the credit taken with respect to the portion of the
Property that has changed ownership. Generally, any change in a partner's
interest in a partnership that owns a building during the Compliance Period is
also an event of recapture. However, an exception to this rule is provided for
partnerships with 35 or more partners, such as the Partnership. For such
partnerships, the partnership will be "treated as the taxpayer" for purposes of
the Housing Tax Credit recapture rules, with the result that no recapture of
Housing Tax Credits will be required by a transferor BACs holder on the
disposition of a BAC (as long as within a 12-month period at least 50% (in
value) of the ownership of the Partnership is unchanged). However, the
transferee BACs holder will be required to recapture a portion of the Housing
Tax Credits previously claimed by the transferor BACs holder (and any prior
owner of such BAC) if a recapture event (other than the disposition of such BAC)
occurs during the period the transferee BACs holder owns the BAC. Investors
should note that although BACs may be transferred without triggering Housing Tax
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Credit recapture, transfers of BACs or Units will be restricted to the extent
necessary to prevent the Partnership from being treated as a publicly- traded
partnership. See "Federal Income Tax Considerations-- Classification of the
Partnerships." The Local Partnerships will not be eligible for the special
recapture rule described above for partnerships with 35 or more partners.
Historic Rehabilitation Tax Credit
In addition to the Housing Tax Credit, a tax credit generally is available
for certain rehabilitation expenditures incurred in improving certified historic
structures. If an expenditure is a qualified rehabilitation expenditure on a
certified historic structure, a one-time credit, equal to 20% of the
expenditure, is available in the year in which the rehabilitated project is
placed in service, or in certain circumstances, in the year in which the
expenditure is made. The Historic Rehabilitation Tax Credit is generally
allocated to those persons who are BACs holders at the time the Historic
Rehabilitation Tax Credit is made available. This credit, like the Housing Tax
Credit, may be utilized by BACs holders to offset their federal income tax
liability. The tax basis of rehabilitated real property is reduced by the full
amount of the credit taken. In general, rehabilitation expenditures qualify for
the Historic Rehabilitation Tax Credit if they are incurred in connection with a
"substantial rehabilitation" meeting certain requirements relating to the extent
and character of the rehabilitation and the approval of the rehabilitation by
appropriate federal, state and local officials.
In addition to the requirement that a person must be a BACs holder at the
time the Historic Rehabilitation Tax Credit becomes available in order to
receive an Historic Rehabilitation Tax Credit allocation, the use of Historic
Rehabilitation Tax Credits by individuals, S corporations or "closely- held
corporations" is further limited by the amount that the taxpayer has at risk
with respect to the investment that generates the credit. In general, the
taxpayer must satisfy the same at risk requirements applicable to the Housing
Tax Credit. See "Utilization of the Low-Income Housing Tax Credit" above. In
addition, to be considered at risk with respect to an investment which generates
Historic Rehabilitation Tax Credits, it is also necessary that (a) the amount of
any nonrecourse financing with respect to such property not exceed 80% of the
credit base of the property, and (b) that the financing not be provided by a
person who is related to the taxpayer.
The Partnership may invest in a Local Partnership that incurs rehabilitation
expenditures that will qualify for Historic Rehabilitation Tax Credits, which
would then be available to the BACs holders to reduce their federal income
taxes, but the ability of a BACs holder to utilize such credits may be
restricted by the passive activity limitation and the general business tax
credit limitation rules. See "Utilization of the Low-Income Housing Tax Credit,"
above. It will be a condition of closing that counsel render an opinion
regarding the qualification of any Historic Complex for the Historic
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Rehabilitation Tax Credit and the application of related at risk limitations to
such Historic Complex.
The Historic Rehabilitation Tax Credit is subject to recapture in the event
of early disposition (including destruction from casualty or condemnation) of an
Historic Complex. If such property is disposed of by a Local Partnership within
five years after the property is placed in service, a BACs holder's tax for the
year will be increased by the total credit taken for historic rehabilitation
expenditures, multiplied by a "recapture percentage" determined on the basis of
the holding period of the property. The amount of recapture decreases by 20% for
each full year that elapses after the property is placed in service.
A disposition by the Partnership of its interest in a Local Partnership or by
a BACs holder of his entire interest in the Partnership within five years from
the date the property for which the Historic Rehabilitation Tax Credit is
claimed is placed in service will also trigger recapture of the Historic
Rehabilitation Tax Credits previously claimed by the BACs holder. In addition,
if a BACs holder's interest in the profits of the Partnership is reduced to less
than 66 2/3% of what it was when the property for which the Historic
Rehabilitation Tax Credit is claimed was placed in service, the reduction will
be treated as a proportional disposition of the property by the BACs holder. For
example, if a BACs holder disposed of 50% of his BACs interest in the first year
in which an Historic Rehabilitation Tax Credit was claimed, then 50% of the
credit claimed by the BACs holder will be recaptured. The special Housing Tax
Credit recapture rule for partnerships with 35 or more partners discussed under
"Recapture of Low-Income Tax Credits" above does not protect a BACs holder from
recapture of Historic Rehabilitation Tax Credits.
Savings and loan associations and other thrift institutions to which Section
593 of the Code applies are restricted in their use of Historic Rehabilitation
Tax Credits to 50% of the amount of Historic Rehabilitation Tax Credit that
would otherwise be available.
The Historic Rehabilitation Tax Credit is generally available for the taxable
year in which the Historic Complex is placed in service. However, the Local
Partnership may elect to claim an Historic Rehabilitation Tax Credit with
respect to certain rehabilitation expenditures prior to the year in which the
Historic Complex is placed in service provided that the expenditures constitute
"progress expenditures" within the meaning of Section 47(d) of the Code. In such
case, the credit may be claimed in the taxable year in which such expenditures
are made. For purposes of computing the Housing Tax Credit, the eligible basis
of the Historic Complex is reduced by the amount of the Historic Rehabilitation
Tax Credit claimed.
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INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Partnership has been formed to invest in Apartment Complexes that are
eligible for the Housing Tax Credit enacted in the 1986 Act. Some Apartment
Complexes may also be eligible for Historic Rehabilitation Tax Credits
("Historic Complexes"). The investment objectives of the Partnership are
described below. The General Partner will require that each Property in which
the Partnership invests will have such characteristics as to enable such
Property to generate Tax Credits; as to the other investment objectives
described below, the General Partner will not require that each Property in
which the Partnership invests have characteristics that enable such Property to
achieve such objectives, so long as the Partnership's investments have such
characteristics as to, in the General Partner's judgment, enable the
Partnership, based on all of its investments in the aggregate, to meet such
other investment objectives.
1. Entitle qualified BACs holders to Housing Tax Credits over the Credit
Period with respect to each Apartment Complex;
2. Preserve and protect the Partnership's capital;
3. Participate in any capital appreciation in the value of the Properties
and provide distributions of Sale or Refinancing Proceeds upon the
disposition of the Properties; and
4. Allocate passive losses to individual BACs holders to offset passive
income that they may realize from rental real estate investments and
other passive activities, and allocate passive losses to corporate BACs
holders to offset business income. See "Federal Income Tax
Considerations--Limitations on Losses and Credits from Passive
Activities."
Each of the prior programs sponsored by Affiliates of the General Partner
having similar investment objectives has met in all material respects the
investment objective established by it with respect to the recognition of Tax
Credits. None of such prior programs has disposed of any property. See "Prior
Performance Summary."
An objective of the Partnership will be to invest in Local Partnerships with
a view to generating Tax Credits (Housing Tax Credits and, potentially, Historic
Rehabilitation Tax Credits) equal in the aggregate to $1,400 to $1,500 per
$1,000 BAC over the period from 1995 to 2007. There can be no assurance that the
Partnership will achieve this investment objective. While each Property will
generate Housing Tax Credits over a period of 10 or 11 years, each Property must
comply with the Housing Tax Credit rules for 15 years. There is the possibility
that if the Properties are not rented to qualifying tenants or any of the other
Housing Tax Credit rules are not met for the entire 15-year compliance period, a
portion of previously claimed Housing Tax Credits will be recaptured and
anticipated future cred-
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its will be lost. See "Risk Factors--Risks Related to the Tax Credits" and
"Low-Income Housing and Historic Rehabilitation Tax Credits." As discussed
below, the Partnership's annual Tax Credit objective should not be construed as
an objective as to an internal rate of return from an investment in the
Partnership. Upon the assumptions set forth below, the internal rate of return
from an investment in the Partnership would be approximately 7.0%.
Assuming that the Partnership generates Tax Credits equal to $150 per $1,000
BAC (15%) annually, an investment of $25,000 in the Partnership would produce
the maximum amount of Tax Credits that may be utilized by an individual
(non-corporate) investor against active non-rental or portfolio income subject
to federal income tax at a 15% rate. Based upon such assumption, an investment
of $47,000 in the Partnership would produce the maximum amount of Tax Credits
that may be utilized by such an investor against active non-rental or portfolio
income subject to federal income tax at a 28% rate; an investment of $52,000
would produce the maximum amount of Tax Credits that may be utilized by such an
investor against active non-rental or portfolio income subject to federal income
tax at a 31% rate; an investment of $60,000 would produce the maximum amount of
Tax Credits that may be utilized by such an investor against active non- rental
or portfolio income subject to federal income tax at a 36% rate; and an
investment of $66,000 would produce the maximum amount of Tax Credits that may
be utilized by such an investor against active non-rental or portfolio income
subject to federal income tax at a 39.6% rate.
The Partnership and BACs holders will not recognize any Tax Credits until the
Partnership acquires Local Partnership Interests and the Credit Periods of the
Properties owned by such Local Partnerships commence (although in the case of
Historic Rehabilitation Tax Credits, the Partnership and BACs holders will
recognize Tax Credits on the date the Historic Complex is placed in service).
Because of the time that may elapse between the Partnership's investment in
Properties and the completion and rent-up of those Properties, it is anticipated
that the amount of Tax Credits per BAC will gradually increase over the first
three years of the Partnership. For example, the Partnership believes that an
example of the timing of the Tax Credits that investors might get would be as
outlined in the following chart:
Estimated Tax Credits $
Year (For a $1,000 BAC)
---------- -----------------------
1995 $10-30
1996 $40-80
1997 $110-130
1998-2005 $140-150
2006 $70-100
2007 $10-30
Total $1,400-1,500
There can be no assurance that the Partnership will generate Tax Credits
at the levels set forth in the foregoing example.
The investment objective described in the preceding paragraphs relating to
the level of Tax Credits per annum that the Partnership will endeavor to
generate should not be construed as a total investment return, an inter-
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nal rate of return or a yield on investment, because such a return or yield
could only be calculated based on investment characteristics in addition to the
level of Tax Credits generated and that cannot be predicted with any degree of
certainty at this time. For example, an internal rate of return is the discount
rate at which the cost of an investment (the purchase price of a BAC) equals the
present value of the benefits produced by that investment (the Tax Credits,
assuming none are recaptured, Distributions of Cash Flow and net Sale or
Refinancing Proceeds, if any, and net losses for Federal income tax purposes,
assuming that they can be utilized by a BACs holder). Thus, the internal rate of
return to the BACs holders would be substantially dependent upon the amount and
timing of these benefits, events which are not possible to predict at this time.
For example, assuming (i) the Partnership generates Tax Credits equal to $15 per
BAC in 1995, $65 in 1996, $130 in 1997, $142 in each of the years 1998-2005, $76
in 2006 and $12 in 2007, and such Tax Credits are not recaptured, (ii) the
Partnership does not make any Distributions of either Cash Flow or net Sale or
Refinancing Proceeds, and (iii) the Partnership does not allocate any net losses
that are usable for federal tax purposes by a BACs holder, the equivalent
tax-free internal rate of return with respect to such BACs holder's investment
in the Partnership after 16 years calculated using methods generally accepted in
the financial community would be approximately 7.0%. The internal rate of return
of the same investment in a tax exempt municipal bond fund over the same period
assuming no loss of principal and a 3% annual interest rate from the fund to the
investor after management fees would be approximately 3%. Investors are advised
that, to the extent that the Partnership does not make Distributions of Cash
Flow or net Sale or Refinancing Proceeds in respect of a BAC equal to the $1,000
purchase price per BAC, a portion of the Tax Credits generated by the
Partnership would in effect represent a return of an investor's investment in
the Partnership. Investors are further advised that various other factors will
affect their total investment return, such as the ability of the Local
Partnerships to meet their debt service and operating expense obligations, to
initially qualify or continue to qualify for the Tax Credits, to sell, refinance
or otherwise dispose of their Properties for their fair market value at the time
of sale notwithstanding any extended use requirements described in "Investment
Objectives and Policies--Disposition of Apartment Complexes/Local Partnership
Interests" and numerous other factors described in "Risk Factors--Risks Related
to the Tax Credits." Accordingly, there can be no assurance that the Partnership
will achieve its investment objectives.
The ability of the Partnership to achieve its Tax Credit objective at the
annual levels described above will depend, in part, upon the use of leverage
with respect to the Properties. The Partnership believes that it will be able to
invest substantially all of the net proceeds of this offering available for
investment (i) in Development-Stage Complexes (which are eligible for the
9%-Equivalent Housing Tax Credit) at leverage rates of approximately 0.9/1
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to 2/1 and/or (ii) in Existing Complexes (which are eligible for the
4%-Equivalent Housing Tax Credit) at leverage rates of approximately 3.9/1 to
4.2/1 and that, in each case, such leverage will be included in the base upon
which the Housing Tax Credit is calculated. The inability to do so would result
in the recognition of lower levels of Tax Credits and the use of leverage at
such rates entails special risks to the Partnership (see "Risk Factors--Risks
Related to the Local Partnership Investments"). Pursuant to a limitation
contained in the Partnership Agreement, the maximum amount of leverage that the
Partnership may incur (including leverage encumbering underlying Properties but
exclusive of indebtedness incurred by the Partnership or Local Partnerships for
necessary working capital) is, in general, 85% (or a ratio of approximately
5.5/1) of the aggregate acquisition price of all Properties in which the
Partnership has invested. Affiliates of the General Partner are the general
partners of six other limited partnerships with investment objectives and
leverage limitations similar to those of the Partnership. The amount of leverage
incurred by these affiliated limited partnerships, as of the date of this
Prospectus, ranges from 48% to 73% (or ratios of approximately 0.9/1 to 2.7/1).
See "Prior Performance Summary--Public Real Estate Limited Partnerships."
The Partnership and BACs holders will not recognize any Tax Credits until the
Partnership acquires Local Partnership Interests and the Credit Periods of the
Properties owned by such Local Partnerships commence (although in the case of
Historic Rehabilitation Tax Credits, the Partnership and BACs holders will
recognize Tax Credits on the date the Historic Complex is placed in service),
which may not be until the latter part of 1995. The Partnership expects that the
last qualification for Tax Credits of the Properties owned by the Local
Partnerships in which the Partnership will acquire Local Partnership Interests
will be in 1997. However, any reduction in Tax Credits in 1995, 1996 and 1997 is
expected to result in additional Tax Credits carried over to 2005, 2006 and
2007. In addition, events subsequent to the acquisition of Partnership
investments could materially adversely affect the Partnership's ability to
achieve its annualized return objective. See "Risk Factors--Risks Related to the
Tax Credits."
The Partnership will attempt to locate Properties whose operations will
generate cash flow that will be available for distribution to the Partnership.
There can be no assurance that any such Properties will be located or that, once
the Partnership invests in any such Properties, the operations of such
Properties will in fact generate distributable cash flow. In the event that
distributions of cash flow are made by Local Partnerships to the Partnership,
the Partnership expects that the income tax liability in respect of such
distributions will be offset by income tax losses allocable to the Partnership
as a result of depreciation taken with respect to the Properties.
There can be no assurance that the Partnership will achieve its investment
objectives. Because the Partnership will recognize Housing Tax Credits for, in
general, the ten years following the date on which the Properties
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owned by Local Partnerships are placed in service and rented to qualifying
tenants and will not begin to liquidate its investments in Local Partnership
Interests until approximately 15 years after its initial acquisition of such
interests, and may elect to hold certain of its investments for a longer period
of time, no Housing Tax Credits will be recognized by the Partnership and BACs
holders for a number of years prior to liquidation of the Partnership's
investments.
Financing Structure; Non-Subsidized Local Partnerships; Government Subsidy
Programs
In evaluating Local Partnerships for acquisition, the Partnership will
consider first, the ability of the Local Partnership to carry its debt service
obligations without bearing excessive interest rate risk; second, the importance
of a low degree of market risk from other low-income housing properties; and
third, the possibility of meaningful growth in the residual value of the
Property. In the current environment of the Housing Tax Credit program, the
Partnership believes that the largest number of suitable investments will be in
Properties that are Development-Stage Complexes and that do not benefit from
Conventional Government Subsidy Programs. Because it is not a requirement that a
Local Partnership obtain government subsidies in order to qualify for Housing
Tax Credits, because government subsidy programs have narrowed in scope since
1980, and because state and local Housing Tax Credit allocation agencies are
tightening requirements for receiving allocations of Housing Tax Credits, the
Partnership anticipates being able to meet its investment objectives with
respect to Properties that do not participate in Conventional Government Subsidy
Programs to a greater extent than with respect to subsidized Properties.
Investment in Properties that do not receive conventional rental or other
subsidy assistance also removes the Property from the scope of restrictions on
cash flow or residual value realization imposed by such programs. However,
investment in low-income housing Properties that do not benefit from
conventional subsidy assistance involves risks that are not present in
investments in conventionally subsidized Properties, including the risk that
operating revenues will be insufficient to cover debt service and operating
expenses and that a foreclosure and recapture of Tax Credits will result. See
"Risk Factors--Risks Related to the Tax Credits."
The Partnership expects that each of the Properties in which it invests will
be substantially mortgaged. The Partnership will not undertake an investment in
a Property with respect to which the aggregate amount of the mortgage
obligations secured by the Property (including any financing of the
Partnership's acquisition provided by the seller of the Local Partnership
Interest), together with the cash purchase price paid by the Partnership and the
amount of any capital contributions made by the Partnership to the Local
Partnership, exceeds the fair market value of the Property determined pursuant
to an appraisal within approximately six months prior to the time of
acquisition. The appraisal, which may take into account the value of the Tax
Credits associated with the subject Property, will be
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prepared by a competent, independent appraiser. In addition, no acquisition will
be made by the Partnership if after giving effect to the acquisition the overall
Partnership leverage would exceed approximately 85% (measured as the
indebtedness encumbering Properties in which the Partnership has invested, plus
any interest that may be deferred pursuant to the terms of the loan agreement
which exceeds 5% per annum of the principal balance of the indebtedness, as a
percentage of the total of such indebtedness and the Net Proceeds of this
Offering).
It will be an important investment criterion of the Partnership that the
underlying financing of a Property be on terms that are likely to minimize
interest rate risk to the Local Partnership through the end of the Compliance
Period with respect to the Property. Financing terms that most effectively
minimize that risk would provide fixed-rate debt service obligations through the
entire 15-year Compliance Period. A lesser but still acceptable interest rate
risk minimization would be provided by financing terms providing for fixed-rate
terms through the first ten years of the Compliance Period and for variable
interest within specified ranges for the remaining five years of the Compliance
Period. The Partnership would not expect to invest in a Local Partnership whose
Property is encumbered by financing that falls due during the Compliance Period
with respect to the Property unless the Partnership had substantial assurances
from the Local General Partner or other sources that the debt could be
refinanced on acceptable terms.
The Partnership anticipates that the principal source of financing for
Properties in which it invests will be non-conventional lenders or conventional
lenders benefitting from government programs assisting, supporting or insuring
mortgage loans to low-income Properties (assistance programs of such kind fall
outside of the Partnership's definition of "Conventional Government Subsidy
Programs"). An example of a non-conventional lender would be state housing
finance agency-provided, long-term mortgage financing derived from the proceeds
of tax-exempt or taxable bond issues sold by the state. With the tightening of
requirements for tax-exempt bond issues in the last several years, state housing
finance agencies are turning to taxable bond issues to provide the source of
their low-income mortgage financing, and can provide market-rate mortgage loans
on a long-term, fixed-interest-rate basis that is not available from commercial
lenders. Certain non-bank lenders have also evidenced a willingness to provide
suitable long- term financing at fixed rates or rates that are variable only
within a narrow range in exchange for a participation in any residual value of a
Property (which the Partnership would endeavor to negotiate on a basis that
would diminish only the Local General Partner's share of the residual value as
opposed to the share in which the Partnership participates).
In recent years, conventional mortgage financing has become less available
from banks and other traditional sources. If this trend persists, Local
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Partnerships of the kind in which the Partnership expects to invest may find
it more difficult to obtain conventional financing, with the result that
suitable Local Partnership investments may become more difficult to find. See
"Risk Factors--Risks Related to the Local Partnership Investments."
In accordance with the Partnership's criterion that underlying mortgage
financing be on terms that minimize interest rate risk throughout the end of the
Compliance Period with respect to the Property, the commitment for the Permanent
Loan would likely require that the loan mature no sooner than 15 years from the
date on which it is funded and bear interest at a fixed annual rate. The
amortization schedule of the Permanent Loan may require that the original
principal balance of the loan be fully amortized over the term of the loan or
that a substantial portion thereof be payable in a "balloon" payment at
maturity. The Permanent Loan would likely be prepayable in whole or part, which
may require the payment of a predetermined premium designed to provide yield
maintenance to the holder(s) of the loan.
Related intends to establish one or more mortgage origination programs in
which the Local Partnerships in which the Partnership invests may choose to
participate. Under these programs, the lending entity would issue a commitment
at the time of the Partnership's investment in the Local Partnership to provide
permanent mortgage financing of the Property owned by the Local Partnership (the
"Permanent Loan"). These programs may also offer construction financing for the
development or rehabilitation of the Property owned by the Local Partnership.
One of the mortgage origination programs contemplated by Related would
involve Related sponsoring a partnership, real estate investment trust or other
investment vehicle formed for the purpose of making mortgage loans to owners of
affordable housing complexes, such as the Local Partnerships, and holding such
loans to maturity. Another mortgage origination format contemplated by Related
would involve the making of mortgage loans, either for Related's own account or
with the funds of unaffiliated parties, with a view to subsequently
"securitizing" the loans. Typically, the securitization of residential mortgage
loans is accomplished by assigning a pool of loans to a special purpose trust,
which then issues debt or debt-like securities, generally in two or more
classes, the payment obligations on which have been designed to be supported by
the cash flows generated by the assigned loans. It is generally anticipated that
Related or one of its Affiliates would retain the initial ownership of a class
of such securities that is fully or partially subordinated to one or more senior
classes, thereby assuming some or all of the credit risk presented by the
mortgage pool. Related, or one or more of its Affiliates, may also seek to
arrange for mortgage loans to Local Partnerships by agreeing to facilitate on a
"best efforts" basis the origination of loans by unaffiliated parties. Related
or its Affiliates may also enter into joint venture or other relationships with
institutional mortgage lenders to provide mortgage loans to
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Local Partnerships in which the Partnership or other entities sponsored by
Related or its Affiliates invest, which mortgage loans will provide construction
financing which is convertible to permanent financing at a rate of interest
which is locked at the time of permanent financing. In these cases, Related or
its Affiliate may act as a financial consultant, placement agent or credit
enhancer, or in a combination of such capacities. In connection with each of the
mortgage origination programs discussed above, Related or its participating
Affiliate may receive mortgage origination compensation in consideration of its
services. See "Compensation and Fees to the General Partner and Affiliates."
Government programs that assist conventional and non-conventional lenders in
providing mortgage financing to low-income housing Properties include the
federal government's mortgage insurance programs administered by HUD. The
principal programs of this nature include insurance programs authorized under
Sections 221(d) (3) and (4), Section 236 and Section 223(f) of the National
Housing Act. Under all three programs, mortgages provided by private lenders to
multifamily properties are insured to a specified extent by the federal
government. Insurance programs under Section 236 and Section 221(d)(3) of the
National Housing Act are no longer funded by HUD, but the Partnership may invest
in existing Apartment Complexes already participating in such insurance
programs.
The goals and objectives of the Section 221(d)(3) and Section 221(d)(4) are
essentially the same. Both are intended to assist private industry in the
construction or substantial rehabilitation of rental and cooperative housing for
low- and moderate-income families. The most significant distinction between the
programs is the maximum loan-to-value ratio available to the different types of
project sponsors. Under Section 221(d)(3), a non-profit sponsor may receive
insured mortgage for 100% of the HUD estimated replacement cost of the project.
Profit-motivated sponsors under Section 221(d)(3) and all types of mortgagors
under Section 221(d)(4) can only receive a maximum of 90% of HUD replacement
cost estimates.
Formerly, Apartment Complexes financed under Section 221(d)(3) of the
National Housing Act could qualify for below market interest rates as low as 3%
with respect to its 40-year mortgage loans and its tenants could be eligible for
rent assistance. Presently, below market interest rates and rent assistance are
not available under Section 221(d)(3) for newly- constructed Apartment
Complexes, although the Partnership may invest in existing Apartment Complexes
still participating in such subsidies.
Section 221(d)(4) of the National Housing Act provides for federal insurance
of privately financed market rate mortgages for new or rehabilitated rental
housing projects containing five or more housing units. This program does not
have income limits for project tenants; however, a project insured under this
program may include, as tenants, families receiving assistance under the Section
8 Program. Mortgages in amounts up to 90% of the FHA-approved replacement cost
of the project may be insured under
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this program. Rent levels and cash distribution to owners are not regulated,
except that Section 8 Program restrictions apply to a project receiving
subsidies under that program.
Mortgages insured under Section 221(d) (4) may be prepaid in full at any time
without HUD's consent. The mortgagee may insert and enforce an optional
provision requiring that if the prepayments made in any calendar year exceed 15%
of the original principal amount of the mortgage, the mortgagee will be allowed
to collect a reasonable prepayment charge. If an owner remains in default under
a Section 221(d) (4) mortgage loan beyond the applicable cure period, the lender
may either foreclose on the mortgage or assign it to HUD in return for the
payment of mortgage benefits.
Section 223(f) of the National Housing Act authorized HUD to insure mortgage
loans made to purchase or refinance existing multi-family projects originally
financed with or without federal mortgage insurance. Existing multi-family
projects which do not require substantial rehabilitation may receive HUD
mortgage insurance under this program. The principal objectives of the program
are to permit the recasting of mortgages in older, declining neighborhoods over
a longer period of time or at a lower interest rate, to enable owners to reduce
carrying costs and to preserve an adequate supply of affordable rental housing.
To be eligible for the program, a property must consist of five or more dwelling
units and must have occupancy that produces rental income sufficient to pay
operating expenses and annual debt service and to fund a reserve fund for
replacements.
The maximum mortgage under Section 223(f) cannot exceed 85% of the lender's
estimate of the value of the property although HUD, in certain circumstances,
can increase this amount to 90% if the property meets certain special
eligibility requirements. Unlike most HUD programs, which provide for mortgage
loans of 40 years' duration, the 223(f) Program generally provides for mortgage
loans of not less than 10 nor greater than 35 years' duration.
The Section 223(f) Program does not provide specific income restriction for
tenants. The maximum rentals that can be charged are determined by HUD on a
property-by-property basis, and cash distributions to certain types of owners
are limited. Some developments with mortgages insured under the 223(f) Program
have secondary financing, which generally cannot exceed the lesser of 7.5% of
the estimated value of the property or 7.5% of the cost of acquisition.
Default and foreclosure provisions are substantially as described above for
the Section 221(d) (3) Market Rate Program. An owner generally may not, without
HUD consent, prepay a mortgage loan insured under Section 223(f) for the first
five years, and in some cases the first 20 years, of the
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loan. HUD regulations provide that such consent will be given only under very
limited circumstances.
Section 236 of the National Housing Act ("Section 236") was designed to
provide incentives for private industry to build new or rehabilitated rental and
cooperative housing for lower-income families. Section 236 authorizes HUD to
provide mortgage loan insurance and mortgage interest reduction payments for
housing developments ("HUD Section 236 Program"). The HUD Section 236 Program
provides federal insurance of private mortgages having terms of up to 40 years
and involving principal obligations generally up to 90% of the HUD estimated
replacement cost of the project.
With respect to projects owned by limited dividend entities, rents are
initially established so that, at 95% occupancy, after payment of all expenses
and reserve fund deposits, the cash available for distribution will not exceed
6% of the "initial equity investment" in the project as determined by HUD. The
"initial equity investment" usually equals 10% of the replacement cost of the
project. In no event may cash distributions to the owner of a project exceed in
any year 6% of the owner's initial equity investment, although shortfalls in one
year may be paid in subsequent years.
Section 236 also provides that HUD shall pay to the mortgagee interest
reduction payments thereby reducing the project owner's monthly mortgage
payment. The interest reduction payment is equal to the amount of the difference
between the monthly installment for principal, interest and mortgage insurance
premium which the project owner is obligated to pay under the mortgage and the
monthly payment for principal and interest the project owner would be obligated
to pay if the mortgage were to bear interest at the rate of 1% per annum. The
owner must pass on the benefits of the interest rate reduction to eligible
tenants in form of lower rent. HUD may terminate the interest subsidy payments
in certain circumstances.
Tenant eligibility for projects receiving interest reduction payments under
the HUD Section 236 Program is determined on the same basis as under the Section
8 Program that is discussed below.
A profit-motivated owner generally may not, without HUD consent, fully prepay
a mortgage loan insured under Section 236 for the first 20 years of the loan. If
the owner is receiving payments under the rent supplement program pursuant to
Section 101 of the Housing and Urban Development Act of 1965, as described
below, or is a non-profit entity, the owner may not, without HUD consent, fully
prepay the loan at any time. In addition, the Act imposes additional prepayment
restrictions on properties that obtained mortgage loan insurance under Section
236.
The level of subsidy established by the HUD Section 236 Program is ordinarily
fixed in amount and generally is not increased to cover rising and often
inflationary increases in housing development operating expenses, particularly
utility costs. Such increased operating expenses can
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be paid for only by the tenants through higher "basic rents." The possible
consequences of higher project operating costs over the operational years of the
project could be (i) rent levels that do not keep pace with escalating operating
costs, thereby reducing or eliminating the cash flow from the housing
development or placing the project in a deficit cash position, or (ii) increased
rent levels that cause tenants to pay higher portions of their monthly incomes
for rent that may cause tenants to leave the housing development, leading to an
increased vacancy rate among the development's units. However, the National
Housing Act provides that with respect to certain projects assisted under
Section 236 and the Rent Supplement Program, HUD must offer to amend contracts
annually with owners of such projects to provide sufficient payments to cover
100% of the necessary rent increases and changes in the income of eligible
tenants.
Every owner of a development financed by a HUD insured mortgage is required
to enter into a Regulatory Agreement with HUD (a "Regulatory Agreement"). Under
the terms of a Regulatory Agreement, the owner agrees to establish and maintain
a reserve for replacements. Subsequent disbursements from the replacement
reserve are subject to HUD approval. In addition, rent increases are in some
cases subject to HUD approval. Regulatory Agreements relating to various
programs also limit the amount which can be distributed to an owner after
payment of principal and interest due under the mortgage, mortgage insurance
premiums, reserves required by the Regulatory Agreement and other operating
expenses ("Surplus Cash").
Where rent subsidies are provided to tenants of a project, additional
limitations are imposed on the ability of an owner to distribute Surplus Cash.
Various criteria are applied to tenant incomes to determine eligibility. Thus,
for a tenant to remain eligible for such subsidies, his or her income may not
exceed established levels. It should be noted, however, that HUD does not
guarantee occupancy. If units are available after giving priority to families of
low- and moderate-income levels, the units may be rented to the public at market
rates, and the applicable rent subsidies may not be used. Various restrictions
apply regarding the use of such remaining subsidies, depending upon the program
involved.
If a project is unable to generate sufficient funds to pay its operating
expenses, HUD has the power to approve a deferment of any or all of the payments
required under a mortgage or Regulatory Agreement for a specific period of time.
However, HUD does not insure the profitability of a project, and there can be no
assurance that HUD will allow any such deferments in the event a project cannot
meet its operating expenses.
HUD has established a Flexible Subsidy Program under which HUD makes loans to
provide assistance to restore or maintain financial soundness, to improve
management and to maintain the low- to moderate- income character of certain
projects assisted under the National Housing Act that might otherwise be in
financial distress. Assistance payments
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under the program may be used to correct physical deficiencies, to reduce
deficiencies in replacement reserve funds, and to fund project operating
deficits. Any project assisted under the HUD Section 236 Program or certain
other programs is eligible to receive loans under the Flexible Subsidy Program.
Before agreeing to provide a Flexible Subsidy, HUD must determine that the
assistance, when considered with the other resources available to the project,
will restore or maintain the financial soundness of the project and maintain its
low- and moderate-income character. As a condition to providing such funds, HUD
requires the execution of an agreement by which the owner agrees that the
project will continue to be operated as low- and moderate-income housing.
Section 515 of the Housing Act of 1949 authorizes FmHA, an agency of the U.S.
Department of Agriculture, to provide direct mortgage loans for rural rental
housing. Such loans are extended to qualified sponsors organized exclusively for
the purpose of providing housing, in amounts of up to 95% of housing development
costs as determined pursuant to FmHA regulations and for terms of up to 50
years. The sponsor of a development must establish a cash reserve for initial
operation expenses in an amount equal to 2% of the cost of the development.
In addition, FmHA may provide a limited distribution owner with mortgage
interest subsidies after completion of the development, the benefits of which
the owner must pass on to eligible tenants in the form of lower rents. The
subsidy amount is equal to the difference between the payment that would be
required for principal and interest on a market interest rate mortgage and the
amount that would be required on a mortgage with a 1% interest rate for an
apartment development not assisted under the Section 8 program, and a rate of 1%
below the prevailing FmHA rate for a Section 8 assisted apartment development.
FmHA regulations limit cash distributions to owners of developments that it
finances with interest subsidies to a maximum annual return of 8% per annum on a
cumulative basis on their equity contribution (required to be a minimum of 5%).
The initial rental schedule and any subsequent increases in rents require FmHA
approval and must be structured to provide not more than the maximum permissible
cash distributions after payment of debt service, required reserve fund deposits
and estimated operating expenses. FmHA also requires that a reserve account be
established over the first ten years of operation of the development, with 1% of
the total construction costs being payable annually to the account from
operating revenues during this period. This account is used to meet loan
obligations in the event debt service is not sufficient to repair or replace
furnishings and equipment lost by catastrophe or long range depreciation and for
certain purposes approved by FmHA.
FmHA regulations also require that, in selecting tenants for a housing
development participating in the rural rental housing program, an owner must
give preference to those whose income does not exceed levels estab-
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lished by FmHA. FmHA approval is required for changes in a partnership
agreement, including changes in general and limited partners.
FmHA approval is required if an owner wishes to sell the development, and
FmHA can require that the owner repay the loan or refinance the development if
at any time FmHA determines that the financial position of the development has
reached the point where the owner can repay or refinance it at reasonable rates
and terms through a commercial lender.
For all Section 515 loans approved on or after December 21, 1979, FmHA
regulations require the owner to represent that no person eligible to occupy
such housing will be required to vacate during the 20-year period following
closing of a subsidized loan because of the owner's prepayment of the mortgage
loan. The general partners of the partnership owning the complex may not
withdraw therefrom or admit new partners without FmHA approval, and may not hold
less than a 5% interest in the partnership. Thus, if a Local Partnership
acquires an interest in a Property receiving benefits under FmHA Section 515,
the Local Partnership cannot acquire an interest greater than 95% unless its
Local Partnership Agreement is approved by FmHA.
Local real estate market conditions can be expected to play a significant
role in defining the Partnership's investment acquisition pattern. The amount
that the Partnership invests in a particular Property will be determined
principally by the value of the Housing Tax Credits generated from the
investment, which in turn will be derived in the case of newly- constructed
Properties from the cost of construction and the application of the higher
Housing Tax Credit rate that is applicable to newly- constructed Properties as
compared to the rate applicable to existing Properties (see "Low-Income Housing
and Historic Rehabilitation Tax Credits"). The cash flow that the Partnership
can expect a particular Property to generate will be derived from a separate
criterion, i.e., the median income of the area in which the Property is located.
In metropolitan areas having a relatively high median income (i.e., a
metropolitan area having a median income as estimated by the U.S. Department of
Housing and Urban Development that is above the average median income for all
metropolitan areas in the United States as so estimated, which average median
income figure is reported at $42,900 per annum for a family of four for fiscal
year 1994) and relatively low construction or acquisition costs (i.e., a
metropolitan area having median land costs that are on a square footage basis
generally lower than the median level of land costs for metropolitan areas
generally and/or having construction cost structures based on production or not
requiring the use of unionized labor), the combination of high median income
(which results in a relatively high level of cash flow that a Property can
generate) and low construction or acquisition costs (which result in a
relatively low amount of mortgage financing being required) means that a Local
Partnership may be able to safely bear the debt service on near- market mortgage
financing. Therefore, the Partnership expects actively to
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consider investments in newly-constructed Properties in non-urban areas where
housing is targeted toward middle-income families and still qualifies for
Housing Tax Credits because of the level of median income of the area. The
General Partner's belief that metropolitan areas having "relatively high median
income" and "relatively low construction or acquisition costs" (as defined
above) exist is based upon its review of government statistics, and has not been
independently verified by the General Partner or the Partnership.
The Partnership will also consider investment in Properties in areas that
have suffered from depressed real estate market conditions. In these areas, the
Resolution Trust Corporation and thrift institutions and other conventional
lenders are carrying residential housing projects on their books that may not
yet have been completed or placed in service and that could be eligible for
Housing Tax Credits, and that may be able to be acquired for a fraction of their
original construction or acquisition cost. If the low-income housing market does
not present excessive competition, the financing component represented by the
Housing Tax Credits could make projects such as these viable as low-income
projects where they could not have been as market-rate facilities. Lenders that
have foreclosed on Properties such as these may be willing to provide
concessionary financing terms, including for instance provision for payment of
debt service only to the extent that cash flow of a Property permits it (a
so-called "cash flow mortgage") for an initial period after acquisition in order
to turn a non- performing asset into a performing loan. Under current law, such
financing would only be includible in the Partnership's eligible basis for
computing Housing Tax Credits, and the Partnership will only invest in Local
Partnerships utilizing such financing, if the seller is a federal, state or
local government or instrumentality thereof or a nonprofit organization (see
"Low-Income Housing and Historic Rehabilitation Tax Credits").
Due to the curtailment of many Conventional Government Subsidy Programs in
recent years (including the Section 8 program administered by HUD described
below), Local Partnerships must now consider a wider variety of government
housing assistance programs to benefit their Properties. Such alternative forms
of government subsidy include those which reduce the operating expenses of a
Property, such as energy and weatherization grants, and real estate tax
abatement programs. An example of the latter is the program offered by New York
State and administered by the Department of Housing Preservation and Development
of the City of New York ("HPD") pursuant to Section 421-a of the New York Real
Property Tax Law (the "Section 421-a Program"). Another subsidy program that is
closely related to the Section 421-a Program is the inclusionary low-income
housing program of the City of New York (the "Inclusionary Program"), also
administered by HPD. Each of such programs provides transferable benefits to an
owner of a newly constructed low-income rental housing development in New York
City. These benefits are, in the case of the 421-a Program, partial exemption
from real estate taxes, and in the case of the
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Inclusionary Program, bonus zoning rights. Such benefits are exchanged for an
agreement by the owner to operate the development in accordance with various
restrictions, including restrictions on the levels of rent that may be charged
to tenants. Properties participating in either the 421-a or Inclusionary
Programs can be expected not to generate any significant positive cash flow for
so long as such restrictions apply, and because such restrictions apply for
substantial periods of time (indefinitely in the case of the Inclusionary
Program), the capital appreciation of such Properties could be adversely
affected.
Where the Partnership contemplates an investment in a Local Partnership whose
Apartment Complex is not conventionally government subsidized, the General
Partner may seek to obtain from the Local General Partner operating deficit
and/or rent-up guarantees that are greater in scope, duration or amount than
would normally be obtained in connection with traditionally subsidized Apartment
Complexes. In such cases, the General Partner may also seek to negotiate for
correspondingly greater security devices to secure such expanded guarantee
obligations. See "Acquisition of Development-Stage Complexes" and "Operating
Deficit Guarantees" below. Such government subsidies may be used either alone or
in tandem with mortgage assistance programs.
While the Partnership expects that Properties which are not conventionally
subsidized will constitute the greater portion of Properties that are suitable
for investment, there will be opportunities for the Partnership to invest in
Properties that benefit from one or more federal, state or local Conventional
Government Subsidy Programs. Such government subsidies may be used either alone
or in tandem with mortgage assistance programs.
Of the government programs that provide direct subsidies for low- and
moderate-income housing, the best known has been that administered by HUD
pursuant to Section 8 of the U.S. Housing Act of 1937 ("Section 8"). Since 1974,
Section 8 has been the primary source of federal housing assistance for
privately owned, multi-family rental projects. Pursuant to Section 8, HUD is
directed to aid low- and moderate-income families in obtaining decent, safe and
sanitary housing. The Section 8 Program provides rent subsidies paid by HUD to
project owners on behalf of qualified lower-income tenants. The size of the
subsidy payment is the difference between the HUD approved monthly rent for a
particular unit in a particular market (the "Contract Rent") and a statutorily
set percentage of the tenant's monthly income, generally 30%. Such payments are
made to project owners under a Housing Assistance Payments Contract ("HAP
Contract"). The Contract Rent (which includes utilities and essential management
and maintenance costs) generally cannot exceed the HUD-established fair market
rent for comparable privately owned housing in the project's market area and
must also be reasonable in relation to the quality, location, amenities, and
mortgage payments of the project. The Contract Rent written into
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the HAP Contract may be adjusted by HUD on at least an annual basis in order to
accurately reflect changes in fair market rental values.
To be eligible for subsidies, the housing units must be rented to
"lower-income families" or "very low-income families" at the time of their
initial occupancy. Very low-income families are defined as families whose
incomes do not exceed 50% of the median income in the area; "lower- income
families" are defined as families whose incomes do not exceed 80% of the median
income in the area. HUD may vary these income ceilings for smaller or larger
families or in cases where the area median income is unusually low or high. For
purposes of Section 8 subsidies, the term "families" includes single-person
households in the case of a person who is elderly, disabled, handicapped,
displaced by government action or natural disaster or the remaining member of a
tenant family or a family headed by a person on active military duty. Statutory
amendments enacted in 1981 reserve most subsidized housing for "very low-income
families."
Tenants pay the project owners a set portion of their income as rent. The
percentage of income varies depending on the size of the family and its income
level. The rent paid is the highest of the following amounts: (1) 30% of the
family's monthly income after certain adjustments; (2) 10% of the family's
monthly income; or (3) if the family is receiving public assistance and part of
the payments is specifically designated by the welfare agency for housing, the
portion of those payments so designated. The project owner is responsible for
the collection of the tenants' rental payments. Thus, the total rental income
from subsidized housing units payable to a Local Partnership is equal to the
Contract Rent, with part of the Contract Rent being met by direct tenant
payments and the remainder being the subsidy paid to the project owner by HUD.
Owners may not lease more than ten percent (10%) of the assisted units in a
project to ineligible families without the prior approval of HUD. Violation of
this requirement is a violation of the HAP Contract and grounds for legal
action, including specific performance of the contract, suspension or debarment
from HUD and reduction of the number of units under the contract.
Housing subsidized by HUD under Section 8 must meet certain HUD standards of
safety and sanitation, and rents for these units must fall within the range of
fair market rents as determined by HUD. Section 8 rental assistance may be
available for existing housing, in new construction and in moderately or
substantially rehabilitated units. The HAP Contract and related agreements
contain numerous undertakings on the part of the project owner, including
maintenance of the project as decent, safe and sanitary housing and compliance
with a number of requirements typical of federal contracts (such as those
relating to nondiscrimination, equal employment opportunity, relocation,
pollution control and labor standards). Non-compliance by the project owner
might endanger the payment of the federal subsidy. The management duties of the
owner are detailed
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in the regulations. The owner is responsible for marketing, selection of
tenants, reexamination of family incomes, evictions and other terminations of
tenancy, collection of rent and repair and maintenance. The owner must also
establish and maintain a replacement reserve in an interest bearing account to
aid in funding extraordinary maintenance and repair and replacement of capital
items.
Generally, the Section 8 subsidy is payable with respect to the dwelling unit
only when it is occupied by a "very low-income" or "lower-income" family.
However, in the case of projects that received HAP Contracts when they were
newly constructed or substantially rehabilitated, if a vacancy occurs during the
course of the lease and the vacancy is not the fault of the owner, the owner may
receive payments in the amount of 80% of the Contract Rent for 60 days. If the
vacancy continues for more than 60 days and the owner has fulfilled certain
requirements, he may receive payments equal to debt service attributed to the
vacant unit for up to 12 additional months.
In all cases, the payments are reduced by the amount of any rent collected by
the owner and are payable only if the tenant has vacated the unit in violation
of his or her lease or tenancy agreement. In order for a project owner to
receive these vacancy payments, it must fulfill certain requirements outlined in
the applicable statutes and regulations.
Amendments to Section 8 adopted in 1987 permit public housing authorities
that allocate Section 8 subsidies to attach up to 15% of their Section 8
certificates to specific housing projects within their jurisdiction. The purpose
of the 1987 amendments was to assure owners of Section 8 subsidized projects of
a certain level of subsidy payments regardless of the level and timing of tenant
turnover. Another purpose of the 1987 amendments was to encourage the owner to
construct or rehabilitate rental housing for very low income families at rents
within HUD-established fair market rentals for the area.
If over a period of time a significant number of units in a Section 8 project
are not leased to eligible tenants, HUD may reduce the number of units covered
by the Section 8 contract. HUD may later restore reductions previously made if
there is a demand for the units, if contract authority is available and if the
project owner otherwise has a record of compliance with the HAP Contract.
The distributions of project revenues to profit-motivated owners of certain
newly constructed projects cannot exceed a 10% annual return on stated equity
(defined by HUD as 10% of the HUD-certified replacement cost of the project), as
adjusted by HUD. In the case of projects limited to occupancy by elderly
residents, the owner's return is limited to 6% of stated equity. Funds in excess
of those which may be distributed to owners are placed in a residual receipts
account. If project funds are insufficient
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to pay a year's allowable return, the shortfall may be made up from such account
in later years.
The 1989 Act provides that Apartment Complexes that receive assistance under
the Section 8 "moderate rehabilitation" program authorized by Section 8(e) (2)
of the U.S. Housing Act of 1937 are not eligible for Housing Tax Credits, unless
an allocation of Housing Tax Credits was made by a state credit agency to the
Apartment Complex for a calendar year prior to 1990. Accordingly, the General
Partner anticipates that few, if any, Apartment Complexes in which the
Partnership acquires an interest will receive Section 8 "moderate
rehabilitation" assistance.
Section 101 of the Housing and Urban Development Act of 1965 provides for
federal payments directly to the owners of certain rental housing properties to
supplement the rent paid by tenants who otherwise would be unable to afford such
dwelling units. Such supplemental payments may be made on behalf of 20-40% of
tenants in a development under the 236 program and any percentage of tenants in
one under the 221(d) (3) program. Each tenant pays 30% of his or her adjusted
income toward rent. The federal government pays the owner the difference between
the basic rent and the tenant's contribution but in no event more than HUD's
contractual obligation. If a Rent Supplement tenant's income rises, he or she
continues to pay 30% of his or her income toward rent, resulting in an increase
in payments by the tenant and a reduction in the government supplement. HUD may
offer to convert 40-year, fixed sum Rent Supplement contracts to shorter term
Section 8 contracts. New rent supplement contracts are no longer available.
The FmHA rental assistance program, used in conjunction with the FmHA Section
515 program described above, is authorized under Section 521(a) of the Housing
Act of 1949, as amended, and provides an additional subsidy for rural families
and elderly households whose incomes are too low to pay the FmHA interest credit
subsidized rent from their own resources. The rental assistance program
supplements the benefits of the interest credit program by subsidizing the
difference between 25% of the tenant's adjusted income and the amount of rent
payable when a development's FmHA loan is repayable at an interest rate of 1%.
Any low-income family, low-income senior citizen or handicapped person unable to
pay the basic monthly rental rate for an eligible FmHA apartment with 25% of its
adjusted monthly income is eligible for rental assistance.
The rental assistance payment is the difference between 25% of the tenant's
adjusted income and the approved rental rate. The rental rate is determined on
the basis of principal and interest payments of the property mortgage loan,
operation and maintenance costs, required deposits to reserve accounts and a
return on the owner's investment, as allowed by FmHA regulations.
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The cost of utilities is included in the operation and maintenance expenses,
which in turn are included in the approved rent. If utilities are paid directly
by the families, a utility allowance is approved by FmHA to cover the cost of
utilities, except telephone and cable television, and individual metering is
required. The amount of the utility allowance is deducted from the tenant rental
payment to the owner of the complex. If the utility allowance is greater than
25% of tenant income, the owner of the complex must supplement the tenant's
contribution with rental assistance funds in a sufficient amount to cover the
utility allowance. This payment is made when the tenant provides the owner with
evidence that utility bills are due or have been paid.
For a new construction or substantially rehabilitated housing development,
FmHA and the owner execute a 20-year agreement in which FmHA commits payments on
behalf of tenants in a designated number of the apartments. The effective date
of the agreement is the first day of the month in which it is executed.
Additional apartments subsequently may be covered if they are applied for, funds
are available and a rider to the agreement is executed. The additional
apartments are covered until the expiration of the initial 20-year term. Upon
expiration, the agreement may be extended for a period of up to five years. In
the agreement, both FmHA and the owner agree to be bound by all applicable FmHA
regulations.
Local Partnerships may also seek to participate in a variety of programs that
the federal government has established that provide funds to local governments
to be used in the assistance of needy communities. The principal programs of
this nature include the Urban Development Action Grant ("UDAG") program, the
Housing Development Grant ("HODAG") program and the Community Development Block
Grant ("CDBG") program.
The UDAG program assists cities and urban counties which are found by HUD to
be experiencing severe economic distress, in order to help stimulate the
economic development activity that may be needed to aid in local economic
recovery. HUD endeavors to provide that stimulus through a combination of public
and private investments in economic development projects. HUD generally requires
that the private sector's financial commitment be secured by the community prior
to preliminary HUD approval of a UDAG project. Communities which do not meet the
distress criteria may qualify for UDAGs if they are found by HUD to contain
distressed areas defined as "Pockets of Poverty." The community must meet
special eligibility criteria and plan to target the UDAG assistance and benefits
to the residents of the "Pocket" area.
The HODAG program was established by the Housing and Urban-Rural Recovery Act
of 1983, pursuant to which HUD is authorized to provide a "front end" grant from
the federal government to a unit of local government, from which grant the unit
of local government may make a grant or loan to provide financial assistance,
including interest reductions, to entities which construct or substantially
rehabilitate apartment complexes.
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Such grants are available to areas that HUD determines have severe shortages of
decent rental housing for families and individuals without reasonable and
affordable housing alternatives. Such grants are awarded on a nationally
competitive basis. The owner of the apartment complex receiving HODAG funds is
required to rent 20% of the units to tenants who meet the Section 8 eligibility
test. Thus, 20% of the units must be dedicated to families whose incomes do not
exceed 80% of the median income of the area. In addition an apartment complex
cannot be converted to condominiums for 20 years.
In renting units, owners may not discriminate against prospective tenants
because of their eligibility for, or receipt of, housing assistance under any
federal, state or local housing assistance program, or because such tenants have
children.
The owner and grantee must enter into an agreement requiring the owner to
comply with certain statutory and regulatory restrictions. The grantee is
responsible for assuring that the owner complies with the agreement. HODAG
assistance constitutes a debt of the owner (including its successors in
interest) to the grantee, which is repayable in the event of the owner's failure
to comply with the agreement. In the event of an uncorrected violation, the
owner will be required to pay the grantee an amount equal to the total amount of
the housing development grant assistance, plus interest thereon at a rate which
is determined by HUD based on the federal government's borrowing rate, less 10%
for each year in excess of 10 years from the effective date of the agreement.
The owner's contingent debt must be secured by a security instrument. In
addition, certain requirements are imposed as covenants running with the land or
deed restrictions for the term of the project as defined in the grant agreement.
The CDBG program distributes 70% of its available funds through annual
"entitlement" grants on a formula basis to metropolitan cities and urban
counties. The remaining 30% is distributed either by states electing to
administer their own "small cities" programs or by HUD on a competitive basis.
Cities and urban counties ("Grant Recipients") must give maximum feasible
priority to CDBG activities which either benefit low- and moderate-income
persons, aid in the elimination of slums and blight or address urgent needs of
the community. The terms and conditions of the grant or loan of CDBG funds from
a Grant Recipient to a developer are negotiated between the Grant Recipient and
the developer and are generally similar to those required under the UDAG
program.
In certain instances, the subsidy provided by the foregoing programs,
particularly the UDAG and HODAG programs, will be in the form of concessionary
first mortgage financing. Often the terms of such financing provide for the
payment of interest only to the extent of available cash flow from the financed
project after payment of first mortgage debt service, and for the forgiveness of
the principal amount of the debt to the extent that the proceeds of the
disposition of the financed project are not sufficient
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to repay it. In return, the terms of such financing often provide for the
payment of a significant share of any gain on the sale or other disposition of a
financed project to the agency providing the financing. Because of the favorable
terms under which UDAG and HODAG financing is generally provided, the amount of
such financing is required to be deducted from the amount of eligible cost basis
that would otherwise exist for the purposes of computing the level of available
Housing Tax Credits.
The HOME Investment Partnership Program ("HOME") is authorized by the
Cranston-Gonzalez National Affordable Housing Act of 1990 and was revised by the
Housing and Community Development Act of 1992.
HOME funds, which are allocated by HUD on a formula basis to participating
state and local governments, can be used by such governments to expand the
supply of affordable housing and to increase the number of households which can
be served by housing assistance programs. Funds can be used for acquisition, new
construction, moderate or substantial rehabilitation activities or for
tenant-based rental assistance programs. Participating jurisdictions are allowed
to use HOME funds for equity investments, interest-bearing or
non-interest-bearing loans or advances, interest subsidies or such other forms
of assistance as HUD deems are consistent with the purposes of the law.
State and local governments are required to meet matching requirements from
non-federal sources in order to qualify for HOME funding. These requirements are
a 30% match for new construction and 25% for rehabilitation and all other
activities. However, HUD is authorized to reduce the matching requirement by 50%
for jurisdictions in "fiscal distress" and by 100% for jurisdictions it
certifies are in "severe fiscal distress."
Apartment complexes which are assisted with HOME funds must be occupied by
low-income families (those whose incomes do not exceed 80% of area median
income, adjusted for family size), with the further condition that at least 20%
of the dwelling units must be occupied by very low- income families (those whose
incomes do not exceed 50% of the area median income, adjusted for family size)
who pay rent equal to no more than 30% of their adjusted income or rent equal to
30% of a family having an income of 50% of area median income. Remaining units
must generally be rented at amounts which do not exceed the lesser of (i) the
existing fair market rent under the HUD Section 8 program or (ii) an amount
equal to 30% of the adjusted income of a family whose income is 65% of the area
median income, adjusted for the number of bedrooms in the unit.
Normally, tenants who occupy HOME-assisted housing, but whose incomes rise so
that they no longer qualify as low-income, are required to pay as rent the
lesser of 30% of the family's adjusted monthly income, as recertified annually,
or "the amount payable by the tenant under State or local law." The foregoing
provision, however, does not apply to tenants of units that have been allocated
Housing Tax Credits.
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Government assistance, whether in the form of a direct subsidy or a mortgage
support program, can in many cases expire or be terminated prior to the
Compliance Period with respect to the Property that benefits from the assistance
(which could occur through no fault of the Partnership or the Local Partnership
that owns the Property). If the Local Partnership is unable to compensate for
the government assistance that expired or was terminated, the Local Partnership
(and therefore the Partnership and the BACs holders) could suffer adverse
economic and tax consequences, including recapture of Tax Credits previously
claimed with respect to the Property owned by the Local Partnership. See "Risk
Factors--Risks Related to the Local Partnership Investments."
Identification of Investments
At the date of this Prospectus, the Partnership has not identified any Local
Partnerships for investment by the Partnership. During the period of the
Offering, and until the Net Proceeds of the Offering are invested in Properties
(to the extent not held in Reserves) or are returned to BACs holders, the
General Partner will be engaged in the effort to identify suitable Local
Partnership investments in accordance with the objectives and policies outlined
in this Prospectus. The Partnership will limit its investments to Properties
eligible to recognize Housing Tax Credits under existing law and, if the
existing statutory provisions are amended in a way that in the judgment of the
General Partner does not materially adversely affect the economic results of the
Housing Tax Credit provisions to an investor such as the Partnership, to
Properties eligible to recognize Housing Tax Credits under the law as amended.
If the Housing Tax Credit provisions of existing law are amended prior to full
investment of the Net Proceeds of the Offering in a way that in the judgment of
the General Partner materially adversely affects the economic results of the
Housing Tax Credit provisions to an investor such as the Partnership, the
Partnership will not invest in Properties that are not eligible to recognize
Housing Tax Credits under existing law. The enactment of legislation that in the
General Partner's judgment materially adversely affects the economic results of
the Housing Tax Credit provisions to an investor such as the Partnership would
limit the availability of investments to the Partnership and the diversity of
the Partnership's investments.
Structure of Local Partnerships
The General Partner expects that each Property in which the Partnership
invests will be owned at the time of investment by a Local Partnership
established by the previous owner or developer of the Property. However,
investments in Existing Complexes may be made through the establishment by the
Partnership of a new Local Partnership that subsequently acquires title to the
Existing Complex and certain acquisitions may be made in still other investment
formats (see "Structure of Acquisitions" below). Generally, Local Partnerships
are expected to be limited partnerships organized under the laws of the state in
which the Property is located and
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having one or more general partners and one or more limited partners. In certain
circumstances, the Local Partnership may be a limited liability company in which
the developer or affiliate of the developer will be a member with primary
management responsibilities and the Partnership will be a member with limited
rights at least equal to the rights the Partnership and the Special Limited
Partner would have if such Local Partnership were a limited partnership. None of
the Local Partnerships in which the Partnership will invest will be partnerships
or limited liability companies established by Affiliates of the General Partner.
See "Risk Factors--Risks Related to the Local Partnership Investments." In the
case of Development- Stage Complexes and Historic Complexes, the Local General
Partner, which may include a member with primary management responsibilities if
the Local Partnership is a limited liability company, is likely to be the
developer of the Apartment Complex or the sponsor of the rehabilitation program,
and the limited partners or other members may be one or more individuals or
entities who have furnished any initial capital required for the commencement of
construction or rehabilitation. In the case of Existing Complexes where the
Partnership acquires a Local Partnership Interest, the Local General Partner is
likely to have been the sponsor of the ownership program through which the
Apartment Complex is owned, and the members or limited partners are likely to
have been the providers of the capital for the acquisition and ownership of the
Apartment Complex. Where the Partnership establishes a Local Partnership to
acquire an Existing Complex, it is expected that the Local General Partner of
the entity selling the Existing Complex will also serve as the general partner
or member with primary management responsibilities of the new Local Partnership.
In certain cases, the Local Partnership may be a publicly- or
privately-syndicated program.
In the case of Local Partnerships that own Existing Complexes and
partnerships or limited liability companies that own Existing Complexes in
circumstances where the Partnership establishes a new Local Partnership to
acquire title to the Existing Complex from such entity, existing limited
partners or members may be passive investors and the Local General Partner may
be required to prepare and circulate an offering memorandum to its limited
partners soliciting their approval of the proposed sale of the Existing Complex
or Local Partnership Interest to the Partnership. In circumstances where
existing passive investors are the sellers of some or all of the Local
Partnership Interests to the Partnership, this requirement will implicate the
Partnership in the process of the purchase of the securities from the existing
passive investors. As a result, the Partnership may be exposed to liability
created by the failure of the Local General Partner to prepare an offering
memorandum that discloses all material facts with respect to such purchase or to
circulate the offering memorandum to all existing members or limited partners.
See "Risk Factors-- Risks Related to the Local Partnership Investments." To
protect the Partnership against liabilities that may arise in such
circumstances, the General Partner will
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require in connection with any acquisition of an interest in a Local Partnership
where the former limited partners or members of such Local Partnership are
deemed likely to have potential recourse to remedies under applicable securities
laws that (i) the Local General Partner represent and warrant that all material
facts concerning such proposed acquisition were disclosed to such former members
or limited partners, (ii) the Local Partnership and the Local General Partner
will indemnify and hold harmless the Partnership against losses and liabilities
arising out of the exercise by such former members or limited partners of any
such remedies, and (iii) the Local General Partner cause the Partnership to
receive an opinion of counsel to the Local General Partner to the effect that
the transactions resulting in the Partnership's acquisition of an interest in
such Local Partnership were conducted in accordance with applicable securities
laws and that such counsel is not aware of material facts relating to such
transactions that were not disclosed to such former limited partners or members.
The General Partner expects that each Property in which the Partnership
invests will be managed by a managing agent selected by the Local General
Partner. Such managing agent may be an Affiliate of the Local General Partner
(and the managing agent of a Property may, in cases approved by the General
Partner, be an Affiliate of the General Partner). The level of compensation for
the management agent's services is expected to vary, and may be subject to
limitations imposed by the existing underlying financing of the Property.
Property management fees payable to such managing agents that are Affiliates of
the General Partner will be limited to 5% of the gross revenues of the Property
annually. The General Partner expects to favor management arrangements having
required performance standards for management agents who are not affiliates of
the General Partners. Where possible, the General Partner will endeavor to
obligate management agents to defer a portion of their management fees to the
extent necessary to enable existing revenues from the Property to cover debt
service and operating expenses other than management fees. The General Partner
expects that most arrangements with managing agents will not obligate the Local
Partnership for periods longer than one to three years and will be terminable by
the Local Partnership without penalty or other payment obligations at the
conclusion of their term.
There may be instances where, following the acquisition by the Partnership of
a Local Partnership Interest, the General Partner (or Affiliates thereof) may
assume the role of Local General Partner. The General Partner or such Affiliate
will not be entitled to any compensation or fees for any such assumption of the
role of the Local General Partner other than the interest to which it would have
been entitled had the General Partner or such Affiliate acted as Local General
Partner from the outset (including management fees not exceeding 5% of the gross
revenues of the Property in any year if an Affiliate of the General Partner is
engaged as the management agent for the Property). See "Compensation and Fees to
the General Partner and Affiliates."
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Structure of Acquisitions
The General Partner expects that most investments of the Partnership will be
structured as the acquisition of a Local Partnership Interest in an existing
Local Partnership.
The General Partner will provide consulting and monitoring services to the
Local Partnerships in connection with the selection and development of
properties. Those services may include: (i) identifying and analyzing each
Apartment Complex as an investment for the Partnership; (ii) performing
feasibility and economic analyses with regard to the acquisition and development
or rehabilitation budget and program; (iii) making recommendations to the Local
Partnership regarding the acquisition, rehabilitation and development of each
Apartment Complex; (iv) assisting the Local Partnership regarding the compliance
of the acquisition and development program with the laws and regulations
governing the Housing Tax Credits; (v) advising the Local Partnerships regarding
occupancy, maintenance and rehabilitation of each Apartment Complex so as to
insure strict compliance with the requirements of Section 42 of the Code and
qualification for the full amount of allocated Housing Tax Credits; (vi)
performing due diligence activities in connection with the admission of the
Partnership as the sole limited partner or member of the Local Partnerships, and
(vii) providing such other real estate development consulting services as may
have been reasonably requested by the Local Partnerships and the Local General
Partners to assist in the development or rehabilitation of the Apartment
Complexes.
The General Partner expects to structure most Partnership investments such
that, following the acquisition, the Partnership owns from 90% to 99% of the
interests in the Local Partnership owning the Property, the Special Limited
Partner owns an interest entitling it to a 0.01% interest in Tax Credits and a
1% interest in operating cash flow, and the balance of the economic interests in
the Local Partnership are held by one or more Local General Partners, with the
partners or members in the Local Partnership having the interests in Local
Partnership distributable cash and sale or refinancing proceeds described under
"Profits, Losses and Distributions-- Local Partnership Level."
In cases where a Local Partnership is a general partnership, it is
expected that the Partnership will acquire 90% to 99% of the general
partnership interests in the Local Partnership not described as being
allocable to the Local General Partner under "Profits, Losses and
Distributions-- Local Partnership Level." In cases where the Partnership
establishes a new Local Partnership to acquire an Existing Complex, it is
expected that the Partnership will make a capital contribution to the new
Local Partnership in an amount sufficient to pay the purchase price and
acquisition costs of acquiring title to the Existing Complex in exchange for
a similar Local Partnership Interest, and that the Local General Partner of
the selling partnership will become the general partner of the new Local
Partnership. The
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General Partner expects that each arrangement with a Local General Partner will
provide for the participation by such Local General Partner in a portion of the
sale or refinancing proceeds, if any, generated by the Property in which such
Local General Partner has an interest. The Local General Partner generally is
expected to receive its participation in the form of a percentage interest in
excess sale or refinancing proceeds after the distribution to the Partnership of
an amount thereof sufficient to return to the Partnership the amount of its
investment in the Local Partnership together with an allocable portion of the
Selling Commissions and Organization and Offering Expenses and other expenses
related to such investment or the amount of the Partnership's investment in such
Local Partnership and, where the General Partner deems it appropriate, a
negotiated return on such investment (provided that in no event will any Local
General Partner that was a partner of a Local Partnership owning an Existing
Complex prior to the Partnership's acquisition of its Local Partnership Interest
be entitled to receive more than 10% of the net Sale or Refinancing Proceeds of
the Property owned by such Local Partnership).
In connection with the acquisition of each investment, the General Partner
will negotiate with the Local General Partner (i) the purchase price to be paid
by the Partnership, (ii) in the case of the acquisition of Local Partnership
Interests in Local Partnerships owning Existing Complexes, (A) the proportion of
such purchase price to be paid to existing limited partners of the Local
Partnership as the purchase price for their limited partnership interest in the
Local Partnership and (B) the proportion of such purchase price that is to be
paid to the Local Partnership as a capital contribution, (iii) the proportion,
if any, of the Partnership's capital contribution to the Local Partnership that
will be required to be dedicated to the payment of indebtedness and the
proportion to repairs, replacements, rehabilitation and/or renovations of the
Property (or reserves to be applied thereto), (iv) the amount, if any, of a
development or other fee that may be distributed to the Local General Partner by
the Local Partnership following the investment therein of the Partnership, and
(v) the amount of the purchase price and/or the Partnership's capital
contribution to the Local Partnership to be applied to the payment of Consulting
and Monitoring Fees to the General Partner and expenses of the Partnership in
connection with its acquisition of the Local Partnership Interest. A significant
portion of the purchase price paid by the Partnership will pay development fees
(that is, gross profits) to the Local General Partner. While the amount of
development fees to be paid to the Local General Partner will be the subject of
negotiation, it is generally expected that development fees paid to the Local
General Partner will be in the range of 15%-20% of total development costs.
It will generally be the policy of the Partnership to require that each Local
General Partner and/or Local Partnership pay the cost of the Partnership
obtaining, at the closing of any acquisition, (i) a real estate appraisal of the
Property conducted by an independent appraiser indicating that the fair market
value of the Property (or the Partnership's interest therein), taking
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into account the value of the Housing Tax Credits associated with the Property
or such interest, within approximately six months prior to the time of the
Partnership's acquisition is at least equal to the sum of the Partnership's
acquisition price (including the amount of any capital contribution made by the
Partnership to the Local Partnership, and the remaining amount of any mortgage
debt encumbering the Property), (ii) a policy of title insurance insuring the
title of the Local Partnership to the Property subject only to customary
exceptions, and (iii) an engineering report containing an evaluation of the
existing structural and other physical components of the Property. The
obligation of the Local General Partner and/or the Local Partnership to bear the
costs of satisfaction of such conditions may be expected to increase the price
to the Partnership for its acquisition of Local Partnership Interests. In
certain cases the Partnership may agree to bear the costs of satisfaction of
such conditions itself. See "Estimated Use of Proceeds."
Where an Apartment Complex is subject to a mortgage that is either insured or
held by HUD, it is likely that the acquisition of an Apartment Complex or a
Local Partnership Interest will require the approval of HUD in the form of a
"Transfer of Physical Assets" ("TPA") approval. Consequently, it can be expected
that the acquisition of an interest in an Apartment Complex benefitting from any
of the mortgage insurance programs under Section 221(d) (3) or (4), Section
223(f) or Section 236 of the National Housing Act will require TPA approval. It
is also possible that the acquisition of an interest in an Apartment Complex
that is the beneficiary of other financial assistance programs administered by
HUD will require TPA approval. The General Partner expects that it will often be
to the benefit of the Partnership to close the acquisition prior to the time
when final TPA approval is received, especially in cases where the acquisition
is scheduled to close before the end of a calendar year and it is not likely
that TPA approval will be received until the following year. In such
circumstances, the General Partner expects to require the selling Local
Partnership (or its partners) to escrow 100% of the consideration paid by the
Partnership (or to require that such selling Local Partnership or partners
provide a financial bond, letter of credit, or similar security device), and to
require that the Partnership receive a payment equal to the full amount of such
consideration if TPA approval is not received in a timely fashion and on no
material conditions other than those contemplated by the General Partner or that
the Local Partnership is reasonably able to bear. Although mechanisms such as
these can protect the Partnership from a loss of the consideration paid by the
Partnership in respect of a Local Partnership Interest as a result of the
failure to obtain TPA approval, such a failure would delay (and potentially
reduce or deny altogether the benefit of) the recognition of Tax Credits by the
BACs holders in respect of such Local Partnership Interest.
The closing of each acquisition will also be subject to the allocation by the
applicable state credit allocation agency of Housing Tax Credits at the level
contemplated by the General Partner in structuring the acquisition
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(unless the Property was at least 50% financed through the proceeds of
tax-exempt bonds subject to state volume caps and was placed in service after
1986). See "Low-Income Housing and Historic Rehabilitation Tax
Credits--Low-Income Credit Subject to State Allocation." The Partnership (with
the consent of the state credit agency) may elect to compute its annual Tax
Credits in respect of a Property by reference to the applicable credit
percentage for the month in which a binding agreement as to the Property's
credit allocation is entered into between the Partnership and the state credit
agency, rather than by reference to the applicable credit percentage at the
"placed in service" date. In the appropriate circumstances, the use of such an
election would permit the Partnership to be sure of the applicable credit
percentage at the time the binding allocation agreement is entered into, even if
the closing of the acquisition or the "placed in service" date does not occur
until the following calendar year.
If construction or rehabilitation of a Development-Stage Complex is not
complete at the time the Partnership acquires a Local Partnership Interest in
the Local Partnership owning it, the General Partner generally expects that only
approximately 30% of the Partnership's total cash purchase price for its Local
Partnership Interest will be paid at the time of the closing of such
acquisition, with the balance to be paid at completion of construction or
rehabilitation. The General Partner will endeavor to require that, as a
condition to receipt of such amount, the Local General Partner provide
construction completion guarantees and/or agree to repurchase the interest of
the Partnership in the Local Partnership if completion of construction or
rehabilitation is not achieved in a manner that is sufficiently timely and on
budget so as to not prejudice the interests of the Partnership (and, where the
General Partner believes that additional security is necessary, to require that
the Local General Partner secure the completion guarantee obligation through the
establishment of personal guarantees, a cash escrow, financial bond, or letter
of credit in the amount necessary to repurchase the Partnership's interest if
necessary). The General Partner generally expects that upon completion of
construction or rehabilitation and payment of the balance of the acquisition
price, a liquidated damage provision will become applicable that will entitle
the Partnership to the payment of an amount equal to up to approximately 30% of
the aggregate consideration paid by the Partnership for its Local Partnership
Interest if the Apartment Complex is not rented up through the leasing of an
appropriate percentage of apartments to qualified tenants and/or fails to
achieve sustaining rental occupancy within stated periods after the closing.
It is inherent in the Partnership's investment objective of acquiring Local
Partnership Interests in Local Partnerships owning Properties eligible for Tax
Credits that there is a possibility that, due to circumstances beyond the
control of the General Partner, a portion of the Tax Credits previously
recognized by the Partnership will be subject to recapture (and, if the
circumstances involve a disposition of the Properties, that a portion of any
passive losses allocated to the Partnership would also be recaptured to the
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extent actually utilized in reduction of tax basis in the Properties) with the
result that BACs holders would be required to pay additional federal income tax
and interest with respect to recaptured Tax Credits. See "Low-Income Housing and
Historic Rehabilitation Tax Credits--Recapture of Low- Income Tax Credits."
Certain recapture events may occur at a time when the Partnership does not have
Cash Flow or Sale or Refinancing Proceeds available for distributions to BACs
holders. Accordingly, the General Partner expects to include in each acquisition
agreement and Local Partnership Agreement provisions designed to protect the
Partnership from the consequences of recapture events that are outside of the
control of the General Partner. Recapture events in this category are expected
to include casualties resulting in the substantial destruction of a Property and
the failure of Local General Partners to maintain the qualification of the
tenant base and rent levels of an Apartment Complex at levels meeting the
applicable qualification criteria for Housing Tax Credits. There can be no
assurance that such provisions will be effective in avoiding such recapture
events.
To protect against recapture occurring as a result of substantial destruction
of the Apartment Complex, each Local General Partner will be required to insure
the Apartment Complex at levels that will permit the substantial reconstruction
of the Apartment Complex following any such casualty. The application of
insurance proceeds to the reconstruction of an Apartment Complex should be
sufficient to avoid recapture of previously claimed Housing Tax Credits if the
reconstructed Apartment Complex meets the criteria applicable to eligible
Apartment Complexes. However, there can be no assurance that Local General
Partners will comply with their obligation to insure against casualties at the
requisite level, either because revenue levels from the Apartment Complex do not
permit the payment of necessary premiums or because insurance conditions
generally make it uneconomic to obtain such insurance, nor can there be any
assurance that any consent to reconstruct an Apartment Complex that is required
to be obtained from a lender or governmental authority will be forthcoming. See
"Low-Income Housing and Historic Rehabilitation Tax Credits--Recapture of
Low-Income Tax Credit" and "--Historic Rehabilitation Tax Credit." To mitigate
the effects of a recapture of Housing Tax Credits occurring by reason of the
actions of a Local General Partner resulting in a disqualification of the
Apartment Complex or a diminution in previously-claimed Housing Tax Credits, the
General Partner will endeavor to include in the Partnership's acquisition
agreement with each Local Partnership a provision adjusting the relative
interests in Local Partnership distributable cash or sale or refinancing
proceeds of the Partnership on the one hand and the Local General Partner on the
other to take account of any such recapture.
The terms of each acquisition agreement governing adjustments in respect of
the recapture of Housing Tax Credits are expected to be the subject of
negotiation with Local General Partners, and to vary from Local Partnership to
Local Partnership. If possible, the General Partner may in negotiating such
adjustments take account of the time value of money, and
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other relevant economic factors. The extent to which the burden of recapture of
Housing Tax Credits can be made up to BACs holders as a result of such
adjustments will depend to a large extent on the performance of the Apartment
Complex (and hence the extent to which any adjustments in the respective
interests of the Partnership and Local General Partners will have practical
effect). The General Partner does not anticipate that any adjustments made to
take account of the recapture of Tax Credits will result in the Partnership
having excess Cash Flow to distribute to BACs holders to apply to the payment of
resulting tax liabilities. Accordingly, BACs holders should expect to fund their
tax liabilities in respect of any recaptured Tax Credits from sources other than
distributions by the Partnership.
The Partnership expects to acquire interests in three types of Properties,
i.e., Existing Complexes, Development-Stage Complexes, and Historic Complexes.
The General Partner expects that the Partnership's investments will be
principally composed of interests in Local Partnerships owning Development-Stage
Complexes, and that investments in Local Partnerships owning Existing Complexes
and Historic Projects will be made to a lesser extent. In cases where the
General Partner has reason to believe that past financial problems can be
avoided in the future, the Partnership may invest in Properties that suffered
financial distress under their former owners or debt structure or in certain
Local Partnerships that have been reorganized under federal or state laws for
the protection of creditors' rights. It will be the policy of the Partnership
not to dedicate more than $20 million to any single acquisition.
Acquisition of Development-Stage Complexes
The General Partner expects that the principal portion of the Partnership's
investments will be in Development-Stage Complexes. It will generally be the
policy of the Partnership to invest in Development-Stage Complexes only at the
time construction or rehabilitation is complete or where the Partnership
receives assurances that construction or rehabilitation of the Apartment Complex
will be completed within one and one-half years after the date of the
Partnership's investment, subject only to circumstances outside the control of
the developer Local General Partner. The date on which a Development-Stage
Complex is "placed in service" for purposes of the Housing Tax Credits may
affect the value of the Housing Tax Credits to the Partnership. The aggregate
level of Housing Tax Credits to which a taxpayer is entitled is required to be
computed on a "present value" basis according to the calendar month in which a
low-income housing project is placed in service for Housing Tax Credit purposes.
The annual Housing Tax Credit percentage of "qualified basis" to which the
Partnership would be entitled in respect of Properties placed in service after
1987 will be determined by the applicable federal interest rates for the month
in which the Property is placed in service. See "Low-Income Housing and Historic
Rehabilitation Tax Credits--Qualifying Low-Income Projects." The Local
Partnership with the consent of the state credit agency may elect to apply the
credit percentage applicable for the month in which a binding
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agreement with the state credit allocation authority with respect to an
Apartment Complex is entered into in lieu of the applicable credit percentage
for the date on which the Apartment Complex is placed in service.
The Partnership believes that it will be able to meet its investment
objectives with respect to Properties that do not participate in Conventional
Government Subsidy Programs to a greater extent than with respect to
conventionally subsidized Properties and that the opportunities to invest in
non-subsidized Properties will most likely arise from Development- Stage
Complexes. The Partnership further anticipates that where it acquires an
interest in a non-subsidized Development-Stage Complex, such complex will most
likely be located in an area with relatively low construction or acquisition
costs and relatively high median income. The combination of these two factors
can result in the Local Partnership being able to assume the debt service on a
mortgage that has near-market terms. Mortgage financing of non-subsidized
Development-Stage Complexes will be designed to minimize the interest rate risk
to the Local Partnership, by providing for a fixed interest rate, a fixed
interest rate that converts into a rate that is variable only within certain
parameters, or an interest payment obligation only to the extent of excess cash
flow generated by the Property. The mortgage financing of Development-Stage
Complexes, whether the Property receives direct government subsidies or not, may
also benefit from government mortgage assistance programs. See "Financing
Structure; Non-Subsidized Local Partnerships; Government Subsidy Programs"
above.
In general, investments in Development-Stage Complexes will be subject to the
risks that construction or rehabilitation will not be completed as scheduled or
in accordance with the construction or rehabilitation budget of the Local
General Partner. In addition, because the composition of the tenant population
of a Development-Stage Complex is not likely to have been established prior to
the time the Partnership acquires a Local Partnership Interest in the Local
Partnership owning it, there will be a risk that the Local Partnership will fail
to meet the set-aside tests giving rise to Housing Tax Credits. The lack of an
operating history with respect to Development-Stage Complexes also creates the
risk that rental tenancy levels will not be sufficient to enable the Local
Partnership to service its debt obligations on a current basis and cover all
operating expenses.
To protect the Partnership against the risk that completion of construction
or rehabilitation of a Development-Stage Complex will not occur on time or on
budget, the General Partner expects to cause the Partnership to pay no more than
30% of the aggregate purchase price in respect of its Local Partnership Interest
at the time the closing of the acquisition takes place, and the General Partner
will endeavor to require each Local General Partner responsible for construction
or rehabilitation of a Development- Stage Complex to provide completion
guarantees and/or to undertake to repurchase the Partnership's interest in its
Local Partnership if construc-
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tion or rehabilitation is not completed substantially on time and on budget (in
the case of failure to complete on budget, the Local General Partner may elect
to pay such excess amount itself, without reimbursement). The General Partner
will endeavor to secure such completion guarantees through the establishment by
the Local General Partners of personal guarantees, cash escrows, financial bonds
and/or letters of credit that will provide the amount of the payments necessary
to repurchase the Partnership's interest in the Local Partnership if completion
of construction or rehabilitation is delayed.
In addition, at the time construction or rehabilitation of a
Development-Stage Complex is complete and payment of any unpaid portions of the
Partnership's acquisition price of its Local Partnership Interest is made, the
General Partner expects that the Partnership's acquisition agreement with the
Local General Partner will provide for the payment to the Partnership of
liquidated damages in the amount of approximately 30% of the aggregate
consideration paid by the Partnership if the complex has not achieved sustaining
rental occupancy within a stated period of time after closing.
In cases where the General Partner obtains completion guarantees, repurchase
obligations and/or obligations to make liquidated damage payments (or personal
guarantees securing any of such obligations) from other than a financial
institution and, in the General Partner's judgment, the guarantee(s) may be
material to the Partnership, the General Partner will include the most recent
financial statements of the guarantor then available to the General Partner in a
supplement to this Prospectus. In the case of a guarantor that is a natural
person, such financial statements will be prepared in accordance with the
American Institute of Certified Public Accountants Guide to Personal Financial
Statements, and in the case of a guarantor that is an entity, such financial
statements will be prepared in accordance with generally accepted accounting
principles and accompanied by the report of a certified public accountant. The
General Partner will deem a guarantor's obligation to be material to the
Partnership when the maximum obligation of any such guarantor to the Partnership
exceeds 20% of the Gross Proceeds.
Acquisition of Existing Complexes
The General Partner anticipates that the Partnership will invest a small
portion of its Net Proceeds available for investment in Existing Complexes. The
acquisition of Existing Complexes can have the benefit of affording to the
General Partner a history of operations based upon which the ability of the
Apartment Complex to generate rental revenues equal to or in excess of its fixed
costs of operations (including debt service) can be evaluated. The disadvantages
that the Partnership may expect to incur with respect to the acquisition of
Existing Complexes are expected to include increased acquisition and closing
transaction costs, possible delays in obtaining necessary lender and regulatory
agency consents, and the possible reluctance
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of the Local General Partners of Local Partnerships owning Existing Complexes to
suffer the tax consequences that may be involved in the sale of fee title to
their Apartment Complexes.
Existing Complexes may include Apartment Complexes for which the existing
owner has claimed Housing Tax Credits for one or more years, and which have then
gone into default as a result of the inability of the owner to make current
payments on mortgage loans. The seller of such Existing Properties may be the
foreclosing mortgagee (or the Resolution Trust Corporation if the foreclosing
mortgagee is a failed financial institution). Such sellers are unlikely to be
willing to make extensive representations and warranties to the Partnership
regarding the Property, which will increase the Partnership's risk and "due
diligence" burden with respect to existing complexes of this kind. Existing
Complexes may also include Apartment Complexes not previously syndicated, but
held and operated by the developer for the purpose of recognizing Tax Credits
itself for one or more years before acquisition by the Partnership. The
Partnership may be able to purchase such an Existing Complex at a price lower
than that paid by the original owner, but will not be able to claim Housing Tax
Credits for the full ten-year period.
Certain Existing Complexes in which the Partnership expects to invest will
only be eligible for Housing Tax Credits if the previous owner thereof has held
them for at least 10 years (see "Low-Income Housing and Historic Rehabilitation
Tax Credits--Qualifying Low-Income Projects"). In such cases, certain special
risks may exist with respect to investments in Existing Complexes. Included
among such risks are the possibility that any existing financing used to
construct, develop or acquire an Existing Complex may fall due during the
15-year Compliance Period following the acquisition by the Partnership, and the
likelihood that any rental subsidies granted to the Local Partnership will
expire during such 15-year Compliance Period. In connection with any acquisition
of an interest in an Existing Complex where such possibilities exist, the
General Partner will evaluate the expected availability of financing at the time
existing underlying financing becomes due and the likely debt service level that
would be required to be maintained to service any refinancing of such underlying
debt, and will evaluate the existing and expected revenue levels generated by
the Apartment Complex in question before and after the end of any limited- term
rental subsidy program. No investment in an Existing Complex having underlying
financing or rental subsidy programs scheduled to end prior to the 15-year
Compliance Period following the Partnership's investment will be acquired unless
the General Partner reasonably believes that a refinancing of the underlying
debt will be possible at serviceable debt levels and/or that the revenue effect
of the termination of rental subsidy programs will not prevent the Apartment
Complex from generating revenues at levels sufficient to cover its operating
costs and debt service. There can, however, be no assurance that any necessary
refinancing will be able to be concluded at appropriate debt service levels when
existing underlying financ-
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ing becomes due, or that the termination of rental subsidy programs will not
leave the Apartment Complex with insufficient cash flow to cover its operating
costs and debt service. See "Risks Related to the Tax Credits" and "Risks
Related to the Local Partnership Investments" under "Risk Factors."
In certain circumstances, the Partnership may acquire an interest in an
Existing Complex from (or under an acquisition agreement assigned to the
Partnership by) a state agency or a qualifying charitable institution (a "Tax
Exempt Entity") one of the purposes of which is the fostering of low- income
housing. In this acquisition format, the owner of an Existing Complex that has
appreciated substantially in value is expected to have the objective of making a
charitable donation to the Tax Exempt Entity in the amount of a portion of the
appreciated value of the Existing Complex, and the Tax Exempt Entity is expected
to have the objective of advancing its purpose of fostering low-income housing
and realizing the donor's charitable donation without assuming the burdens of
ownership of the Existing Property for any material period of time. To
accomplish these objectives and achieve the Partnership's objectives with
respect to the Existing Property, (i) the donor is expected to negotiate and
conclude with the Tax Exempt Entity an assignable contract to convey the
Existing Property to the Tax Exempt Entity subject to the existing mortgage
financing, (ii) the Tax Exempt Entity is expected to negotiate with the
Partnership the terms on which the Tax Exempt Entity would assign its rights
under the contract to the Partnership in exchange for a purchase money note and
the assumption by the Partnership of the Tax Exempt Entity's obligations under
the contract (with the aggregate amount of the cash consideration paid, the
purchase money note and the mortgage debt assumed not exceeding the appraised
fair market value of the Existing Complex), and (iii) the Local Partnership is
expected to close the acquisition with the donor in accordance with its
agreement with the Tax Exempt Entity and the terms of the assumed contract. The
intended result is that the donor will be deemed to have made and the Tax Exempt
Entity to have received a charitable contribution in the amount of the value of
the purchase money note, and that the qualified basis of the Existing Complex
for purposes of computing the Housing Tax Credit will include the amount of the
purchase money note. It is expected that, in certain cases, instead of an
assignment of the contract to convey the Existing Complex, the donor would
convey title to the Existing Complex to the Tax Exempt Entity and the Tax Exempt
Entity would in turn convey title to the Existing Complex to the Local
Partnership. See "Low-Income Housing and Historic Rehabilitation Tax
Credits--Qualifying Low-Income Projects." This acquisition format involves
certain issues of whether the structure of the acquisition would be respected
for tax purposes, and (if the Tax Exempt Entity is not a governmental agency)
the risk of recapture of the portion of the Tax Credits generated by the
purchase money note if the note is not paid within 90 days after the end of the
Compliance Period with respect to the Existing Complex. See "Risk Factors--
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Risks Related to the Tax Credits" and "Low-Income Housing and Historic
Rehabilitation Tax Credits--Recapture of Low-Income Tax Credits."
Acquisition of Historic Complexes
The Partnership will consider the acquisition of Local Partnership Interests
in Local Partnerships owning Historic Complexes if the characteristics of the
Property and the terms of the Partnership's investment in the Local Partnership
are otherwise in conformity with the Partnership's investment objectives. The
General Partner expects that it may cause the Partnership to invest in Local
Partnerships owning Historic Complexes both in cases where the Property
previously served as a low-income residential project, where the Property
previously was a market-rate apartment building or where the Property was
previously put to non-residential use. It may be the case that the
rehabilitation of an Historic Complex was occasioned by the inability of the
Property to operate in a financially viable manner, particularly where the
structure was previously a market-rate residential property, and the Partnership
may acquire interests in Local Partnerships that have sought protection from
their creditors under federal or state bankruptcy laws. Financing for
rehabilitation work may be provided in part by the Partnership's capital
contribution, or may be in place prior to the Partnership's admission to the
Local Partnership. It will generally be the policy of the Partnership not to
invest in a Local Partnership engaged in the rehabilitation of an Historic
Complex unless the Partnership obtains assurances that the rehabilitation will
be completed and the Property placed in service within one year after the
Partnership acquires the Local Partnership Interest.
The General Partner expects that very few projects qualifying for the
Historic Rehabilitation Tax Credit will also be designed to serve as low-income
housing eligible for Housing Tax Credits. Accordingly, it may be the case that
the Partnership will not have any Historic Complexes in its portfolio.
Historic Rehabilitation Tax Credits are conditioned upon the certification of
the building as historic by the Department of the Interior. Because of the
sequence of historic certification by the Department of the Interior as compared
to the expected rehabilitation schedule of most Historic Complexes, it is not
expected that final certification will have been received prior to the time that
the Partnership acquires a Local Partnership Interest in the Local Partnership
owning the Historic Complex. Although the Partnership will take reasonable steps
to assure that at least preliminary historic certification approval has been
obtained from the Department of the Interior prior to investment, it is expected
that there will be a risk that final historic certification will not be received
in respect of a Historic Complex until after the Partnership has become a
limited partner in the Local Partnership. To protect the Partnership against the
risk that final Department of the Interior certification will not be received,
the General Partner will endeavor to obtain a guarantee from the Local General
Partner of a Local Partnership owning a Historic Complex that such final
certification will be received, and
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secure such guaranty through the provision of a personal guarantee, cash escrow,
financial bond and/or letter of credit in an amount sufficient to provide a cash
payment to the Partnership to compensate the Partnership for the Historic
Rehabilitation Tax Credits that will be unavailable to it should the final
certification not be received.
The amount of the Historic Rehabilitation Tax Credit is 20% of certified
rehabilitation expenditures (including expenses related thereto that may be
capitalized for federal income tax purposes), and it is a condition to
eligibility for such credits that the expenditures be more than $5,000 (and that
the aggregate amount of such expenditures exceed the adjusted basis of the Local
Partnership in the Historic Complex at the time the rehabilitation begins). The
credit is available in the year in which the structure is placed in service or,
in certain circumstances, in the year in which the expenditure is made. The Code
provides that Apartment Complexes can constitute both rehabilitation projects
for the purposes of the Historic Rehabilitation Tax Credit and low-income
housing for the purposes of the Housing Tax Credit, but that the qualified cost
basis for the Apartment Complex on which Housing Tax Credits may be calculated
must be reduced by the amount of Historic Rehabilitation Tax Credits so taken.
In the case of certain Historic Complexes, a Local Partnership may make a
charitable contribution of a facade easement, which is intended to qualify for a
charitable deduction. See "Low-Income Housing and Historic Rehabilitation Tax
Credits--Historic Rehabilitation Tax Credits."
The amendments to the legislation governing the Housing Tax Credit do not
eliminate the adjusted gross income test for eligibility of individuals to
recognize Historic Rehabilitation Tax Credits. Thus, only individuals with an
adjusted gross income of $200,000 or less (disregarding passive losses) may
fully utilize the Deduction Equivalent Amount of Historic Rehabilitation Tax
Credit. For individual taxpayers with adjusted gross incomes between $200,000
and $250,000, the rehabilitation credit amount usable against active or
portfolio income phases out ratably to zero. So long as the passive activity
limitation remains applicable to Historic Rehabilitation Tax Credits, the
Partnership will not make investments that are designed to generate Historic
Rehabilitation Tax Credits in excess of 5% of the aggregate Tax Credits expected
to be recognized by the Partnership over the Credit Period for all Properties.
The Partnership may acquire a Local Partnership Interest in a Local
Partnership owning a Property expected to qualify for Historic Rehabilitation
Tax Credits at a time when such Property has not received an allocation of
Housing Tax Credits. If the Partnership does so, and if the economic terms of
the Partnership's investment would meet the Partnership's criteria even if the
Property received no allocation of Housing Tax Credits, the Partnership would
expect to maintain its investment in such a Local Partnership even if no
allocation of Housing Tax Credits were received provided
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that the Local General Partner agreed to operate the Property in conformity with
the Compliance Period requirements during the applicable period.
Affiliates of the General Partner are the general partners of seven other
publicly-offered limited partnerships with investment objectives similar to
those of the Partnership. The following table sets forth for each of such
affiliated limited partnerships as of the date of this Prospectus the
percentages of its investment portfolio represented by Development-Stage
Complexes, Existing Complexes and Historic Complexes, and for such partnerships
in the aggregate the percentages of their total investment portfolio represented
by such types of complexes:
Liberty Liberty Liberty Freedom
Tax Credit Tax Credit Tax Credit Tax Credit
Plus L.P. Plus II L.P. Plus III L.P. Plus L.P.
---------- ------------ ------------- ----------
Development-Stage 47% 75% 63% 88%
Existing 38 6 12 3
Historic 15 19 25 9
---------- ------------ ------------- ----------
Total 100% 100% 100% 100%
Independence Independence Independence Seven-
Tax Credit Tax Credit Tax Credit Program
Plus L.P. Plus L.P. II Plus L.P. III Aggregate
---------- ------------ ------------- ----------
Development-Stage 94% 23% 100% 61%
Existing 0 31 0 21
Historic 6 46 0 18
---------- ------------ ------------- ----------
Total 100% 100% 100% 100%
See "Prior Performance Summary--Public Real Estate Limited Partnerships."
Mortgage Financing of Complexes and Acquisitions
The Partnership expects that each Property in which the Partnership invests
will be substantially mortgaged. The acquisition of Apartment Complexes or Local
Partnership Interests in Local Partnerships subject to the underlying financing
encumbering their Properties should enable the Partnership to claim Housing Tax
Credits based on the entire value of the Properties and not just the amount of
the Partnership's cash investment (see "Federal Income Tax Considerations--At
Risk Limitations").
In general, three types of financing may be used in connection with an
acquisition by the Partnership. The first type of financing is expected to be
underlying first mortgage financing that will have been arranged by the Local
General Partner and will be in place at the time of the Partnership's
acquisition. The second type of financing may be subordinate, second mortgage
seller financing provided by the selling limited and/or general partners of the
Local Partnership in connection with the Partnership's acquisition. Seller
financing is expected to be used only in two circumstances: (i) where the seller
is a not-for-profit entity owning an interest in an Existing Complex and the
General Partner believes the seller debt can
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be fully amortized during the applicable Compliance Period; or (ii) where a
state governmental agency is the seller of the Local Partnership Interest in a
Local Partnership owning an Existing Complex (see "Acquisition of Existing
Complexes" above). The terms of any applicable seller financing will be
negotiated in connection with each acquisition, and may include a variety of
terms, including provisions whereby interest is not due currently but accrues
over the term of the financing. The third type of financing may be subordinate
mortgage financing provided on concessionary terms by federal, state or local
housing or development agencies. Generally this type of financing will bear
interest at low rates and may only be repayable to the extent of available
proceeds of the sale of the property after the repayment of senior mortgage
financing. See "Investment Objectives and Policies--Financing Structure;
Non-Subsidized Local Partnerships; Government Subsidy Programs" and "Low-Income
Housing and Historic Rehabilitation Tax Credits."
Operating Deficit Guarantees
The General Partner expects to require in connection with certain
acquisitions that the Local General Partner undertake an obligation to make up
operating deficits that would otherwise be suffered by the Local Partnership
during a limited period of time following the Partnership's investment and up to
stated maximum dollar amounts. The period of time for which any such operating
deficit guarantees are expected to remain in place is generally expected to be
the period ending three to five years after the date of the Partnership's
investment, and the maximum amount that the Local General Partner is expected to
be required to contribute in respect thereof is expected to be set at the
greater of approximately 10% of the principal balance of the underlying first
mortgage financing of the Apartment Complex or an amount equal to the aggregate
anticipated operating expenses of the Local Partnership for up to the first two
years of stabilized operation of the Partnership's investment.
In negotiating the terms of the acquisition of a Local Partnership Interest
where the General Partner determines to require the Local General Partner to
furnish an operating deficit guarantee, the General Partner will also negotiate
the basis on which any amounts required to be contributed to the Local
Partnership by the Local General Partner will be repayable to the Local General
Partner. Generally, the General Partner expects that the terms of any such
repayment will be designed to provide an incentive to the Local General Partner
to cause the Local Partnership to generate net operating cash flow substantially
in excess of the level required to service the Local Partnership's debt and
cover operating expenses. For instance, the arrangement with a Local General
Partner might provide that amounts contributed by the Local General Partner
pursuant to its operating deficit guarantee obligation would be treated as a
non-interest bearing loan to the Local Partnership, repayable only to the extent
of 50% of cash flow of the Local Partnership after the Local Partnership has met
all of its debt service and operating expense obligations for any year, and to
the extent not so
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repaid, out of the proceeds of a sale or refinancing of the Property after a
payment of the principal amount of any debt encumbering the Property and the
payment of any voluntary loans made to the Local Partnership by any person
(including the Special Limited Partner or Affiliates thereof) in the interim
between the time that the Local General Partner complied with its operating
deficit guarantees and the time of such sale or refinancing.
Where an operating deficit guarantee, taken together with any other
guarantees provided by a single guarantor may, in the judgment of the General
Partner, be material to the Partnership and the guarantor is not a financial
institution, the General Partner will include the most recent financial
statements of the guarantor then available to the General Partner in a
supplement to this Prospectus. In the case of a guarantor that is a natural
person, such financial statements will be prepared in accordance with the
American Institute of Certified Public Accountants Guide to Personal Financial
Statements, and in the case of a guarantor that is an entity, such financial
statements will be prepared in accordance with generally accepted accounting
principles and accompanied by the report of a certified public accountant. The
General Partner will deem a guarantor's obligation to be material to the
Partnership when the maximum obligation of any such guarantor to the Partnership
exceeds 20% of the Gross Proceeds.
There may be investments that the Partnership makes with respect to which the
General Partner determines that it is not necessary or appropriate to require
the Local General Partners to provide an operating deficit guarantee. There can
be no assurance that Local General Partners will be able to comply with their
obligations to make up operating deficit guarantees at such time, if any, as
their Local Partnerships suffer operating deficits. See "Risk Factors--Risks
Related to the Local Partnership Investments."
Rights of Special Limited Partner
It will be a condition to each Partnership investment that (a) Independence
SLP IV L.P. become the Special Limited Partner of the Local Partnership which is
a limited partnership and have at a minimum, (b) the Partnership as general
partner of a Local Partnership that is a general partnership retain at a minimum
or (c) the Partnership or Independence SLP IV L.P. as a member of a Local
Partnership which is a limited liability company have at a minimum, subject, in
each case, to required governmental consents and consent of lenders, the
following rights:
(i) the right to approve the withdrawal of a Local General Partner and the
admission of a successor Local General Partner;
(ii) the right to remove a Local General Partner from a Local Partnership
with or without cause, subject to certain limitations and the opportunity to
remedy defaults in the event that the Local General Partner violates the
partnership agreement or limited liability company agreement of the Local
Partnership in a material respect;
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(iii) the right to receive information and/or reports with respect to the
financial and physical condition of the Property owned by the Local Partnership,
which shall include without limitation financial statements of the Local
Partnership and the right to examine the books and records on behalf of the BACs
holders and Limited Partners;
(iv) the right to assume the duties and position of the managing general
partner or member with primary management responsibilities of the Local
Partnership upon the removal and/or withdrawal of the Local General Partner;
(v) the right to remove and approve the selection of any managing agent
for the Property;
(vi) the right to approve the selection of the accountants for the Local
Partnership;
(vii) the right to direct the decision-making of the "Tax Matters Partner" of
the Local Partnership, including the right to bring and defend administrative
and judicial actions and make certain tax elections involving tax matters
affecting the Local Partnership;
(viii) the right to disapprove any proposed sale, refinancing or other
disposition of substantially all of the assets of a Local Partnership; and
(ix) the right to approve or disapprove certain transactions proposed to be
taken by the Local Partnership outside of the ordinary course of business.
In addition, the Special Limited Partner or the Partnership is expected to
have certain powers designed to enable it to compel the liquidation of the
Partnership's investment in each Local Partnership, except in cases where the
General Partner approves the negotiation of equivalent protective provisions
relating to the Partnership's ultimate need to liquidate its investments or
where the General Partner concludes that other investment characteristics of the
Partnership's investment in such Local Partnership and/or other Local
Partnerships justify the absence of such powers. Where such powers are obtained,
they are expected to consist of the right on the part of the Partnership or the
Special Limited Partner (i) if necessary under applicable law as a precondition
of the right of the Local Partnership to sell its Property, to require the Local
General Partner to request at any time after the fourteenth year of the
Compliance Period applicable to such Property that the applicable state housing
credit agency endeavor to locate within one year from the date of such request a
purchaser who will maintain the Property as a low-income property at a purchase
price that is not less than the debt encumbering the Property plus the Local
Partnership's equity in the Property (adjusted for cost of living increases as
permitted by applicable law), and if such agency locates such a purchaser, the
right to compel the Local General Partner to accept the offer to purchase of
such purchaser, and (ii) subject, if necessary, to the procedure described above
in (i), beginning in approximately the fifteenth to twentieth year of the
Partner-
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ship's investment, to require the Local General Partner to use its best efforts
to find a purchaser for the Property owned by its Local Partnership and, if such
effort is not successful on terms satisfactory to the Partnership within a
stated period of time, the right on the part of the Partnership or the Special
Limited Partner to locate a purchaser of the Property and to obligate the Local
General Partner to approve the sale of the Property to such purchaser so long as
the price and other terms offered by such purchaser are at least as favorable as
the best offer, if any, located by the Local General Partner.
In addition, the General Partner will endeavor in connection with each
acquisition of a Local Partnership Interest to negotiate objective criteria
relating to on-going net operating income and tenant qualification standards
designed to indicate, if the Local Partnership fails to meet or exceed them,
that a danger of foreclosure or Tax Credit recapture is presented, and to
negotiate for the Partnership or the Special Limited Partner (or to retain as
general partner or member with primary management responsibilities of the Local
Partnership) the right if such standards are not met to assume the position and
duties of managing general partner or member with primary management
responsibilities of the Local Partnership in lieu of the Local General Partner.
There can be no assurance that such standards will be able to be negotiated in
connection with the acquisition of each Local Partnership Interest, or that if a
Local Partnership fails to meet any such standard the General Partner will still
be able to take timely enough action to avoid a foreclosure or recapture of Tax
Credits. In addition, the Partnership Agreement acknowledges that the exercise
of such rights will require the application of subjective judgment to complex
facts, and that there may be circumstances in which a Local Partnership's
failure to meet such standards appears to indicate that a foreclosure or
recapture of Tax Credits is imminent and in which the removal of the Local
General Partner is nonetheless not in the best interests of the BACs holders.
Pursuant to the Partnership Agreement, the Special Limited Partner will also
be required to remove the Local General Partner as general partner of the Local
Partnership with or without cause on the vote of a majority in interest of the
BACs holders of the Partnership (other than BACs holders that are Affiliates of
the General Partner). As a condition to the exercise of such authority, unless
the Local General Partner has been removed for cause, it is expected that the
Special Limited Partner will be required to institute an appraisal process and
to cause the Local Partnership to purchase such removed Local General Partner's
interest at its appraised value by paying a cash purchase price or delivering a
promissory note payable out of the proceeds of liquidation of the Property owned
by the Local Partnership. Upon the exercise of its right to cause a Local
General Partner to withdraw as general partner of a Local Partnership, the
Special Limited Partner will have the authority to cause a substitute general
partner (which may or may not be the Special Limited Partner itself or another
entity affiliated with the General Partner) to be admitted to the Local
Partnership and
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to take certain additional measures to maintain the continuity and integrity of
the Local Partnership. In exercising any of the above-described rights and
powers, the Special Limited Partner will be required to act in the best
interests of the BACs holders and will be accountable to them as a fiduciary.
The interest in each Local Partnership of Independence SLP IV L.P. as the
Special Limited Partner of such Local Partnership will be limited to (i) the
right to exercise the powers and authorities described in this "Rights of
Special Limited Partner" section, and (ii) the right to receive allocations and
distributions from such Local Partnership that do not exceed those described as
being allocable to the Special Limited Partner in "Profits, Losses and
Distributions--Local Partnership Level."
Other Investment Policies
In addition to the investment policies described above, the following
investment policies will generally be adhered to by the Partnership unless the
General Partner determines that a deviation therefrom is in the best interests
of the BACs holders:
1. Prior to any acquisition of a Property or a Local Partnership Interest,
the Local General Partner will be required to obtain an appraisal by an
independent appraiser of the fair market value of the Property within six months
prior to the Partnership's acquisition. It will be a condition to each
acquisition that the consideration to be paid by the Partnership (including any
Acquisition Fees), taking into account the value of the Housing Tax Credits
associated with the Property or Local Partnership Interest, not exceed the
appraised value of the Property (or the Partnership's interest therein) as
reflected in such appraisal. Each appraisal will be maintained in the records of
the Partnership for no less than five years and during that period will be
available for inspection by any BACs holder. It should be recognized that
appraised values are opinions and, as such, may not represent the true worth or
realizable value of the property being appraised.
2. The Partnership will endeavor to negotiate acquisition agreements that
will include various conditions to the Partnership's purchase obligations, and
which may include (but not be limited to) the following: the availability of
sufficient net proceeds from the Offering to make the investment; the
satisfactory result of an inspection of the Property and its plans and
specifications; receipt of representations of the Local General Partner
concerning financial information provided to the Partnership; assurance of
adequate insurance; evidence of proper zoning and compliance with applicable
planning, building and environmental regulations; release of certain liens;
covenants as to the utilization of the Partnership's capital contribution to the
Local Partnership; receipt of any required governmental approvals, including
(where applicable) TPA approval; and the execution of various documents in form
satisfactory to the Partnership and its counsel. The exact nature of the
conditions imposed with respect to each investment will depend upon whether the
Property is an Existing Complex, a Development-Stage Complex or a Historic
Complex.
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3. In order to meet the objective of limiting the liability of the
Partnership with respect to each Local Partnership that is a limited partnership
to the amount of its investment therein, the Partnership Agreement of each such
Local Partnership will provide that:
a. the Partnership will have no right to take part in the management
or control of the business of such Local Partnership or to transact any
business in the name of such Local Partnership; and
b. the Partnership will have no authority or power with respect to a
Local Partnership, except (i) to consent to certain matters proposed by the
Local General Partner under limited circumstances specified in the Local
Partnership Agreement, and (ii) to consent to certain amendments to the
Local Partnership Agreement of the Local Partnership, insofar as such
consent is expressly required and provided for in such Local Partnership
Agreement.
In addition, as a condition to the closing of the acquisition of a Local
Partnership Interest in a Local Partnership that is a limited partnership, the
Partnership will receive an opinion of counsel to the Local Partnership which
will, among other things, state that the interest of the Partnership in the
Local Partnership is the interest of a limited partner with no personal
liability for the obligations of such Local Partnership.
4. The Partnership will not issue senior securities, invest in other issuers
(other than Local Partnerships), underwrite the securities of other issuers,
offer BACs in exchange for property or repurchase or otherwise reacquire BACs.
5. The Local Partnership's business will be limited to owning and operating
the Property in accordance with the Partnership's investment objectives; the
Local Partnerships will not have investment objectives inconsistent with those
of the Partnership.
Disposition of Apartment Complexes/Local Partnership Interests
The Partnership expects that its holding period with respect to each Local
Partnership Interest will be at least as long as the 15-year Compliance Period
with respect to the Property in which such Local Partnership Interest represents
an investment, and may be substantially longer than such Compliance Period. If
an Apartment Complex and/or Local Partnership Interest therein is disposed of by
the Partnership prior to the end of the 15-year Compliance Period with respect
to such Apartment Complex, current law provides for the recapture of Tax Credits
previously claimed. See "Low-Income Housing and Historic Rehabilitation Tax
Credits-- Recapture of Low-Income Tax Credits." Inasmuch as the Local
Partnership Agreement of each Local Partnership will be required to provide that
the Special Limited Partner or the Partnership, as the case may be, will have
the right to approve or disapprove certain major financial transactions proposed
by a Local General Partner with respect to a Property, including the sale of the
Property, the General Partner does not currently anticipate that
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any Property will be sold prior to the end of the 15-year Compliance Period with
respect to such Apartment Complex. Although the Local Partnership Interests are
expected to be required to be freely transferable by the Partnership (subject to
the requirements of any applicable government assistance programs), the General
Partner also does not anticipate that any Local Partnership Interests will be
transferred prior to the end of the same 15-year Compliance Period with respect
to such Local Partnership Interest.
The General Partner may, however, in appropriate circumstances, cause the
Partnership to avail itself of a procedure whereby one or more Apartment
Complexes may be transferred or disposed of prior to the end of their respective
Compliance Periods. As contemplated by current law, the procedure entails (i) a
conclusion that it may reasonably be expected that, following the proposed
transfer, the Apartment Complex in question would continue to qualify as
low-income housing, and (ii) the posting of a financial bond with the Secretary
of the Treasury to assure payment of any tax liability resulting from the
recapture of Housing Tax Credits if the qualification of the Apartment Complex
as low-income housing does not continue for (or any other recapture event occurs
during) the balance of the applicable Compliance Period. Ordinarily, the General
Partner expects that it will be a condition to the Special Limited Partner's or
Partnership's approval, as the case may be, of any proposed such transfer that
the purchaser agree to bear the cost of posting the required financial bond. It
is likely that any amounts paid pursuant to any such bond that are not
ultimately reimbursed by the Partnership will constitute taxable income or gain
to the Partnership. There may, however, be circumstances in which the Local
Partnership would, with the consent of the Special Limited Partner or the
Partnership, as the case may be, agree to be responsible for paying the cost of
such a bond from the proceeds of the sale of the Apartment Complex. There can,
of course, be no assurance that any necessary governmental agency approvals
required in connection with any such proposed disposition will be able to be
obtained in a timely fashion, or that changes in the law or regulations will not
have withdrawn the availability of such a procedure at the time the Partnership
wishes to avail itself thereof.
In addition, even in the absence of the availability of an approved, bonded
disposition that will avoid a recapture, there may arise circumstances in which
the General Partner finds itself faced with the alternative of, on the one hand,
causing or approving the sale of an Apartment Complex or Local Partnership
Interest and causing the BACs holders to suffer the effects of the resulting
recapture of Housing Tax Credits or, on the other hand, suffering a substantial
or a complete loss of the Partnership's equity in the Apartment Complex by
reason of circumstances beyond the control of the General Partner (such as local
economic conditions, changes in applicable law or regulations or other such
circumstances). The General Partner reserves the right to cause or approve the
sale of an Apartment Complex or Local Partnership Interest in such
circumstances, provided
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that in connection with such sale any proceeds thereof (net of the expenses
incurred by the Partnership in connection with such sale and/or any reserves
that the General Partner deems it advisable to establish) are distributed to the
partners or members of the Local Partnership prior to the date on which any tax
liability arising from the recapture of previously claimed Housing Tax Credits
becomes payable. There can be no assurance that the proceeds of any such
disposition will be sufficient to provide distributions to Partners in amounts
equal to or in excess of any such tax liability. Prospective BACs holders should
note that the consequences of any recapture of Housing Tax Credits will fall
upon those persons who are BACs holders at the time the recapture event takes
place. See "Low-Income Housing and Historic Rehabilitation Tax
Credits--Recapture of Low- Income Tax Credits."
In the unlikely event that, for reasons beyond the control of the General
Partner (such as a casualty or condemnation, or a breach of a Local General
Partner's representations, warranties or covenants to the Partnership), a
Property or Local Partnership Interest were required to be disposed of prior to
the date that is two years after the date of initial acquisition of such
Property or Local Partnership Interest, the General Partner reserves the right,
subject to the distribution of Sale or Refinancing Proceeds calculated to be
sufficient to discharge the BACs holders' estimated federal tax liability (other
than recapture liability) as a result of such disposition, to reinvest the
proceeds of such disposition in another Local Partnership Interest that is
reasonably expected to provide the same type of benefits to BACs holders as an
investment made at the outset of the Partnership. The General Partner would
endeavor to structure any such reinvestment in such a way that the Property in
which such proceeds are reinvested would be eligible for Housing Tax Credits
and/or Historic Rehabilitation Tax Credits that would substantially offset any
recapture liability arising because of the premature disposition.
Following the end of the 15-year Compliance Period with respect to any
Apartment Complex, it will be the policy of the Partnership to endeavor to
liquidate its investments on a prudent basis and in accordance with applicable
law. The amendments to the Housing Tax Credit legislation effected by the 1989
Act had as one objective to keep housing units that had qualified for Housing
Tax Credits in the low-income housing stock for periods longer than the 15-year
Compliance Period applicable to such units. The 1989 Act implemented that
objective by requiring the owner of a low- income property who desires to sell
the property without further restrictions on the use of the property first to
offer to sell the property to a buyer located by the state housing agency for
the state where the property is located which buyer would agree to maintain the
low-income use of the property for a further 15 years under the terms applicable
to the property during the original Compliance Period. Such an offer is required
to be made at a price as low as the amount of the debt encumbering the property
plus the owner's equity in the property adjusted for cost of living increases
(up
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to a maximum 5% increase in any year). The owner of a low-income property may
not request the state housing agency to implement the first-offer procedure
prior to the fourteenth year of the Compliance Period applicable to his
property. If such a request is made and the state housing agency fails to find a
qualified buyer within one year thereafter, the owner of the low-income property
is free to continue to operate the property or to sell it, subject to
requirements for a period of three years following the original Compliance
Period prohibiting the eviction of existing tenants other than for good cause
and increases in gross rent (except such increases as are permitted under
current law) for such tenants. As a condition to obtaining an allocation of
Housing Tax Credits, or obtaining mortgage financing or other assistance from a
governmental authority, the Local Partnership may be required to waive the right
to institute such first offer procedure and to maintain the Apartment Complex in
accordance with the Compliance Period restrictions beyond the 15-year Compliance
Period. The effect of such waiver could be to limit the residual value of such
Property or to defer the Partnership's receipt of its share of such residual
value.
Except where waived by the Local Partnership as described above, the Local
Partnership Agreement of each Local Partnership in which the Partnership invests
will contain provisions whereunder the Special Limited Partner or the
Partnership will have the right, beginning in the fourteenth year of the
Compliance Period applicable to the Property owned by such Local Partnership, to
require the Local General Partner to institute the procedure outlined in the
preceding paragraph in order to determine whether the result of such procedure
will be to allow the Local Partnership to sell its Property free of the
Compliance Period restrictions. The General Partner expects that, except in
extraordinary circumstances, it will cause the Special Limited Partner or the
Partnership, as the case may be, to exercise that right. However, there can be
no assurance that the exercise of that right will lead to a sale of the
Property, or that the terms of such a sale will be advantageous to the
Partnership. One result of the application of the first- offer procedure
described in the preceding paragraph could be to limit the residual value of one
or more Properties in which the Partnership has an interest, or to defer the
Partnership's receipt of its share of any such residual value.
In addition, the nature of the tenants in the Apartment Complexes and the
continuance of controls imposed under government assistance programs may make it
more difficult to effect an orderly liquidation of the Partnership's investments
after the 15-year Compliance Period has been concluded. The Partnership
Agreement provides for the payment of a Disposition Fee to the General Partner
in connection with any sale of an Apartment Complex or Local Partnership
Interest if the General Partner renders substantial services related thereto.
See "Compensation and Fees to the General Partner and Affiliates." In
circumstances where the General Partner concludes that the net after-tax return
to the Partnership from an investment in a Local Partnership Interest would be
maximized by making
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a charitable contribution of such Local Partnership Interest, the General
Partner is authorized to cause the Partnership to make such charitable
contribution.
In connection with any disposition of a Property or Local Partnership
Interest, the Partnership may (or may permit a Local Partnership to) engage in
seller financing of the disposition of Properties by accepting a promissory note
in partial payment of the sales price of the Property. In such event, the
Partnership would be subject to the credit risk that the obligor on such
promissory note would default in its payment obligations to the Partnership, and
the distribution by the Partnership of Sale or Refinancing Proceeds, if any,
would be further delayed to the extent of the principal amount of such
promissory note. Accordingly, there can be no assurance of the timing on which
any Sale or Refinancing Proceeds available for distribution will actually be
received by BACs holders. Such Sale or Refinancing Proceeds as are distributed
will be distributed to the Partners of the Partnership and BACs holders as
reflected under "Profits, Losses and Distributions."
Changes in Investment Objectives and Policies
BACs holders as a class will have no voting rights with respect to the
implementation or alteration of the investment objectives and policies of the
Partnership. However, the General Partner may not make changes in such
objectives or policies absent an amendment of the Partnership Agreement. Any
such amendment would require the written consent or approval of BACs holders
owning in the aggregate more than 50% of the BACs (other than BACs owned by the
General Partner or its Affiliates) and of the General Partner.
Interim Investments and Reserves
Although it is not possible to determine the date by which the Partnership's
capital will be fully invested, the Partnership expects its Net Proceeds to be
fully invested within 18 months after the Final Closing. The General Partner
reserves the right to apply uninvested Net Proceeds to Reserves so long as the
level thereof does not exceed 5% of the Gross Proceeds. Net Proceeds of the
Offering that have not been committed for investment or applied to Reserves at
the date that is the later of two years after the date of this Prospectus or one
year after the termination of the Offering will be returned to BACs holders pro
rata as a return of capital, together with any Selling Commissions and
Organization and Offering Expenses allocable to such returned Net Proceeds, but
less such portion of fees and expenses as have been incurred to third parties
unaffiliated with the Partnership or the General Partner in connection with the
selection of Properties for acquisition by the Partnership, whether or not
acquired. See "Risk Factors--Risks Related to the Local Partnership
Investments."
Pending investment in Local Partnership Interests, the Net Proceeds of this
Offering may be invested in certain interim investments in accordance
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with the Partnership Agreement, including (i) readily marketable securities
issued by states or municipalities within the United States of America or
agencies or subdivisions thereof rated "A" or better by a recognized rating
agency and maturing in less than one year from the date of purchase; (ii) direct
obligations of, or obligations unconditionally guaranteed by, the United States
of America or any agency thereof maturing in less than one year from the date of
purchase; (iii) commercial paper issued by any corporation organized and doing
business under the laws of the United States of America or any state thereof
rated in the highest or next highest category by Moody's Investor Service, Inc.
or by Standard & Poor's Corporation and maturing in less than one year from the
date of purchase; (iv) certificates of deposit or Eurodollar certificates of
deposit, due within one year from the date of purchase, issued by any commercial
bank, organized and doing business under the laws of the United States of
America or any state thereof (or, in the case of Eurodollar certificates of
deposit, a branch of any such bank) having capital (including subordinated
capital notes), surplus and undivided profits aggregating more than $100
million; (v) debt securities issued by corporations organized and doing business
under the laws of the United States or any state thereof rated "A" or better by
a recognized rating agency and maturing in less than one year from the date of
purchase, provided that a dealer which is a member of the New York Stock
Exchange maintains a regular market in such securities; (vi) collateralized
repurchase agreements with domestic banks having a duration no longer than 60
days (or any extension or renewal thereof for a period not exceeding the period
of the initial agreement) with respect to or secured by any of the types of
securities specified in clauses (i) through (iii) above; (vii) money market
funds; (viii) shares of any open-end investment company which has assets of not
less than $200 million and invests primarily in securities of the type
enumerated in clauses (i) through (vi) above or banker's acceptances; (ix)
guaranteed investment contracts having a duration of no longer than 90 days or
which are terminable at the request of the purchaser at intervals no longer than
90 days and which are collateralized by securities of the type enumerated in
clauses (i) through (v) above; and (x) other short term, highly liquid
investments where there is appropriate safety of principal, comparable in such
respects to securities of the type enumerated in clauses (i) through (ix) above
("Permitted Interim Investments"). The rate of return on such investments may be
less than or greater than would be obtainable from investments in Local
Partnership Interests. To the extent that the Partnership recognizes income on
Permitted Interim Investments, it is expected to be taxable and to constitute
portfolio income, not passive activity income.
Approximately 2.5% to 3.5% of the Gross Proceeds of this Offering initially
will be reserved as working capital to meet costs and expenses of the
Partnership's operations. If Gross Proceeds substantially exceed the Minimum
Offering, it is anticipated that the initial level of Reserves will be
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3.5% of Gross Proceeds. Amounts held in Reserves will be available to pay
Partnership Management Fees.
Although the General Partner believes the Partnership's initial level of
Reserves to be reasonable, if such Reserves and any other available income of
the Partnership are insufficient to cover the Partnership's operating expenses
and liabilities, it may be necessary to accumulate additional funds from cash
flow or to liquidate investments in one or more Properties. The Partnership's
working capital Reserves may be increased or decreased from time to time by the
General Partner in order to reflect anticipated costs and expenses and potential
losses, and in certain circumstances the level of Reserves may exceed an amount
equal to 3.5% of the Gross Proceeds of this Offering. The amount of Cash Flow
and/or Sale or Refinancing Proceeds, if any, that is available for distribution
to the BACs holders may be affected accordingly. See "Management's Discussion
and Analysis of the Financial Condition of the Partnership."
PRIOR PERFORMANCE SUMMARY
The information contained in this section of the Prospectus is included
solely to provide information to prospective subscribers which can be used to
evaluate the real estate experience of the General Partner and its Affiliates.
The information summarized below is set forth in greater detail in the Prior
Performance Tables, in Appendix A hereto. Subscribers should direct their
attention to the Prior Performance Tables for further information regarding the
prior performance of the General Partner and its Affiliates. In addition, as
part of its Registration Statement, the Partnership has filed certain tables
with the SEC which report more detailed information regarding property
acquisitions by prior programs. Investors can obtain copies of such tables,
without charge, by requesting Table VI from Part II of the Partnership's
Registration Statement from the General Partner.
SUBSCRIBERS SHOULD NOT CONSTRUE THE INCLUSION OF THE FOLLOWING INFORMATION AS
IMPLYING OR INDICATING IN ANY MANNER THAT THE PARTNERSHIP WILL MAKE INVESTMENTS
WHICH ARE COMPARABLE TO THOSE MADE BY THE LIMITED PARTNERSHIPS DISCUSSED BELOW,
OR THAT THE RESULTS ACHIEVED BY THE PARTNERSHIP WILL IN ANY WAY RESEMBLE OR BE
COMPARABLE TO THOSE ACHIEVED BY SUCH OTHER LIMITED PARTNERSHIPS. INVESTORS IN
THE PARTNERSHIP WILL NOT BE ACQUIRING ANY INTEREST IN THE LIMITED PARTNERSHIPS
DESCRIBED BELOW OR IN THE LIMITED PARTNERSHIPS DESCRIBED IN THE PRIOR
PERFORMANCE TABLES.
Affiliates of the General Partner
Affiliates of the General Partner have, since 1972, sponsored numerous
programs which invest directly or indirectly in real estate. During the last ten
years, such Affiliates have sponsored a total of 41 programs: six
publicly-offered financing programs, 12 publicly-offered programs which
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invest directly in real estate and 23 privately-offered programs which invest
directly in real estate.
Summary of Public Real Estate Limited Partnerships
As of March 31, 1995, the 12 publicly-offered limited partnerships sponsored
by Affiliates of the General Partner which invest in real estate have raised in
the aggregate approximately $809,543,855 from approximately 57,630 investors.
These programs have acquired directly or purchased interests in limited
partnerships which own a total of 297 properties with an aggregate investment of
approximately $1,764,261,230. These properties are located in seven geographic
regions of the United States. One hundred nine are located in the south and
southeast, 86 in the northeast, eight in the southwest, 49 in the midwest, 35 in
the west and ten in the Commonwealth of Puerto Rico. None of the properties
included in such figures has been sold. Of the properties acquired, 284 are
residential and 13 are commercial. Based on aggregate purchase price, 45% of the
properties were existing and 55% were under construction at the time of
acquisition.
Of the properties acquired by the seven partnerships that are most similar to
this program, approximately 61% were development stage complexes, approximately
21% were existing complexes and approximately 18% were eligible for both
low-income and historic housing tax credits based on aggregate purchase price at
the time of acquisition. In the aggregate, these seven programs are
approximately 63% leveraged.
Summary of Public Financing Programs
As of March 31, 1995, the six publicly-offered public financing real estate
limited partnerships sponsored by Affiliates of the General Partner have raised
in the aggregate approximately $568,537,021 from approximately 32,488 investors.
These programs have acquired 32 first mortgage bonds secured by first mortgage
loans in the principal amount of $348,950,000 and 13 coinsured mortgages in the
principal amount of $110,010,000. Of the underlying 44 properties (two of the
public partnerships each purchased a portion of an issuance of first mortgage
bonds on a single residential property), 22 are located in the south, one in the
northeast, 11 in the midwest and ten in the west. All of the underlying
properties are residential multifamily apartment complexes. Based on the
aggregate principal amount, 14% of the properties were existing and 86% were
under construction at the time of acquisition. In addition, one of these
programs has acquired five REMIC Certificates having an aggregate principal face
value of $9,415,000, three GNMA Certificates having an aggregate principal face
value of $8,790,154 and one FHA Insured Project Loan having an aggregate
principal face value of $3,490,295.
Summary of Private Real Estate Limited Partnerships
As of March 31, 1995, Affiliates of the General Partner have raised in the
aggregate $36,243,580 from 535 investors in eight privately-offered real estate
limited partnerships. These programs have purchased or have
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acquired interests in ten properties which have an aggregate purchase price of
approximately $148,878,642. These properties are located in three geographic
regions of the United States. Two are located in the south and southeast, six in
the northeast and two in the west. All of the properties acquired are
residential. Based on aggregate purchase price, 39% of the properties were
existing and 61% were newly constructed or under construction at the time of
acquisition. All of the private real estate limited partnerships are continuing
to meet their investment objectives of providing tax losses to their investors.
It should be noted, however, that one of the prior private real estate limited
partnerships is experiencing operating deficits. Operating deficits at the
partnership are being funded by an affiliate of the General Partner. The program
experiencing operating deficits was formed to invest in low-income housing and
in general is expected to experience such deficits as part of the operating
pattern of such properties.
As of March 31, 1995, Affiliates of Related have raised in the aggregate
approximately $393,175,962 from approximately 198 investors in 15
privately-offered real estate limited partnerships formed to invest in local
limited partnerships owning apartment complexes that are eligible for the
low-income housing tax credit. These programs have purchased or have acquired
interests in 55 properties which have an aggregate purchase price of
$541,383,256. These properties are located in four geographic regions of the
United States. Seventeen are located in the south and southeast, 17 in the east,
nine in the midwest and 12 in the west. Based on aggregate purchase price, 53%
of the properties were existing and 47% were newly constructed or under
construction at the time of acquisition.
Comparison of Investment Objectives
Of the programs sponsored by Affiliates of the General Partner, the
investment objectives of nine public and 23 private real estate limited
partnerships are similar to those of the Partnership. These public and private
real estate limited partnerships invest directly or through local partnerships
in leveraged low-income government-assisted apartment complexes. The investment
objectives of the remaining nine public limited partnerships differ from those
of the Partnership in that they invest in tax- exempt participating first
mortgage bonds, shopping centers or conventional apartments and have as one of
their principal objectives providing investors with certain tax benefits:
tax-exempt distributions, partially sheltered cash distributions or tax losses.
In addition, in all the private programs, the price of an interest usually
ranged from $50,000 to $150,000 with such capital contributions made in
installments.
Public Real Estate Limited Partnerships
Nine of the public real estate limited partnerships' business is to invest,
as a limited partner, in other limited partnerships which own or lease and
operate existing multifamily rental housing projects that are financed and/or
operated with assistance from federal or state governments or agencies or
through the issuance of tax-exempt bonds.
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Cambridge Advantaged Properties Limited Partnership, formerly Hutton
Advantaged Properties Limited Partnership ("CAP I"), as of its final closing on
March 4, 1985, had raised $60,370,000 from approximately 4,400 investors. CAP I
has purchased interests in 61 local limited partnerships each owning one
existing apartment complex. Such apartment complexes are located in Alabama
(15), Arkansas (8), California (2), Colorado (2), Florida (1), Georgia (3),
Indiana (3), Kentucky (1), Massachusetts (3), Michigan (9), Missouri (1), North
Carolina (2), Oregon (2), South Carolina (3), Texas (6), Virginia (1) and
Washington (1). In connection with its investment in the 61 local limited
partnerships, CAP I made cash payments aggregating $105,924,226 and issued 9-12%
Purchase Money Notes in the aggregate principal amount of $19,798,691. The 61
apartment complexes owned by the local limited partnerships were subject to
outstanding mortgage indebtedness aggregating $112,165,970 at the time of the
public limited partnership's investment for a total aggregate purchase price of
$237,888,887.
CAP I experienced cash operating deficits in fiscal years 1987, 1988 and 1990
from local partnerships in which it has invested. Such operating deficits
aggregated approximately $600,000, $653,000, and $390,000, respectively, and
resulted from operating deficits at four local partnerships. These deficits were
funded from the following sources: (i) 53% from operating deficit loans made by
the local developer general partners (who are not Affiliates of CAP I's General
Partners) pursuant to terms agreed to at the time that the partnership acquired
its interests in these assets, (ii) 32% from non-interest bearing loans made by
CAP I from working capital reserves and (iii) 15% from local partnership
residual receipts used for major capital improvements at one property. CAP I has
advised the General Partner that it believes that these deficits were due to
local housing market conditions. Two subsidiary partnerships have not made
mortgage payments on the wraparound purchase notes since 1988. One partnership's
original workout agreement with HUD expired on March 31, 1992 and a formal
extension of such workout has not yet been approved by HUD. However, payments on
the loan are being made in accordance with the proposed workout extension and a
formal agreement is expected to be finalized and approved in the near future.
The other subsidiary partnership is in technical default on the wraparound
purchase notes, but HUD has agreed to allow the mortgagor to remain in
possession of the property pending a formal loan modification. A provisional
workout agreement has been signed with HUD.
Cambridge Advantaged Properties II Limited Partnership, formerly Hutton
Advantaged Properties II Limited Partnership ("CAP II"), as of its final closing
on February 14, 1986, had raised $35,750,000 from approximately 2,400 investors.
CAP II has invested in 12 local limited partnerships, each owning one apartment
complex consisting of 12 existing complexes. Such apartment complexes are
located in California (2), Florida (3), Kansas (2), Oklahoma (1), Texas (2) and
Virginia (2). In connection with its investment
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in the 12 local limited partnerships, CAP II made cash payments aggregating
$16,616,439, issued promissory notes in the aggregate amount of $1,020,000 and
assumed mortgage indebtedness of approximately $119,950,500 for a total
aggregate purchase price of $137,586,939.
CAP II is continuing to meet its investment objective of providing tax losses
to investors; however, in order to improve the potential for cash distributions,
CAP II has embarked on a program of refinancing mortgage indebtedness
encumbering its investments that were generally incurred in periods of high
interest rates. Of CAP II's 12 properties, six have been refinanced and one
other is expected to require refinancing. In order to keep in place the
tax-exempt bonds underlying the property's financing, one local partnership in
which CAP II invested has filed for protection from its creditors under Chapter
11 of the Bankruptcy Code following the merger or assumption of supervisory
powers with respect to the co-participants of the loan by the Federal Savings
and Loan Insurance Corporation. Subsequently, the local general partner sought
approval of a plan of reorganization and such plan has since been approved and
the local partnership has emerged from Chapter 11. In connection with the
refinancing of another such property, CAP II has ceased making full debt service
on the mortgages covering such property. CAP II anticipates recasting the unpaid
interest as principal as part of the restructuring; however, if no agreement can
be reached with the lender, a foreclosure could occur with respect to such
property. HUD has commenced foreclosure proceedings with respect to one
property, and in connection with the negotiation of a workout agreement with
FNMA another local partnership has removed its local general partner. To reduce
operating losses and cash flow deficits due to low occupancy levels, the Local
Partnerships are negotiating workout agreements with the bondholders for
interest rate reductions. Currently, an Affiliate of the General Partner has
advanced approximately $1,900,000 to CAP II, and CAP II anticipates that it will
need additional cash to meet existing obligations. This cash is expected to be
available from cash flow of local partnerships or in the form of a loan from a
financial institution or institutions.
CAP II experienced cash operating deficits in fiscal years 1987, 1988, and
1989 from local partnerships in which it has invested. Such operating deficits
aggregated approximately $1,086,000, $3,000,000 and $800,000 respectively. These
deficits were funded from the following sources: (i) 84% from operating deficit
loans made by the local developer general partners (who are not Affiliates of
CAP II's general partners) pursuant to terms agreed to at the time that the
partnership acquired its interests in these assets and (ii) 16% from
non-interest bearing loans made by an Affiliate of CAP II as a result of a
lender's refinancing requirement on a mortgage encumbering one of the
properties. CAP II has advised the General Partner that it believes that these
deficits were the result of normal contingencies in the context of the
properties that were newly constructed at the time
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of acquisition, and that the obligation of the local developer general partners
to make operating deficit loans was designed to respond to such contingencies.
Liberty Tax Credit Plus L.P. ("Liberty I"), Liberty Tax Credit Plus II
L.P. ("Liberty II"), Liberty Tax Credit Plus III L.P. ("Liberty III"),
Freedom Tax Credit Plus Program ("Freedom"), Independence Tax Credit Plus
L.P. ("Independence I"), Independence Tax Credit Plus L.P. II ("Independence
II"), and Independence Tax Credit Plus L.P. III ("Independence III") are
seven programs in a series of public real estate programs formed to invest in
local limited partnerships owning leveraged apartment complexes that are
eligible for the Low-Income Housing Tax Credit enacted in the Tax Reform Act
of 1986, and to a lesser extent the Historic Rehabilitation Tax Credit.
Liberty I commenced its offering on November 20, 1987 and, as of its final
closing on April 4, 1988, had raised $79,940,000 from approximately 5,500
investors. Liberty I has made investments in 31 local limited partnerships, each
of which owns one or more apartment complexes in California (1), Colorado (1),
Florida (4), Georgia (1), Illinois (1), Maryland (1), Missouri (3), New Jersey
(3), New York (6), Ohio (1), Oklahoma (2), Oregon (2), Pennsylvania (5),
Wisconsin (1) and Puerto Rico (1). In connection with such investments, Liberty
I made cash payments aggregating $63,750,000 and assumed outstanding mortgage
indebtedness aggregating $168,345,915 at the time of the public partnership's
investment for a total aggregate purchase price of $232,095,915. Of the
properties acquired by Liberty I, approximately 47% were development stage
complexes, approximately 38% were existing complexes and approximately 15% were
eligible for both low-income housing and historic rehabilitation tax credits,
based on aggregate purchase price at the time of acquisition.
One property acquired by Liberty I is experiencing high vacancy rates. The
subsidiary partnership has ceased meeting the monthly operating deficits and the
debt service currently is not being paid. The local general partner was replaced
in July 1993. Three local partnerships in which Liberty I invested have had
their Section 8 project-based housing assistance contracts revised downward
because of HUD findings of ineligibility of property tenants.
Liberty II commenced its offering on July 20, 1988 and as of its final
closing on December 23, 1988 had raised $115,918,000 from approximately 8,400
investors. Liberty II has invested in 27 local limited partnerships, each of
which owns one or more apartment complexes in Florida (2), Illinois (2), Kansas
(1), Louisiana (1), Maryland (1), Missouri (4), New York (10), Pennsylvania (2),
Texas (1) and Puerto Rico (3). In connection with such investments, Liberty II
made cash payments aggregating $97,491,198 and assumed outstanding mortgage
indebtedness aggregating $125,143,736 at the time of the public partnership's
investment for a total aggregate purchase price of $222,634,934. Of the
properties acquired
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by Liberty II, approximately 75% were development stage complexes, approximately
6% were existing complexes and approximately 19% were eligible for both
low-income housing and historic rehabilitation tax credits, based on aggregate
purchase price at the time of acquisition.
Two local partnerships in which Liberty II invested have had their Section 8
project-based housing assistance contracts revised downward because of HUD
findings of ineligibility of property tenants.
Liberty III commenced its offering on February 21, 1989 and as of its final
closing on March 30, 1990 had raised $139,101,500 from approximately 9,100
investors. Liberty III has invested in 60 local limited partnerships, each of
which owns one or more apartment complexes in Alabama (3), Arkansas (1),
Delaware (1), Florida (5), Kansas (2), Louisiana (2), Michigan (3), Mississippi
(2), Missouri (1), Ohio (3), Oregon (2), Pennsylvania (12), New Jersey (1), New
York (10), Puerto Rico (3), Rhode Island (1), South Carolina (1), Tennessee (6)
and Utah (1). In connection with such investments, Liberty III made cash
payments aggregating $108,491,367 and assumed outstanding mortgage indebtedness
aggregating $209,183,748 at the time of the public partnership's investment for
a total aggregate purchase price of $317,675,115. Of the properties acquired by
Liberty III, approximately 63% were development stage complexes, approximately
12% were existing complexes and approximately 25% were eligible for both
low-income housing and historic rehabilitation tax credits, based on aggregate
purchase price at the time of acquisition.
Freedom commenced its offering on February 9, 1990 and as of its final
closing on August 8, 1991, had raised $72,896,000 from approximately 4,780
investors. Freedom has invested in 42 local limited partnerships, each of which
owns one apartment complex in Alabama (10), California (2), Florida (2), Georgia
(1), Kentucky (1), Mississippi (3), New York (7), New Jersey (1), North Carolina
(2), Ohio (2), Oklahoma (1), Pennsylvania (4), South Carolina (1), Tennessee
(1), Utah (3) and Wisconsin (1). In connection with such investments, Freedom
made cash payments aggregating $64,774,889 and assumed outstanding mortgage
indebtedness aggregating $75,058,771 at the time of the public partnership's
investment for a total aggregate purchase price of $139,833,660. Of the
properties acquired by Freedom, approximately 88% were development stage
complexes, approximately 3% were existing complexes and approximately 9% were
eligible for both low-income housing and historic rehabilitation tax credits,
based on aggregate purchase price at the time of acquisition.
Independence I commenced its offering on July 1, 1991 and as of its final
closing on December 30, 1992 had raised $76,786,000 from approximately 5,351
investors. Independence I has invested in 28 local limited partnerships, each of
which owns one apartment complex in California (1), Delaware (2), Florida (3),
Louisiana (1), Massachusetts (3), Missouri (1), New Jersey (1), New York (6),
Oregon (1), Pennsylvania (5), Puerto Rico (3) and Tennessee (1). In connection
with such investments, Indepen-
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dence I made cash payments aggregating $61,060,189 and assumed outstanding
mortgage indebtedness aggregating $95,934,160 at the time of the public
partnership's investment for a total aggregate purchase price of $156,994,349.
Of the properties acquired by Independence, approximately 30% were development
stage complexes, approximately 56% were existing complexes and approximately 14%
were eligible for both low-income housing and historic rehabilitation tax
credits, based on aggregate purchase price at the time of acquisition.
Independence II commenced its offering on January 19, 1993 and as of its
final closing on April 7, 1994 had raised $59,065,000 from approximately 3,950
investors. Independence II has invested in 13 local limited partnerships, each
of which owns one apartment complex in California (5), Florida (1), Illinois
(1), Louisiana (1), Maryland (1), Pennsylvania (3) and Virginia (1). In
connection with such investments, Independence II made cash payments of
$35,279,879 and assumed outstanding mortgage indebtedness of $57,011,434 at the
time of the public partnership's investment for a total aggregate purchase price
of $92,291,313. Of the properties acquired by Independence II, approximately 59%
were development stage complexes, approximately 17% were existing complexes
eligible for low- income housing tax credits and approximately 24% were eligible
for both low-income housing and historic rehabilitation tax credits, based on
aggregate purchase price at the time of acquisition. Independence II is still in
its acquisition phase.
Independence III commenced its offering on June 7, 1994 and, as of March 31,
1995, had raised $31,430,000 from approximately 2,049 investors. This offering
had its final closing on May 10, 1995 and has raised $43,440,000 from 2,855
investors. Independence III has invested in three local limited partnerships,
each of which owns one apartment complex in California (1), Florida (1) and New
York (1). In connection with such investments, Independence III made cash
payments of $3,661,171 and assumed outstanding mortgage indebtedness of
$5,840,288 at the time of the public partnership's investment for a total
aggregate purchase price of $9,501,459. All of the properties acquired by
Independence III were development stage complexes.
Independence III is still in its acquisition phase.
Summit Insured Equity L.P. ("Summit Insured I") and Summit Insured Equity
L.P. II ("Summit Insured II") are two programs in a series of public real estate
programs, formed to acquire, initially on an all-cash basis, and operate
existing income-producing shopping centers and to improve, operate and hold such
properties for investments.
Summit Insured I commenced its offering on December 23, 1986 and, as of its
final closing on August 12, 1987, had raised $100,000,000 from approximately
8,600 investors. Summit Insured I has purchased 11 existing shopping centers for
an aggregate purchase price of $85,991,557. The shopping centers are located in
Arizona (1), California (1), Florida (2), Georgia (1), Indiana (2), Mississippi
(1), Ohio (1), Oregon (1) and Tennessee (1).
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Summit Insured II commenced its offering on November 13, 1987, and, as of its
final closing on June 15, 1989, had raised approximately $25,140,575 from
approximately 2,100 investors. Summit Insured II has purchased three existing
shopping centers for an aggregate purchase price of $21,995,885. The shopping
centers are located in Arizona, Georgia and Nebraska.
Summit Preferred Equity L.P. ("Summit Preferred") was formed for the purpose
of acquiring on an all-cash basis an equity interest in operating partnerships
which own and operate a multi-family residential garden apartment property that
either is in the final stages of construction or completed. Summit Preferred
commenced its offering on August 6, 1987 and, as of its final closing on
February 15, 1989, had raised approximately $13,147,780 from approximately 1,000
investors. Summit Preferred has invested $9,900,000 in two local limited
partnerships, one of which owns an apartment complex located in the state of
Missouri and one of which owns an apartment complex in the state of Washington.
In 1990, certain preferred equity payments due Summit Preferred from one of the
local limited partnerships were not made, resulting in a default under the
governing instruments of such local limited partnership. As a result of this
default, Summit Preferred pursued its remedies and removed the general partner
of such local limited partnership replaced as general partner by the special
limited partner, an affiliate of the Related general partner. Future preferred
equity payments are expected to be less than anticipated until such time as the
property can be leased up at the anticipated rental rates sufficient to make
such payments.
Public Financing Programs
Summit Tax Exempt Bond Fund, L.P. ("Summit Tax I"), Summit Tax Exempt L.P. II
("Summit Tax II") and Summit Tax Exempt L.P. III ("Summit Tax III") comprise a
series of public financing programs, each formed to invest in a portfolio of
tax-exempt participating first mortgage bonds issued by various state or local
governments or their agencies or authorities.
The Summit Tax I bonds are secured by first mortgage loans on multifamily
residential apartments developed by third party developers. The Summit Tax II
and Summit Tax III bonds are secured by first mortgage loans on multifamily
residential apartments or retirement community projects developed by third party
developers or by Affiliates of the General Partner.
Summit Tax I commenced its offering on February 19, 1986 and, as of its final
closing on March 20, 1986, had raised approximately $158,125,000 from
approximately 7,400 investors. Summit Tax I has purchased 11 first mortgage
bonds in the aggregate principal amount of $134,375,000 secured by mortgage
loans on apartment complexes located in California (2), Florida (1), Georgia
(1), Minnesota (1), Missouri
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(2), Pennsylvania (1), South Carolina (2) and Texas (1). All eleven properties
are completed and have reached stabilized occupancy.
For certain properties collateralizing first mortgage bonds (The Mansion,
High Pointe Club, Greenway Manor, Cedar Creek, Clarendon Hills, Martin's Creek
and East Ridge), the original owners of the underlying properties were replaced
as a result of Summit Tax I exercising its protective rights.
Currently only three of these properties (High Pointe Club, Cedar Creek and
Greenway Manor) are still held by an affiliate of the general partner of Summit
Tax I and buyers are being sought for these properties who will assume the first
mortgage obligations of the respective bonds. Reduced rates of interest are
currently being paid to Summit Tax I by the High Pointe Club and Cedar Creek
properties; however, Greenway is currently paying a rate equal to its stated
base rate. In addition, High Pointe Club obtained additional financing in 1990
to pay for construction cost overruns in the amount of $3,250,000 in the form of
pari passu mortgage bonds. Pursuant to the terms of those bonds, available cash
flow after paying operating expenses from this property is first applied to
satisfy interest due on the additional financing, then applied to interest due
to Summit Tax I. Four properties (The Mansion, Clarendon Hills, Martin's Creek
and East Ridge) have been sold to various third parties. In conjunction with the
sale of three of such properties (Clarendon Hills, Martin's Creek, and East
Ridge) sold in 1990 and 1992, such loans were modified, currently calling for
minimum debt service payments of 5.52%, 7.25% and 7.25%, respectively. These
properties nevertheless are paying approximately 5.52%, 7.6% and 7.5%,
respectively. The Mansion loan which was modified in 1994 is currently paying a
rate equal to 5.7%.
Three other properties (North Glen, Thomas Lake and Sunset Terrace) are in
soft markets, are not generating sufficient revenues to pay the original stated
debt service and forbearance agreements have been reached with the respective
developers that initially deferred temporarily up to 2.5% annually of the base
rate. These deferrals are scheduled to decrease in annual increments through
1996, and are expected to be repaid from future available cash flow or from
sale/refinancing proceeds. Currently these properties are paying interest at
annual rates of approximately 6%, 8.36% and 7.25%, respectively.
As a result of the failure to pay 1992 and 1993 real estate taxes, Summit Tax
I initiated steps to enforce its rights and remedies on the Cypress Run property
in July 1994 including acceleration of the loan and a $350,000 draw on an
irrevocable letter of credit issued on behalf of the borrower. In response, on
July 15, 1994, Cypress filed for bankruptcy under Chapter 11 of the United
States Bankruptcy Code, and now operates the property as a Debtor-in-possession.
The court has consented to allow the Partnership to receive the monthly net cash
flow generated by the property as its debt service payments and pursuant to the
terms of the bond documents,
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approximately $348,000 of the proceeds received from the draw on the letter of
credit has been recorded as a reduction of the first mortgage bond, with the
balance applied as interest. On November 10, 1994, an Order Modifying Stay
together with a Settlement Stipulation was entered by the Court which grants
Summit Tax I relief from the Automatic Stay effective on March 31, 1995 unless a
sale of the property, subject to the Partnership's approval, is closed
beforehand. If a sale is not consummated, title of the property will be
transferred to Summit Tax I or its designee.
A provision for impairment on two first mortgage bonds (High Pointe Club and
Greenway Manor) was recorded during the year ended December 31, 1993. This
valuation allowance represents 1.4% of the original aggregate principal amount
invested in first mortgage bonds by Summit Tax I. This provision was taken since
the properties underlying these two mortgage bonds are generating lower than
expected rentals and these bonds are categorized as assets held for sale, their
ownership having been transferred from the original developer as a result of
Summit Tax I exercising its protective rights. Accordingly the capitalized
estimated future income streams to Summit Tax I from these investments are below
their carrying cost. This allowance reduced financial statement income. Summit
Tax I cannot presently determine the effects of this allowance with respect to
investors' ability to receive back all of their invested capital. Summit Tax I
has invested in 11 first mortgage bonds all of which have provided for
participation features in the sale or refinancing proceeds of such first
mortgage bonds. The actual amount of the liquidation proceeds depends upon the
value of the first mortgage bonds and their participations at that time.
Since inception, cash distributions have been funded from operating revenues,
working capital reserves, uninvested proceeds applied to working capital
reserves and a loan from an affiliate of a general partner. Distributions are
currently being funded exclusively from operating revenues.
Summit Tax II commenced its public offering on July 7, 1986 and, as of its
final closing on May 7, 1987, had raised approximately $183,032,000 from
approximately 10,250 investors. Summit Tax II has purchased 16 first mortgage
bonds in the aggregate principal amount of $162,125,000 secured by first
mortgage loans on apartment complexes located in California (2), Georgia (1),
Florida (3), Iowa (1), Minnesota (2), Missouri (2), South Carolina (1),
Tennessee (1), and Washington (3) (including $2,500,000 of a $9,700,000 first
mortgage bond issue in which Summit Tax III had acquired the remaining
$7,200,000). There are 16 properties securing first mortgage bonds and all
properties have reached stabilized occupancies. Three properties securing first
mortgage bonds (The Lakes, Pelican Cove and Bay Club) are leased at rental rates
which result in their making interest payments to pay the stated debt service on
the bonds and Summit Tax II has exercised its protective rights and had the
developers of such properties replaced. One of these properties (Bay Club) was
subsequently sold in 1990 to a third party and the loan agreement related to
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such property has been modified, which agreement currently calls for minimum
debt service payments of 7.25%. The property is currently paying an annualized
rate of 7.80%. Two of these properties (Pelican Cove and The Lakes) are sending
interest payments to Summit Tax II based on cash flow generated from operations
currently at 7.5% and 5.31%. The minimum interest rate on six other bonds
(Shannon Lakes, Bristol Village, Players Club, Suntree, Newport Village and
Sunset Downs) has also been modified pursuant to forbearance agreements reached
with the respective borrowers. These agreements called for initial deferrals of
up to 2% of their respective base rates. Such annual deferrals are scheduled to
decrease in annual increments through 1996. In addition, such deferrals are
expected to be repaid from future cash flows or sale/refinancing proceeds.
A provision for impairment on one first mortgage bond (The Lakes) was
recorded during the year ended December 31, 1993. This valuation allowance
represents .6% of the original aggregate principal amount invested in first
mortgage bonds by Summit Tax II. This provision was taken since the property
underlying this mortgage bond is generating lower than expected rentals and this
bond was categorized as an asset held for sale, its ownership having been
transferred as a result of Summit Tax II exercising its protective rights.
Accordingly, the capitalized estimated future income stream to Summit Tax II
from this investment is below its carrying cost. This allowance reduced
financial statement income. Summit Tax II cannot presently determine the effects
of this allowance on its investors' ability to receive back all of their
invested capital. Summit Tax II has invested in 16 first mortgage bonds, all of
which have provided for participation features in the sale or refinancing
proceeds of such first mortgage bonds. The actual amount of the liquidation
proceeds depends upon the value of the first mortgage bonds and their
participations at that time.
Since inception, cash distributions have been funded from operating revenues,
working capital reserves and uninvested proceeds applied to working capital
reserves. Distributions are currently being funded exclusively from operating
revenues.
Summit Tax III commenced its public offering on June 10, 1987 and, as of its
final closing on August 12, 1988, had raised approximately $61,633,000 from
approximately 3,220 investors. Summit Tax III has purchased five first mortgage
bonds in the aggregate principal amount of $52,450,000 secured by first mortgage
loans on apartment complexes located in California (2), Florida (1) and Georgia
(2) (including $7,200,000 of a $9,700,000 first mortgage bond issue in which
Summit Tax II had acquired the remaining $2,500,000). All 5 properties are
completed and have reached stabilized occupancy.
Due to soft markets, forbearance agreements have been reached with developers
of four of the properties (Sunset Village, Sunset Creek, Players Club and
Suntree). These agreements call for a temporary deferral of up to 2% of the
original base interest rate. Such deferrals are scheduled to
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decrease in annual increments and are scheduled to return to their original base
rate in 1996. Such deferrals are expected to be repaid from future cash flows or
sale/refinancing proceeds. In addition, due to a soft market, an agreement has
been reached with the developer of one property calling for interest payments
equating to cash flow generated from operations of the property. These payments
currently equate to approximately a 5.7% rate.
A provision for impairment on one first mortgage bond (Orchard Mill) was
recorded during the year ended December 31, 1992. This valuation allowance
represents 8.6% of the original aggregate principal amount invested in first
mortgage bonds by Summit Tax III. This provision was taken since the property
underlying this mortgage bond is generating lower than expected rentals and the
capitalized estimated future income stream to Summit Tax III from this
investment is below its carrying cost. This allowance reduced financial
statement income in 1992. Such valuation allowance is unchanged for the year
ended December 31, 1993. Summit Tax III cannot presently determine the effects
of this allowance on its investors' ability to receive back all of their
invested capital. Summit Tax III has invested in five first mortgage bonds, all
of which have provided for participation features in the sale or refinancing
proceeds of such first mortgage bonds. The actual amount of the liquidation
proceeds depends upon the value of the first mortgage bonds and their
participations at that time. Since inception, cash distributions have been and
are being funded from operating revenues, working capital reserves and
uninvested proceeds applied to working capital reserves.
Eagle Insured L.P. ("Eagle") was formed to invest primarily in coinsured
mortgage investments, including equity loans not to exceed 10% of the total
loans. Eagle originated or acquired first mortgage construction and permanent
loans underlying multifamily residential rental properties. Eagle commenced its
offering on December 11, 1987 and, as of its final closing in June 1989, had
raised approximately $52,822,000 from approximately 4,600 investors. Eagle
purchased four coinsured mortgage loans in the aggregate principal amount of
$46,608,000 on properties located in Georgia (1), Florida (2), and North
Carolina (1). Three of the properties were under construction and one of the
properties was existing at the time of the investment. All the properties
financed by the first mortgage loans are at stabilized occupancies. With respect
to the Cross Creek Apartments in Charlotte, North Carolina (aggregate commitment
of $19,278,000), the principals of the original mortgagor have assigned all
rights and property interest to Cross Creek of Columbia Inc. due to the
inability to complete construction and lease up. On August 15, 1990, Eagle
closed on an unsecured working capital line of credit for up to $4,000,000 from
an unaffiliated lender to, among other purposes, make a loan to the replacement
developer of Cross Creek to pay for costs to complete construction and to fund
operating deficits. Eagle drew down $3,060,000 on this loan, repaying
approximately $222,000 of principal as of December 31, 1993. On
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January 31, 1994, the owners of one of the properties securing a first mortgage
loan held by Eagle, Tivoli Lakes, sold its interest to an unaffiliated third
party. The proceeds of the sale were used by the seller to fully repay its
outstanding first mortgage loan from Eagle of $13,510,000 and to repay its
equity loan from Eagle of $1,523,000 together with prepayment penalties,
interest and other fees totaling $453,000. On February 7, 1994, Eagle used a
portion of the repayment proceeds to fully repay the outstanding balance of
$2,838,000 of its working capital line of credit. Cross Creek of Columbia Inc.
continues to be liable to the Partnership for the full $3,000,000 and interest
thereon. Since inception, cash distributions have been funded from revenues,
working capital reserves, uninvested proceeds applied to working capital
reserves and net proceeds from the repayment of one of the loans. Distributions
are currently being funded exclusively from revenues and repayment proceeds
applied to working capital reserves.
Capital Mortgage Plus L.P. ("Capital") commenced its offering on May 10, 1989
and, as of its final closing on May 23, 1991, had raised approximately
$36,733,000 from approximately 3,550 investors. Capital has invested in five
insured mortgage investments of which two are coinsured mortgages in the
aggregate principal amount of $13,085,000 and three are fully insured mortgages
in the aggregate principal amount of $16,136,000. These mortgages, in the
aggregate principal amount of $29,221,000, encumber multifamily residential
rental properties located in Alabama (2), Iowa, Kansas and Oregon. All the
properties are completed and have reached stabilized occupancy. One property
(Mortensen) has not been able to meet its obligations of additional interest,
and Capital is currently working on a forbearance/modification of the loan with
the borrower. Quarterly distributions have been and are being funded from
revenues and working capital reserves.
American Mortgage Investors Trust ("AMIT") was formed to invest primarily in
federally insured or guaranteed mortgage investments. In addition, up to 7% of
AMIT's portfolio may be comprised of uninsured loans made directly to the
developers or sponsors or principals of the owner of the developments. AMIT
commenced its offering on March 29, 1993 and as of its final closing on November
30, 1994 had raised $76,192,021 including volume discounts of $40,575 from 3,466
investors. AMIT has invested in four insured mortgage loans in the aggregate
principal amount of $34,181,000 on multifamily residential real estate
properties located in Illinois (1), South Carolina (1) and Texas (2). In
connection with these investments, AMIT made uninsured loans in the aggregate
principal amount of $3,798,500. Three properties are complete and have reached
stabilized occupancy and one is under construction. In addition, AMIT initially
purchased six REMIC Certificates having an aggregate principal face value of
$11,834,300, three GNMA Certificates having an aggregate principal face value of
$8,790,154 and one FHA Insured Project Loan having an aggregate principal face
value of $3,490,295. A portion of the
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$2,419,300 REMIC Certificate was sold on May 5, 1994, and the balance on
October 11, 1994. A loss of $143,605 was recorded on these sales, of which
the advisor has undertaken to reimburse the program $93,979 of these losses.
Private Real Estate Limited Partnerships
Eight of the prior private residential real estate limited partnerships
sponsored by Affiliates of Related have raised $36,243,580 and have invested in
apartment complexes or local limited partnerships which owned apartment
complexes for an aggregate purchase price of $148,878,642. Of these apartment
complexes (based on purchase price), 39% were fully constructed and in service
at the time of acquisition and 61% were under construction or newly constructed
at the time of acquisition. The apartment complexes are located in California
(1), Florida (3), Massachusetts (3) and New York (3).
Fifteen of the prior private residential real estate limited partnerships
sponsored by Related and its Affiliates since 1985 have raised $393,175,962 and
have invested in local limited partnerships which own apartment complexes
eligible for the low-income housing tax credit for an aggregate purchase price
of $541,383,256. Of these apartment complexes (based on purchase price), 53%
were fully constructed and in service at the time of acquisition and 47% were
under construction or newly constructed at the time of acquisition. The
apartment complexes are located in California (7), Delaware (1), Florida (16),
Maryland (2), Michigan (4), New Jersey (5), New York (6), Ohio (4), Oregon (2),
Pennsylvania (3), Tennessee (1), Washington (3) and Wisconsin (1).
Additional Information
Certain additional information regarding the experience of the prior
limited partnerships sponsored by Affiliates of the General Partner is
contained in Appendix A of the Prior Performance Tables, as follows:
Table I Experience in Raising and Investing Funds
Table II Compensation to Sponsor and Affiliates
Table III Operating Results of Prior Programs
Table IV [not applicable]
Table V [not applicable]
Three Year Summary of Acquisitions
During the three years ended March 31, 1995, four public real estate limited
partnership programs and nine private residential real estate programs sponsored
by Affiliates of the General Partner have acquired 92 multifamily residential
properties for a total aggregate purchase price of approximately $783,558,531,
$478,290,339 of which was borrowed. Thirty-five of such multifamily residential
properties were located in the northeast, 21 in the south, 14 in the midwest, 19
in the west and three in the Commonwealth of Puerto Rico.
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Table VI (Acquisition of Properties by Program) with respect to Affiliates of
the General Partner is contained in Part II of the Registration Statement of
which this Prospectus is a part. Upon request to the address indicated below,
and for no fee, the Partnership will provide a copy of such Table to any
investor.
Additional Information on Programs
The Partnership will provide, upon request, for no fee, a copy of the most
recent Annual Report on Form 10-K filed with the Securities and Exchange
Commission within the previous 24 months by any prior public program sponsored
by the General Partner or any of its Affiliates to the extent the same are
required to be filed. The Partnership will also provide, upon request, for a
reasonable fee, the exhibits to each such Form 10-K. A request for an Annual
Report on Form 10-K should be addressed to Independence Tax Credit Plus L.P. IV,
625 Madison Avenue, New York, New York 10022, Attention:
Investor Relations.
The information set forth in this section is given solely to enable investors
to better evaluate the experience of the General Partner and its Affiliates.
Investors should not construe the inclusion of this information as implying or
indicating in any manner that the Partnership will make investments comparable
to those described herein or will have comparable results with respect to
distributable cash, federal income tax consequences to investors or other
factors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OF THE PARTNERSHIP
Capital Resources
The Partnership currently has limited funds, since the capital anticipated to
be raised by the Partnership through the Offering of BACs has not yet become
available, and as of the date of this Prospectus no acquisition of any Local
Partnership Interest has taken place.
The Partnership plans to raise funds from investors by means of this Offering
of BACs, and to apply the Net Proceeds thereof available for investment to the
acquisition of investments in Properties. Mortgage financing and other debt
sources are also expected to be called upon by Local Partnerships to augment the
capital resources available in connection with the acquisition by the
Partnership of Local Partnership Interests. See "Investment Objectives and
Policies--Mortgage Financing of Complexes and Acquisitions."
The General Partner does not anticipate that the Partnership's initial
capital requirements will exceed its resources and believes that the timing of
such requirements as are foreseeable will be such that the proceeds of the
Offering of BACs will be available on a basis sufficient to satisfy them in a
timely manner. In addition, the Partnership will dedicate an amount
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initially expected to equal 2.5% to 3.5% of the Gross Proceeds of the Offering
of BACs to Reserves at the Partnership level (depending upon whether Gross
Proceeds are nearer to the Minimum Offering or the Maximum Offering), and the
General Partner reserves the right to cause distributions received by the
Partnership from Local Partnerships (and that would otherwise be available for
distributions as Cash Flow) to be dedicated to the increase or replenishment of
Reserves at the Partnership level. The Partnership's Reserves will generally be
available to satisfy working capital or operating expense needs of the
Partnership or other obligations (including the obligation to pay Partnership
Management Fees to the General Partner), and will also be available to pay any
excess third party costs or expenses incurred by the Partnership in connection
with the administration of the Partnership, the provision of reports to BACs
holders and other investor servicing obligations of the Partnership. At the
discretion of the General Partner, Reserves may be available for contributions
to Local Partnerships. See "Estimated Use of Proceeds" and "Investment
Objectives and Policies--Interim Investments and Reserves."
The Partnership is not expected to have access to additional sources of
financing, and in particular will not have the ability to assess BACs holders
for additional capital contributions to provide capital if needed by the
Partnership. Accordingly, if circumstances arise that cause a Local Partnership
to require capital in addition to that contributed by the Partnership and any
equity of the Local General Partner, the only sources from which such capital
needs will be able to be satisfied (other than the limited Reserves available at
the Partnership level) will be additional third party debt financing (which may
not be available if, as expected, the Property owned by the Local Partnership is
already substantially leveraged or the incurrence of third party debt is not
permitted) or additional equity contributions of the Local General Partner or
other equity sources (which could adversely affect the Partnership's interest in
operating cash flow and/or proceeds of sale or refinancing of the Property and
result in adverse tax consequences to the BACs holders). There can be no
assurance that any of such sources would be readily available in sufficient
proportions to fund the capital requirements of the Local Partnership in
question, particularly if the residual value of a Property is uncertain. If such
sources are not available, the Local Partnership would risk foreclosure on its
Property if it were unable to renegotiate the terms of its first mortgage and
any other debt with the lenders thereof. This risk is particularly present in
the case of investments that do not benefit from Conventional Government Subsidy
Programs (see "Risk Factors--Risks Related to the Local Partnership
Investments").
The amount and sequence of the Partnership's commitments for capital
expenditures will depend upon the rate at which contracts for acquisitions are
executed, the size of the Partnership's capital commitments and other factors
that are difficult to predict at this time. During the Offering period, at such
time as there is a reasonable probability that the Partnership will
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acquire an investment in a Property, this Prospectus will be supplemented to
furnish such and other information with respect to such acquisition.
Liquidity
Each Partnership acquisition will be analyzed by the General Partner with
respect to its probable impact upon the Partnership's liquidity position. In
this regard, the General Partner will take into account projected cash flow
generated from the Property, the debt service requirements expected to be
generated in the context of the existing financing and any restructuring or
refinancing of such Property, and the division of cash flow in excess of debt
service between the Partnership and the Local General Partner. See "Investment
Objectives and Policies--Financing Structure; Non- Subsidized Local
Partnerships; Government Subsidy Programs" and "Risk Factors--Risks Related to
the Local Partnership Investments."
Following an acquisition, adverse business or financial developments could
result in cash flow, debt service and other changes not foreseen at the time of
acquisition by the Partnership, with a corresponding adverse effect on the
Partnership's liquidity position. To protect against the effect of such
developments, the General Partner will endeavor to obtain from the Local General
Partners limited negative cash flow guarantees or undertakings and agreements to
subordinate a portion of management fees to guard against operating deficits in
the cash flow position of Properties. See "Investment Policies and
Objectives--Operating Deficit Guarantees."
In addition, as discussed above the Partnership will establish at its
inception Reserves equal to 2.5% to 3.5% of the Gross Proceeds of the Offering
of BACs, and the Local Partnerships are expected to maintain working capital
reserves independent of those maintained by the Partnership to the extent that
(a) the terms of mortgage debt encumbering the Properties or the terms of any
government assistance program so require, or (b) the General Partner and the
Local General Partners determine that the same is necessary or advisable.
Although the General Partner will endeavor to cause the appropriate level of
reserves to be maintained at both the Partnership and Local Partnership level,
if such reserves and any other available income are insufficient to cover the
Partnership's or any Local Partnership's operating expenses and liabilities, it
may be necessary to accumulate additional funds from distributions received from
Local Partnerships and that would otherwise be available for distribution to
Partners and BACs holders, or to liquidate the Partnership's investment in one
or more Local Partnerships.
The Reserves of the Partnership and reserves of the Local Partnerships may be
increased or decreased from time to time by the General Partner and/or the Local
General Partners as the case may be in order to meet anticipated costs and
expenses and potential losses, and the amount of Cash Flow available for
distribution and/or Sale or Refinancing Proceeds, if any, that is available for
distribution to the BACs holders may be affected accordingly.
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PROFITS, LOSSES AND DISTRIBUTIONS
Allocations of profits and losses and distributions of cash will be made on
two separate levels. First, allocations and distributions will be made between
the general partner or member with primary management responsibilities (i.e.,
the Local General Partner) and the limited partners or members without
management responsibilities (i.e., generally, the Partnership and the Special
Limited Partner) of each Local Partnership that is a limited partnership or
limited liability company and among the general partners of each Local
Partnership that is a general partnership. Second, allocations so made to the
Partnership will be further allocated, and distributions of cash so made to the
Partnership will be further distributed, among the General Partner and the BACs
holders. The following discussion summarizes the provisions of the Partnership
Agreement and the expected provisions of each Local Partnership Agreement in
this regard, and is qualified in its entirety by reference to the provisions of
such agreements. The form of Partnership Agreement of the Partnership is
attached to this Prospectus as Exhibit A.
Local Partnership Level
At the date of this Prospectus, no Local Partnership Agreements for Local
Partnerships have been executed. The following discussion constitutes a summary
of the expected allocation and distribution provisions of each Local Partnership
Agreement. While the allocation and distribution provisions of other Local
Partnership Agreements may vary, in no event will such provisions be materially
less favorable to the Partnership than the provisions summarized below.
Certain Local Partnerships may be organized as joint ventures, general
partnerships or limited liability companies. In the case of a joint venture or
general partnership, the allocations and distributions referred to below as
being attributable to the limited partners (including the Special Limited
Partner) of the Local Partnership are expected to be attributable to the
Partnership as general partner of the Local Partnership, and the allocations and
distributions referred to below as being attributable to the Local General
Partner are expected to be attributable to the Local General Partner as the
managing general partner of the Local Partnership. In the case of a limited
liability company, such allocations and distributions referred to below as being
attributed to the limited partners (including the Special Limited Partner) of
the Local Partnership are expected to be attributable to the Partnership as a
member of the Local Partnership, and such allocations and distributions referred
to below as attributable to the Local General Partner are expected to be
attributable to the Local General Partner or the member with primary management
responsibilities of the Local Partnership.
1. Distributions of Distributable Cash. It is generally expected that each
Local Partnership Agreement will be required to provide for the distribution
of the distributable cash of a Local Partnership for any year 98.9% to the
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limited partners of the Local Partnership, .01% to the Special Limited Partner
and 1% to the Local General Partner (provided that, if operating deficit loans
have been made by the Local General Partner, up to 50% of all such net cash flow
in any year will be distributed to the Local General Partner, and the balance
will be distributed 98.9% to the limited partners, .01% to the Special Limited
Partner and 1% to the Local General Partner, until such loans have been repaid;
and provided, further, that Local Partnerships may provide for the payment to
Local General Partners of incentive management fees calculated as all or a
percentage of amounts that would otherwise constitute cash flow of such Local
Partnerships). If any Local Partnership has limited partners other than the
Partnership, such other limited partners are expected to be entitled to a
percentage share of cash distributions, and of all other distributions of cash
or sale or refinancing proceeds and allocations of Tax Credits and items of
profit and loss, that would otherwise go to the Partnership. The percentage
share of such other limited partners in such items is not expected to exceed
10%. There can be no assurance that any Property will generate distributable
cash for distribution to the Partnership.
2. Proceeds of Sale or Refinancing. Upon the sale or refinancing of a
Property, the Local Partnership will be required to repay in full any mortgage
or other debt associated with such Property, to pay its costs and expenses
incurred in connection with such transaction (and the dissolution of the Local
Partnership if the Property has been sold), and to repay any outstanding
operating deficit loans made by its Local General Partner and voluntary loans by
any partner. If the Property has been refinanced and the Local Partnership will
continue its operations, portions of any remaining net proceeds may be reserved
by the Local General Partner for future needs or unforeseen contingencies of the
Local Partnership. If the Local Partnership is to be dissolved, remaining net
proceeds will be required to be distributed to the partners of the Local
Partnership (whether general or limited) in accordance with their capital
account balances (after taking into account all allocations of profit and
losses). If the Local Partnership is not being dissolved, any net sale or
refinancing proceeds remaining after such required payments will be distributed
first, 90%-99% to the limited partners of the Local Partnership (other than the
Special Limited Partner) and the balance to the Local General Partner of the
Local Partnership until the point at which the Partnership has received
distributions of such proceeds in an aggregate amount equal to an amount
negotiated by the General Partner at the time of investment in such Local
Partnership which will in no event be less than the sum of (A) the amount of the
Gross Proceeds of the offering of BACs allocable to the investment in such Local
Partnership (i.e., the sum of the allocable portion of the Net Proceeds, Selling
Commissions and Organization and Offering Expenses) or the amount of the
Partnership's investment in such Local Partnership, plus (B) where the General
Partner deems it appropriate, a negotiated annual percentage return on such
amount (reduced by any previous distributions of distrib-
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utable cash to the Partnership by the Local Partnership). Any net sale or
refinancing proceeds remaining after distributions to the Partnership in an
aggregate amount equal to the sum of the amounts described in clauses (A) and
(B) of the preceding sentence will be divided between the limited partners of
the Local Partnership (other than the Special Limited Partner) and the Local
General Partner on a basis that is expected to provide for the distribution to
the limited partners of the Local Partnership (other than the Special Limited
Partner) of between 50% and 70% of such remaining net proceeds, and to the Local
General Partner of between 30% and 50% thereof (provided, that in no event will
all of the partners who were partners of a Local Partnership owning an Existing
Complex prior to the time the Partnership acquired its Local Partnership
Interest be entitled to receive, in the aggregate, more than 10% of the net
proceeds of the sale or refinancing of the Property owned by such Local
Partnership).
3. Allocations of Profits and Losses. Each Local Partnership Agreement is
expected to provide for the allocation of any available Tax Credits and for
allocation of any losses for tax purposes (i) 98.99% to the limited partners of
the Local Partnership, .01% to the Special Limited Partner, and 1% to the Local
General Partner to the extent of the limited partners' positive capital account
balances and with respect to losses for tax purposes attributable to nonrecourse
debt, and (ii) 100% of any other losses for tax purposes to the Local General
Partner.
Each Local Partnership Agreement is expected to provide for the allocation of
profits for tax purposes from other than a Sale or Refinancing, first, to the
partners in accordance with the allocation of prior losses for tax purposes,
second, to the partners in accordance with the prior distributions of
distributable cash by the Local Partnership (from other than a Sale or
Refinancing) and thereafter 98.9% to the limited partners of the Local
Partnership, .01% to the Special Limited Partner and 1% to the Local General
Partner. Each Local Partnership Agreement is also expected to provide for the
allocation of profits for tax purposes from a Sale or Refinancing to the limited
partners of the Local Partnership (other than the Special Limited Partner) and
the Local General Partner in amounts such that the net profits allocated to each
such partner will equal the excess of the aggregate distributions to such
partner over such partner's investment in the Local Partnership. However,
special allocations are provided to insure that deductions attributable to
nonrecourse debt of the Local Partnership will be respected for federal income
tax purposes and to take into account certain cash distributions.
In addition, each Local Partnership Agreement is expected to provide that the
aggregate interests of the Local General Partner in each Local Partnership item
will be equal to at least 1% of such items, and that "qualified income offset"
provisions included in Treasury Regulations under Section 704(b) of the Code
will be satisfied. Special provisions will also provide for the establishment of
capital account balances of the partners upon the
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admission of the Partnership into the Local Partnership, and require the Local
General Partner to make certain contributions to the Local Partnership in
certain circumstances upon the dissolution and termination of the Partnership.
Partnership Level
The following discussion of allocations and distributions at the Partnership
level assumes that all purchasers of BACs will retain their BACs and not
exchange them for Units of limited partnership interest. See "Description of
BACs." Purchasers of BACs who exchange them for Units of limited partnership
interest will share in the allocations and distributions that are described
below as being made to the BACs holders on a pro rata basis treating each Unit
as the equivalent of one BAC.
"Cash Flow" is defined in the Partnership Agreement to mean generally the
Partnership's cash flow from operations for any fiscal year, after deducting
fees, expenses and other liabilities payable by the Partnership. "Sale or
Refinancing Proceeds" is defined in the Partnership Agreement to mean generally
the cash receipts of the Partnership from a sale or refinancing of a Partnership
investment, after deducting expenses and all debts and obligations arising from
or related to such transaction and payable by the Partnership. "10% Cumulative
Return" is defined in the Partnership Agreement to mean generally a cumulative
return on capital contributions equal to 10% per annum, not compounded, over the
period that the contributions remain as capital of the Partnership (i.e., are
not returned to BACs holders). See "Glossary" for more complete definitions of
these terms.
4. Cash Flow. Distributions of Cash Flow for any year will be made by the
Partnership 99% to the BACs holders and 1% to the General Partner.
5. Sale or Refinancing Proceeds; Dissolution. Prior to the dissolution of
the Partnership, the net Sale or Refinancing Proceeds will, to the extent
that the General Partner determines that such proceeds are available for
distribution, be distributed as follows:
(i) to the payment of liabilities of the Partnership then due and owing to
Persons other than Partners;
(ii) to the General Partner in payment of an amount equal to the unpaid
balance, including accrued interest, of any Voluntary Loan;
(iii) 99% of any balance thereof to the BACs holders in an amount equal to
their 10% Cumulative Return to the extent not previously paid from Cash Flow
and 1% to the General Partner;
(iv) 99% of any balance thereof to the BACs holders in an amount equal to
their Capital Contributions reduced by prior distributions of Sale or
Refinancing Proceeds in excess of those treated as satisfying the 10%
Cumulative Return, and 1% to the General Partner; and
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(v) subject to certain required distributions of positive capital account
balances, the balance, if any, 85% to the BACs holders and 15% to the General
Partner.
Investors should note that the use of the term "Cumulative Return" is not
intended to connote that there is any guarantee or assurance that this return
will be provided to investors, but only that if proceeds are available they will
be distributed to investors to the extent of the Cumulative Return before
distributions are made to the General Partner. Distributions will only be made
after payment of the Partnership's expenses and fees, including those payable to
the General Partner. The section of this Prospectus entitled "Compensation and
Fees to the General Partner and Affiliates" contains a table showing fees and
expenses that will be paid by the Partnership prior to making distributions. All
distributions from operations or sale or refinancing proceeds are contingent
upon the results of the Partnership's investments and cannot be assured.
Any accrued, unpaid Partnership Management Fees will be subordinated to and
paid after the distribution referred to in (ii) above. Disposition Fees in
amounts up to 3% of the gross proceeds of the sale or disposition of Local
Partnership Interests or Properties will be payable to the General Partner and
its Affiliates solely from Sale or Refinancing Proceeds remaining after the BACs
holders have received Cash Distributions from all sources in an amount equal to
a 6% noncompounded, cumulative return (calculated from the end of the calendar
quarter in which each respective BACs holder made his Capital Contribution) plus
Cash Distributions of Sale or Refinancing Proceeds in an amount equal to all of
their Capital Contributions. Upon dissolution, after payment of, or reservation
for, the debts and obligations of the Partnership, the remaining assets of the
Partnership (or the proceeds of sales or other dispositions in liquidation of
the assets of the Partnership as may be determined by the General Partner) will
be distributed to the Partners and BACs holders in accordance with their
positive capital account balances (after taking into account all allocations of
profit and losses).
For tax consequences in connection with any sale, foreclosure or liquidation,
see "Federal Income Tax Considerations--Disposition of a Property, a Local
Partnership Interest or BACs."
6. Allocation of Tax Credits, Profits and Losses. Tax Credits will be
allocated 99% to the BACs holders (in accordance with the BACs holders' overall
interest in Partnership losses (in the case of Housing Tax Credits) or profits
(in the case of Historic Rehabilitation Tax Credits)) and 1% to the General
Partner. When the interests of the Partners and BACs holders in the
Partnership's overall profits and losses vary during the year, as will be the
case in the first year of the Partnership's existence if BACs holders purchase
BACs at different times, Housing Tax Credits will be allocated in accordance
with the BACs holders' overall interests in losses for the year, and Historic
Rehabilitation Tax Credits will be allocated in accordance with
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the Partners' and BACs holders' overall interests in Partnership profits at the
time the Historic Complex is placed in service (or, if elected by the Local
Partnership, at such earlier time as the rehabilitation expenses are incurred).
Accordingly, BACs holders who purchase BACs at an earlier time may be allocated
a greater amount of credits than BACs holders who purchase BACs at a later time.
Profits for tax purposes, other than from a Sale or Refinancing, will be
allocated in the same way as Cash Flow, i.e., 99% to the BACs holders and 1% to
the General Partner. Profits for tax purposes from a Sale or Refinancing will
generally be allocated 99% to the BACs holders and 1% to the General Partner
until the capital accounts of the BACs holders are equal to the BACs holders'
10% Cumulative Return plus their Unreturned Capital Contributions, and then 85%
to the BACs holders and 15% to the General Partner. Special allocations are
provided to ensure that deductions attributable to nonrecourse debt will be
respected for federal income tax purposes.
In general, losses for tax purposes other than from a Sale or Refinancing
will be allocated 99% to the BACs holders and 1% to the General Partner, and
losses for tax purposes from a Sale or Refinancing will be allocated so as to
equalize (relative to respective capital contributions) and reduce to zero the
capital accounts of all Partners and BACs holders (with any remaining such
losses being allocated 85% to the BACs holders and 15% to the General Partner).
In addition, the Partnership Agreement provides that (i) the interest of the
General Partner in each Partnership item will be equal to at least 1% of such
items and (ii) that "qualified income offset" provisions included in Treasury
Regulations under Section 704(b) of the Code will be satisfied. The Partnership
Agreement also requires the General Partner to contribute capital to the
Partnership upon the dissolution and termination of the Partnership in an amount
equal to the lesser of its deficit capital account balance or the excess of
1.01% of the Capital Contributions of the BACs holders over the General
Partner's Capital Contribution. Special provisions address the allocation of
profits and losses for tax purposes prior to the first date on which BACs are
purchased.
7. Timing of Distributions. The nature of the Properties, the degree of
leverage expected to encumber the Properties and the likelihood that most of the
Properties will be Development- Stage Complexes that have no operating history
based upon which the probability of excess distributable cash can be predicted
(and which will in any event not generate any excess distributable cash for an
initial rent-up period after they are placed in service) makes it difficult for
the General Partner to predict when distributions of Cash Flow to BACs holders
will commence and the extent to which such distributions, once commenced, will
be made with regularity. There can be no assurance that the Partnership will be
in a position to make distributions of Cash Flow at any time prior to the
disposition of the Properties, and in any event the General Partner expects that
distributions of Cash Flow will
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be limited in amount. To the extent that the Partnership has Cash Flow available
for distribution, the General Partner anticipates that the Partnership will make
distributions annually within forty-five days following the end of each fiscal
year. In general, all distributions and allocations to the BACs holders will be
divided amongst them in proportion to the number of BACs owned by each.
8. Division of Distributions and Allocations Between Transferors and
Transferees of BACs. In the case of a transfer of BACs occurring during a fiscal
year of the Partnership, the Partnership Agreement requires that the
Partnership's taxable income, loss and Housing Tax Credits for such fiscal year
be allocated between the transferor and the transferee based upon the number of
months or half months during such fiscal year that each was recognized by the
Partnership as the owner of the BACs. Subject to compliance with applicable
provisions of the Partnership Agreement, the Partnership will make distributions
(if any) for each calendar year to record holders of BACs as of the last day of
such calendar year. Accordingly, as a result of a transfer taking place during a
calendar year, the transferee would be entitled to receive the entire amount, if
any, of all distributions from the Partnership for such fiscal year in respect
of the BACs owned by such transferee, whereas the transferor would be allocated
the taxable income or loss for periods during such calendar year prior to the
transfer. The Partnership Agreement may therefore operate to allocate a certain
amount of taxable income to a transferor in circumstances where the transferee
receives the related distributions of Cash Flow and/or Sale or Refinancing
Proceeds.
The sale or transfer of BACs will not result in recapture of Housing Tax
Credits by the transferor; however, the transferee may be required to recapture
a portion of the Housing Tax Credits previously claimed by the transferor with
respect to such BACs if an event of recapture (other than a disposition of the
BACs) occurs while the transferee owns the BACs. Purchasers should be aware that
the sale or transfer of BACs may result in recapture of Historic Rehabilitation
Tax Credits to the transferor thereof.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion attempts generally to describe those portions of the
Code that affect an investment in the Partnership by an individual who resides
in the United States or is a citizen of the United States, and addresses all of
the material federal tax consequences to such an investor of an investment in
the Partnership. Such discussion is based on the provisions of the Code as now
in effect, regulations proposed or promulgated thereunder, published rulings and
judicial decisions, all of which are subject to change (possibly retroactive) at
any time. It is possible that any such change could have an adverse impact on
the tax consequences of an investment in the Partnership. Furthermore, the
following analysis is not a substitute for careful tax planning, since the
income tax consequences
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of an investment in the Partnership are complex and may not be the same for all
taxpayers. Therefore, each prospective BACs holder should consult with his or
her own tax advisor as to his or her particular circumstances in relation to the
tax considerations described herein as being pertinent to an investment in the
Partnership (and in particular those as to which counsel is not rendering an
opinion). No representations are made as to state or local tax consequences
resulting from an investment in the Partnership and no assurances are given that
any deductions, credits, or other federal income tax advantages described herein
will be available to an investor in the Partnership in current or future years.
Proskauer Rose Goetz & Mendelsohn LLP, counsel to the Partnership ("Counsel")
has reviewed the federal income tax consequences described in this section,
which includes a description of several opinions that are being rendered by
Proskauer Rose Goetz & Mendelsohn LLP and several opinions that are expected to
be rendered by counsel upon the admission of the Partnership into each Local
Partnership. When read together, these opinions address each material federal
income tax issue as to which there is a reasonable possibility of challenge by
the IRS. Prospective BACs holders and their tax advisors are urged to review
carefully the discussion of these matters and the other items contained in this
"Federal Income Tax Considerations" section so that, among other consequences,
they may form a belief as to the likelihood of the Partnership prevailing on
various positions that it intends to take.
As noted under "Classification of the Partnerships" below, the Properties
will be owned by the Local Partnerships in which the Partnership will own an
interest as a limited partner. The discussion in this "Federal Income Tax
Considerations" section generally treats this two-tier structure as if the
Partnership and the Local Partnerships were a single partnership for federal
income tax purposes, referred to as the "Partnership," and the Partnership's
acquisition of interests in Local Partnerships as direct acquisition of
Properties, unless the context of the discussion specifically requires a
distinction.
The principal tax benefits expected to result from an investment in the
Partnership will be derived from tax credits arising from investments in
low-income housing. The tax credit is discussed under "Low-Income Housing and
Historic Rehabilitation Tax Credits."
The following summary sets forth the matters as to which counsel will render
an opinion. The opinions set forth under paragraph 1 will be rendered by
Proskauer Rose Goetz & Mendelsohn LLP as of the date of the Prospectus and as of
each Closing Date. In the case of each Local Partnership and Property, the
General Partner will obtain from Proskauer Rose Goetz & Mendelsohn LLP or from
counsel selected by the General Partner or a Local General Partner the opinions
set forth in paragraph 2 at the time the Partnership is admitted into a Local
Partnership unless in any particular case the General Partner determines that
matters not opined to do not
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apply to the particular property or will not materially adversely affect the
investment objectives of the Partnership. Although in the case of a particular
Local Partnership or a particular Property the opinions rendered by counsel may
be subject to specific limitations or uncertainties, an acquisition by the
Partnership of an interest in a Local Partnership will not be effected unless
the General Partner obtains an opinion from counsel concluding that, with
respect to the proposed acquisition, it is more likely than not that, in the
aggregate, a significant majority of the material tax benefits will be realized
by a typical BACs holder as contemplated in the Prospectus. The opinion set
forth in paragraph 3 will also generally be rendered at the time the Partnership
is admitted into a Local Partnership. Although it is contemplated that the
opinions set forth in paragraphs 2 and 3 will be obtained at the time the
Partnership is admitted into a Local Partnership, in certain circumstances the
Partnership may be admitted into a Local Partnership prior to obtaining one or
more of such opinions; in such cases, the Partnership will be entitled to a
return of its investment in the Local Partnership in the event that such
opinions are not obtained from counsel within a specified time period.
1. Proskauer Rose Goetz & Mendelsohn LLP has opined and it shall be a
condition to admission of BACs holders at each Closing Date, that Proskauer Rose
Goetz & Mendelsohn LLP opine that it is more likely than not that:
(a) the Partnership will be treated as a partnership and the BACs holders
will be considered partners of the Partnership for federal income tax
purposes;
(b) the allocations of Partnership income, gain, loss, deductions and credits
to the BACs holders under the Partnership Agreement will satisfy the
requirements of Section 704(b) of the Code, except that no opinion is
expressed with respect to the manner in which allocations are apportioned
among BACs holders when BACs are assigned or transferred or initially
acquired;
(c) a deduction is available under Section 709 of the Code for reasonable
amounts paid or incurred by the Partnership for organizational fees over the
60-month period beginning with the month in which the Partnership begins to
engage in a trade or business;
(d) the provisions of Section 183 of the Code which limit the utilization of
losses, deductions or credits from activities not engaged in for profit will
not apply to any Partnership losses, deductions or Tax Credits;
(e) The Partnership will be entitled to deduct amounts paid or incurred as
Partnership Management Fees for the management of the Partnership for the
taxable years in which the respective management services are performed; and
(f) a BACs holder's allocable share of Partnership income, losses and credits
(other than the portion thereof classified as portfolio income
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or loss) will constitute income, losses and credits from passive activities,
for purposes of the passive activity limitation rules contained in Section
469 of the Code.
2. Upon admission to each Local Partnership, except as set forth above, the
Partnership shall obtain the opinions set forth in this paragraph 2 and
paragraph 3, with respect to each Local Partnership and the Properties, it is
more likely than not that:
(a) the Local Partnership will be treated as a partnership for federal
income tax purposes;
(b) the Apartment Complex will be eligible for Housing Tax Credits;
(c) in the case of an Apartment Complex that will be placed in service not
later than the close of the second calendar year following the calendar year
in which the Apartment Complex received a state housing credit allocation,
the Apartment Complex will qualify for the carryover exception provided in
Section 42(h)(1)(E) of the Code;
(d) the qualified rehabilitation expenditures incurred with respect to an
Historic Complex will be eligible for an Historic Rehabilitation Tax Credit;
(e) the debt encumbering the Property will be treated as true indebtedness
for federal income tax purposes;
(f) the Local Partnership will be treated as the sole owner of the Property
for federal income tax purposes and will be entitled to claim a basis with
respect to depreciation of the Property equal to the portion of the purchase
price or the construction cost properly allocable to the improvements that
are paid or incurred by the Local Partnership;
(g) the debt encumbering the Property (other than any portion of debt
guaranteed by or otherwise treated as recourse to any other partner) will be
treated as nonrecourse debt for federal income tax purposes and will be
included in the computation of a BACs holder's basis for his BACs;
(h) interest on the debt encumbering the Property will be deductible in the
period to which it is properly allocable (except to the extent that such debt
is treated as having been incurred or continued to purchase or carry
tax-exempt obligations or to the extent the capitalization rules for
construction period interest apply);
(i) the Local Partnership will be entitled to deduct amounts paid or incurred
as Property Management Fees for the management and operation of the Property
for the taxable years in which are performed the services to which such fees
are attributable;
(j) for purposes of the limitation under Section 465 of the Code on the
deductibility of losses of the Partnership attributable to real property
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held by the Local Partnership, and any personal property that is incidental
to making such real property available as living accommodations, the BACs
holders' amount at risk will include the qualified nonrecourse debt
encumbering the Property plus the amount of actual cash paid by the
Partnership to acquire its interest in the Local Partnership (but will not
include nongovernmental seller financing) and, for purposes of the at-risk
limitation on the amount of qualified basis with respect to which the Housing
Tax Credits are computed and the at-risk limitation on the amount of credit
base with respect to which the Historic Rehabilitation Tax Credits are
computed, the BACs holders' amount at risk will include the qualified
commercial nonrecourse debt encumbering the Property plus the amount of
actual cash paid by the Partnership to acquire its interest in the Local
Partnership (but will not, except in certain limited circumstances, include
nongovernmental seller financing);
(k) the allocations of income, gain, loss, deductions and credits provided in
the Local Partnership Agreement satisfy the requirements of Section 704(b) of
the Code;
(l) the Partnership will be treated as the owner of the Local Partnership
Interest for federal income tax purposes; and
(m) the provisions of Section 183 of the Code which limit the utilization of
losses, deductions or credits from activities not engaged in for profit will
not apply to any Local Partnership losses, deductions or Tax Credits.
3. Although, as summarized above and discussed below, counsel is unable to
predict the outcome of certain material tax issues, counsel is of the opinion
that with respect to the Partnership's investment in each Local Partnership, it
is more likely than not that, in the aggregate, a significant majority of the
material tax benefits (Tax Credits, deductions for depreciation, interest, and
ordinary and necessary business expenses, and amortization of organizational
expenses) will be recognized by a typical BACs holder as contemplated in this
Prospectus. In giving this opinion, counsel may rely on the opinions of
Proskauer Rose Goetz & Mendelsohn LLP referred to in paragraph 1 above.
This summary is qualified in its entirety by the caveats set forth in
counsel's opinion and in this "Federal Income Tax Considerations" section and in
the section entitled "Low-Income Housing and Historic Rehabilitation Tax
Credits." These opinions of counsel represent only counsel's best legal judgment
and, unlike a tax ruling, have neither binding effect nor official status of any
kind. The ability of a BACs holder to use deductions and Tax Credits addressed
in the opinions summarized above will be subject to a number of limitations,
including the passive activity loss rules, the limitation of Section 67 of the
Code based on 2% of the adjusted gross income of an individual BACs holder, the
reduction in itemized deductions applicable to individual taxpayers with incomes
in excess of a threshold amount,
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pursuant to Section 68 of the Code, and investment interest limitations. In
addition, although it is expected that counsel will render an opinion to the
effect that the allocation provisions of partnership agreements will satisfy the
requirements of Section 704(b) of the Code, the intended allocation of
deductions, Tax Credits, and other items may be affected by possible mandatory
allocations to the general partners to the extent a general partner incurs
recourse liability for a partnership debt and to the extent a general partner
contributes, or is deemed to contribute, capital to a partnership.
Because of the factual nature of the inquiry, which facts are not currently
ascertainable and, in certain cases, the lack of clear authority in the law,
Counsel has concluded that it is not possible for it to reach a judgment as to
the outcome on the merits of the following federal income tax issues and,
accordingly, expresses no opinion with respect to (i) whether the allocation of
basis among the improvements, land and other Partnership assets will be
respected for purposes of computing depreciation and credits and (ii) whether
allocations between BACs holders when BACs are transferred or assigned will be
respected.
Although the Partnership will be guided by professional tax advisors, the
resolution of many of the tax aspects of real estate investment is uncertain.
The availability and proper amount of the deductions taken by the Partnership
may depend upon determinations, including the allocation of costs among various
assets and the characterization of various fees, payments and other matters,
that are subject to factual or legal controversy. There can be no assurance,
therefore, that some of the items of tax benefit claimed by the Partnership or
the allocation of the items of income, gain, loss, deduction or credit among the
partners will not be challenged by the IRS. Since disallowance of such items of
tax benefit and allocations could adversely affect the BACs holders, each
prospective investor must consult his own tax advisor with respect to the
federal, state and local tax consequences arising from an investment in the
Partnership.
Classification of the Partnerships
The availability of tax benefits to the BACs holders depends on
classification of the Partnership and the Local Partnerships for federal income
tax purposes as partnerships rather than as associations taxable as
corporations. Counsel is of the opinion that it is more likely than not that the
Partnership is a partnership for federal income tax purposes and not an
association taxable as a corporation and not a publicly-traded partnership
within the meaning accorded to such term in the Code and the BACs holders will
be considered partners of the Partnership for federal income tax purposes.
Counsel's opinion is based upon the factual representations of the General
Partner that unless there is a change in the unfavorable tax treatment of
publicly-traded partnerships imposed by the Code the General Partner (i) will
not cause the BACs or Units to be traded on what counsel advises is an
established securities market, (ii) will use its best efforts to cause the
Partnership to comply with the 5% Safe Harbor as long as the
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5% Safe Harbor remains in effect unless, in the opinion of counsel, another such
safe harbor is available to the Partnership and the General Partner represents
that it will use its best efforts to cause the Partnership to comply with such
other safe harbor, and (iii) if the 5% Safe Harbor or another such safe harbor
is not in effect, will comply with such restrictions on transferability of BACs
or Units as are necessary in the opinion of counsel to prevent the Partnership
from being treated as a publicly-traded partnership. Counsel's opinion is also
based on the assumption that the information furnished to the General Partner by
transferors and transferees of BACs or Units or any interest therein will be
accurate. It will be a condition to the admission of the Partnership into a
Local Partnership that counsel render an opinion that it is more likely than not
that the Local Partnership is a partnership for federal income tax purposes.
No tax ruling will be sought from the IRS as to such classifications, and it
does not appear that the Partnership will satisfy all requirements necessary to
obtain a favorable IRS ruling as to partnership classification under current IRS
ruling guidelines set forth in Rev. Proc. 89-12, 1989-1 C.B. 798 (relating to
whether an entity will be classified as a partnership for federal income tax
purposes). The Revenue Procedure states that the guidelines are only for
purposes of determining whether ruling letters will be issued, are not intended
as substantive rules regarding the determination of partnership status and are
not to be applied as criteria for the audit of taxpayers' returns. Instead, the
Partnership will rely on the opinion of counsel. Such counsel's opinion is based
upon certain provisions of the Partnership Agreement, factual assumptions and
representations by the General Partner and current administrative
interpretations of certain provisions of the Code. There is no assurance that
the existing administrative interpretations will not be changed during the term
of the Partnership. The opinion of counsel represents only counsel's best legal
judgment and, unlike a tax ruling, has neither binding effect on the IRS nor
official status of any kind. The tax aspects of the offering discussed in this
Prospectus are based on the assumption that the Partnership and the Local
Partnerships will be treated as partnerships (and not as publicly-traded
partnerships) for federal income tax purposes.
The General Partner has represented that it has and will use its best efforts
to continue to have, at a minimum, a net worth at least equal to $1,000,000 and
an additional net worth of 10% of Gross Proceeds to the extent the Gross
Proceeds exceed $10,000,000 but are less than $20,000,000 and 2.5% of Gross
Proceeds to the extent Gross Proceeds exceed $20,000,000, and will maintain a
higher net worth if required to do so in order for counsel to conclude that the
Partnership will be treated as a partnership for federal income tax purposes.
Treasury Regulations provide that the partnership characteristic of unlimited
liability will exist if a general partner has substantial assets, but the
regulations do not provide a definition of the term "substantial." Substantially
all of the net worth of
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the General Partner will be represented by one or more non-interest bearing
demand notes contributed to the General Partner by its partner(s).
Under Section 7704(a) of the Code, certain publicly-traded partnerships will
be treated as corporations for purposes of federal income taxation. A
"publicly-traded partnership" is defined as a partnership the interests in which
are either (1) traded on an established securities market or (2) readily
tradable on a secondary market (or the substantial equivalent thereof). The
Conference Committee Report for the 1987 Act provides that an established
securities market is defined as any national securities exchange registered
under the Securities Exchange Act of 1934 or exempted from registration because
of a limited volume of transactions, any local exchange and any over-the-counter
market characterized by an interdealer quotation system which regularly
disseminates quotations of obligations by identified brokers or dealers, either
by electronic means or otherwise.
Partnership interests that are readily tradable on a secondary market (or the
substantial equivalent thereof) generally include interests in partnerships
that, although not traded on an established securities market, may be bought,
sold or exchanged in a manner that is comparable, economically, to trading on an
established securities market. A secondary market for such interests is
generally characterized by the existence of a person standing ready to make a
market in the interest. Thus, a partnership interest would be readily tradable
if such interest were regularly quoted by persons such as brokers or dealers who
make a market in such interests. The Conference Committee Report provides that a
market substantially equivalent to such a secondary market exists where,
although there exists no identifiable market maker, the holder of a partnership
interest has a readily available, regular and ongoing opportunity to sell or
exchange his partnership interest by way of a public means for the dissemination
of information concerning offers to buy, sell or exchange his interests in the
partnership. Similarly, a substantial equivalent to a secondary market exists
where prospective buyers and sellers have the opportunity to buy, sell or
exchange interests in a time frame and with the same regularity and continuity
as provided by a market maker.
A partnership is considered to be participating in the public trading of its
interests where trading is, in fact, taking place (even though the partnership
may not have taken explicit action to permit trading, such as by listing its
interests on an exchange) and the partnership agreement imposes no meaningful
limitations on the partners' ability to readily transfer their interests.
However, where the general partner of a partnership merely provides information
to its partners regarding such partners' desire to buy or sell their interests
to each other, or arranges such transfers between partners, without offering to
buy or redeem any interests or issue additional interests to such partners, a
secondary market or the substantial equivalent thereof will not be created. Nor
will the occasional and irregular
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repurchasing or redemption by the partnership, or acquisition by the general
partner, of interests in the partnership cause the partnership to be
considered as publicly-traded for purposes of this provision.
The IRS, in IRS Notice 88-75, has established certain "safe harbors" under
which partnership interests that are not traded on an established securities
market will be considered not readily tradable on a secondary market or the
substantial equivalent thereof. Under one such safe harbor, interests in a
partnership will not be considered readily tradable on a secondary market or the
substantial equivalent thereof for a taxable year of the partnership if the sum
of the percentage interests in partnership capital and profits represented by
partnership interests that are sold or otherwise disposed of (including
purchases by a partnership of its own interests (i.e., redemptions)) during the
taxable year does not exceed 5% of the total interests in the partnership
capital or profits. For purposes of determining whether this safe harbor is
satisfied, the following transfers are disregarded: (i) transfers in which the
basis of the partnership interest in the hands of the transferee is determined,
in whole or in part, by reference to its basis in the hands of the transferor
(such as a transfer by gift) or is determined under Section 732 of the Code
(transfers by partnership distribution); (ii) transfers at death; (iii)
transfers between family members; (iv) the issuance of interests by or on behalf
of the partnership in exchange for cash, property or services; (v) "block
transfers" (the transfer by a partner in one or more transactions during any 30
calendar day period of partnership interests representing in the aggregate more
than 5% of the total interests in partnership capital and profits); and (vi)
certain transfers pursuant to a redemption or repurchase agreement. The General
Partner intends to cause the Partnership to comply with available safe harbors
that prevent BACs or Units from being considered readily tradable on a secondary
market.
Although a partnership may be deemed to be a publicly-traded partnership
under Section 7704(a) of the Code, it will not be taxed as a corporation if 90%
or more of its gross income consists of "qualifying income," which is defined
under Section 7704(d) of the Code as interest, dividends, most real property
rents, gains from the disposition of real property, income and gains from
certain mineral or natural resource related activities, gains from the
disposition of a capital asset or certain other assets held for the production
of income, and income and gains from commodities-related activities. In this
regard, amounts contingent on net income or profits are not treated as interest
or rent. Counsel has advised that, based on the proposed activities of the
Partnership and the Local Partnerships, 90% or more of the gross income of such
partnerships will consist of real property rents, gains from the disposition of
real property, interest or dividends (exclusive of amounts contingent on net
income or profits).
In the case of a partnership that is deemed to be a publicly-traded
partnership but is not taxed as a corporation because 90% or more of its gross
income consists of qualifying income, (i) net income from the partnership
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will not be treated as passive income for purposes of the passive loss rules,
and (ii) net losses from the partnership may not be used to offset income from
sources other than the partnership. See "Limitations on Losses and Credits from
Passive Activities" below.
The General Partner intends to exercise its discretion under the Partnership
Agreement to impose restrictions on transfers of BACs or Units or any interest
therein in order to prevent the Partnership from being treated as a
publicly-traded partnership. As noted above, Counsel's opinion that the
Partnership is a partnership for federal income tax purposes and not an
association taxable as a corporation and not a publicly-traded partnership is
based on certain representations of the General Partner that unless there is a
change in the unfavorable tax treatment imposed by the Code it will not cause
the BACs to be traded on what counsel advises is an established securities
market, and will rely upon the 5% Safe Harbor as long as the 5% Safe Harbor
remains in effect, unless, in the opinion of counsel, another such safe harbor
is available to the Partnership, and the General Partner represents that it will
cause the Partnership to comply with such other safe harbor. Counsel's opinion
is also based on the assumption that the information furnished to the General
Partner by transferors and transferees of BACs or Units or any interest therein
will be accurate. It should be noted that Treasury regulations interpreting the
publicly-traded partnership rules have not been issued, and that such
regulations, when issued, could affect counsel's conclusions.
If the Partnership or a Local Partnership were treated as an association
taxable as a corporation, or as a publicly-traded partnership without sufficient
qualifying income, such partnership would be taxable as a corporate entity. In
such case the taxable income and tax losses of that partnership would not pass
through to the BACs holders, would be reportable on the partnership's own tax
return and taxable income would be subject to federal income tax at the tax
rates applicable to corporations. BACs holders would not be entitled to deduct
their share of any tax losses, or use their share of any Tax Credits, of such
partnership. Distributions would be treated, in whole or in part, as the payment
of nondeductible dividends, generally taxable as ordinary income. The BACs
holders also would be required to recognize gain to the extent the liabilities
encumbering the Properties exceed the adjusted basis of the Properties at the
time the Partnership is treated as an association taxable as a corporation.
Taxation of the Partnership
The Partnership intends to report its operations on the accrual basis for
federal income tax purposes and to use the calendar year as its tax year. As a
partnership, the Partnership is not subject to income tax, but is required to
file a partnership information tax return annually. Each BACs holder must report
on his own income tax return his distributive share of the Partnership's items
of income, loss, gain, tax credit, tax preference, deduction and deferral,
without change in characterization (unless the BACs holder notifies the IRS of
any inconsistency on Form 8082), for his
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taxable year with which or in which the Partnership's taxable year ends. Since
BACs holders will be required to include Partnership income in their income
without regard to whether there are distributions of that income, BACs holders
may be liable for federal, state or local income taxes on that income even
though they have received no money or property from the Partnership with which
to pay such taxes. Cash Flow available for distribution in later years could be
less than the taxable income in such years or the tax liability attributable to
such income.
A federal tax audit of the Partnership's information returns may result in
adjustments in the Partnership's taxable income or tax loss and, therefore, in
items of income, loss, deduction and credit previously reported to the BACs
holders. Such adjustments may result in an audit of each BACs holder's
individual tax return, which could result in adjustments to non- Partnership as
well as Partnership items. Interest (possibly at a high rate), and in some cases
penalties, would be payable in connection with any tax deficiencies resulting
from such adjustments. Pursuant to Section 6621(a) (2) of the Code, the interest
rate for underpayment of tax generally is calculated at the federal short-term
rate plus 3%. Interest paid to the IRS on tax deficiencies is not deductible.
See "Tax Returns, Tax Information, Audits and Proceedings," below.
Counsel will not prepare or review the Partnership's income tax information
returns. The Partnership will make a number of decisions on such tax matters as
the expensing or capitalizing of particular items, the proper period over which
capital costs may be depreciated or amortized, the deductibility of expenses
incurred for services performed for the Partnership, and many other similar
items. Such matters will be handled by the Partnership, often with the advice of
accountants retained by the Partnership, and will usually not be reviewed by
counsel.
A BACs holder's deduction of his distributive share of Partnership tax losses
(including capital losses) is allowable only to the extent that such losses do
not exceed his tax basis in the Partnership at the end of the Partnership's
taxable year in which the losses occur. This limitation is independent of, and
in addition to, the limitation on the deductibility of passive activity losses
and the at risk limitation on deductibility of losses. It will be a condition to
the acquisition of a Local Partnership Interest that, based upon the appraisals
and the representations of the General Partner and the Local General Partners as
to the fair market value of each Property, counsel render an opinion that it is
more likely than not that the debt encumbering a Property (other than any
portion of debt guaranteed by or otherwise treated as recourse to any other
partner) will be treated as nonrecourse debt for federal income tax purposes and
will be included in the computation of the Partnership's basis in the Property
and accordingly the BACs holder's basis for his BACs.
A BACs holder's tax basis for his or her BACs includes the amount of his or
her capital contribution to the Partnership, increased by (a) a share
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of Partnership liabilities for which no Partner is personally liable (but only
to the extent that such liabilities do not exceed the fair market value of the
property securing such liability) and (b) the amount of his or her share of
Partnership income in any year, and reduced (but not below zero) by (x) his or
her share of Partnership losses in any year, (y) any cash distributions received
by him or her from the Partnership and (z) certain non-deductible and
non-capitalizable expenditures of the Partnership. A BACs holder, in determining
his tax basis for his Partnership interest, will be able to take into account
his or her share of the Partnership's share of the nonrecourse liabilities of a
Local Partnership. The allocation of Housing Tax Credits to a BACs holder will
not affect such BACs holder's tax basis for his BACs.
The "nonrecourse" nature of the liabilities of some of the Local
Partnerships, in particular those which have Development-Stage Complexes under
construction, may be affected by certain pledges or guarantees made by, or
letters of credit posted by, the Local General Partners or their Affiliates in
connection with the financing of a Property. Such guarantees or letters of
credit might be available to pay interest and principal on liabilities of the
Local Partnerships in case of default. If such arrangements make a loan
"recourse" for tax purposes, only the portion of the loan covered by the
arrangement would be so treated and the remaining portion would be treated as a
nonrecourse loan. When the guarantee or letter of credit terminates, the entire
loan should be treated as nonrecourse. The Treasury Regulations provide that an
otherwise nonrecourse liability will be treated as recourse where a partner,
directly or indirectly, guarantees the payment of interest on the obligation or
undertakes other obligations that are tantamount to guaranteeing the obligation.
See "Allocations of Profits and Losses" below.
Any increase or decrease in a BACs holder's share of Partnership indebtedness
is treated as a cash contribution to, or a cash distribution from, the
Partnership. Generally, a cash distribution to a BACs holder will not be taxable
to the extent it does not exceed the BACs holder's adjusted basis for his or her
BACs. However, a BACs holder's adjusted basis for his BACs will be reduced by
distributions, and subsequent distributions to the BACs holder in excess of the
BACs holder's adjusted basis for his or her BACs will result in a taxable gain.
A decrease in basis may result in tax liability to a BACs holder even though no
cash is in fact distributed. Any excess of a BACs holder's allocable share of
Partnership loss over his basis at the end of the Partnership's taxable year
will be potentially deductible in future years, subject to the limitations
discussed herein, to the extent that he or she shares in the Partnership's
taxable income or repays distributions in future taxable years.
Limitations on Losses and Credits from Passive Activities
In the case of individuals, trusts, estates and personal service
corporations, subject to certain exceptions, deductions and credits from passive
activities may be used to reduce a taxpayer's tax liability for a taxable year
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only to the extent that such tax liability arises from passive activities. Thus,
in the case of an individual, trust, estate or personal service corporation, tax
losses and tax credits are generally not available to offset tax liabilities
that arise from (1) salaries and (2) dividends, interest, and other "portfolio
income." However, in the case of individuals, a limited exception to the passive
activity loss and credit rules is provided for the Tax Credits, as discussed
below. C corporations that are not personal service corporations and are not
closely-held are not subject to this passive activity limitation. Closely-held C
corporations are subject to certain other limits. Passive activities include
trade or business activities in which the taxpayer does not materially
participate (e.g., a limited partnership interest in an activity), and rental
activities.
Income from passive activities does not include "portfolio income." Portfolio
income includes dividends, interest, royalties, income from annuities and mutual
funds, and gain realized from the sale of properties that generate such income.
It is expected that Partnership income from Permitted Interim Investments and
income earned on working capital reserves will constitute portfolio income.
Except as discussed below, losses arising from a passive activity generally
are deductible only against income from that activity or another passive
activity. Tax credits arising from a passive activity generally may be used to
offset tax liabilities only to the extent such liabilities are allocable to
passive activities. Losses and credits from a passive activity that are not
currently deductible or utilizable to reduce tax liabilities (as a result of the
passive activity limitations) are carried forward (but not back) and can be used
to offset passive income or to reduce tax liabilities attributable to passive
activities in subsequent taxable years. Interest expense attributable to passive
activities is treated as part of the passive activity loss, rather than as
investment interest, and therefore is not subject to the limitation on
investment interest. Gain realized upon a Partnership distribution in excess of
the BACs holder's basis will be treated as passive activity income, and
suspended losses and credits may be used to offset such income.
When the taxpayer disposes of his or her entire interest in a passive
activity in a fully taxable transaction, any remaining suspended loss (but not
credits) incurred in connection with that activity is released from the passive
activity loss limitations and will be deductible in accordance with the other
provisions of the Code. A transfer by a BACs holder of less than all of his or
her BACs will not be treated as a disposition of his entire interest in the
Partnership and previously suspended passive losses and credits attributable to
the transferred BACs will not be allowable against income from other sources
(other than passive activity income). The disposition by the Partnership of its
interest in a Local Partnership should be treated for these purposes as a
disposition by a BACs holder of his or her entire interest in the activities
conducted by the Local Partnership. It should be noted that TAMRA authorizes the
Treasury Department to issue regula-
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tions, to the extent necessary to prevent avoidance of the passive activity
rules, requiring taxpayers to reduce the amount of suspended passive activity
losses that are deductible upon the disposition of the taxpayer's entire
interest in an activity by the amount of income or gain realized from the
activity in previous years.
The passive activity loss and credit limitations of the 1986 Act contain an
exception which may apply to certain of the BACs holders with respect to the Tax
Credits. This exception provides that, in the case of certain individual
taxpayers, the passive activity credit restrictions will not apply to the amount
of such qualified credits generating a federal income tax benefit equal to the
amount of benefit that would be derived by the taxpayer from a deduction equal
to $25,000 ($12,500 in the case of married individuals filing separately who do
not live together; zero in the case of married individuals filing separately who
live together at any time during the taxable year) may be used to offset taxes
on active non-rental income or portfolio income (such amount is referred to
herein as the "$25,000 Deduction- Equivalent Amount"). For such taxpayers with
income subject to the 39.6% tax rate, this is equivalent to allowing such
taxpayer up to $9,900 (39.6% x $25,000) in such Tax Credits. See "Who Should
Invest."
Under Pre-1989 Act Law, the ability of individual investors to utilize the
$25,000 Deduction-Equivalent Allowance with respect to both Housing Tax Credits
and Historic Rehabilitation Tax Credits from a partnership's activities against
taxes on income other than passive activity income in any year is reduced to the
extent the investor's adjusted gross income (calculated with certain adjustments
under the Code) exceeds $200,000 and is completely eliminated by the time such
investor's adjusted gross income reaches $250,000 (this reduction is pro rata to
the excess of gross income over $200,000) in such year. Under the 1989 Act, with
respect to Housing Tax Credits (but not Historic Rehabilitation Tax Credits)
generated by properties to which the 1989 Act amendments apply, this phase-out
will not apply and all individual taxpayers will be able to use an amount of
such Housing Tax Credits equal to the equivalent of $25,000 of deductions (i.e.,
$9,900 for taxpayers with income subject to the 39.6% tax rate) to offset active
or portfolio income regardless of their adjusted gross income. This amendment
applies generally to Housing Tax Credits derived from Properties placed in
service after 1989 and Housing Tax Credits carried back to years prior to 1990
are not eligible for this amendment. In the case of property held through a
partnership or other pass-through entity, the amendment applies to Housing Tax
Credits derived from property where both the property is placed in service after
1989 and the interest in the partnership is acquired after 1989. Thus, BACs
holders will not be subject to the phase-out of the $25,000 Deduction-Equivalent
Allowance with respect to Housing Tax Credits generated by those Properties
placed in service after 1989.
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The 1989 Act amendment eliminating the phase-out of the $25,000
Deduction-Equivalent Allowance does not apply to Historic Rehabilitation Tax
Credits. Thus, only individuals with an adjusted gross income of $200,000 or
less (disregarding passive losses) may fully utilize that amount of Historic
Rehabilitation Tax Credits against active or portfolio income. The $25,000
Deduction-Equivalent Allowance with respect to the Historic Rehabilitation Tax
Credits is reduced by one-half of the amount by which the taxpayer's adjusted
gross income exceeds $200,000 ($100,000 in the case of married persons filing
separately), so that the allowance is reduced to zero when a taxpayer's adjusted
gross income is $250,000 or greater. Thus, for example, a taxpayer with adjusted
gross income of between $150,000 and $200,000 will be eligible for the full
$25,000 Deduction-Equivalent Allowance with respect to such credits.
Under certain circumstances, up to $25,000 of losses from real estate rental
activities may be deducted by taxpayers with adjusted gross income of $100,000
($50,000 in the case of married persons filing separately) or less. In order to
qualify for this exception, a taxpayer generally must actively participate in
the real estate activity. Because BACs holders will not be treated as meeting
this active participation test, any losses generated by the Partnership will not
be eligible for this exception. However, Tax Credits are eligible for the
$25,000 Deduction-Equivalent Allowance regardless of whether or not BACs holders
actively participate in the real estate activities of the Partnership. The
General Partner expects that the Tax Credits generated by the Local Partnerships
and allocated to the BACs holders will be eligible for the $25,000
Deduction-Equivalent Allowance exception.
The $25,000 Deduction-Equivalent Allowance is an aggregate amount for all
investments of the taxpayer. Consequently, if a taxpayer has other investments
eligible for the $25,000 Deduction-Equivalent Allowance exception, the tax
benefits derived from an investment in the Partnership will be diluted. Further,
the $25,000 Deduction-Equivalent Allowance is an aggregate for both losses and
credits. If a taxpayer has both passive losses and credits that are eligible for
the $25,000 Deduction-Equivalent Allowance, the losses must be used before the
credits (and credits other than Tax Credits must be used before the Tax
Credits). For example, if the taxpayer in 1993 has $10,000 of losses as well as
$6,000 of credits which are eligible for the $25,000 Deduction-Equivalent
Allowance, the taxpayer will be able to use $10,000 of losses against any income
and $5,940 of the credits (the deduction equivalent to the remaining $15,000
allowance at a 39.6% tax rate). The remaining $60 of the credits can be carried
forward indefinitely. Credits that are carried forward under this rule will be
applied against the $25,000 Deduction-Equivalent Allowance in a subsequent year
to determine if such credits are allowable in that year.
Once a passive credit is allowed under the $25,000 Deduction- Equivalent
Allowance, it is aggregated with all other non-passive credits and is subject to
the general limitation for all business credits which pro-
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vides that such credits used to offset a taxpayer's tax liability in any year
may not exceed a taxpayer's net income tax (which is defined as his regular tax
liability plus any alternative minimum tax and minus certain credits) less the
greater of the taxpayer's tentative minimum tax for the taxable year or 25% of
the taxpayer's net regular tax liability that exceeds $25,000. Tax credits
limited by this rule can be carried back three years and forward 15 years.
There are restrictions on the use of passive income, losses and credits from
partnerships that are deemed to be publicly-traded partnerships but are not
taxed as corporations because 90% of their gross income consists of "qualifying
income." Qualifying income includes interest, dividends, and most real property
rents, and gain from the disposition of real property (in this regard, amounts
contingent on net income or profits are not treated as interest or rent). See
"Classification of the Partnerships" above for a discussion of the term
"publicly-traded partnership." Net income from such partnerships is not treated
as passive income for purposes of the passive loss rules. Instead, net income,
net losses and credits attributable to an interest in such partnership must be
taken into account only with respect to the net losses, credits and net income
from the operation of that partnership or against a gain or loss realized upon a
complete disposition of the partner's interest in that partnership. This rule
does not, however, apply to the Tax Credits. Tax Credits generated by such
partnership may thus be used to offset taxes on income from sources other than
that partnership.
At Risk Limitations
Section 465 of the Code limits the amount of losses that individuals, S
corporations or certain closely-held corporations may deduct in connection with
investments in certain activities to the amount at risk at the close of the
taxable year. C corporations that are not closely-held are not subject to the at
risk rules of Section 465 of the Code.
Under Section 465 of the Code, the amount of any tax loss that may be
deducted by a partner (including for this purpose a BACs holder) in any taxable
year cannot exceed the aggregate amount that he has at risk at the end of the
partnership's taxable year with respect to partnership activities to which the
at risk limitations apply. A "loss" for at risk purposes is the excess of the
deductions allowable and allocable to the activity over the income received from
the activity during the taxable year. A BACs holder will generally be considered
to be at risk with respect to Partnership activities to the extent of (a) the
amount of capital contributions made on his behalf to the Partnership (other
than amounts borrowed in a manner that protects the borrower from risk of loss),
(b) amounts borrowed for use by the Partnership with respect to which the BACs
holder has liability for repayment (subject to certain limitations), and (c)
amounts borrowed for use by the Partnership with respect to which such BACs
holder has pledged property other than property used by the Partnership (to the
extent of the net fair market value in such property). A BACs holder's amount at
risk will
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be increased by his share of Partnership taxable income and decreased by his
share of distributions and Partnership tax loss (other than tax loss that the
BACs holder cannot deduct because of an insufficient amount at risk).
Each BACs holder's amount at risk is determined separately, so that in any
one year some BACs holders may not be able to deduct their allocable share of
Partnership tax loss while other BACs holders may be able to deduct their share
of Partnership tax loss. Tax loss that cannot be deducted in a year because of
the at risk limitation may be carried over to the following taxable year, and
will be deductible in such year to the extent that it does not exceed the amount
at risk at the end of such year. The amount of any such loss carryover that
remains nondeductible in such following year as a result of the at risk
limitation may be carried over in the same manner to succeeding taxable years.
BACs holders should file Form 6198 to determine the deductible amount of a loss
incurred from an at risk activity in which they have invested amounts for which
they are not at risk if the activity was financed by a nonrecourse loan.
The at risk rules extend to the activity of holding real property, with an
exception for qualified nonrecourse financing that is secured by real property
used in the activity. In general, qualified nonrecourse financing is financing
borrowed by a taxpayer with respect to the activity of holding real property,
which is borrowed from an unrelated lender engaged in the business of lending
money or which represents a loan from any federal, state or local government or
instrumentality (or is guaranteed by such government), and which is not
convertible debt. Under this exception, real estate ventures may obtain
financing from related lenders if the terms of the financing are commercially
reasonable and substantially similar to loans made to unrelated parties. The
legislative history of the 1986 Act indicates that the terms of nonrecourse
financing will be reasonable if the financing is a written and unconditional
promise to pay on demand or on a specified date a sum certain, the interest rate
is a noncontingent, reasonable market rate of interest taking into account the
maturity of the obligation and the term of the loan does not exceed the useful
life of the property. The exception will not be available for nonrecourse debt
that is convertible into an equity interest in the property. Seller financing is
not treated as qualified nonrecourse financing for purposes of this rule. The
General Partner anticipates that the exception for qualified nonrecourse
financing will apply to the debt encumbering the Properties. However, the amount
of any nongovernmental seller financing incurred by the Partnership in acquiring
its interest in a Local Partnership will not be includible in a BACs holder's
amount at risk. The General Partner has represented that the Partnership will
incur nongovernmental seller financing in acquiring its interest in a Local
Partnership only if the Partnership's investments in the Local Partnerships, on
an aggregate basis, are projected to produce the yield set forth in its
investment objectives. The General Partner believes that it is more likely than
not that Section 465 of the Code will not limit substantially the deduction by a
BACs holder of losses of the Partnership
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attributable to real property held by the Local Partnership, and any personal
property that is incidental to making such real property available as living
accommodations. It will be a condition to the admission of the Partnership into
a Local Partnership that counsel render an opinion that, for purposes of the
limitation under Section 465 of the Code on the deductibility of losses of the
Partnership attributable to real property held by the Local Partnership, and any
personal property that is incidental to making such real property available as
living accommodations, the BACs holders' amount at risk will include the
qualified nonrecourse debt encumbering the Property plus the amount of actual
cash paid by the Partnership to acquire its interest in the Local Partnership
(but will not include nongovernmental seller financing). It is a condition to
the acquisition by the Partnership of a Local Partnership Interest that counsel
render an opinion that the financing encumbering the Property constitutes
qualified nonrecourse financing for purposes of Section 465 of the Code and
qualified commercial nonrecourse financing for purposes of Section 49(a)(1) of
the Code to the extent necessary such that the BACs holders will be entitled to
the Tax Credits and other tax benefits expected to be generated from the
Property.
Special at risk rules apply in determining the amount of Tax Credits that
will be available to the BACs holders. See "Utilization of the Low-Income
Housing Tax Credit" and "Historic Rehabilitation Tax Credit" under "Low-
Income Housing and Historic Rehabilitation Tax Credits."
Allocations of Profits and Losses
Taxable income and tax losses will be allocated among the partners of the
Local Partnerships in accordance with the partnership or operating agreements of
the Local Partnerships. Partnership taxable income and tax losses will be
allocated among the General Partner and the BACs holders in accordance with the
Partnership Agreement. For a summary of these provisions of these agreements,
see "Profits, Losses and Distributions."
Allocations of tax credits and tax credit recapture are required to be
allocated in accordance with the partners' interests in the partnership as of
the time the tax credit or tax credit recapture arises. Allocations will be
deemed to be in accordance with the partners' interests in the partnership if
(i) in the case of tax credits other than investment tax credits (with Housing
Tax Credits not being considered investment tax credits for this purpose), tax
credits and tax credit recapture are allocated among the partners in the manner
in which they share in the deductions arising from the expenditures giving rise
to the credit, and (ii) in the case of investment tax credits (including
Historic Rehabilitation Tax Credits), tax credits and tax credit recapture are
allocated among the partners in the manner in which they share in profits for
the taxable year in which the property giving rise to the credit is placed in
service (in the case of Historic Rehabilitation Tax Credits, the determination
as to the partners' interests in profits is made at the time the property is
placed in service). The allocation of Housing Tax Credits is based upon current
regulations promulgated prior to the enactment of
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the Housing Tax Credit. It is possible that the IRS could issue regulations that
allocate Housing Tax Credits in a manner different from the allocations in the
current regulations. The Historic Rehabilitation Tax Credit is available on the
date the Historic Complex for which such credit is claimed is placed in service
or, at the election of the Partnership in certain circumstances, at such earlier
time as the rehabilitation expenditures are incurred. The General Partner will
make a determination whether to make this election on a project-by-project
basis. Historic Rehabilitation Tax Credits will be allocated to those BACs
holders who have purchased BACs prior to the date an Historic Complex is placed
in service.
The Partnership Agreement provides, and each Local Partnership Agreement is
expected to provide, that Housing Tax Credits as well as other tax credits which
are not investment tax credits, are to be allocated among the partners in the
manner that they share in the deductions for depreciation with respect to the
Property or downward capital account adjustments arising from the expenditures
giving rise to the credit. The Partnership Agreement further provides, and each
Local Partnership Agreement is expected to provide, that Historic Rehabilitation
Tax Credits and any other investment tax credits, are to be allocated among the
partners in the manner in which they share profits at the time the Property
giving rise to the credit is placed in service. In general, these provisions
will result in a greater allocation of Housing Tax Credits to BACs holders
purchasing BACs earlier in the year than the allocation to BACs holders
purchasing BACs later in the year. In the opinion of Counsel, these provisions
comply with the requirements of Section 704(b) of the Code and the allocation of
Tax Credits pursuant to these provisions will be in accordance with the
partners' interests in the partnership. However, the allocation of Housing Tax
Credits is based upon the existing regulations under Section 704(b) which were
adopted prior to the enactment of the Housing Tax Credit and no assurance can be
given that the IRS will not issue regulations that provide for allocations of
Housing Tax Credits in a manner different from that in the existing regulations.
The Partnership Agreement provides, and each Local Partnership Agreement is
expected to provide, that items of income and deduction are reflected as
increases or decreases in the capital accounts of the partners, and
distributions in liquidation are made in accordance with those accounts. The
Partnership Agreement and each Local Partnership Agreement should have
substantial economic effect to the extent that allocations of losses to partners
do not cause the partners' capital accounts to be reduced below zero. Although
the allocations will not have substantial economic effect under the regulations
at all times because of the absence of an obligation of the partners to restore
deficit capital accounts, the allocations generally will reflect the partners'
relative contributions to the partnerships and the dollar amount distributable
to the partners from operations and from a capital transaction, and otherwise
comply with the regulations' special rule concerning deductions attributable to
nonre-
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course debt. Thus, the Partnership Agreement suggests, and the Local Partnership
Agreements will suggest, that allocations will be in accordance with the
partners' interests in the partnership, and Counsel is of the opinion that it is
more likely than not that the allocations in the Partnership Agreement will
satisfy the requirements of Section 704 of the Code except with respect to
allocations when BACs are assigned, transferred or initially acquired. Although
the partnership agreements of the Local Partnerships have not yet been
negotiated, it will be a condition to the acquisition of a Local Partnership
Interest that counsel render a similar opinion with respect to the allocations
in such partnership agreements. It is not anticipated that the General Partner
or a Local General Partner will incur recourse liability for a debt of the
Partnership or a Local Partnership. However, if the General Partner or a Local
General Partner does incur recourse liability for a debt of the Partnership or a
Local Partnership, such debt will be treated as recourse debt and may result in
an allocation of losses (and Housing Tax Credits) to the General Partner or
Local General Partner. In addition, as discussed below, under Treasury
Regulations, certain arrangements, such as operating deficit guarantees or
letters of credit provided by the Local General Partners, may cause an otherwise
nonrecourse debt to be treated as recourse debt.
In a number of instances, the Treasury Regulations may require tax losses
(and Housing Tax Credits) to be allocated to partners other than the BACs
holders. For example, if a debt of a Local Partnership is considered recourse
because of guarantees given to the lender by a Local General Partner, tax losses
(and Housing Tax Credits) realized by a Local Partnership, to the extent of
recourse debt, could have to be allocated to the Local General Partner once
losses have reduced the Partnership's capital account in the Local Partnership
to zero. The allocation of tax losses (and Housing Tax Credits) away from the
BACs holders could also occur to the extent that loans (including operating
deficit loans) are made to the Partnership or a Local Partnership by a partner
or an affiliate of a partner.
The IRS has issued Treasury Regulations that broaden the definition of what
constitutes "recourse" debt and require the allocation of losses attributable to
such debt to those partners who bear the economic risk of loss for such debt. To
the extent that the debt is treated as recourse, losses (and Housing Tax
Credits) attributable to such debt will, in certain circumstances, be allocated
to the partner obligated for the debt.
The federal income tax consequences attributable to payments under the
operating deficit guarantees expected to be extended to the Local Partnerships
by the Local General Partner (see "Investment Objectives and Policies--Operating
Deficit Guarantees") will depend upon the specific terms of each operating
deficit guarantee. In general, it is anticipated that the events causing an
operating deficit will result in reduced Partnership taxable income or increased
Partnership tax losses in an amount approximately equal to the payments required
under the operating deficit guar-
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antee. In a typical case, it is expected that the Local General Partner's
advances under the operating deficit guarantee will be in the form of loans from
the Local General Partner to the Local Partnership, repayable from a percentage
of the Local Partnership cash flow after payment of debt service and operating
expenses. In such case, if the advances are treated as loans for tax purposes,
the receipt by the Local Partnership of such advances is not expected to result
in the recognition by the Local Partnership of taxable income, and the repayment
of such advances is not expected to result in a deduction for the Local
Partnership. If interest is imputed on such advances for federal income tax
purposes, the Local Partnership Agreements are expected to provide that any
income, deductions or other tax consequences attributable to such imputed
interest will be allocable to the Local General Partner. Alternatively, advances
under operating deficit guarantees (and under development deficit guarantees)
may be treated as capital contributions from the Local General Partner to the
Local Partnership, either because of the arrangement negotiated with the Local
General Partner or because of a determination by the IRS that the advances do
not constitute loans for federal income tax purposes. In such case, the receipt
by the Local Partnership of the advances is not expected to result in the
recognition of taxable income to the Local Partnership, and the repayment of
such advances is not expected to result in a deduction for the Local
Partnership. It is possible, however, that such advances could result in an
allocation of losses (and Housing Tax Credits) to the Local General Partner.
The Partnership Agreement provides that expenditures that represent Selling
Commissions that constitute syndication expenditures under Section 709 of the
Code will be allocated to those BACs holders who paid them in order to equalize
the capital accounts of the BACs holders in the Partnership, to the extent such
capital accounts are not equal immediately after the Offering Termination Date.
There can be no assurance that the IRS will not challenge, or that the courts
will sustain, the allocations contained in the Partnership Agreement or any
Local Partnership Agreement. Should any allocation be found to lack substantial
economic effect, it will be disregarded under Section 704(b), and each BAC
holder's distributive share of taxable income and tax loss and other items will
be determined in accordance with his interest in the Partnership, determined by
taking into account all facts and circumstances, which include his interest in
economic profits and losses (if different from that of taxable income or tax
loss), cash flow, and distributions upon liquidation. The result of any such
reallocation could be a reduction of tax benefits to the BACs holders.
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A transferee who acquires BACs from a BACs holder will be registered on the
books of the Partnership on a semi-monthly basis, on the first day of the month
in which the transfer was made (if the transfer occurs during the first 15 days
of the month) or on the sixteenth day of the month (if the transfer occurs after
the fifteenth day of the month). Such transferee will not be recognized as the
owner of the BACs until registered as such on the books of the Assignor Limited
Partner. The Code generally requires that items of partnership income and
deduction be allocated among transferors and transferees of partnership
interests, as well as among partners whose interests otherwise vary during a
taxable period, on a daily basis. Further, the specific statutory language of
Section 706 requires "two-tier partnerships" to allocate taxable items on a
daily basis. The 1984 Act provides that in the event that a partner's interest
in a "parent" partnership, such as the Partnership, changes, the items of a
"subsidiary" partnership, such as a Local Partnership, are to be allocated among
the partners of the parent partnership by (i) assigning the appropriate portion
of each such item to the appropriate day in the parent partnership's taxable
year (based on the attribution of such items to the days of the subsidiary
partnership's taxable year) and (ii) allocating the items assigned to each such
day among the partners of the parent partnership based on their interest in such
partnership as of the close of such day. The Partnership's shares of items of
taxable income and tax loss of the Local Partnerships will be determined and
allocated among the BACs holders on a semi- monthly basis (although
distributions will be determined on a quarterly basis), which will match the
time period during which either a transferor or transferee will hold a BAC. The
General Partner is authorized to revise this method of allocation if necessary
in order to comply with any regulations or rulings ultimately published. Due to
the uncertain authority in this area, Counsel will not render an opinion
concerning allocations between BACs holders when BACs are transferred or
assigned.
Fees and Expenses
There can be no assurance that the IRS will allow, on audit, all of the
deductions claimed by the Partnership. In addition, the IRS may determine that
some deductions are allowable in fiscal years subsequent to the year in which
deductions are claimed by the Partnership. If the federal information tax
returns of the Partnership are audited and adjustments are made by the IRS,
corresponding adjustments will be made in the federal income tax returns of the
BACs holders for their affected taxable years, with the result that the BACs
holders will incur additional taxes, interest and other costs and, in some
cases, penalties. In addition, audit of the Partnership's returns may result in
an examination and audit of the individual BACs holders' returns that would not
otherwise occur.
Specifically, the IRS might assert as to the items listed below that all or a
portion of such expenses are either (i) nondeductible expenses that may not be
depreciated or amortized, (ii) nondeductible capital expenses
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that must be amortized or depreciated or (iii) expenses that are deductible only
in a later fiscal year of the Partnership.
It will be a condition to the admission of the Partnership into a Local
Partnership that counsel render an opinion that, based upon a representation
from the Local General Partners that the amount of the property management fees
reasonably relate to the value of the services provided during the period the
fee and expenses are to be deducted, it is more likely than not that a deduction
is available under Sections 162 (trade or business expenses), 167 (depreciation;
to the extent that the cost of such service is required to be capitalized) or
212 (expenses for production of income) of the Code, for amounts paid or
incurred as property management fees for the management and operation of each
Property for the taxable years in which such services are performed to which
such fees are attributable, subject to limitations imposed by the passive
activity loss rules and, where applicable, other limitations on the use of
deductions. Counsel will render an opinion as of the date of the Prospectus that
it is more likely than not that a deduction is available under Section 709 of
the Code for reasonable amounts paid or incurred by the Partnership for
organizational fees over the 60-month period beginning with the month in which
the Partnership begins to engage in a trade or business, subject to limitations
imposed by the passive activity loss rules.
Partnership expenses that may properly be classified as organization expenses
may be amortized ratably over a period of not less than 60 months. IRS
regulations give the following examples of partnership organizational expenses:
legal fees for services incidental to the organization of the partnership, such
as the negotiation and preparation of a partnership agreement, accounting fees
for establishing a partnership accounting system and necessary filing fees. The
regulations state that expenses connected with acquiring assets for the
partnership or transferring assets to the partnership, syndication expenses and
certain other expenses do not constitute organizational expenses. Expenses will
constitute organizational expenses only if they are incurred during the period
beginning with a reasonable time before the partnership begins business, and
ending with the date on which the partnership is to file its federal information
tax return for the year in which it begins business, without regard to
extensions.
The regulations further provide that syndication expenses, which must be
capitalized and may not be amortized, include brokerage fees, registration fees,
legal fees for securities law advice and for advice pertaining to the adequacy
of tax disclosures in the offering memorandum, accounting fees for preparation
of representations to be included in the offering memorandum and printing costs.
Under Section 195 of the Code, start-up expenditures are not deductible.
However, Section 195 provides that such expenditures, at the election of the
Partnership, may be treated as deferred expenses and amortized ratably over a
period of not less than 60 months (beginning with the month
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in which the business begins). "Start-up expenditures" are costs (other than
amounts paid as part of the acquisition cost of property and other than
amortizable partnership organization expenses) paid or incurred prior to
entering into business in connection with (i) investigating the creation or
acquisition of a business or (ii) creating a business and which would be
deductible if incurred in connection with the expansion of any existing business
in the same field as that entered into by the taxpayer.
Section 263A of the Code requires the capitalization of all construction
period interest and property taxes and recovery of these costs over the useful
life of the Properties under MACRS. Construction period interest is defined as
interest on indebtedness incurred or continued to construct or carry real
property attributable to the period running from the date construction begins to
the date the property is ready to be placed in service or held for sale.
The Partnership intends to deduct in full (to the extent permitted under the
Code) over a period of years, its allocable share of fees payable in connection
with the management and operation of the Properties. Property management fees
will be paid to the manager of each Property (generally limited in the case of
Affiliates of the General Partner to an annual amount equal to 5% of the gross
revenues of the Property). This fee will be treated as being deductible by the
partners of the Local Partnerships. The timing of payments to a property manager
is expected to approximate the years in which deductions are taken. In certain
instances, payments may be made prior to the performance of services and the
year(s) in which deductions are claimed. While currently not expected, if
payments were made following the year(s) in which services were performed, the
Partnership might not be able to claim a deduction until the year of payment.
All expenditures by the Local Partnerships must constitute ordinary and
necessary business expenses in order to be deducted when paid or incurred,
unless the treatment of an item is otherwise expressly permitted by the Code
(e.g., certain taxes). Fees or expenses that are deducted could be treated as
capital in nature rather than an ordinary and necessary business expense. Fees
and expenses paid to general partners and their affiliates are particularly
susceptible to such a challenge. If fees paid to the General Partner, the Local
General Partners or their Affiliates are characterized as a Partnership or Local
Partnership distribution, such payments could alter the Partners' interests in
the Partnership and result in a reallocation of Partnership or Local Partnership
profits and losses and a reduction in the tax losses available to the BACs
holders.
Under the 1986 Act, Section 67 of the Code provides that miscellaneous
itemized deductions (other than "above-the-line" deductions, personal
exemptions, and charitable, interest, tax, medical and certain other deductions)
that are otherwise allowed by the Code for individuals will be allowed only to
the extent that such aggregate deductions exceed 2% of the individual's adjusted
gross income. Unless deductible in computing adjusted
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gross income, each individual BACs holder's allocable share of fees and expenses
may be deductible only to the extent that such items, together with other
miscellaneous itemized deductions, exceed 2% of the BACs holder's adjusted gross
income. In particular, it is possible that the IRS could assert that payments
made by the Partnership for administrative expenses will be subject to this
limitation. The deduction of fees and expenses may also be limited by Section 68
of the Code, which reduces the amount of itemized deductions that are allowed
for individuals with incomes in excess of certain thresholds.
Selling Commissions of up to 7.5% of the Gross Proceeds will be paid to the
Dealer Manager for services in connection with the sale of the BACs, and
additional amounts will be paid to the Dealer Manager as reimbursement for
certain syndication expenses (including a non-accountable marketing and due
diligence expense reimbursement in an amount up to 0.5% of the Gross Proceeds).
Selling Commissions and syndication expenses will not be deductible or
amortizable.
Consulting and Monitoring Fees of up to 6.0% of the Gross Proceeds of the
Offering will be paid by each Local Partnership to the General Partner. These
fees are expected to be capitalized as an additional cost of acquiring Local
Partnership Interests. For a discussion concerning the inclusion of fees
connected with acquisition of Properties in eligible basis for purposes of the
Housing Tax Credit, see "Low-Income Housing and Historic Rehabilitation Tax
Credits--Qualifying Low-Income Projects."
Depreciation, Interest and Tax Deductions and Ownership
(a) Depreciation Deductions
In general, under Section 1012 of the Code, a taxpayer's tax basis for any
asset it acquires is equal to its cost, subject to adjustment for depreciation
and other items. For this purpose, cost includes any debt to which the acquired
property is subject. It is well-established for this purpose that indebtedness
can include nonrecourse indebtedness to which the property is subject, Crane v.
Comm'r, 331 U.S. 1 (1947), although a different result is reached if property is
acquired subject to nonrecourse indebtedness that exceeds the fair market value
of the property. However, it will be a condition to the admission of the
Partnership into a Local Partnership that the acquisition cost for the Property
owned by the Local Partnership not be in excess of the value established by each
Appraisal.
Counsel will not make any independent determination of the fair market value
of the Properties, but will rely on the Appraisals and on representations of the
General Partner and the Local General Partners that, in their best judgment, the
fair market value of the Local Partnership Interest will be at least equal to
its purchase price. It will be a condition to the Partnership's admission into a
Local Partnership that, based upon the Appraisals and the General Partner's and
the Local General Partners' representations as to the fair market value of the
Property owned by the Local
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Partnership, counsel shall render an opinion that it is more likely than not
that (i) the Local Partnership will be treated as the owner of the Property for
federal income tax purposes and will be entitled to claim a basis with respect
to depreciation of the Property equal to the portion of the purchase price, or
the cost of construction, properly allocable to the improvements and (ii) the
debt encumbering the Property will be treated as true debt for federal income
tax purposes. The purchase price paid by the Partnership in respect of each
Local Partnership Interest must be allocated among non-depreciable land,
depreciable personal property and depreciable real property and any other
tangible or intangible assets of the Local Partnership.
Following acquisition of a Local Partnership Interest by the Partnership, the
Partnership's basis in such Local Partnership Interest, and therefore in the
Property owned by such Local Partnership, may be adjusted because of adjustments
made to the purchase price of the Local Partnership Interest. This may occur if
the Partnership retains a portion of the purchase price for a Local Partnership
Interest after the Local Partnership Interest is acquired (see "Investment
Objectives and Policies--Structure of Acquisitions"); prior to the receipt of
the amount in question by the Local General Partner, such amount may not be
includible in basis, but should result in an upward basis adjustment if and to
the extent that it subsequently is paid to the Local General Partner.
Depreciable residential real property placed in service on or after January
1, 1987, which generally will include the Properties, is depreciated using the
straight-line method over a term of 27.5 years, with the option to elect a
depreciable life of up to 40 years. The cost of the Properties' personal
property that has been or will be acquired or constructed by a Local Partnership
generally may be recovered over a period that will be determined by the useful
life of the personal property (generally expected to be five to seven years)
using an accelerated method of depreciation.
A Local Partnership will not be entitled to a full year's depreciation on
personal property for its first year of operations if its first year for
depreciation purposes will consist of less than 12 months. The allowable first
year depreciation percentage in the case of personal property will be calculated
by multiplying the regular first year allowance by a fraction, the numerator of
which is the number of months in the Local Partnership's first tax year (for
this purpose) and the denominator of which is 12. A taxable year does not
include any month prior to the month in which the taxpayer begins to engage in a
trade or business or to hold recovery property for the production of income. In
cases where the Partnership acquires its interest in a Local Partnership by
purchasing such interest from the existing partners, the Local Partnership will
terminate for federal income tax purposes and will be deemed to have been
reconstituted into a successor Local Partnership. See "Termination of the
Partnership," below. The successor Local Partnership, which will have a short
taxable year for its first
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year of operations, will not be entitled to a full year's depreciation on
personal property for such year.
A depreciation deduction reduces taxable income for federal income tax
purposes even though there is no corresponding cash outlay at the time such
deduction is taken. It is thus possible that a real estate investment will
produce a taxable loss for federal income tax purposes while, at the same time,
the investment produces a positive cash flow available for distribution to the
property owners.
(b) Interest and Tax Deductions
It will be a condition to the admission of the Partnership into a Local
Partnership that counsel render an opinion that it is more likely than not that
the Partnership may deduct interest on the debt encumbering the Property in the
period to which it is properly allocable, subject to capitalization rules for
construction period interest. The use by BACs holders of interest deductions
allocated to them by the Partnership may be limited by the rules applicable to
interest allocable to debt incurred to purchase or carry tax-exempt obligations,
investment interest limitations (to the extent that interest is attributable to
portfolio income) and passive loss limitations.
The Partnership may acquire interests in Local Partnerships that own
Development-Stage Complexes under construction. Interest on debt must be
capitalized if the debt is incurred or continued to finance the construction of
real property. Thus, such interest will not be deductible as it is incurred, but
must be treated as an additional cost of real property. Similarly, real estate
taxes incurred during a construction period may not be deducted currently, but
must be treated as an additional cost of real property.
Under the 1986 Act, interest (and income) from activities subject to the
passive loss rules is not treated as investment interest (or investment income).
Thus, because it is expected that the Partnership's ownership interest in the
Properties will be subject to the passive loss rules, interest incurred by the
Partnership is not expected to be subject to limitations on the deductibility of
investment interest, but instead will be subject to the passive loss rules. See
"Limitations on Losses and Credits from Passive Activities," above. To the
extent that interest is allocable to portfolio income (such as interest earned
on working capital reserves), investment interest limitations may, however,
apply to interest allocated to a debt incurred by a BACs holder to acquire BACs
or to debt of the Partnership or of a Local Partnership. In such case, the
deduction for investment interest will be limited to the amount of the
taxpayer's net investment income. Thus, a BACs holder's ability to deduct
interest incurred on a loan, the proceeds of which are used to acquire BACs, may
depend upon the investment interest and the net investment income realized by
the BACs holder from sources other than the Partnership.
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(c) Ownership
Generally, the General Partner intends that the Partnership will enter into
purchase, sale and security agreements that provide, subject to the satisfaction
of various conditions, for the acquisition of Local Partnership Interests. HUD
has approved a procedure whereby the assignment of the Local Partnership
Interest, the new Local Partnership Agreement and Purchase Money Note, if any,
cash purchase price and other closing documents are held in escrow pending HUD
approval. The General Partner anticipates that the Partnership will use this
procedure to acquire Local Partnership Interests where HUD approval of the
acquisition is required. In addition, when a Local Partnership is constructing a
Development-Stage Complex, the Partnership may have the right to require the
Local General Partners to repurchase the Local Partnership Interest in the event
construction is not completed. These arrangements raise the question of when the
Partnership will be deemed to become an owner of a Local Partnership Interest.
Until it is the owner, it cannot claim the tax benefits of ownership, such as
tax credits and depreciation.
With regard to closings in escrow, the General Partner anticipates that (a)
the Partnership and the seller of a Local Partnership Interest will agree and
intend that the transfer will be effective not later than the date (the "Firm
Escrow Date") that all conditions to the transfer have been satisfied other than
HUD approval; (b) the parties will agree that the Firm Escrow Date will be
treated as the date of transfer for federal income tax purposes whether or not
HUD approval is obtained and whether or not the transaction is rescinded; (c) at
the time of the Firm Escrow Date it will be the belief of the parties that HUD
approval can be obtained without conditions sufficiently onerous to permit any
of the parties to be released from its obligation to complete the transaction;
and (d) either party will have the right to perform whatever conditions HUD
imposes and compel the other party to complete the transaction. It will be a
condition to the acquisition of a Local Partnership Interest that the General
Partner will obtain an opinion from counsel that it is more likely than not that
the Partnership will be treated as the owner of the Local Partnership Interest
for federal income tax purposes.
Disposition of a Property, a Local Partnership Interest or BACs
The disposition of a Local Partnership's interest in a Property or the
Partnership's interest in a Local Partnership is an event which may cause the
recapture of all or a portion of any Tax Credits previously claimed by a BACs
holder. For a discussion of rules regarding the recapture of Tax Credits, see
"Recapture of Low-Income Tax Credits" and "Historic Rehabilitation Tax Credit"
under "Low-Income Housing and Historic Rehabilitation Tax Credits."
Gain realized by the Partnership upon a sale or exchange of a Property or
Local Partnership Interest or any part thereof, which includes a foreclosure of
any mortgages on a Property, will be measured by the difference
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between (i) the proceeds, if any, realized upon the sale plus the outstanding
amount of any loans and other liabilities assumed by the buyer or to which the
Property or Local Partnership Interest or a portion thereof is subject and (ii)
the Partnership's adjusted basis in the Property or Local Partnership Interest
or portion thereof. A disposition of a Property or a Local Partnership Interest
by the Partnership may result in taxable income to the BACs holders
notwithstanding that some or all of the proceeds are not distributed, or that
the proceeds are substantially less than the gain.
If a BACs holder disposes of his BACs (whether by sale, gift or exchange), he
will be deemed to have received a distribution of cash equal to his pro rata
share of any Partnership liabilities. The excess of (i) any proceeds received by
him plus (ii) his share of such indebtedness, over his adjusted tax basis will
be gain to such BACs holder. Since the amount realized by a BACs holder upon the
sale or exchange of his BACs includes his allocable share of the Partnership's
liabilities, a BACs holder's gain on such a sale or exchange may substantially
exceed the cash proceeds thereof. In some cases the income taxes payable with
respect to such gain may also exceed such cash proceeds. Further, a BACs holder
will be required to recognize ordinary income on the disposition of his BACs
even if he realizes an overall loss on such disposition to the extent that the
BACs holder's amount realized on the disposition is attributable to his share of
the Partnership's "unrealized receivables" as such term is defined in Section
751 of the Code. "Unrealized receivables" include depreciation recapture on the
sale of the Properties. Although generally no depreciation recapture will result
on the sale of the Properties because the Properties will be depreciated using
the straight-line method, depreciation recapture may result on the sale of an
Historic Complex due to the fact that the basis of the Historic Complex is
reduced by the amount of the Historic Rehabilitation Tax Credits claimed with
respect to the complex.
If the Partnership is completely liquidated (which is expected to occur after
a sale of all of the properties or Local Partnership Interests), gain will be
recognized by the BACs holders upon receipt of a liquidating distribution (as
distinguished from any gain resulting from the sale of a Property) only to the
extent any money distributed exceeds the adjusted basis of each BACs holder's
BACs. It is anticipated that, in a typical case, a BACs holder's basis for his
BACs will be substantially equal to his liquidation distributions, primarily
because the basis for his BACs will have been increased by his share of gain on
the sale of the Properties and/or Local Partnership Interests. A BACs holder's
basis for his BACs may also include his share of nondeductible syndication
expenses. In such case, little or no additional gain will be recognized as a
result of receiving liquidating distributions, the gain having been recognized
on the sale of the Properties or Local Partnership Interests. However, some or
all of the BACs holders may recognize a significant amount of gain on the
liquidation of the Partnership in addition to their share of the gain on the
sale of the Properties or Local Partnership Interests, particularly if the BACs
holder is unable to include his share of
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syndication expenses in his basis for his BACs. For individual taxpayers, net
capital gains are currently subject to a maximum tax rate of 28% (although the
effective tax rate may be somewhat higher as a result of the phase-out of
personal exemptions and the imposition of limitations on itemized deductions).
Loss will be recognized by a BACs holder upon a liquidating distribution only
if the BACs holder receives no property other than money, unrealized receivables
and/or inventory, and then only to the extent the adjusted basis of such BACs
holder's BACs exceeds the sum of any money distributed and the basis to such
BACs holder of any unrealized receivables and inventory received by such BACs
holder in the distribution.
On a foreclosure of any mortgages on a Property, the gain recognized by a
BACs holder may exceed any cash proceeds that he or she receives from the
disposition. This result will occur if, at the time of disposition, the adjusted
tax basis of the Property is less than the amount of its mortgage then
outstanding, since, in determining the amount realized on such disposition, the
amount of an outstanding mortgage to which transferred property is subject, upon
release of the selling partnership from liability thereon, 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.
Alternative Minimum Tax
Noncorporate taxpayers are subject to an alternative minimum tax, which is
payable only if and to the extent that it exceeds the taxpayer's regular tax
liability. Tax Credits may not be used to offset the individual alternative
minimum tax.
For years beginning after December 31, 1992, the individual alternative
minimum tax is imposed at a rate of 26% on the amount of alternative minimum tax
income in excess of the exemption, but not exceeding $175,000 ($87,500 for
married persons who file separate returns) and at a rate of 28% on the amount in
excess of $175,000 ($87,500 for married persons who file separate returns). For
married persons filing a joint return, or a surviving spouse, the exemption is
$45,000; for married persons who file separate returns, the exemption is
$22,500; and for unmarried individuals who are not surviving spouses, the
exemption is $33,750. The exemption amounts are phased out at a rate of 25 cents
for each dollar of alternative minimum tax income over $150,000 on a joint
return ($75,000 for married persons who file separate returns).
Interest incurred in a trade or business (other than interest incurred in a
passive activity) and a portion of qualified housing interest reduce alternative
minimum taxable income. Other interest will reduce alternative minimum taxable
income, but only to the extent of investment income.
As a result of the 1993 Act, the individual maximum alternative minimum tax
rate increased to 28%, effective for taxable years beginning after
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December 31, 1992. Such increase corresponds to the increase in the maximum
individual regular income tax rate to 39.6%, also effective for taxable years
beginning after December 31, 1992. Because the alternative minimum tax may apply
to a broader income base than the regular income tax rate, such increase in the
individual alternative minimum tax rate could increase the likelihood that an
individual BACs holder may be subject to the alternative minimum tax. Because
Tax Credits may be used to reduce a BACs holder's regular tax liability but may
not be used to reduce his or her alternative minimum tax liability, a BACs
holder's use of Tax Credits may be limited to the extent he or she is subject to
alternative minimum tax.
Corporations are also subject to an alternative minimum tax that is similar
in structure to the alternative minimum tax for individuals. Tax Credits may not
be used to reduce the corporate alternative minimum tax.
The calculation of alternative minimum tax liability is complex. Prospective
BACs holders should be aware that the acquisition of BACs may have an impact on
their obligation for the alternative minimum tax and should consult their own
tax advisor in this regard.
Investment in the Partnership by Minor Children
As a result of the 1986 Act, unearned income of a child under 14 years of age
is taxed to the child at the parent's highest marginal tax rate. The child is
treated as a separate taxpayer from his parents and thus the limitation on the
use of Tax Credits to offset tax under the passive activity rules of Section 469
of the Code is determined with regard to the child's adjusted gross income
rather than the parent's adjusted gross income. For a discussion of this
limitation, see "Limitations on Losses and Credits from Passive Activities,"
above. Thus, Tax Credits generated by an investment in the Partnership may be
used to reduce the child's taxes in an amount equal to the $25,000
Deduction-Equivalent Allowance regardless of the parent's annual adjusted gross
income, although the use of Historic Rehabilitation Tax Credits will be limited
to the extent the child's adjusted gross income exceeds $200,000. See "Who
Should Invest" concerning the suitability standards for investment in the
Partnership. It should be noted that a transfer of money by a parent to his or
her child as a gift could result in gift tax to the parent.
The child may be subject to alternative minimum tax on his unearned income,
which tax may not be reduced by the child's Tax Credits. TAMRA, as amended by
the 1990 Act, provides that in computing a minor child's alternative minimum tax
liability, the exemption amount for purposes of computing alternative minimum
taxable income (normally $33,750 for unmarried individuals) may not exceed (i)
the child's earned income plus (ii) $1,000 or, if greater, the child's share of
the "unused parental minimum tax exemption." The "unused parental minimum tax
exemption" is the excess, if any, of the parent's minimum tax exemption over the
parent's alternative minimum taxable income; thus, the child's net unearned
income
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in excess of $1,000 (or, if greater, the child's share of the unused parental
minimum tax exemption) may therefore be subject to the alternative minimum tax.
However, the amount of the child's alternative minimum tax liability is limited
to the amount by which the parent's alternative minimum tax liability would be
increased if the parent's alternative minimum tax and regular tax were increased
by the amount of the child's alternative minimum tax (computed without regard to
this limitation) and regular tax, respectively. This limitation will apply to
reduce the child's alternative minimum tax liability to the extent that the
parent's regular tax exceeds the parent's alternative minimum tax. See
"Alternative Minimum Tax" above.
Not-For-Profit Activities
Under Section 183 of the Code, deductions that a taxpayer derives from
"activities not engaged in for profit" are allowed, but only to the extent of
the gross income derived by the taxpayer from the activity, less amounts that
are deductible irrespective of a profit motive. Treasury regulations provide
that in the case of buildings that qualify as low-income buildings under Section
42 of the Code, Section 183 of the Code does not apply to disallow losses,
deductions or credits attributable to the ownership and operations of such
buildings. Based on the Treasury regulations, it is the opinion of counsel that
it is more likely than not that Section 183 of the Code will not operate to
limit the extent to which Partnership losses and Tax Credits will be allowed.
Certain Partnership Tax Elections
Various elections that may be made for federal income tax purposes could
affect the treatment of various items of Partnership income, gain, loss,
deduction and credit. The General Partner intends to make such elections in a
manner that it believes will best serve the interests of the BACs holders. The
Code provides for optional adjustments to the basis of partnership property for
measuring both cost recovery and gain upon distributions of partnership property
(Section 734) and transfers of BACs (Section 743), provided that a partnership
election has been made pursuant to Section 754. The General Partner does not
intend to make a Section 754 election for the Partnership.
In the case of a transfer of all or a portion of a BACs holder's interest in
the Partnership by sale or exchange, the election would require the Partnership
to adjust the basis of the Properties (with respect only to the transferee BACs
holder) so that the transferee BACs holder's proportionate share of the adjusted
basis of the Properties was equal to the basis of his BACs. As a result, if a
transferee BACs holder purchases BACs at a cost greater than the transferor's
share of the Partnership's basis in the Properties, the transferee would
recognize, in most circumstances, less income (or greater loss) upon the sale of
the Properties or a Local Partnership Interest if the election were in effect,
and he would be entitled to larger cost recovery deductions. Once the Section
754 election is made, it applies to all subsequent transfers by sale, exchange
or death that are made, so that
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if the Partnership makes the election at the request of one transferee it would
normally bind all other transferees even if the election is detrimental to them.
If a Section 754 election is not made, any benefits that might have been
available to a transferee BACs holder by reason of such an election, including
an increased cost basis for depreciation purposes, will not be available.
Accordingly, absent such election, a BACs holder may have greater difficulty in
selling his BACs since a purchaser will obtain no current tax benefits from his
investment to the extent that his cost of such BACs exceeds his allocable share
of the Partnership's basis in its assets. See "Risk Factors--Investment
Risks--Lack of Investment Liquidity."
Termination of the Partnership
If 50% or more of the profits and capital interest in a partnership are sold
or exchanged within a 12-month period, the partnership will terminate for
federal income tax purposes. Because the transactions in which the Partnership
will acquire its greater-than-50% profits and capital interest in each Local
Partnership may be "sale" transactions, each Local Partnership, as it was
originally constituted (an "old Local Partnership"), may terminate for federal
income tax purposes. Upon a termination, each old Local Partnership will be
deemed to have been reconstituted into a successor Local Partnership (the "new
Local Partnership"). Under Section 708 of the Code, each old Local Partnership
that terminates will be deemed to have liquidated immediately after the
acquisition of the interest by the Partnership and to have distributed all its
assets pro rata to its partners pursuant to such liquidation. Such partners are
deemed immediately to recontribute their respective interests in the assets of
the old Local Partnership to the new Local Partnership as capital contributions.
The basis of assets held by each Local Partnership will be equal to the total
basis of all partners in their Local Partnership Interests. It is not expected
that BACs holders will recognize any taxable gain or loss as a result of the
deemed pro rata distribution of Local Partnership assets incident to a
termination of a Local Partnership in connection with the acquisition by the
Partnership of its Local Partnership Interest. A termination of a Local
Partnership could cause a Local Partnership or its assets to become subject to
unfavorable legislative or regulatory changes because of an inability to qualify
for protective transitional rules that otherwise may have been available. Under
Section 704(c) of the Code, certain tax consequences attributable to any
difference between the value and tax basis of assets deemed contributed to a new
partnership will be allocated to the contributing partner.
A termination of the Partnership or a Local Partnership under Section 708 of
the Code during the Compliance Period for any Property may trigger recapture of
a portion of the Housing Tax Credits previously claimed by the BACs holders. See
"Low-Income Housing and Historic Rehabilitation Tax Credits--Recapture of
Low-Income Tax Credits." Such a termination of the Partnership or a Local
Partnership within five years from the date an Historic Complex for which the
Historic Rehabilitation Tax Credit is claimed was placed in service may trigger
recapture of a portion of the His-
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toric Rehabilitation Tax Credits previously claimed by the BACs holder. See
"Low-Income Housing and Historic Rehabilitation Tax Credits-Historic
Rehabilitation Tax Credit."
The Partnership Agreement provides that the General Partner shall not consent
to any proposed sale, assignment, transfer or exchange of a Unit or a BAC if, in
the opinion of counsel for the Partnership, such sale, assignment, transfer or
exchange would result, when combined with all other sales, assignments,
transfers and exchanges of Units and BACs within the previous 12 months, in the
Partnership's being considered to have been terminated within the meaning of
Section 708 of the Code and such termination would have adverse tax consequences
to the BACs holders.
Tax Returns, Tax Information, Audits and Proceedings
The Partnership's taxable year will be the calendar year. The Partnership
will furnish annually to the BACs holders sufficient information from the
Partnership's tax returns to enable the BACs holders to prepare their own
federal income tax returns. The Partnership's tax returns will be prepared on
the accrual basis.
In the event that any of the tax returns of the Partnership are audited, it
is possible that such an audit may result in adjustments to the Partnership's
tax returns which would, at a minimum, require an adjustment to the taxable
income or tax liability reported by each BACs holder on his personal tax return.
Further, an audit of the Partnership's tax returns may also cause an audit of
unrelated items on each BACs holder's tax returns which, in turn, could result
in adjustment to such items.
All administrative and judicial proceedings for the assessment of tax
deficiencies or for the refund of tax over-payments are conducted at the
partnership, rather than at the partner, level. Thus, the tax treatment of
partnership income or tax benefits is determined at the partnership level in one
unified proceeding rather than in separate proceedings with each partner.
The provisions of partnership audit procedures are extensive and complex, and
a full discussion of them cannot be provided here. Nevertheless, they are
intended to facilitate the examination and adjustment of the tax returns of
partnerships and partners by the IRS, and each investor is advised to consult
with his own tax advisor concerning the effect of these procedures on the
reporting of partnership items and participation in partnership audit
proceedings.
The following items should be noted by prospective BACs holders:
(a) BACs holders are required to file tax returns containing information
consistent with that provided on the partnership return, or notify the IRS of
any inconsistency on Form 8082. Any failure to notify the IRS of such an
inconsistent position would allow the IRS automatically to assess and collect
from the partner the tax attributable to the inconsistency.
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(b) The IRS must give each partner with a 1% or greater interest in the
Partnership notice of the beginning and completion of partnership administrative
proceedings.
(c) Assessments with respect to partnership items will be made only after the
partnership level proceedings are completed.
(d) Judicial review of partnership adjustments may be sought in the Tax
Court, the U.S. District Court in which the partnership's principal place of
business is located or the Claims Court. In order to bring an action with
respect to partnership items in the District Court or the Claims Court, the tax
liability of the petitioning partner(s) resulting from the proposed adjustments
of partnership items must be paid.
(e) A "Tax Matters Partner," who would normally be designated by the
partnership, would deal with the IRS and have various powers, such as the right
to initiate judicial action and choose the forum in which to contest any
proposed adjustment. However, if the Tax Matters Partner does not go to court,
any other partner may challenge the position of the IRS in court. The Tax
Matters Partner of the Partnership will be the General Partner. Additionally,
the Tax Matters Partner will be responsible for receiving notices with respect
to partnership proceedings and forwarding such notices to other partners,
keeping each partner informed of administrative and judicial proceedings, and
filing a request for administrative adjustment that serves as an amended return
of the Partnership. Under certain circumstances, the Tax Matters Partner may
bind the Partnership, and its decisions may have an important impact on the
ultimate outcome of administrative proceedings. In some cases a settlement will
be binding even on partners who did not participate in the audit. In the course
of an IRS audit, the Partnership may agree to reduce or defer some deductions as
part of a settlement of all or a portion of any issues raised by the IRS. Such a
settlement might not be based exclusively upon the merits of positions but
rather could be based in part on avoiding the significant costs of further
administrative proceedings or litigation.
(f) Under Section 6662 of the Code, a penalty is imposed for substantial
valuation misstatements. The penalty, which is an amount equal to 20% of the
underpayment attributable to such valuation misstatement, can apply if the value
of any property, or its adjusted basis as claimed on an income tax return,
equals or exceeds 200% of the correctly determined amount of its valuation or
adjusted basis (whichever was claimed on the return). Moreover, the 20% penalty
is increased to 40% of the underpayment in any case involving a "gross" value
misstatement, which occurs in instances where the value of the property, or its
adjusted basis as claimed on an income tax return, equals or exceeds 400% of the
correct amount.
(g) A 20% penalty is imposed upon substantial understatements of income
tax liability. A substantial understatement is a reported liability that
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understates the amount required to be shown on a return by the greater of 10% or
$5,000 ($10,000 for corporations other than S corporations or personal holding
companies). This penalty may be reduced with respect to a non-tax shelter item
if the treatment of the item on the return was supported by substantial
authority or if relevant items are properly disclosed on the return. For items
attributable to a "tax shelter," this penalty may be reduced if the treatment on
the return was supported by substantial authority and the taxpayer reasonably
believed that the return treatment of a particular item was more likely than not
the correct treatment. A "tax shelter" includes a partnership whose principal
purpose is the avoidance or evasion of federal income tax. To determine whether
"substantial authority" exists, the taxpayer must weigh pertinent authority to
determine whether his position is supported by present law. Substantial
authority exists when the weight of the authorities supporting the taxpayer's
treatment of an item is substantial in relation to the weight of the authorities
supporting contrary treatment.
Prospective BACs holders should realize that because the General Partner will
file information tax returns for the Partnership, in the first instance they
will be relying on the General Partner to determine whether the Partnership is a
tax shelter, whether there is substantial authority for the treatment of an
item, and whether the treatment of an item on its return is more likely than not
the proper treatment. However, a BACs holder may make adequate disclosure with
respect to a Partnership item if the BACs holder files a separate statement in
duplicate (one copy attached to the BACs holder's return and the other filed
with the IRS center with which the Partnership return is filed) that relates
only to the Partnership and includes (1) the name, address and taxpayer
identification number of the BACs holder and the Partnership, (2) the taxable
year of the Partnership to which the disclosure relates, (3) an identification
of the items being disclosed, (4) the additional information required to make an
adequate disclosure, and (5) a notation that the statement is to be associated
with the return of the Partnership.
(h) Most interest that is payable to or by the United States under the
Internal Revenue laws is compounded daily. Under the 1986 Act, the rate of
interest paid on underpayments of taxes generally is the applicable federal
short-term rate plus 3%, which is not deductible.
(i) BACs holders who dispose of their BACs, in whole or in part, must notify
the Partnership of such transfer, generally prior to the transaction. The
notification is required to include (i) the names and addresses of the
transferor and the transferee, (ii) the taxpayer identification number of the
transferor and, if known, of the transferee and (iii) the date of the sale or
exchange. In addition, the Partnership is required to notify the IRS of any sale
or exchange (of which the Partnership has notice) of BACs and to report to the
IRS the names, addresses and taxpayer identification numbers of the transferor
and the transferee who were parties to such trans-
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action and of the Partnership, the date of the transaction and any additional
information required by the applicable information return or its instructions.
The Partnership also must provide this information to the transferor and the
transferee. If the Partnership fails to furnish any such notification, it may be
subject to a penalty of $50 per failure, up to an annual maximum of $50,000,
unless the failure is due to an intentional disregard of the requirement, in
which case a penalty of $100 per failure would apply, without limit. If the BACs
become freely tradable it is uncertain whether it will be possible to comply
with these reporting requirements.
(j) The Partnership will be required to provide information returns to
nominees of BACs holders and such nominees will be required to furnish the
Partnership with certain information pursuant to Section 6031 of the Code.
(k) Promoters of tax shelters, whether or not considered "abusive," are
required to register their promotions with the IRS. The registration procedures
require a tax shelter promoter to report the existence of the tax shelter
offering to the IRS at the same time that it is first offered for sale, to
disclose various tax and financial information about the offering and to
maintain lists of investors. This legislation will apply to the Partnership, and
may increase the likelihood of an audit. REGISTRATION DOES NOT INDICATE THAT
THIS INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR
APPROVED BY THE IRS.
Section 6111 of the Code defines a "tax shelter" for tax shelter registration
purposes as an investment (1) with respect to which a person could reasonably
infer that the tax shelter ratio for any investor may be greater than two to one
as of the close of any of the first five years ending after the date on which
the investment is offered for sale and (2) that is either (a) required to be
registered under a federal or state law regarding securities, (b) sold pursuant
to an exemption from registration requiring the filing of a notice with a
federal or state agency regulating the offering or sale of securities or (c) a
"substantial investment," defined as an investment whose aggregate amount
offered for sale to investors exceeds $250,000 and that 5 or more investors are
expected. Based upon these regulations, the Partnership will register as a tax
shelter.
Independence Tax Credit Plus L.P. IV has applied to the IRS a tax shelter
registration number. The tax shelter registration number will be furnished to
investors when it is received.
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF
YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME
BY REASON OF YOUR INVESTMENT IN INDEPENDENCE TAX CREDIT PLUS L.P. IV.
YOU MUST REPORT THE REGISTRATION NUMBER (AS WELL AS THE TAXPAYER
IDENTIFICATION NUMBER OF INDEPENDENCE TAX CREDIT
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PLUS L.P. IV) ON FORM 8271. THE TAXPAYER IDENTIFICATION NUMBER OF
INDEPENDENCE TAX CREDIT PLUS L.P. IV IS 13-3809869.
FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION,
LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME.
Any BACs holder who, without reasonable cause, fails to include the tax
shelter registration number on his return will be subject to a $250 penalty. In
addition, a BACs holder who sells or otherwise transfers a BAC must furnish the
buyer or transferee of such BAC with a written statement containing the tax
shelter registration number and including prominent legends in bold and
conspicuous type stating (i) that the registration number must be included on
any return on which the transferee claims any deduction, credit, or other tax
benefit arising from an investment in the tax shelter and (ii) that the issuance
of the registration number does not indicate that the IRS has reviewed, examined
or approved the investment or the claimed tax benefits. Failure to furnish the
tax shelter registration number to a transferee may result in a penalty of $100
for each such failure. Further, a BACs holder who transfers a BAC must notify
the Partnership of such transfer, generally prior to the transaction. The
notification is required to include (i) the names and addresses of the
transferor and the transferee, (ii) the taxpayer identification number of the
transferor and, if known, of the transferee and (iii) the date of the sale or
exchange.
Deductions Allocable to Tax-Exempt Income
Section 265(a)(2) of the Code provides that no deduction will be allowed for
interest paid on indebtedness incurred or continued for the purpose of acquiring
or carrying tax-exempt obligations. The IRS announced in Rev. Proc. 72-18,
1972-1 C.B. 740 that the proscribed purpose will generally exist, in the case of
a taxpayer owning tax-exempt obligations, with respect to indebtedness incurred
to finance a "portfolio investment." Rev. Proc. 72-18 also states that the
partners of a partnership will be treated as incurring any indebtedness incurred
by the partnership, and that a limited partnership interest will be regarded as
a "portfolio investment." Accordingly, in the case of a BACs holder owning
tax-exempt obligations, the IRS might take the position that any interest
incurred by him in connection with the purchase of his BACs, and his allocable
portion of the interest paid by the Partnership, should be viewed as incurred to
enable him to continue carrying tax-exempt obligations, and that such BACs
holder should not be allowed to deduct the full amount of such interest. In
addition, interest on the debt encumbering Properties is not expected to be
deductible to the extent the Partnership or a Local Partnership purchases
tax-exempt obligations. Rev. Proc. 72-18 provides that if tax-exempt obligations
are not used as collateral for indebtedness, and if the proceeds of indebtedness
are not directly traceable to the holding of particular tax-exempt obligations,
then any disallowance of interest deductions under Section 265(a)(2) of the Code
will be limited to interest paid or accrued only on
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an allocable portion of the indebtedness that is incurred or continued to
purchase or carry tax-exempt obligations.
The foregoing is merely a summary of the material aspects of federal income
taxation affecting the Partnership and the BACs holders. It does not purport to
be a complete analysis of such provisions, nor does it purport to be a complete
listing of all potential tax considerations or all potential tax risks inherent
in purchasing or owning BACs. Moreover, no assurance can be given that there
will not be a change in existing law or that the IRS will not alter its present
views, either prospectively or retroactively, or adopt new views with regard to
any matters summarized above and those matters upon which counsel has rendered
its opinion. Accordingly, prospective investors are urged to consult their
personal tax advisors.
STATE AND LOCAL TAX CONSEQUENCES
In addition to the federal income tax consequences described above and in
counsel's opinion, prospective investors should consider the state and local tax
consequences of an investment in the Partnership. Depending upon such factors as
the state and local residence or domicile of BACs holders and applicable state
and local laws, tax benefits that are available for federal income tax purposes
may not be available to BACs holders for state or local income tax purposes and
additional state and local tax liabilities may be incurred. Non-resident BACs
holders not required to file state returns in the state in which Properties are
located may wish to file state returns in the states in which Properties are
located even in years in which net losses are realized by the Partnership and
there is not a requirement that returns be filed, in order to preserve such
losses for future years. Depending upon the state in which a BACs holder
resides, a credit may be available against the income tax otherwise payable in
that state for income tax paid to another state. BACs holders are urged to
consult their own tax advisors in this regard.
REPORTS
The Partnership will furnish the following reports, statements and tax
information to each BACs holder. Financial information contained in such reports
will be prepared on an accrual basis of accounting in accordance with generally
accepted accounting principles and will include, where applicable, a
reconciliation with information furnished to the BACs holder for income tax
purposes. The Partnership's fiscal year for tax purposes will be the year ending
December 31, and for financial reporting purposes will be the year ending March
31.
The General Partner will cause to be prepared and distributed to the BACs
holders during each year the following reports:
1. In the event that the Partnership is registered under Section 12(g) of
the Securities Exchange Act of 1934, within 60 days after the end of each
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quarter (for financial reporting purposes) of the Partnership's fiscal year, a
report containing:
(i) an unaudited balance sheet;
(ii) an unaudited statement of income for the year-to-date;
(iii) an unaudited Cash Flow statement for the year-to-date; and
(iv) other pertinent information regarding the Partnership and its
activities during the quarter covered by the report.
2. Within 75 days after the end of each fiscal year (for tax purposes) of the
Partnership, all information concerning the Partnership which is necessary for
the preparation of the BACs holders' federal income tax returns.
3. Within 120 days after the end of each fiscal year (for financial reporting
purposes) of the Partnership, an annual report containing: (i) a balance sheet
as of the end of its fiscal year and statements of income, partners' and BACs
holders' equity, and a statement of Cash Flows, for the year then ended, all of
which shall be prepared in accordance with generally accepted accounting
principles and accompanied by an auditor's report; (ii) a report of the
activities of the Partnership during the period covered by the report; (iii) 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;
and (iv) a statement setting forth the amounts actually reimbursed to the
General Partner. Within the scope of the audit of the Partnership's financial
statements, the independent auditor will review the allocations of cost incurred
in the management of the Partnership. The methods of verification used by the
auditor will be in accordance with generally accepted auditing standards and
include such tests of the accounting records and other auditing procedures which
the accountants for the General Partner consider appropriate, including, but not
limited to, review of the time records of 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 annual report shall
set forth distributions to BACs holders for the period covered thereby and shall
separately identify distributions from: (a) Cash Flow during the period (except
amounts taken from Reserves), (b) Cash Flow during a prior period which had been
held as Reserves, (c) Sale or Refinancing Proceeds, and (d) Reserves from the
Gross Proceeds of the Offering originally obtained from the BACs holders.
4. Within 60 days after the end of each financial reporting quarter during
which there have been real property acquisitions, a "Special Report" (which may
be part of the quarterly report) shall be sent to all BACs holders until the Net
Proceeds of the Offering are committed for investment or returned to the
investors. The report shall contain the following information:
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(i) A description of each Local Partnership Interest purchased, including the
Local Partnership's Property (including its geographic locale and rental market
area) and the price, date and other terms and conditions of the acquisition;
(ii) The cash expended from the Net Proceeds to acquire each Local
Partnership Interest; and
(iii) The amount which then remains unexpended, stated in terms of both
dollar amount and percentage of the total amount of the Net Proceeds.
DESCRIPTION OF BACS
The BACs will represent all of the economic and virtually all of the
ownership rights attributable to Units held by Independence Assignor Inc., an
Affiliate of the General Partner, which is serving as the depository for such
Units and as Assignor Limited Partner. Each BAC will represent a Unit of $1,000.
BACs will be issued in registered form only.
Subscribers for BACs in the Offering will become assignees of the Assignor
Limited Partner upon the closing of the sale of the BACs purchased by them. At
such closing, the $1,000 purchase price for each BAC will be contributed to the
Partnership and by execution of the Partnership Agreement the Assignor Limited
Partner will become a Limited Partner with respect to a corresponding amount of
Units. By operation of the Partnership Agreement, the Units thereby acquired by
the Assignor Limited Partner will be assigned to the subscribers for the BACs
and the Assignor Limited Partner simultaneously will cause to be issued BACs
registered in the names of the BACs purchasers or their nominees.
The Assignor Limited Partner will have fiduciary responsibility for the
safekeeping and use of all funds and assets of the BACs holders in the
possession or under the control of the Assignor Limited Partner, and the
Assignor Limited Partner shall not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive benefit of the BACs
holders.
Although under the Uniform Act, an assignee, unlike a substituted limited
partner, is not entitled to all the statutory rights of a limited partner,
including voting rights and the right to inspect and copy the Partnership's
books, the Partnership has granted such rights to BACs holders under the
Partnership Agreement, to the fullest extent permitted by law.
Following the termination of the Offering, BACs holders who wish to exchange
their BACs for Units and become Limited Partners may do so by executing and
delivering to the Partnership subscription agreements and applications (which
are available upon request from the General Partner) and (if so required by the
General Partner) making payment not to exceed $100 per transaction to cover
expenses involved in the transfer. BACs holders surrendering BACs to become
substituted Limited Partners
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will be admitted to the Partnership monthly following the submission of all
required documents to the Assignor Limited Partner and acceptance of such
investors by the General Partner. Units will not be listed for trading on any
securities exchange or included for quotation on the NASDAQ System and it is not
anticipated that a public market will develop for Units. There also will be
certain restrictions on the transfers of Units. See "Summary of Partnership
Agreement--Transferability of Units and BACs." BACs which have been exchanged
for Units will be cancelled and will not be reissued. INVESTORS WHO EFFECT SUCH
AN EXCHANGE WILL NOT BE ABLE TO RE-EXCHANGE THEIR UNITS FOR BACS.
The Assignor Limited Partner will act as the transfer agent and registrar for
the BACs.
The transferee of BACs will not be recognized as an assignee of Units unless
and until the day such transfer is received and recorded by the transfer agent
of the Partnership in respect of the BACs. See "Summary of Partnership
Agreement--Transferability of Units and BACs" for a discussion of transfers of
Units and the restriction that no BAC may be sold, assigned or exchanged if such
BAC, when added to the total of all BACs and Units sold or exchanged within the
prior 12 months, would result in the termination of the Partnership.
THE GENERAL PARTNER HAS THE ABILITY, WITHOUT A VOTE OF LIMITED PARTNERS OR
BACS HOLDERS, TO CAUSE THE ASSIGNOR LIMITED PARTNER TO CANCEL ALL BACS AND TO
CAUSE THE HOLDERS OF SUCH BACS TO BECOME SUBSTITUTED LIMITED PARTNERS IN THE
PARTNERSHIP TO THE EXTENT OF THEIR HOLDINGS IN BACS SHOULD THE GENERAL PARTNER
DEEM IT ADVISABLE OR NECESSARY TO DO SO, BASED UPON AN OPINION OF COUNSEL TO THE
PARTNERSHIP, IN ORDER TO PRESERVE THE TAX STATUS OF THE PARTNERSHIP AS AN ENTITY
TAXABLE AS A PARTNERSHIP AND NOT AS A CORPORATION FOR FEDERAL INCOME TAX
PURPOSES OR, IF NECESSARY, TO PROVIDE FOR CONTINUED AVAILABILITY OF TAX
BENEFITS. THE PARTNERSHIP DOES NOT INTEND TO REDEEM OR REPURCHASE ANY OF THE
BACS OR UNITS DURING THE LIFE OF THE PARTNERSHIP. IN THE EVENT OF A MANDATORY
CONVERSION OF BACS TO LIMITED PARTNERSHIP INTERESTS NO FEE WILL BE CHARGEABLE TO
BACS HOLDERS BY THE PARTNERSHIP OR THE GENERAL PARTNER.
Description of Units
Holders of Units who have acquired their Units by exchanging BACs for such
Units will be entitled to share on a pro rata basis, treating each Unit as the
equivalent of one BAC, in the allocations and distributions that are to be made
to the BACs holders pursuant to the provisions of Article Four of the
Partnership Agreement and as described in "Profits, Losses and
Distributions--Partnership Level."
Upon the dissolution of the Partnership, holders of Units, together with BACs
holders, will be entitled to receive on a pro rata basis the assets of
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the Partnership which remain after satisfaction (by payment or the making of
reasonable provision for payment thereof) of the Partnership's debts and
obligations. No holder of a Unit is required to make any loan to the Partnership
or, after his Capital Contribution has been paid, to make any further capital
contribution to the Partnership.
With respect to voting rights, a Limited Partner is entitled to cast one vote
for each Unit which he owns. As provided in Article Ten of the Partnership
Agreement, a majority in interest of the Limited Partners, without the
concurrence of the General Partner, may: (i) approve the amendment of the
Partnership Agreement or the Certificate, subject to the conditions that such
amendment (a) may not allow the BACs holders or the Limited Partners to take
part in the control of the Partnership's business or otherwise modify their
limited liability and (b) may not, without the consent of the General Partner,
alter certain specified rights, interests, powers, duties and obligations of the
General Partner; (ii) approve the dissolution of the Partnership; (iii) approve
the removal of the General Partner with or without cause and/or propose and
approve a replacement therefor, in accordance with the provisions of the
Partnership Agreement; (iv) direct the Special Limited Partner to exercise
certain of its rights, including the right to remove a Local General Partner
from a Local Partnership; and (v) and approve or disapprove the sale of all or
substantially all of the Partnership's assets, except in connection with the
dissolution of the Partnership. The General Partner and its Affiliates will not
have the right to cast any votes for Units owned by them on any matter involving
a decrease in the General Partner's duties, an increase in any of its
compensation or its removal pursuant to a vote of the Limited Partners.
The attributes of the Units which will be assigned to BACs holders are
further described in other sections of this Prospectus. For a more detailed
discussion of distributions and allocations, see "Profits, Losses and
Distributions"; for a discussion of the restrictions on the transfer of Units
and BACs, see "Summary of Partnership Agreement--Transferability of Units and
BACs"; and for a discussion of the voting rights of BACs holders and Limited
Partners, see "Summary of Partnership Agreement--Voting Rights."
SUMMARY OF PARTNERSHIP AGREEMENT
BY TENDERING PAYMENT FOR ONE OR MORE BACS AND EXECUTION OF A SUBSCRIPTION
AGREEMENT THEREFOR, A BACS HOLDER SHALL HAVE ASSENTED TO ALL THE TERMS AND
CONDITIONS OF THE PARTNERSHIP AGREEMENT, THE FORM OF WHICH IS SET OUT IN ITS
ENTIRETY AT THE END OF THIS PROSPECTUS AS EXHIBIT A. THE BACS HOLDERS WILL
BECOME ASSIGNEES OF THE ASSIGNOR LIMITED PARTNER OF THE PARTNERSHIP AND AS SUCH,
THEIR RIGHTS WILL ALSO BE GOVERNED BY THE TERMS OF THE PARTNERSHIP AGREEMENT.
Prospective investors should study the form of Partnership Agreement care-
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fully before subscribing for BACs. The following statements and other statements
in this Prospectus concerning the Partnership 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 Partnership Agreement.
Certain provisions of the Partnership Agreement are described in other
sections of this Prospectus. For a discussion of fees and payments to be made to
the General Partner and its Affiliates, see "Compensation and Fees to the
General Partner and Affiliates"; for a discussion of the distributions by the
Partnership and the allocation of profits and losses for tax purposes, see
"Profits, Losses and Distributions"; for a discussion of the Partnership's
investment objectives and policies, see "Investment Objectives and Policies";
for a discussion of the liability of the General Partner to the Partnership for
its acts or omissions and of the indemnification of the General Partner by the
Partnership, see "Fiduciary Responsibility of the General Partner and
Affiliates"; and for a discussion of the management of the Partnership, see
"Management of the Partnership."
Formation
The Partnership is a newly-formed limited partnership formed under the
Delaware Revised Uniform Limited Partnership Act. The Partnership Agreement
authorizes the issuance and sale for cash of up to $200,000,000 in BACs in
connection with this Offering.
Responsibilities of the General Partner
The General Partner, within the authority granted to it under and in
accordance with the provisions of the Partnership Agreement, will have the full
and exclusive right and power to manage and control the business and affairs of
the Partnership and to make all decisions regarding the business of the
Partnership and will have all of the rights, powers and restrictions of a
general partner of a limited partnership under the Uniform Act and other laws of
the State of Delaware. Among other powers, the General Partner is authorized to
establish Local Partnerships and enter into the Local Partnership Agreements and
all other agreements which may be necessary or appropriate in connection with
the acquisition of Properties and Local Partnership Interests and the admission
of the Partnership as a partner in the Local Partnerships; give the consent of
the Partnership in its capacity as a partner of each Local Partnership to any
action proposed to be taken by such Local Partnership or any of the Local
General Partners which, under the provisions of the Local Partnership Agreement,
requires the consent of the partners; to borrow money and issue evidences of
indebtedness, including without limitation Purchase Money Notes, and to secure
the same by mortgages or other liens on any Property, Local Partnership Interest
or other assets of the Partnership; and to acquire, hold, encumber, sell,
dispose of and otherwise deal with and invest in Properties and Local
Partnership Interests upon such terms as the General Partner deems to be in the
best interests of the Partnership.
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Limitations on Authority
Certain limitations are imposed upon the authority of the General Partner
under the Partnership Agreement, some of which have been described elsewhere in
the Prospectus. Among other limitations, the General Partner will not have the
authority to:
(i) do any act in contravention of the Partnership Agreement or any
applicable law or regulation;
(ii) do any act which would make it impossible to carry on the ordinary
business of the Partnership, except as provided in the Partnership Agreement;
(iii) confess a judgment against the Partnership;
(iv) possess Partnership property, or assign the Partnership's rights in
specific Partnership property, for other than a Partnership purpose;
(v) admit a Person as a General Partner or Limited Partner except as
provided in the Partnership Agreement;
(vi) cause the Partnership to lend any funds to any Person except as
provided in the Partnership Agreement;
(vii) cause the Partnership to acquire interests in a Local Partnership
owning unimproved or non-income producing property unless it is anticipated that
such property will be developed into an Apartment Complex within the calendar
year of the Partnership's acquisition, cause the Partnership to acquire an
interest in a Local Partnership that is a limited partnership unless such Local
Partnership owns a Property that is or is to be qualified pursuant to Section
42(g) of the Code or cause the Partnership to acquire an interest in an
Apartment Complex that is not or is not to be qualified pursuant to Section
42(g) of the Code;
(viii) cause the Partnership to acquire interests in a Local Partnership
which enters into any arrangement pursuant to which a development or similar fee
to the provider of development services to the Local Partnership is payable over
time wholly or in part out of deferred portions of the Partnership's purchase
price for its Local Partnership Interest, cash flow of the Local Partnership or
proceeds of a Sale or Refinancing;
(ix) cause the Partnership to acquire any interest in a Local Partnership
which acquires its Apartment Complex by the incurrence of indebtedness to the
seller of the Apartment Complex unless the seller is a federal, state or local
government or instrumentality thereof or a non-profit organization whose exempt
purpose includes fostering low-income housing and the indebtedness to the
non-profit organization (a) does not exceed 60% of the basis of the Apartment
Complex, (b) is secured by the Apartment Complex, and (c) is to be fully repaid
on or before the earlier of (I) the stated maturity date of the indebtedness,
(II) the 90th day after the close of the 15-year Compliance Period with respect
to the Apartment Complex and
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(III) the date of the Sale or Refinancing of the Apartment Complex
("Permitted Seller Financing");
(x) cause the Partnership to acquire any Local Partnership Interest by the
incurrence of indebtedness to the seller of such interest, unless such
indebtedness is Permitted Seller Financing;
(xi) cause the Partnership to reinvest Cash Flow or Sale or Refinancing
Proceeds except Sale or Refinancing Proceeds received within two years of the
date of the Initial Closing, after distribution to the Limited Partners and BACs
holders, pursuant to Section 4.2 of the Partnership Agreement, of sufficient
amounts to provide for the payment of the anticipated federal and state tax
liabilities of the Limited Partners and BACs holders which were created by such
sale or refinancing, assuming each Limited Partner and BACs holder is in the 40%
marginal combined federal and state tax bracket;
(xii) pay or cause the Partnership to pay any remuneration to any Person for
giving advice to Limited Partners with respect to investment in the Partnership,
other than sales commissions to properly licensed Persons, including the Dealer
Manager;
(xiii) except for the sale of Local Partnership Interests to Independence SLP
IV L.P. as a Special Limited Partner cause the Partnership or any Local
Partnership to sell any Local Partnership Interest to the General Partner or any
of its Affiliates;
(xiv) change the Partnership's purposes;
(xv) cause the Partnership to purchase or lease property or Local Partnership
Interests from or to sell or lease property to the General Partner or any of its
Affiliates or acquire any property or Local Partnership Interests from a program
in which the General Partner or any Affiliate has an interest, except under
certain circumstances where the General Partner or an Affiliate has held title
to a Property or a Local Partnership interest temporarily for the purpose of
facilitating the Partnership's acquisition of the Property or Local Partnership
Interest and the Partnership purchases the Property or Local Partnership
Interest from the General Partner or an Affiliate for a price no greater than
its cost thereof to the General Partner or its Affiliate in accordance with
Section 5.3H of the Partnership Agreement;
(xvi) cause the Partnership to acquire any Local Partnership Interest in
exchange for BACs;
(xvii) redeem or repurchase any BACs;
(xviii) borrow or allow any Affiliate to borrow from the Partnership except
as expressly authorized by Section 5.8D of the Partnership Agreement;
(xix) allow any Affiliate to provide development or construction services
to the Partnership or any Local Partnership;
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(xx) allow any Affiliate to provide goods or services to the Partnership or
any Local Partnership other than those disclosed in this Prospectus and
expressly permitted in the Partnership Agreement;
(xxi) invest in junior trust deeds or similar obligations, except that junior
trust deeds or similar obligations may be taken back from purchasers of
Properties or Local Partnership Interests in connection with the sale thereof by
Local Partnerships or the Partnership;
(xxii) cause the Partnership or any Local Partnership to invest in the
securities of other issuers, except as provided in Section 5.2A or Section 5.3
of the Partnership Agreement;
(xxiii) underwrite the securities of other issuers;
(xxiv) invest in any mutual funds or other open end investment companies
sponsored by Affiliates;
(xxv) commingle the funds of the Partnership with those of any other Persons
except (i) that use of a zero balance or clearing account shall not constitute a
commingling of Partnership funds, and (ii) that funds of the Partnership and
funds of other partnerships sponsored by the General Partner or its Affiliates
may be held in an account or accounts established and maintained for the purpose
of making computerized disbursements and/or short-term investments (provided,
however, that Partnership funds are protected from claims of such other
partnerships and/or their creditors);
(xxvi) cause the Partnership or any Local Partnership to pay any real estate
brokerage commission on resale of a Property in an amount greater than 6% of the
contract price for the sale of the Property;
(xxvii) cause the Partnership, directly or indirectly, to invest in any
general partnerships or joint ventures unless such general partnership or joint
venture owns or has a contract to acquire a particular Property, the general
partnership or joint venture invested in is not an Affiliate of the General
Partner, and such investment complies with Section 5.3D or 5.3E of the
Partnership Agreement, or cause the Partnership to invest in any limited
partnership as a limited partner unless such investment complies with Section
5.3F of the Partnership Agreement;
(xxviii) without the consent of a majority in interest of the Limited
Partners, (A) sell all or substantially all of the assets of the Partnership,
except for (i) a liquidating sale of a final Local Partnership Interest
remaining after the sale of all other Local Partnership Interests, or (ii) sales
in connection with the liquidation and winding up of the Partnership's business
upon its dissolution, or (B) elect to dissolve the Partnership; or
(xxix) allow any sponsor of the Partnership to receive any interest in net
proceeds from the sale or refinancing of the Local Partnerships' Prop-
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erties (except insofar as the General Partner will receive the same at the
Partnership level in conformity with the NASAA Guidelines).
Other than as specifically set forth in the Partnership Agreement and as
disclosed in this Prospectus, the General Partner is prohibited from entering
into any agreements, contracts or arrangements on behalf of the Partnership with
itself or any of its Affiliates. Neither the General Partner nor any Affiliate
of the General Partner is permitted to receive any rebates or give-ups, or
participate in any reciprocal business arrangements which would circumvent the
provisions of the Partnership Agreement relating to dealings between the General
Partner and its Affiliates on the one hand and the Partnership and the Local
Partnership on the other hand. However, the General Partner is authorized on
behalf of the Partnership to (i) pay to the General Partner an annual
Partnership Management Fee in an amount up to 0.5% of the Invested Assets per
annum (provided, however, the amount of any Annual Local Administrative Fees
paid to the Special Limited Partner by the Local Partnerships when added to
Partnership Management Fees shall not exceed 0.5% of Invested Assets) for their
services in connection with the administration of the affairs of the
Partnership; (ii) cause the Partnership to acquire limited partnership liability
insurance policies insuring the Partner and certain of its Affiliates against
certain liabilities of the Partnership; (iii) borrow funds from the General
Partner or any of its Affiliates (a "Voluntary Loan"), provided, however, that
any such Voluntary Loan is not to provide permanent financing for the
Partnership and is made on terms competitive with those that may be obtained
from unaffiliated Persons; (iv) allow Local Partnerships to acquire certain
mortgage origination services from Affiliates of the General Partner, subject to
Section 5.3C(iii) of the Partnership Agreement; and (v) allow Local Partnerships
to obtain construction and/or permanent mortgage financing from Affiliates of
the General Partner, subject to Section 5.3C(iv) of the Partnership Agreement.
Partnership Expenses
Reimbursements to the General Partner or any of its Affiliates shall not be
allowed, except for reimbursement, without interest, of (i) Organization and
Offering Expenses as set forth in Section 5.1D of the Partnership Agreement;
(ii) the costs of preparing reports to the BACs holders required by the
Partnership Agreement if such reimbursement does not exceed 90% of the
competitive rate for such services; (iii) the actual costs incurred by the
General Partner or such Affiliates in obtaining goods and materials supplied by
unaffiliated parties used for or by the Partnership; (iv) direct travel and
telephone expenses relating to Partnership business incurred by employees who
are not "controlling persons" of the General Partner or its Affiliate; and (v)
direct out-of-pocket expenses incurred in providing legal, accounting,
bookkeeping, computer, printing and public relations services, at rates for
which services could be performed by independent parties. The costs incurred by
the Partnership as fees payable to third party investor servicing agents
unaffiliated with the General Partner will be paid directly by the Partnership.
General overhead expenses incurred by the General
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Partner or its Affiliates in connection with the administration of the
Partnership will not be charged to the Partnership, except to the extent
expressly permitted by Section 5.1D of the Partnership Agreement.
Rights of the BACs Holders and Limited Partners
No BACs holder or Limited Partner, in his capacity as such, will have any
control of the business of the Partnership or any authority or right to act for
or bind the Partnership.
Voting Rights
The Partnership Agreement gives a majority in interest of the BACs holders
the right to:
(i) amend the Partnership Agreement, subject to certain limitations,
(ii) dissolve the Partnership,
(iii) remove the General Partner with or without cause,
(iv) direct the Special Limited Partner to remove a Local General Partner,
and
(v) approve or disapprove the sale of all or substantially all of the assets
of the Partnership other than in connection with a dissolution of the
Partnership.
The General Partner and its Affiliates (other than the Assignor Limited
Partner) will not have the right to vote any BACs or Limited Partner interests
held by them on any matter involving a decrease in the General Partner's duties,
an increase in any of its compensation or its removal pursuant to a vote of the
Limited Partners and BACs holders. If the Limited Partners and BACs holders vote
to remove the General Partner, they are required to provide the removed General
Partner with notification thereof, which notification shall set forth the date
upon which such removal is to become effective. If the Limited Partners and BACs
holders also vote to elect a new General Partner, the Partnership is required to
purchase the interest of the removed General Partner for the fair market value
thereof determined in accordance with Section 6.3A of the Partnership Agreement.
BACs holders who do not vote with the majority in interest of their fellow
investors will nonetheless be bound by the majority vote.
The voting rights of the Limited Partners and BACs holders may be exercised
at a meeting called by the General Partner or at any time a vote is called for
without a meeting by the General Partner. The General Partner is required to
call such meeting or vote at the written request of the Limited Partners and
BACs holders holding 10 percent or more of the Units and BACs.
The General Partner cannot change the investment objectives or policies of
the Partnership unless an amendment to the Partnership Agreement is
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made, which would require the approval of a majority in interest of the
investors and the General Partner.
Liabilities of Limited Partners and BACs Holders
The Partnership Agreement provides that so long as a Limited Partner does not
participate in or exercise control over Partnership business, his or her
liability for Partnership obligations shall be limited to (i) his or her Capital
Contribution made to the Partnership, other obligations provided for in the
Partnership Agreement, and his or her share of any assets and undistributed
profits of the Partnership; (ii) the amount of any distributions made to the
Limited Partner which, under applicable law, are required to be repaid; and
(iii) the amount of any funds distributed to the Limited Partner out of funds
received by the Partnership from any Local Partnership (determined on a pro rata
basis) which are required to be returned to the Partnership so that the
Partnership may meet any requirement imposed on it by any applicable law to
return to any such Local Partnership funds previously distributed by it to the
Partnership. The Uniform Act provides that the Partnership is prohibited from
making a distribution if, at the time of such distribution, after giving effect
to such distribution, all liabilities of the Partnership (other than liabilities
to partners on account of their partnership interests and liabilities for which
the recourse of creditors is limited to specified property of the Partnership)
exceed the fair value of the assets of the Partnership, except that the fair
value of property that is subject to a liability for which the recourse of
creditors is limited shall be included in the assets of the Partnership only to
the extent that the fair value of that property exceeds that liability. The
liability of a limited partner for the wrongful distribution described in the
preceding sentence shall only exist if the limited partner knew at the time that
the distribution was made that it was wrongful, and in such case, shall only
extend for a period of three years from the date of the distribution. The
Partnership Agreement provides that BACs holders shall be subject to the same
liabilities that Limited Partners have under the Partnership Agreement and
Delaware law. In the opinion of counsel to the Partnership, the liability of
BACs holders will be no greater than that of a Limited Partner. See "Description
of BACs."
No Limited Partner or BACs holder is required to make any loan to the
Partnership or, after his Capital Contribution has been paid, to make any
further Capital Contribution to the Partnership.
Term and Dissolution
The Partnership will dissolve and be liquidated upon the happening of any of
the following events:
(i) the expiration of its term on December 31, 2031;
(ii) the withdrawal, removal or Bankruptcy of the General Partner or
assignment of all of the interest of the General Partner or any other event that
causes the General Partner to cease to be a general partner under the Uniform
Act unless (a) at that time there is a remaining General Partner
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that agrees to carry on the business of the Partnership, or (b) if there is no
remaining General Partner, or if no remaining General Partner elects to carry on
the business of the Partnership, within 90 days of the date of such event, all
remaining Partners agree in writing to continue the business of the Partnership
and to the appointment as of the date of such event of a successor General
Partner;
(iii) the passage of 150 days after the sale or other disposition of all
Local Partnership Interests and other assets of the Partnership;
(iv) election by the General Partner and the consent of a majority in
interest of the Limited Partners and BACs holders, or upon a vote by a majority
in interest of the Limited Partners and BACs holders, without the concurrence of
the General Partner, to dissolve the Partnership; or
(v) the happening of any other event causing the dissolution of the
Partnership under the Uniform Act.
Dissolution of the Partnership will be effective on the day on which the
event occurs giving rise to the dissolution, but the Partnership will not
terminate until the assets of the Partnership have been distributed and the
Certificate of Limited Partnership has been cancelled.
Transferability of General Partner's Interests
Except as provided in Section 10.2A of the Partnership Agreement providing
for removal of the General Partner by a majority in interest of the Limited
Partners and BACs holders, and except as provided in Article Six of the
Partnership Agreement providing for the admission of successor and additional
General Partners, no assignee or transferee of all or any portion of the
interest of the General Partner shall have any right to become a General
Partner. The General Partner may voluntarily dissolve or withdraw voluntarily
from the Partnership, or sell, transfer or assign all or any portion of its
interest in the Partnership, with the consent of any other General Partner and a
majority in interest of the Limited Partners and BACs holders, and upon such
event such General Partner shall, with the consent of the other General Partner
and a majority in interest of the Limited Partners and the BACs holders,
designate one or more Persons to be successors to such General Partner or to be
an additional General Partner, in each case with such participation in such
General Partner's interest as such General Partner and such successors or such
additional General Partners may agree upon. Further, with the consent of any
other General Partners and of a majority in interest of the Limited Partners and
BACs holders, any General Partner may at any time designate one or more Persons
to be an additional General Partner, with such participation in such General
Partner's interest as such General Partner and such additional General Partner
may agree upon. Each such designee shall become a successor or additional
General Partner upon agreeing to be bound by all of the provisions of the
Partnership Agreement.
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Without the consent of any other Partner, a General Partner may cause to be
admitted to the Partnership an additional General Partner or General Partners,
with such participation in such General Partner's interest as such General
Partner and such additional General Partner or General Partners may agree upon,
if such General Partner deems the admission of such additional General Partner
or General Partners to be necessary or desirable to effect compliance with any
applicable law. In the event of dissolution of a General Partner which is a
general partnership or limited partnership and which is not the sole General
Partner, if the partners thereof continue the business of such partnership after
the dissolution in a successor entity, such entity or corporation shall be
deemed to have been substituted as a General Partner if a majority in interest
of the Limited Partners and BACs holders approve in writing after being notified
of such proposed substitution.
The General Partner's interest may not be transferred if such transfer would,
in the opinion of counsel to the Partnership, cause the Partnership to be
treated as a corporation for Federal income tax purposes or result in a
termination of the Partnership by reason of Section 708 of the Code that would
have adverse tax consequences on the BACs holders.
If the business of the Partnership is continued after the withdrawal,
removal, Bankruptcy, dissolution or assignment of all of the interest of the
General Partner (except in the case of a removed General Partner whose interest
is purchased by a successor General Partner selected by the Limited Partners or
a General Partner and other than removal for fraud, gross negligence or willful
misconduct), the Partnership is required to purchase such General Partner's
interest for a price equal to the appraised fair market value thereof. The
Partnership will deliver a promissory note for the purchase price, which note
shall provide, except where such termination has resulted from the General
Partner's voluntary withdrawal, voluntary dissolution or assignment, for
interest at the lesser of the then prime rate of Chemical Bank or the maximum
rate permitted by applicable law, for a term of not less than five (5) years;
where the termination has resulted from the General Partner's voluntary
withdrawal, voluntary dissolution or assignment, such promissory note shall bear
no interest and will be payable only from distributions which the terminated
General Partner otherwise would have received under the terms of the Partnership
Agreement had such General Partner not ceased to be a general partner of the
Partnership. Within 120 days after the determination of the fair market value of
the former General Partner's interest, the Partnership may, with the Consent of
all remaining General Partners and a majority in interest of the Limited
Partners and BACs holders, sell such interest to one or more Persons, who may be
Affiliates of the remaining General Partner or General Partners, and admit such
Person or Persons to the Partnership as substituted General Partners. The
purchase price to be paid to the Partnership for the interest of the former
General Partner may be less than its fair market value as determined by the
appraisal referred to above.
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Transferability of Units and BACs
Subject to the prior written consent of the General Partner, a Limited
Partner or BACs holder will have the right to assign his Units or BACs by a
written instrument of assignment, the terms of which are not in contravention of
any of the provisions of the Partnership Agreement. A Limited Partner may not
assign his Units and a BACs holder may not assign his BACs to a Foreign Person
or to a Tax-Exempt Entity. Limited Partners and BACs holders seeking to transfer
Units or BACs may also be subject to the securities laws of the state in which
the transfer is to take place. See "Who Should Invest." A Limited Partner or
BACs holder is required to notify the General Partner of any proposed sale,
assignment, transfer or exchange and to supply to the General Partner certain
information with respect thereto.
The General Partner will withhold its consent to any proposed sale,
assignment, transfer or exchange of Units or BACs if (a) such Units or BACs,
when added to the total of all other Units and BACs (and, if applicable,
interests of the General Partner) sold or exchanged within the period of 12
consecutive months prior to the proposed date of sale or exchange would, in the
opinion of counsel to the Partnership, result in the termination of the
Partnership under Section 708 of the Code or cause the Partnership to be treated
as a corporation for Federal income tax purposes; (b) absent a change in
applicable tax law under Section 7704 of the Code, such transfer would fall
outside of the safe harbor provisions of Internal Revenue Service Notice 88-75
(or other safe harbors adopted by the Internal Revenue Service that protect
against treatment as a publicly traded partnership); (c) such sale, assignment,
transfer, exchange or other disposition would, in the opinion of counsel for the
Partnership, be in violation of any applicable federal or state securities laws;
(d) such sale, assignment, transfer or exchange would, in the opinion of counsel
for the Partnership, result in the Partnership being required to pay a recapture
penalty for the accelerated portion of the Tax Credits taken with respect to
such Units or BACs; or (e) except for transfers by gift or inheritance,
intra-family transfers, transfers resulting from family dissolutions and
transfers to Affiliates, the transferor or the transferee would hold Units
representing a Capital Contribution of less than $5,000 as a result of the
transfer. The General Partner is obligated by the Partnership Agreement to
require that counsel immediately notify the Partnership in writing of any
changes or modifications to its opinion as to transferability of Units and BACs,
and to eliminate or modify any restrictions on substitution or assignment of
Units or BACs at such time that counsel opines that the restriction is no longer
necessary. Any Substituted Limited Partner must agree to be bound by the
provisions of the Partnership Agreement. All costs and expenses incurred by the
Partnership in connection with the transfer of Units or BACs will be paid by the
assignee, not the Partnership.
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Any assignment, sale, exchange or other transfer in contravention of any of
the provisions of the Partnership Agreement will not bind or be recognized by
the Partnership.
Designation of Tax Matters Partner
Pursuant to Section 6231 of the Code and the regulations thereunder and
Section 9.5 of the Partnership Agreement, the General Partner will be designated
the initial "tax matters partner" for purposes of federal income tax audits of
Partnership income, gain, loss, deduction or credit.
Applicable Law
The Partnership Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.
Books and Records
The fiscal year of the Partnership for tax purposes will end December 31 and
for financial reporting purposes will end March 31. The books and records of the
Partnership will be maintained at the office of the Partnership located at 625
Madison Avenue, New York, New York 10022. The Partnership Agreement requires
that the Partnership acquisitions be supported by an Appraisal prepared by a
competent independent appraiser. Each Appraisal will be maintained for at least
five (5) years in the Partnership's records following the date of any
acquisition supported by it. The Partnership Agreement provides that such books
and records (including each Appraisal) shall be available there for examination
by any Limited Partner or BACs holder, or a duly authorized representative
thereof, at any and all reasonable times. Any Limited Partner or BACs holder, or
a duly authorized representative thereof, is, upon paying the costs of
duplication and mailing, entitled to a copy of the list of the names and
addresses of the Limited Partners and BACs holders.
THE OFFERING AND PLAN OF DISTRIBUTION
The Offering
The Minimum Offering is 5,000 BACs and the Maximum Offering is 100,000 BACs
of $1,000 each to purchasers who meet the requirements set forth under "Who
Should Invest."
The minimum investment is five (5) BACs ($5,000). Persons meeting the
requirements set forth in "Who Should Invest" and desiring to invest should
contact a representative of the Dealer Manager or the Selling Agents with
respect to instructions for the procedure for subscribing. The General Partner
will either accept or reject a subscription within ten days from its receipt.
See "Escrow Arrangements" below. The General Partner, in its discretion, may
reject any subscription in whole or in part. Funds received from subscribers
whose subscriptions are rejected will be returned promptly to such subscriber.
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The General Partner, the Dealer Manager, the Selling Agents, and any of their
Affiliates may, but are not obligated to, purchase BACs at the offering price
and will become BACs holders to the extent of such purchases; however, not more
than 500 BACs so purchased will be included for purposes of determining whether
the Minimum Offering has been attained, and such BACs must be held for
investment purposes only and not with a view toward redistribution or resale.
The sale of the BACs is subject to the sale by the Partnership of the Minimum
Offering. The proceeds from the sale of the BACs will be released from escrow
(see below) only upon achievement of the Minimum Offering and occurrence of
Initial Closing.
The Offering will terminate not later than April 15, 1997 and may be
terminated at an earlier date (the "Offering Termination Date"). The General
Partner reserves the right to terminate the Offering at any time. The Dealer
Manager may terminate the Offering, in its discretion, on the date that is the
earlier of (i) the date on which the Minimum Offering is sold, (ii) any date
selected by the Dealer Manager that is at least 120 days after the date of the
commencement of the Offering, or (iii) the date on which the Maximum Offering is
sold.
The Partnership Agreement provides that the Partnership will not acquire
property in exchange for BACs and that the General Partner and Affiliates are
prohibited from paying any compensation directly or indirectly to any advisor of
any potential purchaser of BACs as an inducement to such advisor to advise such
potential purchaser as to an investment in the BACs. Such prohibitions will not
be deemed to prohibit the payment of normal Selling Commissions to properly
licensed persons including the Dealer Manager.
Dealer Manager Services
This Offering is being made on a best efforts basis by Related Equities
Corporation, 625 Madison Avenue, New York, New York 10022, as Dealer Manager,
and by such Selling Agents as the Dealer Manager may designate. The Dealer
Manager is an Affiliate of the General Partner. The Dealer Manager may (but is
not obligated to) purchase any BACs as described above. The Dealer Manager will
receive Selling Commissions of $75 per BAC sold and may reallow up to the full
Selling Commission to the Selling Agents. Affiliates of the General Partner and
employees of the Dealer Manager and the Selling Agents may purchase BACs without
paying Selling Commissions. The agreement to be entered into by the Partnership
with the Dealer Manager and the agreement to be entered into between the Dealer
Manager and the Selling Agents with respect to the Offering each contain a
provision that transactions in discretionary accounts will not be executed
without the prior written approval of the transaction by the customer. Each BACs
holder will be entitled to quantity discounts of Selling Commissions as follows:
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Value of Effective
Quantity Purchase Effective Percentage
Number of Discount per Price per BAC on Selling Commission on
BACs Purchased Incremental BAC Incremental BACs Incremental BAC
- -------------- --------------- ---------------- ---------------------
250 or less None $1,000 7.5%
251 to 500 $25 $ 975 5.0%
501 to 1,000 $35 $ 965 4.0%
1,001 to 2,000 $55 $ 945 2.0%
2,001 or more $65 $ 935 1.0%
A BACs holder entitled to a quantity discount will receive the same through a
reduction of the aggregate cash purchase price which such BACs holder will be
required to pay to purchase BACs. Except for quantity discounts applicable to
purchases of 1001 or more BACs in a single transaction ("Non-Incremental
Discounts"), the quantity discounts set forth above apply incrementally, which
means that the reduced commission rate for a specified level of investment
applies only to the BACs purchased at that level and the total commission rate
on the overall investment is not reduced. For example, on a purchase of 500 BACs
by any one investor, the effective percentage selling commission would be 7.5%
for the first 250 BACs and 5.0% for the last 250 BACs. However, if an investor
purchases 1001 to 2000 BACs in a single transaction, he or she will be entitled
to an effective purchase price per BAC of $945 for all BACs so purchased (which
equates to an effective percentage selling commission of 2% on all BACs
purchased), and if an investor purchases 2001 or more BACs in a single
transaction, he or she will be entitled to an effective purchase price per BAC
of $935 for all BACs so purchased (or an effective percentage selling commission
of 1% on all BACs purchased). Non-Incremental Discounts will not retroactively
reduce the effective purchase price per BAC for any BACs previously purchased by
the investor. For purposes of computing these quantity discounts, (i) BACs
acquired in the name of the spouse or minor child of a BACs holder will be
deemed acquired by such BACs holder and (ii) all BACs previously purchased by a
BACs holder during the Offering will be included in the number of BACs deemed
purchased by such BACs holder (except that Non-Incremental Discounts will be
available only to BACs holders who have purchased the requisite number of BACs
in a single transaction). Quantity discounts will also be applicable to
purchases of BACs by a trustee or other fiduciary for a single trust or
fiduciary account, but not to a group of individuals whose funds are combined,
directly or indirectly, for the purpose of purchasing the BACs at a discount or
through a trustee, agent, custodian or representative. The Dealer Manager will
receive a non-accountable expense allowance in the amount of 2.5% of Gross
Proceeds in consideration of which it will be responsible for the payment of all
Organization and Offering Expenses of the Partnership that are up to 2.5% of
Gross Proceeds and in excess of 3.5% of Gross Proceeds. As part of the aggregate
sales compensation, the Dealer Manager will retain from such Organization and
Offering Expense allowance a non- accountable marketing and due diligence
expense allowance in the amount of 0.5% of Gross Proceeds (which allowance is
included within the defi-
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nition of Organization and Offering Expenses). In addition, the Dealer Manager
may retain up to the full remaining 2.0% of its Organization and Offering
Expense allowance for reimbursement of accountable marketing expenses such as
seminar expenses, legal fees, and salaries and overhead charges (which expenses
are also included within the definition of Organization and Offering Expenses).
The Dealer Manager may reallow all or a portion of the non-accountable marketing
and due diligence and accountable marketing expense allowances to one or more of
the Selling Agents. To the extent that the Dealer Manager uses the 2.5%
Organization and Offering Expense allowance in respect of accountable and
non-accountable marketing and due diligence expenses, it will be obligated to
use its own funds (and not those of the Partnership) to pay other Organization
and Offering Expenses of the Partnership that are up to 2.5% and in excess of
3.5% of Gross Proceeds. Any portion of the Organization and Offering Expense
allowance that is retained by the Dealer Manager or the Selling Agents for
reimbursement of accountable marketing expenses, up to the maximum of 2.0% of
Gross Proceeds, may be deemed compensation for purposes of this Offering. In no
event will the aggregate of all amounts paid to or retained by the Dealer
Manager (including selling commissions equal to 6.0% of Gross Proceeds,
wholesaling and marketing fees equal to 1.5% of Gross Proceeds, a
non-accountable marketing and due diligence expense allowance equal to 0.5% of
Gross Proceeds and an accountable marketing expense reimbursement of up to 2.0%
of Gross Proceeds) exceed 10.0% of Gross Proceeds plus 0.5% of Gross Proceeds
for reimbursement of bona fide due diligence expenses of the Dealer Manager.
The agreement to be entered into by the Partnership with the Dealer Manager
with respect to the Offering contains provisions for indemnity from the General
Partner with respect to liabilities, including certain civil liabilities under
the Securities Act of 1933, which may arise from the use of this Prospectus in
connection with the offering of the BACs. In the opinion of the Securities and
Exchange Commission, indemnification for liabilities under the Securities Act of
1933 is against public policy and therefore unenforceable. The Dealer Manager
may be deemed to be an "underwriter" for purposes of the Securities Act of 1933
in connection with this Offering.
Escrow Arrangements
Upon receipt by the Dealer Manager or the Selling Agents of subscription
proceeds, such proceeds will be deposited in escrow by noon of the next business
day or by noon of the second business day after receipt of the subscription and
held in trust for the benefit of the subscriber with United States Trust Company
of New York (the "Escrow Agent") pursuant to an Escrow Agreement. The Escrow
Agent will be required to invest such subscription proceeds immediately upon
receipt thereof in Escrow Investments (i.e., bank accounts, bank money market
accounts, short-term certificates of deposit issued by banks and securities
issued by the United States government, including treasury notes and obligations
guaranteed by the full faith and credit of the United States government).
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Payment for a subscription for BACs may be made by either (i) delivery to the
Dealer Manager or Selling Agent through which the subscription is made of a
check made payable to "United States Trust Company of New York, Escrow Agent for
Independence Tax Credit Plus L.P. IV" or (ii) if the subscriber maintains a
securities account with his or her Selling Agent, by authorizing the Selling
Agent to debit his or her account in the amount of the subscription. American
Express Financial Advisors Inc. and other Selling Agents who are permitted to
receive customer funds, by reason of having the requisite level of "net capital"
under the applicable federal securities regulations, may instruct their
customers to make their subscription checks for BACs subscribed payable directly
to the Selling Agent. Where payment for a subscription is made by authorization
of a debit to a securities account, the subscriber must have the amount of the
subscription in such account on the settlement date specified by the Selling
Agent, which date will not be more than three (3) business days following notice
from the General Partner to the Selling Agent and the subscriber of the
acceptance of the subscription.
The General Partner will have ten days from its receipt of subscription
proceeds to determine whether or not to accept a subscription. With respect to
each rejected subscription, the General Partner will notify the Escrow Agent,
who will promptly deliver to the rejected subscriber a check payable to such
subscriber in the amount of the subscription plus interest earned thereon.
Uncashed checks of rejected subscriptions will be returned to the subscriber
either by the Dealer Manager or the Escrow Agent.
Upon each Closing, funds will be released from escrow and the Escrow Agent or
the General Partner will distribute to the purchasers of the BACs a pro rata
portion of any interest actually earned on their subscription proceeds prior to
the Closing. If any purchaser has so requested and paid the required fees, a
certificate evidencing the BACs will be issued to such BACs holder not later
than 60 days after subscription proceeds are released from escrow.
If the Offering is terminated or the Minimum Offering is not achieved within
the prescribed period, all subscription proceeds received will be returned to
the subscribers by the Escrow Agent, together with a pro rata share of any
interest earned thereon within 60 days of the termination of the Offering. If
the Minimum Offering is not achieved, the Escrow Agent fees will be paid by the
General Partner.
After the Initial Closing, all funds and checks received by the Dealer
Manager and the Selling Agents will be delivered (as described above) to the
Escrow Agent pending the next Closing. Closings with respect to such additional
subscriptions received and accepted will be held no less frequently than monthly
until the termination of the Offering.
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LEGAL OPINIONS
Certain legal matters and certain federal income tax matters will be passed
on for the Partnership by the law firm of Proskauer Rose Goetz & Mendelsohn LLP,
1585 Broadway, New York, New York 10036. The opinions described under "Federal
Income Tax Considerations" to be given at each Closing Date are expected to be
given by Proskauer Rose Goetz & Mendelsohn LLP. Certain matters of Delaware law
will be passed on for the Partnership by Richards, Layton & Finger, One Rodney
Square, Wilmington, Delaware 19899.
EXPERTS
The balance sheets of the Partnership and the General Partner which are
included in this Prospectus and elsewhere in the Registration Statement of the
Partnership have been audited by Friedman Alpren & Green LLP, independent
certified public accountants, as indicated in their report with respect thereto
and are included herein in reliance upon the opinion of such firm and upon its
authority as experts in accounting and auditing. The balance sheet of
Independence Assignor Inc. which is included in this Prospectus and elsewhere in
the Registration Statement of the Partnership has been audited by Trien,
Rosenberg, Felix, Rosenberg, Barr & Weinberg, independent certified public
accountants, as indicated in their report with respect thereto and is included
herein in reliance upon the opinion of such firm and upon its authority as
experts in accounting and auditing.
SALES LITERATURE
In addition to and apart from this Prospectus, the Partnership will utilize
certain sales material in connection with the Offering of the BACs. This
material will consist of an investment summary, a prospectus kit envelope, an
invitation to attend public seminars, a mailing card and a "tombstone"
advertisement, each of which has been prepared by the Partnership. In certain
states, such sales material will not be available. Other than as described
herein, the Partnership has not authorized the use of sales material. Certain
sales materials may be used in connection with the Offering only when
accompanied or preceded by the delivery of the Prospectus. The Offering is made
only by means of this Prospectus.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits relating thereto which the Partnership
has filed with the Securities and Exchange Commission, Washington, D.C., under
the Securities Act of 1933, and to which reference is hereby made. Copies of the
exhibits are on file at the offices of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549,
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and may be obtained upon payment of the fee prescribed by the Commission, or may
be examined without charge at the office of the Commission.
GLOSSARY
The following terms used in this Prospectus shall (unless otherwise expressly
provided herein or unless the context otherwise requires) have the following
respective meanings:
"Accountants" means Friedman Alpren & Green LLP or such other firm of
independent public accountants as shall be engaged from time to time by the
General Partner on behalf of the Partnership.
"Acquisition Expenses" means expenses incurred by the Partnership and Local
Partnerships, including but not limited to legal fees and expenses, travel and
communications expenses, costs of appraisals, non- refundable option payments on
property not acquired, accounting fees and expenses, title insurance, and
miscellaneous expenses, related to selection and acquisition of Local
Partnership Interests and Properties, whether or not acquired.
"Acquisition Fees" means the total of all fees and commissions paid by any
Person to any Person in connection with the selection or purchase by the
Partnership or Local Partnerships of any Local Partnership Interest or Property.
Included in the computation of such fees or commissions shall be the Consulting
and Monitoring Fee, any real estate commissions, acquisition fees, selection
fees, Development Fees, Construction Fees, non- recurring management fees,
consulting fees or any other similar fees or commissions, however designated.
Excluded shall be Development Fees and Construction Fees paid to Persons not
affiliated with the Sponsor in connection with the actual development and
construction of a Property owned by a Local Partnership.
"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 or
director of or general partner or member with primary management
responsibilities in the specified Person or of which the specified Person is an
officer, director, partner or member with primary management responsibilities
and (iii) any Person that, directly or indirectly, is the beneficial owner of or
controls 10% or more of any class of the outstanding voting securities of the
specified Person.
"Annual Local Administrative Fees" means amounts up to $5,000 per annum paid
by Local Partnerships to the Special Limited Partner.
"Apartment Complex" means either an existing residential housing development
or a residential housing development under construction or substantial
rehabilitation (which may contain commercial space) that is qualified or is
expected to qualify to give rise to Housing Tax Credits and,
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in some cases, also to Historic Rehabilitation Tax Credits and which is, or will
be, owned and operated by a Local Partnership.
"Appraised Value" means the fair market value of any real property (which may
take into account the value of the Tax Credits associated with the property)
according to an appraisal prepared by a competent independent appraiser.
"Assignor Limited Partner" means Independence Assignor Inc., a Delaware
corporation.
"BACs" means beneficial assignment certificates executed by the Assignor
Limited Partner and delivered to a purchaser of BACs to evidence the assignment
by the Assignor Limited Partner of all of the economic and virtually all of the
other rights, benefits and privileges of the ownership of a Unit of limited
partnership interest in the Partnership, representing a cash contribution of
$1,000 to the capital of the Partnership. Reference to a majority, or specified
percentage, in interest of the Limited Partners and BACs holders means Limited
Partners and BACs holders (other than Affiliates of the General Partner) owning
Units and BACs that represent greater than 50%, or such specified percentage,
respectively, of the total number of Units and BACs.
"BACs holder" means any Person who holds BACs and who is reflected as an
assignee of record of Units on the books and records of the Partnership
maintained by the Assignor Limited Partner.
"Capital Contribution" means the total amount of money contributed to the
Partnership (prior to the deduction of any Selling Commissions, expenses or
quantity discounts) by or on behalf of all the BACs holders and Partners or any
class of Partners, or by or on behalf of any one BACs holder or Partner, as the
context may require (or the predecessor holders of the Units of such Partners or
Partner or the BACs of such BACs holder), reduced in each case by any returns of
uninvested capital made to them or him pursuant to Section 3.4E of the
Partnership Agreement.
"Cash Distributions" means the distributions of cash to the BACs holders and
Partners pursuant to the terms of Section 4.2 of the Partnership Agreement.
"Cash Expenditures" for any period means all payments of cash during such
period (excluding distributions to BACs holders and Partners), including payment
of operating expenses, payment of principal and interest on Partnership debt and
the payment of the Partnership Management Fee and other fees, if any, to any
Person plus any amount from Cash Receipts set aside by the General Partners for
Reserves, without deduction for non-cash expenses.
"Cash Flow" means, with respect to any period, the excess, if any, of Cash
Receipts over Cash Expenditures for such period.
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"Cash Receipts" for any period means all cash receipts received by the
Partnership from Local Partnerships, other than Sale or Refinancing proceeds,
and all other cash received by the Partnership from any source and any amounts
withdrawn from Reserves (other than amounts set aside for Reserves that would
otherwise have constituted Sale or Refinancing Proceeds or Reserves set aside
from the Gross Proceeds of the Offering).
"Certificate" means the Certificate of Limited Partnership filed with the
Secretary of State of the State of Delaware, pursuant to which the Partnership
was formed, as amended from time to time.
"Closing" means a closing at which the purchase of BACs by subscribers
takes place.
"Code" means the Internal Revenue Code of 1986, as amended, or corresponding
provisions of subsequent revenue laws.
"Commission" means the Securities and Exchange Commission.
"Compliance Period" means with respect to any Apartment Complex, the 15-year
period beginning with the first taxable year of the Credit Period with respect
to such Apartment Complex.
"Consent" means either the approval given by a vote of the Partners (with the
Assignor Limited Partner voting according to the directions of the BACs holders)
at a meeting called and held in accordance with the provisions of Section 10.1
of the Partnership Agreement or the prior written approval, as the case may be,
of a Person to do the act or thing for which the approval is solicited, or the
act of granting such approval, as the context may require.
"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 on a Property.
"Consulting and Monitoring Fee" means a fee for services by the General
Partner in assisting the Local Partnerships in acquiring Properties and in
supervising the construction of the Properties.
"Conventional Government Subsidy Programs" means government rental,
financing, construction or rehabilitation subsidy or grant programs. Such term
does not include government assistance programs such as mortgage insurance,
local tax abatements or other forms of assistance.
"Credit Period" means, with respect to any Apartment Complex, the ten-year
period beginning with the taxable year in which the Apartment Complex is placed
in service or, if an election is made, the succeeding taxable year.
"Dealer Manager" means Related Equities Corporation, an Affiliate of
Related Independence L.L.C., RG II, RCMP, Independence SLP IV L.P. and the
Assignor Limited Partner.
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"Development Fee" means a fee for the packaging of a Property, including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and necessary financing for the specific Property,
either initially or at a later date.
"Development-Stage Complex" means (i) a newly-constructed low- income housing
Apartment Complex that is in the final stages of construction or has only
recently become available for rental tenancy or (ii) an existing Apartment
Complex that has recently undergone substantial rehabilitation (sometimes
referred to as a "gut" rehabilitation).
"Disposition Fee" means the fee payable for services actually rendered in
connection with the sale of a Property by a Local Partnership or the sale of a
Local Partnership Interest by the Partnership as contemplated by Section 5.9E of
the Partnership Agreement. Such fees shall be in an amount equal to up to 3% of
the gross proceeds from each such sale.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Escrow Agent" means United States Trust Company of New York or any
successor thereto.
"Escrow Investments" means bank accounts, bank money market accounts,
short-term certificates of deposit issued by banks and securities issued by the
United States government, including treasury notes and obligations guaranteed by
the full faith and credit of the United States government.
"Existing Complex" means any existing low-income Apartment Complexes that (i)
have not been placed in service during the 10-year period preceding the Local
Partnership's acquisition of the Apartment Complex and in connection with which
no substantial renovations have been performed within such 10-year period or
(ii) may have been placed in service during such 10-year period but as to which
the Department of Housing and Urban Development determines that, absent the
additional investment that the Partnership's contribution to capital would
represent, either an assignment of the mortgage secured by the Apartment Complex
to a federal government mortgage insurer or a claim against a federal mortgage
insurance fund would occur.
"Final Closing" means the final Closing at which the last purchases of BACs
are closed.
"Foreign Person" means a non-resident alien, foreign corporation, foreign
trust or foreign estate, within the meaning of Sections 897 and 1445 of the
Code.
"Front End Fees" means all fees and expenses paid by any party for any
services rendered to organize the Partnership and to acquire assets for the
Partnership, including Acquisition Fees, Acquisition Expenses, Selling
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Commissions, Organization and Offering Expenses, interest on deferred fees and
expenses, all fees or other compensation paid to any Affiliate of the General
Partner in consideration of mortgage origination services, and any other similar
fees, however designated by the General Partner. If amounts initially held in
the reserves of any Local Partnership, when aggregated with Reserves (excepting
from such calculation any amounts allocated to specific expenses (e.g.,
property, taxes, insurance or debt service reserve)) exceed 5%, the amount of
any such excess shall be included in Front End Fees. The amount of any sums
initially dedicated to Reserves that is later used to pay amounts that, if paid
directly, would constitute Front End Fees shall also be included in Front End
Fees.
"General Partner" means Related Independence L.L.C. and any Person or
Persons who, at the time of reference thereto, have been admitted as an
additional or successor General Partner, in each such Person's capacity as a
general partner of the Partnership.
"Gross Proceeds" means the aggregate purchase price of all BACs sold pursuant
to the Offering, without deduction for Selling Commissions, quantity discounts
or Organization and Offering Expenses. For the purpose of computing Gross
Proceeds, the purchase price of BACs to which quantity discounts are applicable
shall be deemed to be $1,000 for each such BAC.
"Historic Complex" means an historic Apartment Complex undergoing or that has
undergone or will undergo rehabilitation and that is qualified or is expected to
qualify to give rise to both Housing Tax Credits and Historic Rehabilitation Tax
Credits under the Code.
"Historic Rehabilitation Tax Credits" means any historic rehabilitation
credits to tax allowed to the Partnership and its partners under Section 47 of
the Code.
"Housing Tax Credits" means any low-income housing credits to tax allowed to
the Partnership and its partners under Section 42 of the Code.
"Independence SLP" means Independence SLP IV L.P., a Delaware limited
partnership.
"Initial Closing" means the initial Closing at which the purchase of at least
5,000 BACs is closed.
"Invested Assets" means the price paid upon the acquisition by the
Partnership of the Properties and Local Partnership Interests, including the
amount of Acquisition Fees and all liens and mortgages on the Properties, but
excluding points and prepaid interest. Invested Assets for any year shall not
include any amounts otherwise includible therein that are allocable to apartment
units that do not give rise in such year to Housing Tax Credits and that do not
receive in such year any other form of governmental subsidy. Solely for the
purpose of determining the Partnership Management Fee, the amount of "Invested
Assets" determined after the investment
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of all Net Proceeds in Local Partnerships will not be reduced by reductions in
the amount of Purchase Money Notes or mortgage loans outstanding or reductions
in the Partnership's capital accounts in Local Partnerships from distributions
or losses but shall be reduced proportionately at the time a Local Partnership
Interest or a Property is sold.
"Investment in Properties" means the amount of Capital Contributions actually
paid or allocated to the purchase, development, construction or improvement of
Properties acquired by the Partnership (directly or through the acquisition of
Local Partnership Interests), including the purchase of Properties or the
acquisition of Local Partnership Interests, working capital reserves allocable
thereto (except that working capital reserves in excess of 5% shall not be
included), and other cash payments such as interest and taxes but excluding
Front End Fees.
"Limited Partners" means the Initial Limited Partner, the Assignor Limited
Partner and any other Person who is admitted to the Partnership as a substituted
Limited Partner. Reference to a "Limited Partner" refers to any one of them.
"Local Affiliated Partner" means a general partner, member with primary
management responsibilities or special limited partner of any of the Local
Partnerships which is a General Partner or an Affiliate of the General Partner.
"Local General Partners" means the general partner, general partners, member
or members with primary management responsibilities of a Local Partnership,
including any Local Affiliated Partner so acting.
"Local Partnership" or "Local Partnerships" means any or all of the
partnerships or limited liability companies which own Properties and in which
the Partnership acquires a Local Partnership Interest or that the Partnership
establishes to own Properties.
"Local Partnership Agreement" means the partnership, limited liability
company or operating agreement of a Local Partnership pursuant to which the
Partnership becomes a partner or member thereof and acquires a Local Partnership
Interest therein, as such agreement may be amended from time to time.
"Local Partnership Interest" means the partnership, membership or limited
liability company interest of the Partnership in a Local Partnership.
"Major Repairs or Rehabilitation" means the repair, rehabilitation or
reconstruction of a Property where the aggregate costs exceed 5% of the fair
market value of the Property at the time of such services.
"Maximum Offering" means the sale of a maximum of 100,000 BACs.
"Minimum Offering" means the sale of a minimum of 5,000 BACs.
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"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 hereof.
"Net Proceeds" means Gross Proceeds less Selling Commissions and
Organization and Offering Expenses.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notification" means a writing, containing the information required by the
Partnership Agreement to be communicated to any Person, personally delivered to
such Person or sent by certified 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
Notification.
"Offering" means the offering of BACs by the Partnership pursuant to the
terms and conditions described in this Prospectus.
"Offering Termination Date" means the date determined by the Dealer Manager
that is the earlier of (i) the date on which the Minimum Offering is sold, (ii)
any date selected by the Dealer Manager that is at least 120 days after the date
of the commencement of the Offering, (iii) April 15, 1997, or (iv) the date on
which the Maximum Offering is sold.
"Organization and Offering Expenses" means those expenses incurred in
connection with or related to the formation and qualification of the
Partnership, the registration and qualification of the BACs under applicable
federal and state laws and the marketing, advertising, distribution, sale and
processing of the BACs (but excluding Selling Commissions), including, without
limitation: (a) the cost of preparing, printing, filing and delivering a
registration statement with respect to the BACs, this Prospectus (including any
amendments hereof or supplements hereto), all Blue Sky Surveys and all
underwriting and sales agreements, including the cost of all copies thereof
supplied to the Dealer Manager and any Selling Agent; (b) the cost of preparing
and printing the Partnership Agreement, solicitation material and related
documents and the cost of filing and recording such certificates or other
documents as are necessary to comply with the laws of the State of Delaware for
the formation and continuation of a limited partnership and thereafter for the
continued good standing of a limited partnership; (c) fees and expenses of the
Escrow Agent; (d) the filing fees payable to the Securities and Exchange
Commission, to state securities commissions and to the National Association of
Securities Dealers, Inc.; (e) the fees of counsel and accountants for the
Partnership, the General Partner and the Dealer Manager; and (f) a
non-accountable marketing and due diligence expense reimbursement payable by the
Partnership to the Dealer Manager in an amount equal to 0.5% of the Gross
Proceeds.
"Original Limited Partner" means Alan P. Hirmes.
"Partners" means collectively the General Partner and the Limited Partners
and reference to a "Partner" shall be to any one of the Partners.
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"Partnership" means the Independence Tax Credit Plus L.P. IV, a Delaware
limited partnership.
"Partnership Agreement" means the Amended and Restated Agreement of Limited
Partnership of the Partnership, as originally executed and as amended from time
to time, as the context requires.
"Partnership Management Fee" means the annual fee paid to the General
Partner, after payment of all Partnership expenses, in an annual amount up to a
maximum of 0.5% of Invested Assets, as contemplated by Section 5.9D of the
Partnership Agreement.
"Permitted Interim Investments" means (i) readily marketable securities
issued by states or municipalities within the United States of America or
agencies or subdivisions thereof rated "A" or better by a recognized rating
agency and maturing in less than one year from the date of purchase; (ii) direct
obligations of, or obligations unconditionally guaranteed by, the United States
of America or any agency thereof maturing in less than one year from the date of
purchase; (iii) commercial paper issued by any corporation organized and doing
business under the laws of the United States of America of any state thereof
rated in the highest or next highest category by Moody's Investor Service, Inc.
and by Standard & Poor's Corporation and maturing in less than one year from the
date of purchase; (iv) certificates of deposit or Eurodollar certificates of
deposit, due within one year from the date of purchase, issued by any commercial
bank, organized and doing business under the laws of the United States of
America of any state thereof having capital (including subordinated capital
notes), surplus and undivided profits aggregating more than $100 million (or, in
the case of Eurodollar certificates of deposit, a branch of any such bank); (v)
debt securities issued by corporations organized and doing business under the
laws of the United States or any state thereof rated "A" or better by a
recognized rating agency and maturing in less than one year from the date of
purchase, provided that a dealer which is a member of the New York Stock
Exchange maintains a regular market in such securities; (vi) collateralized
repurchase agreements with domestic banks having a duration no longer than 60
days (or any extension or renewal thereof for a period not exceeding the period
of the initial agreement) with respect to or secured by any of the types of
securities specified in clauses (i) through (iii) above; (vii) money market
funds; (viii) shares of any open-end investment company, as defined in the 1940
Act, which has assets of not less than $200 million and invests primarily in
securities of the type enumerated in clauses (i) through (vi) above or banker's
acceptances; (ix) guaranteed investment contracts having a duration of no longer
than 90 days or which are terminable at the request of the purchaser at
intervals no longer than 90 days and which are collateralized by securities of
the type enumerated in clauses (i) through (v) above; and (x) other short term,
highly liquid investments where there is appropriate safety of principal,
comparable in such respects to securities of the type enumerated in clauses (i)
through (ix) above; provided, however, that if the value of "investment
securities" (as defined in
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the 1940 Act) exceeds 40% of the value of the Partnership's total assets
(exclusive of Government securities (as defined in the 1940 Act)) and cash items
at any time, such excess may only be invested in Government securities.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Properties" means Apartment Complexes including Historic Complexes.
"Prospectus" means this Prospectus, as hereafter amended or supplemented.
"Purchase Money Notes" means the promissory notes of the Partnership to the
sellers (or their designees) of the Local Partnership Interests in Local
Partnerships evidencing the obligation of the Partnership to pay a portion of
the purchase price for such Local Partnership Interests, together with any
mortgage, security agreement and other documents executed by the Partnership as
security therefor.
"RCMP" means RCMP, Inc., a Delaware corporation and the sole general partner
of RGII.
"Related" means Related Capital Company, a New York general partnership.
"Reserves" means the amount set aside by the General Partner as reserves,
whether from Gross Proceeds, operations or Sale or Refinancing Proceeds.
"RGII" means Related General II, L.P., a Delaware limited partnership and a
member of the General Partner.
"Sale or Refinancing" means any Partnership or Local Partnership sale or
refinancing transaction not in the ordinary course of its business, including,
without limitation, sales, exchanges or other dispositions of Properties, Local
Partnership Interests and real or personal property of the Partnership,
condemnations, recoveries of damage awards and insurance proceeds (other than
business or rental interruption insurance proceeds), or any refinancings;
provided, however, that (i) distributions of operating income which are deemed
returns of capital solely for federal income tax purposes, (ii) the payment of
Capital Contributions by the General Partner and BACs holders, (iii) any refunds
of capital contributions to the Local Partnerships or cash portions of the
purchase price or cash deposits on the purchase price paid by the Partnership
for an Apartment Complex or a Local Partnership Interest, or (iv) the sale of
one or more Properties in connection with the liquidation of the Partnership
shall not be deemed a Sale or Refinancing.
"Sale or Refinancing Proceeds" means all cash receipts of the Partnership
arising from a Sale or Refinancing (including principal and interest received on
a debt obligation received on a Sale or Refinancing) less the following:
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(i) the amount of cash paid or to be paid in connection with or as an expense
of such Sale or Refinancing, and, with regard to damage recoveries or insurance
or condemnation proceeds, cash paid or to be paid for repairs, replacements or
renewals resulting from damage to or partial condemnation of the affected
Property;
(ii) the amount necessary for the payment of all debts and obligations of the
Partnership arising from or otherwise related to the particular Sale or
Refinancing; and
(iii) any amount set aside by the General Partner for Reserves.
"Selling Agents" means such registered broker-dealers as the Dealer manager
may designate to effect offers and sales of the BACs.
"Selling Commissions" means the aggregate selling commissions and wholesaling
and marketing fees, up to a maximum of $75 per BA C sold, payable by the
Partnership to the Dealer Manager and which may be reallowed by the Dealer
Manager to the Selling Agents.
"Special Limited Partner" means Independence SLP IV L.P., in its capacity as
a special limited partner of Local Partnerships.
"Sponsor" means any Person directly or indirectly instrumental in organizing,
wholly or in part, the Partnership or any Person who will manage or participate
in the management of the Partnership, and any Affiliate of such Person, but
shall not include any Person whose only relation with the Partnership is an
independent property manager and whose only compensation is as such. Sponsor
does not include wholly independent third parties.
"Tax Credits" means Historic Rehabilitation Tax Credits and Housing Tax
Credits.
"Tax Matters Partner" means the Partner designated as the Tax Matters Partner
of the Partnership by the General Partner. The General Partner has designated
itself as the initial Tax Matters Partner.
"10% Cumulative Return" means a cumulative return calculated for each BACs
holder as 10% per annum simple interest on his or her Unreturned Capital
Contribution commencing on the date of the Final Closing (but in no event will
the level of the cumulative return for any BACs holder be calculated so as to be
less than it would have been had such return been calculated as a 6% per annum
simple interest on the BACs holder's Unreturned Capital Contribution beginning
at the end of the calendar quarter of the sale of BACs to such BACs holder). The
10% Cumulative Return is reduced by distributions under Section 4.2A and Section
4.2B(5) of the Partnership Agreement.
"$25,000 Deduction-Equivalent Allowance" means an amount of Tax Credits equal
to the equivalent of $25,000 of deductions ($12,500 in the case of married
individuals filing separately who do not live together; zero
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in the case of married individuals filing separately who live together at any
time during the taxable year) that may be used to offset taxes on active
non-rental income or portfolio income pursuant to Section 469(i) of the Code.
"Uniform Act" means the Delaware Revised Uniform Limited Partnership Act as
in effect in the State of Delaware and as amended from time to time.
"Unit" means a unit of limited partner interest in the Partnership,
representing a cash contribution of $1,000 to the capital of the Partnership.
Reference to a majority, or specified percentage, in interest of the Limited
Partners and BACs holders means Limited Partners and BACs holders (other than
the General Partner and its Affiliates) owning Units and BACs that represent
greater than 50%, or such specified percentage, respectively, of the total
number of Units and BACs.
"Unreturned Capital Contribution" of a BACs holder as of any date means the
total Capital Contribution of the BACs holder (or the predecessor holders of the
BACs of such BACs holder) reduced by any distributions of Sale or Refinancing
Proceeds made to him or her pursuant to Section 4.2B(5) of the Partnership
Agreement to the date of determination. For the purpose of computing the
Unreturned Capital Contribution of any BACs holder with respect to BACs to which
quantity discounts of selling Commissions were applicable, the Capital
Contribution of such BACs holder with respect to such BACs shall be deemed to be
$1,000 for each such BAC.
"Voluntary Loan" means funds loaned to the Partnership by the General Partner
or any of its Affiliates that are not to provide permanent financing for the
Partnership and are loaned on terms competitive with those that may be obtained
from unaffiliated persons, as contemplated by Section 5.3B(ii) of the
Partnership Agreement.
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INDEX OF FINANCIAL STATEMENTS
Independence Tax Credit Plus L.P. IV
Independent Auditors' Report F-2
Balance Sheet F-3
Notes to Balance Sheet F-4
Independence Assignor Inc.
Independent Auditors' Report F-6
Balance Sheets F-7
Note to Balance Sheets F-8
Related Independence L.L.C.
Independent Auditors' Report F-9
Balance Sheet F-10
Notes to Balance Sheet F-11
F-1
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INDEPENDENT AUDITORS' REPORT
To the Partners of
Independence Tax Credit Plus L.P. IV
We have audited the accompanying balance sheet of Independence Tax Credit
Plus L.P. IV (a Delaware limited partnership) as of June 28, 1995. 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 of the balance sheet 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 Independence Tax Credit Plus
L.P. IV, as of June 28, 1995, in conformity with generally accepted
accounting principles.
FRIEDMAN ALPREN & GREEN LLP
New York, New York
June 29, 1995
F-2
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INDEPENDENCE TAX CREDIT PLUS L.P. IV
Balance Sheet
June 28, 1995
ASSETS
Cash $ 1,010
Deferred acquisition costs 1,103
Organization costs 50,000
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Total assets $ 52,113
========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Accounts payable and other liabilities $ 138,452
Due to general partner and affiliates 129,376
--------
267,828
--------
Partners' deficit
General partner 1,000
Limited partner (Note 2) (216,715)
--------
Total partners' deficit (215,715)
--------
Total liabilities and partners' deficit $ 52,113
========
See accompanying notes to balance sheet.
F-3
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
Notes to Balance Sheet
June 28, 1995
Note 1--Organization
Independence Tax Credit Plus L.P. IV (the "Partnership") was formed
pursuant to the laws of the State of Delaware on February 22, 1995 primarily
to invest in other limited partnerships owning low-income apartment complexes
that are eligible for the low-income housing credit and, to a lesser extent,
in local partnerships owning properties that are also eligible for the
rehabilitation investment credit for certified historic structures enacted in
the Tax Reform Act of 1986. Pursuant to a public offering, the Partnership is
offering up to 100,000 ($100,000,000) Beneficial Assignment Certificates
("BACs") representing assignment of Limited Partnership Interests in the
Partnership.
The terms of the limited partnership agreement provide, among other
things, that, in general, profits, losses and tax credits other than those
arising from sale or refinancing will be shared 99% by the limited partners
and BACs holders and 1% by the general partner.
The General Partner of the Partnership is Related Independence L.L.C.
As of June 28, 1995 the Partnership has not commenced operations.
Capital contributions in cash of $1,010 were paid by Related Independence
L.L.C. and the Initial Limited Partner.
Note 2--Summary of Significant Accounting Policies
a) Deferred Acquisition Costs
Acquisition costs and fees incurred in connection with the proposed
purchase of interests in certain subsidiary partnerships will be deferred. In
the event these partnerships are acquired, these amounts will be capitalized
as property costs. If the subsidiary partnerships are not acquired, these
amounts will be charged to operations.
b) Organization Costs
Costs incurred to organize the Partnership, including but not limited to
legal and accounting fees, are considered organization costs. These costs are
capitalized and will be amortized over a 60-month period commencing with the
purchase of Local Partnership Interests. As of June 28, 1995, no amount has
been amortized since the Local Partnerships have not been acquired.
c) Offering Costs
Costs incurred to sell BACs, including the non-accountable expense
allowance, are considered offering costs. These costs, amounting to $216,725,
are charged directly to limited partners' capital.
F-4
<PAGE>
Note 3--Income Taxes
The Partnership is not required to provide for, or pay, any federal income
taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to state
and local taxes in jurisdictions in which it operates.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Independence Assignor Inc.
New York, New York
We have audited the accompanying balance sheets of Independence Assignor Inc.
as of March 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the balance sheets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheets. 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 audits of the balance sheets provide a
reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Independence Assignor Inc., as
of March 31, 1995 and 1994, in conformity with generally accepted accounting
principles.
TRIEN, ROSENBERG, FELIX,
ROSENBERG, BARR & WEINBERG
New York, New York
May 4, 1995
F-6
<PAGE>
INDEPENDENCE ASSIGNOR INC.
Balance Sheets
ASSETS
March 31,
--------------------
1995 1994
------- ---------
Cash $1,000 $1,000
===== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Due to affiliate $ 85 $ 85
----- -------
Shareholders' equity
Common stock, $0.01 par value; 1,000
shares authorized, issued and
outstanding 10 10
Additional paid-in capital 990 990
Accumulated deficit (85) (85)
----- -------
Total shareholders' equity 915 915
----- -------
Total liabilities and shareholders' equity $1,000 $1,000
===== =======
See Note to Balance Sheets.
F-7
<PAGE>
INDEPENDENCE ASSIGNOR INC.
Note to Balance Sheets
March 31, 1995
NOTE 1--General
Independence Assignor Inc. (the "Company") was incorporated in Delaware on
November 7, 1990. As more fully described in the prospectus, the Company is
the Assignor Limited Partner and depository for Independence Tax Credit Plus
L.P., Independence Tax Credit Plus L.P. II, Independence Tax Credit Plus L.P.
III and Independence Tax Credit Plus L.P. IV.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members of
Related Independence L.L.C.
We have audited the accompanying balance sheet of Related Independence L.L.C.
(a Delaware limited liability company) as of June 28, 1995. This balance
sheet is the responsibility of the Company'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 of the balance sheet 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 Related Independence L.L.C., as
of June 28, 1995, in conformity with generally accepted accounting
principles.
FRIEDMAN ALPREN & GREEN LLP
New York, New York
June 29, 1995
F-9
<PAGE>
RELATED INDEPENDENCE L.L.C.
Balance Sheet
June 28, 1995
ASSETS
Cash $ 10
Investment in limited partnership (Note 2) 1,000
----------
Total assets $ 1,010
==========
MEMBERS' EQUITY
Members' equity $ 1,001,010
Less: Subscription note receivable (Note 3) (1,000,000)
----------
Total members' equity $ 1,010
==========
See accompanying notes to balance sheet.
F-10
<PAGE>
RELATED INDEPENDENCE L.L.C.
Notes to Balance Sheet
June 28, 1995
Note 1--Organization
Related Independence L.L.C. (the "General Partner") was formed pursuant to
the laws of the State of Delaware on February 22, 1995 as a general partner
in Independence Tax Credit Plus L.P. IV ("Independence IV"). Pursuant to a
public offering, Independence IV intends to raise up to $100,000,000 to
purchase Limited Partnership Interests (the "Operating Partnership
Interests") in Operating Partnerships (the "Operating Partnerships"), which
own low-income apartment complexes that are eligible for the low-income
housing credit and, to a lesser extent, in Operating Partnerships owning
properties that are eligible for the historic rehabilitation credit.
The General Partner had not commenced operations as of June 28, 1995.
Note 2--Investment in Limited Partnership
The General Partner has an investment of $1,000 in Independence IV, which
had not commenced operations as of June 28, 1995. The investment represents a
1% ownership interest and is accounted for using the equity method.
The General Partner and certain of its affiliates will receive fees and
compensation from Independence IV in connection with the offering, and for
the investment and management of Independence IV's assets.
Note 3--Capitalization
The General Partner was capitalized through the contribution of a non-
interest bearing demand promissory note and $1,010 in cash. Pursuant to the
Independence IV public offering, the capitalization of the General Partner
for Independence IV and the principal amount of the demand promissory note is
required to be a minimum contribution of $1,000,000 plus 10% of the gross
proceeds of Independence IV in excess of $10,000,000, but less than
$20,000,000, plus 2.5% of gross proceeds in excess of $20,000,000. Based upon
the gross proceeds of the Independence IV offering, the demand note balance
is $1,000,000 at June 28, 1995.
Note 4--Income Taxes
The General Partner is not required to provide for, or pay, any federal
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual members. The General Partner may be subject to
state and local taxes in jurisdictions in which it operates.
F-11
<PAGE>
APPENDIX A
PRIOR PERFORMANCE TABLES
AFFILIATES OF THE SPONSOR
The following prior performance tables present information on certain
programs previously sponsored by Affiliates of the General Partner. The
purpose of the tables is to provide information on the prior performance of
these programs so as to evaluate the experience of the Affiliates of the
General Partner in sponsoring such programs. Prospective investors should
read these tables carefully together with the summary information concerning
the prior programs as set forth under "Prior Performance Summary." None of
these tables are covered by the reports of independent public accountants set
forth in the Prospectus.
The following tables are included:
Table I--Experience in Raising and Investing Funds
Table II--Compensation to Sponsor and Affiliates
Table III--Operating Results of Prior Programs
Table IV--[not applicable]
Table V--[not applicable]
Tables I and II contain information on programs sponsored, the offerings
of which closed during the most recent three years. Table III contains
information for the programs which have closed their offerings during the
most recent five-year period. Because no program with similar investment
objectives sponsored by Affiliates of the General Partner has completed
operations in the most recent five years or sold or disposed of property in
the most recent three years there is no Table IV or Table V provided in
Appendix A.
The General Partner and Affiliates have sponsored public and private
programs with investment objectives similar to the Partnership. See "Prior
Performance Summary" and "Investment Objective and Policies." For the
purposes of these tables the General Partner, together with its Affiliates,
has a public track record of five public real estate limited partnership
programs that have invested directly or indirectly in multifamily residential
apartment complexes receiving one or more forms of government assistance. The
factors considered in determining which programs have similar investment
objectives include whether the program invested directly or indirectly in
real estate, type of principal investments, tax aspects and structure of the
program.
It should not be assumed that investors in the Partnership will experience
results comparable to those experienced by investors in the programs included
in the following Tables. Investors in the Partnership will not have any
interest in any of the prior limited partnerships covered by the Tables or in
any of the properties owned by the prior limited partnerships.
P-1
<PAGE>
APPENDIX A
INDEX
Appendix A--Index
Table Page
- -------------------------------------------------------------- -------
I--Experience of Affiliates of the General Partner in
Raising and Investing Funds P-3
II--Compensation to Affiliates of the General Partner P-5
III--Operating Results of Prior Programs of Affiliates of the P-7
General Partner
P-2
<PAGE>
TABLE I
Experience in Raising and Investing Funds
(Not Covered by Independent Auditors' Reports)
The following table includes information concerning the experience of the
General Partner and Affiliates in raising and investing funds for prior
public limited partnerships with investment objectives similar to those of
the Partnership the offerings of which closed between January 1, 1992 and
March 31, 1995. The table shows the percentage of the amount raised available
for investment, the dollar amount offered and raised, the amount of funds
raised from sources other than investors, the percentage of leverage used in
purchasing properties, and the time frame for raising and investing funds.
The table should be read in conjunction with the Introduction and the
accompanying notes.
<TABLE>
<CAPTION>
Independence Independence Independence
Tax Credit Tax Credit Tax Credit
Plus L.P. (a) Plus L.P. II (a) Plus L.P. III (a)
----------------- ----------------- ------------------
<S> <C> <C> <C>
Public Offerings
Dollar Amount Offered $100,000,000 $100,000,000 $100,000,000
Dollar Amount Raised (100%) $ 76,786,000 $ 58,928,000 $ 31,430,000(1)
Less Offering Expenses:
Selling Commissions and
Discounts retained by
affiliates 7.5% 7.5% 7.5%
Organizational Expenses 3.5% 3.5% 2.5%
Reserves 2.0% 2.5% 3.5%
Percent of Amount Raised
Available for Investment 87.0% 86.5% 86.5%
Acquisition Costs:
Cash Down Payments 80% 79.5% 79.5%
Prepaid Items and Fees
Related to Purchase of
Properties 0% 0% 0%
Acquisition Fees 6.0% 6.0% 6.0%
Other 1.0% 1.0% 1.0%
Total Acquisition Cost 7.0% 7.0% 7.0%
Percent Leverage (mortgage
financing divided by total
acquisition cost) 65.0% 65.0% n/a (2)
Date Offering Began 9/16/91 1/19/93 6/7/94
Length of Offering (in months) 18 mos. 15 mos. n/a (2)
Months to Invest 90% of Amount
Available for Investment
(measured from beginning of
offering) 22 mos. n/a (2) n/a (2)
</TABLE>
(a) Fiscal year ended March 31.
P-3
<PAGE>
NOTES TO TABLE I
Experience in Raising and Investing Funds--(Continued)
(Not Covered by Independent Auditors' Reports)
Note 1--The Partnership was still in its offering stage as of March 31, 1995.
Note 2--The Partnership was still in its acquisition stage as of March 31,
1995.
P-4
<PAGE>
TABLE II
Compensation to Sponsor and Affiliates
(Not Covered by Independent Auditors' Reports)
The following table sets forth all compensation paid to Affiliates of the
General Partner (fees are paid in the aggregate to all general partners),
regardless of the form of such compensation, for the three prior public
limited partnerships with investment objectives similar to those of the
Partnership the offerings of which closed between January 1, 1992 and March
31, 1995. Also set forth are aggregate payments made to Affiliates of the
General Partner during the three-year period ended March 31, 1995 from four
public limited partnerships with investment objectives similar to those of
the Partnership the offerings of which closed prior to 1992.
The table should be read in conjunction with the Introduction and the
accompanying notes.
<TABLE>
<CAPTION>
Four Prior
Independence Independence Independence Public Real
Tax Credit Plus Tax Credit Plus Tax Credit Plus Estate Limited
L.P. (a) L.P. II (a) L.P. III (a) Partnerships
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Offering Information:
Date Offering Commenced 9/16/91 1/19/93 6/7/94 --
Dollar Amount Raised $76,786,000 $57,896,000 $31,430,000(2) $407,854,500
Amount Paid and/or Payable to Sponsor
from Proceeds of Offering:
Underwriting Fees $ 5,759,000(1) $ 4,419,600(1) $ 2,357,250(1) --
Acquisition Fees:
Real Estate Commissions -- -- -- --
Advisory Fees -- -- -- --
Bond Selection Fees/Placement Fees -- -- -- --
Non-Accountable Expense Allowance -- -- -- --
Organization/Offering Expenses $ 2,687,570 $ 2,062,000 $ 1,100,050 --
Acquisition Fee $ 4,607,160 $ 3,535,560 $ 1,885,800 --
Other -- -- -- --
</TABLE>
P-5
<PAGE>
TABLE II
Compensation to Sponsor and Affiliates--(Continued)
(Not Covered by Independent Auditors' Reports)
<TABLE>
<CAPTION>
Four Prior
Independence Independence Independence Public Real
Tax Credit Plus Tax Credit Plus Tax Credit Plus Estate Limited
L.P. (a) L.P. II (a) L.P. III (a) Partnerships
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Dollar Amount of Cash Generated from
(Provided to) Operations Before
Deducting Payments to Sponsor
through March 31, 1995 $(2,652,138) $(994,892) $681,156 $12,943,758
Amount Paid to Sponsor from
Operations through March 31, 1995:
Property Management Fees -- -- -- --
Partnership or Investment Management
Fees $ 2,438,141 $ 708,117 $ 48,846 $ 5,485,808
Reimbursements -- -- -- --
Leasing Commissions -- -- -- --
Dollar Amount of Property Sales and
Refinancing Before Deducting
Payments to Sponsor:
Cash -- -- -- --
Notes -- -- -- --
Amount Paid to Sponsor from Property
Sales and Refinancing:
Real Estate Commissions -- -- -- --
Incentive Fees -- -- -- --
Number of Limited Partnerships -- -- -- 4
</TABLE>
(a) Fiscal Year ended March 31.
NOTES TO TABLE II
Note 1--Amounts paid to an affiliated and then fully reallocated to other
broker/dealers.
Note 2--The Partnership was still in its offering stage as of March 31, 1995.
P-6
<PAGE>
TABLE III
Operating Results of Prior Programs
(Not Covered by Independent Auditors' Reports)
The following Table summarizes the operating results of public limited
partnerships sponsored by Affiliates of the General Partner with investment
objectives similar to those of the Partnership which were offered and closed
between January 1, 1990 and March 31, 1995.
The items in this Table III are classified according to the Statement of
Cash Flows prepared in accordance with Financial Accounting Standards Board
Statement No. 95.
This Table should be read in conjunction with the Introduction and the
accompanying notes.
<TABLE>
<CAPTION>
Liberty Tax Credit Plus L.P. III
----------------------------------------------------------------------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31, March 31, March 31,
1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues (1) $ 5,557,441 $ 13,594,238 $ 23,169,443 $ 30,001,314 $ 31,371,907 $ 32,437,587
Less: Operating
and
Administrative
Expense (1,583,025) (9,882,087) (15,208,455) (18,950,324) (18,774,477) (20,274,064)
Financial Expense (77,529) (6,098,107) (11,651,634) (14,740,018) (16,817,938) (15,684,867)
Depreciation,
Amortization and
Minority Interest (346,385) (4,387,351) (10,325,528) (12,390,658) (11,984,404) (11,744,584)
--------- --------- --------- --------- --------- -----------
Net Income
(Loss)--GAAP
Basis $ 3,550,472 $ (6,773,307) $(14,016,174) $(16,079,686) $(16,204,912) $(15,265,928)
========= ========= ========= ========= ========= ===========
Taxable Income
(Loss) $ (2,412,717) $ (7,654,290) $(12,938,164) $(17,761,136) $(16,104,837) $(15,532,034)
========= ========= ========= ========= ========= ===========
Tax Credits
Generated $ 4,810,431 $ 9,599,557 $ 11,532,607 $ 18,468,000 $ 19,765,646 $ 19,645,145
========= ========= ========= ========= ========= ===========
Cash Generated
(Deficiency) From
Operations (2) $ (1,937,756) $ 8,667,156 $ (5,378,276) $ 4,372,527 $ 2,585,568 $ 1,024,077
Less: Cash
Distributions to
Investors -- -- -- -- -- --
--------- --------- --------- --------- --------- -----------
Cash Generated
(Deficiency)
After Cash
Distributions (1,937,756) 8,667,156 (5,378,276) (4,372,527) 2,585,568 1,024,077
Add (Less) Special
Items:
Partners' Capital
Contributions,
net 139,101,500 -- -- -- -- --
Mortgage and
Purchase Money
Notes (Payments) 48,124,467 129,315,196 40,772,881 350,759 (568,088) (1,396,209)
</TABLE>
P-7
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Reports)
<TABLE>
<CAPTION>
Liberty Tax Credit Plus L.P. III
-------------------------------------------------
For the For the For the
Year Ended Year Ended Year Ended
March 31, 1990 March 31, 1991 March 31, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term Notes and Other Amounts due to Selling
Partners (Payments) 313,301 (120,726) (192,575)
Syndication and Organization Cost (15,352,019) (5,711) --
Investments in Real Estate (85,805,516) (196,150,992) (48,799,686)
Decrease (Increase) in Other Assets (433,644) (2,859,357) (1,518,714)
Increase (Decrease) in Other Liabilities 4,790,875 (84,153) 4,914,237
------------ ------------ ------------
Cash Generated (Deficiency) After Cash Distributions
and Special Items 88,801,208 (61,238,587)(5) (10,202,133)(5)
Cash and Cash Equivalents at the Beginning of the
Period 2,000 88,803,208 27,564,621
------------ ------------ ------------
Cash and Cash Equivalents at the End of the Period $ 88,803,208 $ 27,564,621 $ 17,362,488
============ ============ ============
Tax and Distribution Data Per $1,000 Invested (3)
Federal Income Tax Results:
Ordinary Income (Loss) $ 1-35(6) $ (55)-(52)(6) $ (92)
============ ============ ============
Cash Distributions to Investors $ -- $ -- $ --
============ ============ ============
Tax Credits Generated Per $1,000 Investment $ 49-50 (7) $ 66-71(7)(4) $ 88 or 89(4)
============ ============ ============
Amount (in percentage terms) Remaining Invested in
Program Properties at the end of the last year
reported in the Table (original total acquisition
cost of Properties retained divided by original
total acquisition cost of all properties in program) 100% 100% 100%
============ ============ ============
Capital Contributed by Investors (based on a total
$1,000 investment) $ $1,000 $ 1,000 $ 1,000
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Liberty Tax Credit Plus L.P. III
-------------------------------------------------
For the For the For the
Year Ended Year Ended Year Ended
March 31, 1993 March 31, 1994 March 31, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term Notes and Other Amounts due to Selling
Partners (Payments) -- -- --
Syndication and Organization Cost -- -- --
Investments in Real Estate (5,003,758) (1,275,287) (324,258)
Decrease (Increase) in Other Assets (28,012) (194,661) (5,334)
Increase (Decrease) in Other Liabilities (359,835) 314,946 217,082
------------ ------------ ------------
Cash Generated (Deficiency) After Cash Distributions
and Special Items (8,693,703) 862,478 (484,642)
Cash and Cash Equivalents at the Beginning of the
Period 17,362,488 8,668,785 9,531,263
------------ ------------ ------------
Cash and Cash Equivalents at the End of the Period $ 8,668,785 $ 9,531,263 $ 9,046,621
============ ============ ============
Tax and Distribution Data Per $1,000 Invested (3)
Federal Income Tax Results:
Ordinary Income (Loss) $ (126) $ (115) $ (111)
============ ============ ============
Cash Distributions to Investors $ -- $ -- --
============ ============ ============
Tax Credits Generated Per $1,000 Investment $131 or 132(4) $140 or 142(4) $140 or 141(4)
============ ============ ============
Amount (in percentage terms) Remaining Invested in
Program Properties at the end of the last year
reported in the Table (original total acquisition
cost of Properties retained divided by original
total acquisition cost of all properties in program) 100% 100% 100%
============ ============ ============
Capital Contributed by Investors (based on a total
$1,000 investment) $ 1,000 $ 1,000 $ 1,000
============ ============ ============
</TABLE>
P-8
<PAGE>
<TABLE>
<CAPTION>
Freedom Tax Credit Plus L.P.
-------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31, March 31,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues (1) $ 801,220 $ 5,609,597 $ 10,324,655 $12,743,936 $12,714,134
Less: Operating and
Administrative Expense (753,062) (4,362,559) (6,672,893) (6,531,059) (7,022,352)
Financial Expense (446,298) (2,254,405) (4,080,428) (5,094,320) (4,975,829)
Depreciation, Amortization and
Minority Interest (320,070) (2,897,415) (5,345,409) (5,626,867) (5,471,767)
--------- --------- --------- --------- -----------
Net Income (Loss)--GAAP Basis $ (718,210) $ (3,904,782) $ (5,774,075) $(4,508,310) $(4,755,814)
========= ========= ========= ========= ===========
Taxable Income (Loss) $ (722,916) $ (3,898,315) $ (3,653,661) $(4,888,034) $(4,557,559)
========= ========= ========= ========= ===========
Tax Credits Generated $ 93,756 $ 6,024,573 $ 10,135,775 $11,213,708 $11,208,869
========= ========= ========= ========= ===========
Cash Generated (Deficiency) From
Operations (2) $ 113,685 $ 181,123 $ (4,067,145) $ (248,064) $ 939,194
Less: Cash Distributions to
Investors -- -- -- -- --
--------- --------- --------- --------- -----------
Cash Generated (Deficiency)
After Cash Distributions 113,685 181,123 (4,067,145) (248,064) 939,194
Add (Less) Special Items:
Partners' Capital
Contributions, net 50,468,000 22,428,000 -- -- --
Mortgage and Purchase Money
Notes (Payments) 19,722,323 37,341,282 7,839,948 (1,110,680) (499,179)
Syndication and Organization
Cost (5,802,510) (1,800,903) -- -- --
Investments in Real Estate (51,778,856) (65,595,365) (18,133,075) (1,024,363) (312,019)
Decrease (Increase) in Other
Assets (1,604,862) (6,166,411) (1,704,116) 12,105 --
Increase (Decrease) in Other
Liabilities 5,170,658 13,015,982 4,992,937 191,243 (149,753)
--------- --------- --------- --------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items 16,288,438 (596,292)(4) (11,071,451) (2,179,759) (21,757)
Cash and Cash Equivalents at the
Beginning of the Period 2,000 16,290,438 15,694,146 4,622,695 2,442,936
--------- --------- --------- --------- -----------
Cash and Cash Equivalents at the
End of the Period $ 16,290,438 $ 15,694,146 $ 4,622,695 $ 2,442,936 $ 2,421,179
========= ========= ========= ========= ===========
Tax and Distribution Data Per
$1,000 Invested (3)
Federal Income Tax Results:
Ordinary Income (Loss) . $ (5)-(24)(6) $ (25)-(65)(6) $ (50) $ (66) $ (62)
========= ========= ========= ========= ===========
</TABLE>
P-9
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Reports)
<TABLE>
<CAPTION>
Freedom Tax Credit Plus L.P.
-------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31, March 31,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Cash Distributions to Investors $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= ===========
Tax Credits Generated Per $1,000
Investment $ 0-3(7) $49-96(7) $ 138 $ 152 $ 152
========= ========= ========= ========= ===========
Amount (in percentage terms)
Remaining Invested in Program
Properties at the end of the
last year reported in the Table
(original total acquisition cost
of Properties retained divided
by original total acquisition
cost of all properties in
program) 100% 100% 100% 100% 100%
========= ========= ========= ========= ===========
Capital Contribution by Investors
(based on a total $1,000
investment) $1,000 $1,000 $1,000 $1,000 $1,000
========= ========= ========= ========= ===========
</TABLE>
P-10
<PAGE>
<TABLE>
<CAPTION>
Independence Tax Credit Plus
Independence Tax Credit Plus L.P. L.P. II
-------------------------------------------------------- ----------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31, March 31, March 31,
1992 1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues (1) $ 204,143 $ 3,816,728 $ 14,024,220 $ 18,061,137 $ 643,475 $ 2,433,861
Less: Operating
and
Administrative
Expense (208,098) (3,319,518) (9,169,338) (11,214,670) (771,194) (2,566,881)
Financial Expense 0 (573,001) (3,596,868) (4,956,233) (32,916) (290,972)
Depreciation,
Amortization and
Minority Interest (11,507) (923,701) (3,758,202) (5,645,462) (105,812) (769,225)
--------- --------- --------- --------- --------- -----------
Net Income
(Loss)--GAAP
Basis $ (15,462) $ (999,492) $ (2,500,188) $ (3,755,228) $ (266,447) $ (1,193,217)
========= ========= ========= ========= ========= ===========
Taxable Income
(Loss) $ (36,685) $ (1,050,809) $ (3,582,514) $ (4,114,762) $ (36,434) $ (1,940,310)
========= ========= ========= ========= ========= ===========
Tax Credits
Generated $ 186,560 $ 4,343,611 $ 6,248,883 $ 9,809,218 $ 957,385 $ 2,587,539
========= ========= ========= ========= ========= ===========
Cash Generated
(Deficiency) from
Operations (2) $ 597,114 $(12,244,975) $ 7,227,018 $ (669,436) $ 651,404 $ (2,354,413)
Less: Cash
Distributions to
Investors -- -- -- -- -- --
--------- --------- --------- --------- --------- -----------
Cash Generated
(Deficiency)
After Cash
Distributions 597,114 (12,244,975) 7,227,018 (669,436) 651,404 (2,354,413)
Add (Less) Special
Items:
Partners' Capital
Contributions,
net 28,380,010 48,407,000 -- -- 52,835,000 1,030,000
Mortgage and
Purchase Money
Notes (Payments) 650,000 51,224,266 55,579,076 (82,717) 13,363,105 26,413,134
Syndication and
Organization Cost (3,071,690) (5,327,928) -- -- (5,774,397) (150,903)
Investments in
Real Estate (13,702,371) (76,566,349) (78,746,068) (5,221,238) (30,398,085) (31,905,755)
Decrease
(Increase) in
Other Assets (656,734) (2,623,037) 482,066 (1,275,516) (41,714) (194,353)
Increase
(Decrease) in
Other Liabilities 639,665 13,143,061 3,041,821 (6,906,421) 389,665 170,862
--------- --------- --------- --------- --------- -----------
Cash Generated
(Deficiency)
After Cash
Distributions and
Special Items 12,835,994 16,012,038 (12,416,087) (11,604,296) 31,024,978 (6,991,428)
Cash and Cash
Equivalents at
the Beginning of
the Period -- 12,835,994 28,848,032 16,431,945 5,011,598 36,036,576
--------- --------- --------- --------- --------- -----------
Cash and Cash
Equivalents at
the End of the
Period $ 12,835,994 $ 28,848,032 $ 16,431,945 $ 4,827,649 $ 36,036,576 $ 29,045,148
--------- --------- --------- --------- --------- -----------
</TABLE>
P-11
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Reports)
<TABLE>
<CAPTION>
Independence Tax Credit Plus
Independence Tax Credit Plus L.P. L.P. II
-------------------------------------------------------- ----------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31, March 31, March 31,
1992 1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tax and Distribution
Data Per $1,000
Invested (3)
Federal Income Tax
Results:
Ordinary Income
(Loss) $ 1 $ 1-25 (6) $ (46) $ (53) $ 0-7(6) $ (22-30)(6)
--------- --------- --------- --------- --------- -----------
Cash Distributions
to Investors $ -- $ -- $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- -----------
Tax Credits
Generated Per
$1,000 Investment $ 10 $41-66(7) $ 81 $ 126 $19-21(7) $ 34-46(7)
--------- --------- --------- --------- --------- -----------
Amount (in percentage
terms) Remaining
Invested in Program
Properties at the
end of the last
year reported in
the Table (original
total acquisition
cost of Properties
retained divided by
original total
acquisition cost of
all properties to
program) 100% 100% 100% 100% 100% 100%
--------- --------- --------- --------- --------- -----------
Capital Contributed
by Investors (based
on a total $1,000
investment) $1,000 $1,000 $1,000 $1,000 $1,000 $ 1,000
--------- --------- --------- --------- --------- -----------
</TABLE>
P-12
<PAGE>
<TABLE>
<CAPTION>
Independence
Tax Credit Plus L.P. III
--------------------------
For the
Year Ended
March 31, 1995
--------------------------
<S> <C>
Gross Revenues (1) $ 489,375
Less: Operating and Administrative Expense (317,393)
Financial Expense (102,454)
Depreciation, Amortization and Minority Interest (45,193)
------------------------
Net Income (Loss)--GAAP Basis $ (24,335)
========================
Taxable Income (Loss) $ (266,416)
========================
Tax Credits Generated $ 105,155
========================
Cash Generated (Deficiency) From Operations (2) $ 632,310
Less: Cash Distributions to Investors --
------------------------
Cash Generated (Deficiency) After Cash Distributions 632,310
Add (Less) Special Items:
Partners' Capital Contributions, net 31,430,000
Mortgage and Purchase Money Notes (Payments) 5,021,203
Syndication and Organization Cost (3,281,877)
Investments in Real Estate (29,094,476)
Decrease (Increase) in Other Assets (124,502)
Increase (Decrease) in Other Liabilities 95,287
------------------------
Cash Generated (Deficiency) After Cash Distributions and Special
Items 4,677,945
Cash and Cash Equivalents at the Beginning of the Period 1,010
------------------------
Cash and Cash Equivalents at the End of the Period $ 4,678,955
------------------------
Tax and Distribution Data Per $1,000 Invested (3)
Federal Income Tax Results:
Ordinary Income (Loss) $ (1)-(16)(6)
------------------------
Cash Distributions to Investors $ --
------------------------
Tax Credits Generated Per $1,000 Investment $ 1-6(6)
------------------------
Amount (in percentage terms) Remaining Invested in Program
Properties at the end of the last year reported in the Table
(original total acquisition cost of Properties retained
divided by original total acquisition cost of all properties
in program) 100%
------------------------
Capital Contribution by Investors (based on a total $1,000
investment) $ 1,000
------------------------
</TABLE>
P-13
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Reports)
Notes to Table III:
Note 1--All revenues are from operations. The initial date for
commencement of operations, where applicable, is the cutoff date used for
purposes of Table II.
Note 2--Cash generated (deficiency) from operations includes amounts
disbursed for interest expense and for expenses from equity contributions and
mortgage debt.
Note 3--Data is the amount allocable to the investors per $1,000 of total
capital invested.
Note 4--A change in the tax law effective for the tax year ended December
31, 1990 resulted in the partnerships generating two types of tax credits,
the accelerated and the nonaccelerated credit.
Note 5--The cash deficiency figure results from the application to program
investments of capital contributions received from investors in prior
periods, and is not indicative of an operating cash deficit.
Note 6--Amounts depended upon date of admission to these partnerships.
Note 7--Amounts depended upon date of admission to these partnerships. The
tax credits reflected in this line include both Historic Credits and Housing
Tax Credits.
P-14
<PAGE>
EXHIBIT A
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
Dated as of , 1995
TABLE OF CONTENTS
PAGE
-------
ARTICLE ONE
DEFINED TERMS A-1
ARTICLE TWO
CONTINUATION; NAME; PLACE OF BUSINESS; PURPOSE; AND TERM
SECTION 2.1. Continuation A-15
SECTION 2.2. Name; Registered Office; Registered
Agent for Service of Process A-15
SECTION 2.3. Purpose A-16
SECTION 2.4. Term A-16
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.1. General Partner A-16
SECTION 3.2. Original Limited Partner; Withdrawal;
Assignor Limited Partner A-16
SECTION 3.3. Capital Contributions of Limited
Partners A-16
SECTION 3.4. Partnership Capital A-18
SECTION 3.5. Liability of Partners A-19
ARTICLE FOUR
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSSES; TAX
CREDITS; CAPITAL ACCOUNTS
SECTION 4.1. Admission Date A-20
SECTION 4.2. Profits, Losses and Tax Credits A-20
SECTION 4.3. Distributions and Application of Cash
Flow and Sale or Refinancing
Proceeds A-24
SECTION 4.4. Restricted Payments A-25
A-i
<PAGE>
ARTICLE FIVE
RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
SECTION 5.1. Management and Control of the
Partnership A-26
SECTION 5.2. Authority of the General Partner A-28
SECTION 5.3. Authority of the General Partner and
Its Affiliates to Deal with the
Partnership and Local Partnerships A-32
SECTION 5.4. Restrictions on Authority of the
General Partner A-38
SECTION 5.5. Duties and Obligations of the General
Partner A-43
SECTION 5.6. Compensation of the General Partner A-45
SECTION 5.7. Other Business of Partners A-45
SECTION 5.8. Limitation on Liability of General
Partner; Indemnification A-46
SECTION 5.9. Certain Payments A-48
SECTION 5.10. Additional Restrictions on the
General Partner A-50
SECTION 5.11. Roll-up Transactions A-52
ARTICLE SIX
SUCCESSOR AND ADDITIONAL GENERAL PARTNERS
SECTION 6.1. Admission of Successor and Additional
General Partners A-54
SECTION 6.2. Consent of Limited Partners to
Admission of Successor or Additional
General Partners A-55
SECTION 6.3. Valuation and Sale of Interest of
Former General Partner A-56
ARTICLE SEVEN
TRANSFERABILITY OF UNITS AND BACS
SECTION 7.1. Restrictions on Transfers of Units
and BACs A-57
SECTION 7.2. Assignees and Substituted Limited
Partners and BACs Holders A-58
SECTION 7.3. Issuance of BACs A-60
ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.1. Events Causing Dissolution A-63
SECTION 8.2. Liquidation A-63
A-ii
<PAGE>
ARTICLE NINE
BOOKS AND RECORDS; ACCOUNTING; REPORTS; TAX ELECTIONS
SECTION 9.1. Books and Records A-64
SECTION 9.2. Accounting Basis and Fiscal Years A-66
SECTION 9.3. Bank Accounts A-66
SECTION 9.4. Reports A-66
SECTION 9.5. Designation, Duties and Expenses of
Tax Matters Partner A-68
SECTION 9.6. Authority of Tax Matters Partner A-68
SECTION 9.7. Copies of Amendments to Limited
Partners A-69
ARTICLE TEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 10.1. Meetings A-69
SECTION 10.2. Voting Rights of Limited Partners A-71
ARTICLE ELEVEN
FOREIGN INVESTORS AND TAX-EXEMPT ENTITIES
SECTION 11.1. Certification of Non-Foreign Status A-73
SECTION 11.2. Withholding on Certain Amounts
Attributable to Interests of Foreign
Investors A-73
SECTION 11.3. Certification of Non-Tax-Exempt
Status A-74
ARTICLE TWELVE
MISCELLANEOUS PROVISIONS
SECTION 12.1. Appointment of General Partner as
Attorney-in-Fact A-74
SECTION 12.2. Signatures; Amendments A-75
SECTION 12.3. Ownership By Limited Partners of
General Partner or Its Affiliates A-77
SECTION 12.4. Merger A-77
SECTION 12.5. Arbitration of Disputes A-77
SECTION 12.6. Binding Provisions A-77
SECTION 12.7. Applicable Law A-77
SECTION 12.8. Actions Under Securities Laws A-77
SECTION 12.9. Counterparts A-77
SECTION 12.10. Separability of Provisions A-77
SECTION 12.11. Captions A-78
A-iii
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
Amended and Restated Agreement of Limited Partnership dated as of ,
1995 ("this Agreement"), by and among Related Independence L.L.C., a Delaware
limited liability company (the "General Partner"), as General Partner, Alan
P. Hirmes as Original Limited Partner, Independence SLP IV L.P., a Delaware
limited partnership ("Independence SLP"), as Special Limited Partner of Local
Partnerships, Independence Assignor Inc., a Delaware corporation (the
"Assignor Limited Partner"), as Assignor Limited Partner, and those Persons
admitted to the Partnership from time to time as Limited Partners.
W I T N E S S E T H:
WHEREAS, the Partnership was formed under the Delaware Revised Uniform
Limited Partnership Act pursuant to a Certificate of Limited Partnership
which was filed in the office of the Secretary of State of the State of
Delaware (the "Filing Office") on February 23, 1995, as heretofore amended
(the "Certificate").
WHEREAS, this Agreement is being entered into by the Partners to provide
for (i) the continuation of the Partnership, (ii) the admission of the
Assignor Limited Partner and the assignment by the Assignor Limited Partner
of all of the economic and virtually all of the other rights, benefits and
privileges of its interest in the Partnership pursuant to beneficial
assignment certificates ("BACs"), (iii) the withdrawal of Alan P. Hirmes as
the Original Limited Partner and (iv) the terms and conditions for the
operation of the Partnership.
NOW, THEREFORE, in consideration of the covenants and agreements made
herein, the Partners, intending to be legally bound, hereby certify and
agree, that the initial Agreement of Limited Partnership of the Partnership,
dated as of February 22, 1995, as heretofore amended (the "Original
Agreement"), is hereby amended and restated in its entirety, as follows:
ARTICLE ONE
DEFINED TERMS
Defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article One. Certain additional
defined terms are set forth elsewhere in this Agreement. Unless the context
requires otherwise, 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 Friedman Alpren & Green LLP, New York, New York or
such other firm of independent public accountants as shall be engaged from
time to time by the General Partner for the Partnership.
A-1
<PAGE>
"Acquisition Expenses" means expenses incurred by the Partnership and Local
Partnerships, including but not limited to legal fees and expenses, travel and
communication expenses, costs of appraisals, non-refundable option payments on
property not acquired, accounting fees and expenses, title insurance, and
miscellaneous expenses, related to selection and acquisition of Local
Partnership Interests and Properties, whether or not acquired.
"Acquisition Fees" means the total of all fees and commissions paid by any
Person to any Person in connection with the selection or purchase by the
Partnership or Local Partnerships of any Local Partnership Interest or
Property. Included in the computation of such fees or commissions shall be
the Consulting and Monitoring Fee, any real estate commissions, acquisition
fees, selection fees, Development Fees, Construction Fees, non-recurring
management fees, consulting fees or any other similar fees or commissions,
however designated. Excluded shall be Development Fees and Construction Fees
paid to Persons not affiliated with the Sponsor in connection with the actual
development and construction of a Property owned by a Local Partnership.
"Adjusted Capital Account" means, with respect to any Partner or BACs
holder, the balance in such Partner's or BACs holder's Capital Account as of
the end of the relevant fiscal year, adjusted as follows:
(i) Credit to such Capital Account the sum of (x) any amount which such
Partner or BACs holder is obligated or has agreed to contribute to the
Partnership and (y) the amount which such Partner is deemed to be
obligated to restore pursuant to the penultimate sentence of Regulations
Section 1.704-2(g)(1) and the penultimate sentence of Regulations Section
1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in subclauses
(4), (5) and (6) of Regulations Section 1.704-1(b)(2)(ii)(d).
"Admission Date", with respect to the Partnership, means the first day of
the month if the Assignor Limited Partner is admitted during the first 15
days of the month and the 16th day of the month if the Assignor Limited
Partner is admitted after the 15th day and before the last day of the month;
with respect to a Partner or BACs holder means the first day of the month if
the Partner or BACs holder is admitted or purchases his BACs during the first
15 days of the month and the 16th day of the month if the Partner or BACs
holder is admitted or purchases his BACs after the 15th day and before the
first day of the next month.
"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
or director of or general partner or member with primary management
responsibilities in the specified Person or of which the specified Person is
an officer, director, partner or member with primary management
A-2
<PAGE>
responsibilities and (iii) any Person that, directly or indirectly, is the
beneficial owner of or controls 10% or more of any class of the outstanding
voting securities of the specified Person.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended from time to time, as the
context requires. Words such as "herein," "hereinafter," "hereof," "hereto,"
"hereby" and "hereunder," when used with reference to this Agreement refer to
this Agreement as a whole, unless the context otherwise requires.
"Annual Local Administrative Fees" means amounts up to $5,000 per annum
paid by Local Partnerships to the Special Limited Partner as contemplated by
Section 5.9F.
"Apartment Complex" means either an existing residential housing
development or a residential housing development under construction or
substantial rehabilitation (which may contain commercial space) that is
qualified or is expected to qualify to give rise to Housing Tax Credits and,
in some cases, also to Historic Rehabilitation Tax Credits and which is, or
will be, owned and operated by a Local Partnership.
"Assignor Limited Partner" means Independence Assignor Inc., a Delaware
corporation.
"BACs" means beneficial assignment certificates executed by the Assignor
Limited Partner and delivered to a purchaser of BACs in evidence of the
assignment by the Assignor Limited Partner to such BACs holder of all of the
economic and virtually all of the other rights, benefits and privileges of
the ownership of a portion of the Partnership interest of the Assignor
Limited Partner.
"BACs holder" means any Person who holds BACs and who is reflected as an
assignee of record of Units on the books and records of the Partnership
maintained by the Assignor Limited Partner.
"Bankruptcy" or "Bankrupt" means, with respect to any Partner, such
Partner's making an assignment for the benefit of creditors, becoming a party
to any liquidation or dissolution action or proceeding with respect to such
Partner or any bankruptcy, reorganization, insolvency or other proceeding for
the relief of financially distressed debtors with respect to such Partner, or
the appointment of a receiver, liquidator, custodian or trustee for such
Partner or a substantial part of such Partner's assets and, if any of the
same occur involuntarily, the same is not dismissed, stayed or discharged
within 180 days; or the entry of an order for relief against such Partner
under the United States Bankruptcy Code.
"Capital Account" means, with respect to any Partner or BACs holder, the
capital account maintained or adjusted for such Partner or BACs holder in
accordance with the following provisions:
A-3
<PAGE>
(i) to each Partner's or BACs Holder's Capital Account there shall be
credited such Partner's or BACs holder's Capital Contributions, such
Partner's or BACs holder's allocated share of Profits, and any items in the
nature of income or gain which are specially allocated pursuant to Article
Four hereof, and the amount of any Partnership liabilities assumed by such
Partner or BACs holder or which are secured by any property distributed to
such Partner or BACs holder;
(ii) to each Partner's or BACs holder's Capital Account there shall be
debited the amount of cash and the fair market value of any property
distributed to such Partner or BACs holder pursuant to any provision of
this Agreement, such Partner's or BACs holder's allocated share of Losses,
and any items in the nature of expenses or losses which are specially
allocated pursuant to Article Four hereof, and the amount of any
liabilities of such Partner or BACs holder assumed by the Partnership or
which are secured by any property contributed by such Partner or BACs
holder to the Partnership;
(iii) in the event any Interest is Transferred and such transferee is
admitted as a Partner or BACs holder in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the Interest transferred; and
(iv) in determining the amount of any liability for purposes of clauses
(i) and (ii) above, there shall be taken into account Section 752(c) of
the Code and any other applicable provisions of the Code and the
Regulations.
The foregoing provisions and the other provisions of this Agreement relating
to the maintenance of Capital Accounts are intended to comply with Section
1.704-1(b) of the Regulations, and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Partnership or the
Partners), are computed in order to comply with such Regulations, the General
Partner may make such modification, provided that it is not likely to have a
material effect on the amounts distributable to any Partner pursuant to
Section 8.2 hereof upon the dissolution of the Partnership. The General
Partner also shall (a) make any adjustments that are necessary or appropriate
to maintain equality between the aggregate Capital Accounts of the respective
Partners and BACs Holders and the aggregate amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes
in accordance with Regulations Section 1.704-1(b)(2)(iv)(g) of the Treasury
Regulations, and (b) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Section 1.704-1(b) of the Regulations.
A-4
<PAGE>
"Capital Contribution" means the total amount of money contributed to the
Partnership (prior to the deduction of any Selling Commissions, expenses or
Quantity Discount) by all the Partners or BACs holders or any Class of
Partners, or by any one Partner or BACs holder, as the context may require
(or the predecessor holders of the Units or BACs of such Person or Persons),
reduced in each case by any returns of uninvested capital made to them or him
pursuant to Section 3.4E hereof.
"Cash Distributions" means the distributions of cash to the Partners and
BACs holders pursuant to the terms of Section 4.3 of this Agreement.
"Cash Expenditures" means all disbursements of cash during the year
(excluding distributions to Partners and BACs holders), including payment of
operating expenses, payments of principal and interest on Partnership debt,
the repayment of any Voluntary Loans and the payment of the Partnership
Management Fee and other fees, if any, to any Person plus any amount from
Cash Receipts set aside by the General Partner for Reserves, without
deduction for non-cash expenses.
"Cash Flow" means the excess, if any, of Cash Receipts over Cash
Expenditures. Cash Flow shall be determined separately for each fiscal year
or portion thereof for all purposes of this Agreement.
"Cash Payments" means the total of the cash portions of the purchase price
payable by the Partnership for its Local Partnership Interests (i.e.,
excluding any portion of such purchase price represented by Purchase Money
Notes) plus any capital contributions made to the Local Partnerships by the
Partnership.
"Cash Receipts" means all cash receipts received by the Partnership from
Local Partnerships (other than Sale or Refinancing Proceeds) plus cash
receipts from Partnership operations plus amounts withdrawn from Reserves
(other than amounts withdrawn from Reserves that would otherwise have
constituted Sale or Refinancing Proceeds or Reserves set aside from the Gross
Proceeds of the Offering and which are deemed by the General Partner, in its
discretion, to be no longer necessary) at the discretion of the General
Partner.
"Class" means a specific class or grouping of Partners (i.e., the General
Partner or the Limited Partners).
"Class Contribution" means the aggregate Capital Contributions of all
Partners of a particular Class.
"Closing" means a closing at which the purchase and sale of BACs is closed
pursuant to Section 3.3E.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding provision or provisions of succeeding law.
A-5
<PAGE>
"Competitive Real Estate Commission" means that real estate or brokerage
commission paid for the purchase or sale of property which is reasonable,
customary and competitive in light of the size, type and location of the
property.
"Consent" or "consent" means either the approval given by a vote at a
meeting called and held in accordance with the provisions of Section 10.1 of
this Agreement or the prior written approval, as the case may be, of a Person
to do the act or thing for which the approval is solicited, or the act of
granting such approval, as the context may require.
"Consulting and Monitoring Fee" means a fee for services by the General
Partner in assisting the Local Partnerships in acquiring Properties and in
supervising the construction of the Properties.
"Construction Fee" shall mean 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 on a Property.
"Dealer Manager" means Related Equities Corporation.
"Development Fee" shall mean a fee for the packaging of a Property,
including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for the
specific Property, either initially or at a later date.
"Disposition Fee" means the fee payable pursuant to Section 5.9E hereof in
connection with the sale of a Property by a Local Partnership or the sale of
a Local Partnership Interest by the Partnership.
"Entity" means any general partnership, limited partnership, corporation,
limited liability company, limited liability partnership, joint venture,
trust, business trust, cooperative or association.
"Equity Payments" means Cash Payments plus expenses incurred in connection
with the acquisition of Local Partnership Interests.
"Escrow Agent" means United States Trust Company of New York, New York,
New York or any successor thereto.
"Escrow Investments" means bank accounts, bank money market accounts,
short-term certificates of deposit issued by banks and securities issued by
the United States government, including treasury notes and obligations
guaranteed by the full faith and credit of the United States government.
"Filing Office" has the meaning specified in the WITNESSETH clauses.
"Final Closing" means the final Closing, involving the last BACs holders
to purchase BACs.
A-6
<PAGE>
"Foreign Investor" means a Partner or BACs holder who at the time of
subscription is a resident alien and whose status subsequently changes to
that of non-resident alien.
"Foreign Person" means a non-resident alien, foreign corporation, foreign
trust or foreign estate, within the meaning of Sections 897 and 1445 of the
Code.
"Front End Fees" means all fees and expenses paid by any party for any
services rendered to organize the Partnership and to acquire assets for the
Partnership, including Acquisition Fees, Acquisition Expenses, Selling
Commissions, Organization and Offering Expenses, interest on deferred fees
and expenses, all fees or other compensation paid to any Affiliate of the
General Partner in consideration of mortgage origination services, and any
other similar fees, however designated by the General Partner. If amounts
initially held in the reserves of any Local Partnership which reserves are
funded from Cash Payments, when aggregated with Reserves (excepting from such
calculation any amounts allocated to specific expenses (e.g. property taxes,
insurance, capital replacement or debt service reserve)) exceed 5% of Gross
Proceeds, the amount of any such excess shall be included in Front End Fees.
The amount of any sums initially dedicated to Reserves that is later used to
pay amounts that, if paid directly, would constitute Front End Fees shall
also be included in Front End Fees to the extent not previously included as
Front End Fees.
"General Partner" means Related Independence L.L.C. and any Person or
Persons who, at the time of reference thereto, have been admitted as an
additional or successor General Partner, in each such Partner's capacity as a
general partner of the Partnership. In the event that there shall at any time
during the term hereof be more than one general partner of the Partnership by
reason of the admission of additional general partners of the Partnership,
the term "General Partner," wherever such term appears in this Agreement,
shall be read as referring to all such general partners.
"General Partner's Interest" means the interest of a General Partner in
the profits, losses, Tax Credits and Cash Distributions of the Partnership.
"Gross Proceeds" means the total amount of Capital Contributions
contributed to the Partnership by the Limited Partners and BACs holders. For
the purpose of computing Gross Proceeds, the Capital Contribution of any BACs
holder that is entitled to Quantity Discounts with respect to any BACs shall
be deemed to be $1,000 for each such BAC.
"Guidelines" means the Statement of Policy of the North American
Securities Administrators Association with respect to Real Estate Programs as
the same is in effect on the date of the Prospectus at the time the same
becomes effective.
"Historic Complex" means an historic Apartment Complex undergoing or that
has undergone or will undergo rehabilitation and that is qualified
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or is expected to qualify to give rise to both Housing Tax Credits and
Historic Rehabilitation Tax Credits under the Code.
"Historic Rehabilitation Tax Credits" means any historic rehabilitation
credits to tax allowed to the Partnership and its partners under Section 47
of the Code.
"Housing Tax Credits" means any low-income housing credits to tax allowed
to the Partnership and its partners under Section 42 of the Code.
"Independence SLP" means Independence SLP IV L.P.
"Independent Expert" means a Person with no material current or prior
business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value
of assets of the type held by the Partnership, and who is qualified to
perform such work.
"Initial Closing" means the initial closing at which the sale of at least
5,000 BACs is closed pursuant to Section 3.3E.
"Invested Assets" means the purchase price paid upon the acquisition by
the Partnership of the Properties and Local Partnership Interests, including
the amount of Acquisition Fees and all liens and mortgages on the Properties,
but excluding points and prepaid interest. Invested Assets for any year shall
not include any amounts otherwise includible therein that are allocable to
apartment units that do not give rise to Housing Tax Credits and that do not
receive in such year any other form of governmental subsidy. Solely for the
purpose of determining the Partnership Management Fee, the amount of
"Invested Assets" determined after the investment of all Net Proceeds in
Local Partnerships shall not be reduced by reductions in the amount of
Purchase Money Notes or mortgage loans outstanding or reductions in the
Partnership's capital accounts in Local Partnerships from distributions,
losses or required adjustments to basis by reason of a Property being
eligible for the Historic Rehabilitation Tax Credit but shall be reduced
proportionately at the time a Local Partnership Interest or a Property is
sold.
"Investor" means a Limited Partner or BACs holder and "Investors" means
all Limited Partners and BACs holders.
"Investment in Properties" means the amount of Capital Contributions
actually paid or allocated to the purchase, development, construction or
improvement of Properties acquired by the Partnership (directly or through
the acquisition of Local Partnership Interests), including the purchase of
Properties or the acquisition of Local Partnership Interests, working capital
reserves allocable thereto, to the extent not included in Front End Fees, and
other cash payments such as interest and taxes but excluding Front End Fees.
"Limited Partner" means the Assignor Limited Partner, the Original Limited
Partner or any other Person who is admitted as a Substituted Limited
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Partner, at the time of reference thereto, in such Person's capacity as a
limited partner of the Partnership.
"Local Affiliated Partner" means a general partner, member with primary
management responsibilities or special limited partner of any of the Local
Partnerships which is the General Partner or an Affiliate of the General
Partner.
"Local General Partners" means the general partner, general partners,
member or members with primary management responsibilities of a Local
Partnership, including any Local Affiliated Partner so acting.
"Local Partnership" or "Local Partnerships" means any or all of the
partnerships, limited partnerships or limited liability companies, each of
which owns an Apartment Complex and in which the Partnership acquires a Local
Partnership Interest or that the Partnership establishes to own an Apartment
Complex.
"Local Partnership Agreement" means the partnership agreement, operating
agreement, limited liability company agreement or other similar governing
document, of a Local Partnership pursuant to which the Partnership becomes a
partner or member thereof and acquires a Local Partnership Interest therein,
as such agreement may be amended from time to time.
"Local Partnership Interest" means the partnership, membership or limited
liability company interest of the Partnership in a Local Partnership.
"Major Repairs or Rehabilitation" shall mean the repair, rehabilitation or
reconstruction of a Property where the aggregate costs exceed 10% of the fair
market value of the Property at the time of such services.
"Net Proceeds" means Gross Proceeds less Selling Commissions and
Organization and Offering Expenses.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notification" means a writing, containing the information required by
this Agreement to be communicated to any Person, personally delivered to such
Person or sent by certified 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
Notification.
"Offering" means the offering of BACs by the Partnership pursuant to the
terms and conditions described in the Prospectus.
"Organization and Offering Expenses" means those expenses incurred in
connection with or related to the formation and qualification of the
Partnership, the registration and qualification of the BACs under applicable
federal and state laws and the marketing, advertising, distribution, sale and
processing of the BACs (but excluding Selling Commissions), including,
without limitation: (a) the cost of preparing, printing, filing and
delivering
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a registration statement with respect to the BACs, the Prospectus (including
any amendments thereof or supplements thereto), all "Blue Sky" surveys and
all underwriting and sales agreements, including the cost of all copies
thereof supplied to the Dealer Manager and any Selling Agent; (b) the cost of
preparing and printing this Agreement, solicitation material and related
documents and the cost of filing and recording such certificates or other
documents as are necessary to comply with the laws of the State for the
formation and continuation of a limited partnership and thereafter for the
continued good standing of a limited partnership; (c) fees and expenses of
the Escrow Agent; (d) the filing fees payable to the Securities and Exchange
Commission, to state securities commissions and to the National Association
of Securities Dealers, Inc.; (e) the fees of counsel and accountants for the
Partnership, the General Partner and the Dealer Manager; and (f) a
non-accountable expense reimbursement payable by the Partnership to the
Dealer Manager in an amount equal to 0.5% of the Gross Proceeds.
"Original Agreement" has the meaning specified in the WITNESSETH clauses.
"Original Limited Partner" means Alan P. Hirmes in his capacity as the
original limited partner of the Partnership.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2).
"Partnership" means the limited partnership continued pursuant to this
Agreement, as said limited partnership may from time to time be constituted.
"Partnership Management Fee" has the meaning specified in Section 5.9D.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2).
"Permitted Interim Investments" means (i) readily marketable securities
issued by states or municipalities within the United States of America or
agencies or subdivisions thereof rated "A" or better by a recognized rating
agency and maturing in less than one year from the date of purchase; (ii)
direct obligations of, or obligations unconditionally guaranteed by, the
United States of America or any agency thereof maturing in less than one year
from the date of purchase; (iii) commercial paper issued by any corporation
organized and doing business under the laws of the United States
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of America or any state thereof rated in the highest or next highest category
by Moody's Investor Service, Inc. and by Standard & Poor's Corporation and
maturing in less than one year from the date of purchase; (iv) certificates
of deposit or Eurodollar certificates of deposit, due within one year from
the date of purchase, issued by any Qualified Bank (or, in the case of
Eurodollar certificates of deposit, a branch of any such bank); (v) debt
securities issued by corporations organized and doing business under the laws
of the United States or any state thereof rated "A" or better by a recognized
rating agency and maturing in less than one year from the date of purchase,
provided that a dealer which is a member of the New York Stock Exchange
maintains a regular market in such securities; (vi) collateralized repurchase
agreements with domestic banks having a duration no longer than 60 days (or
any extension or renewal thereof for a period not exceeding the period of the
initial agreement) with respect to or secured by any of the types of
securities specified in clauses (i) through (iii) above; (vii) money market
funds; (viii) shares of any open-end investment company, as defined in the
1940 Act, which has assets of not less than $200 million and invests
primarily in securities of the type enumerated in clauses (i) through (vi)
above or banker's acceptances; (ix) guaranteed investment contracts having a
duration of no longer than 90 days or which are terminable at the request of
the purchaser at intervals no longer than 90 days and which are
collateralized by securities of the type enumerated in clauses (i) through
(v) above; and (x) other short term, highly liquid investments where there is
appropriate safety of principal, comparable in such respects to securities of
the type enumerated in clauses (i) through (ix) above; provided, however,
that if the value of "investment securities" (as defined in the 1940 Act)
exceeds 40% of the value of the Partnership's total assets (exclusive of
Government securities (as defined in the 1940 Act)) and cash items at any
time, such excess may only be invested in Government securities (as defined
in the 1940 Act).
"Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Property" means an Apartment Complex, and shall include an Historic
Complex.
"Profits" and "Losses" means taxable income and losses, and each item of
income, gain, loss or deduction entering into the computation thereof, as
determined in accordance with the accounting methods followed by the
Partnership for federal income tax purposes.
"Prospectus" means the prospectus contained in the registration statement
filed with the Securities and Exchange Commission for the registration of
Units and BACs under the Securities Act of 1933, in the final form in which
such prospectus is filed with said Commission under Rule 424(b) and as
thereafter amended or supplemented pursuant to Rule 424(c) under said Act.
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"Purchase Money Notes" means the promissory notes, if any, of the
Partnership to the sellers (or their designees) of the Local Partnership
Interests in Local Partnerships evidencing the obligation of the Partnership
to pay a portion of the purchase price for such Local Partnership Interests,
together with any mortgage, security agreement and other documents executed
by the Partnership as security therefor.
"Qualified Bank" means a bank, organized and doing business under the laws
of the United States of America or any state thereof, having capital
(including subordinated capital notes), surplus and undivided profits
aggregating more than $100 million.
"Quantity Discount" means the reduction in Selling Commissions in the case
of a purchase in excess of 250 BACs.
"Regulations" means the Income Tax Regulations (including Temporary
Regulations) promulgated under the Code.
"Reserves" means amounts allocated to reserves maintained for working
capital of the Partnership, for contingencies of a Local Partnership or for
operating expenses of the Partnership, including Partnership Management Fees
(provided that Reserves may not be used to pay Partnership Management Fees if
the use of Reserves for such purpose would cause the Reserves to be less than
1% of Gross Proceeds).
"Roll-up" means a transaction involving the acquisition, merger,
conversion or consolidation, either directly or indirectly of the Partnership
and the issuance of securities of a Roll-up Entity. The term does not include
(a) a transaction involving securities of the Partnership that have been
listed for at least 12 months on a national securities exchange or traded
through the National Association of Securities Dealers Automated Quotation
National Market System or (b) a transaction involving the conversion to
corporate, trust, limited liability company or association form of only the
Partnership if, as a consequence of the transaction, there will be no
significant adverse change in any of the following: (i) the voting rights of
Limited Partners or BACs holders; (ii) the term of existence of the
Partnership; (iii) compensation to the Sponsor; or (iv) the Partnership's
investment objectives.
"Roll-up Entity" means a partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive
after the successful completion of a proposed Roll-up transaction.
"Sale or Refinancing" means any Partnership or Local Partnership sale or
refinancing transaction not in the ordinary course of its business,
including, without limitation, sales, exchanges or other dispositions of
Properties, Local Partnership Interests and real or personal property of the
Partnership or any Local Partnership, condemnations, recoveries of damage
awards and insurance proceeds (other than business or rental interruption
insurance proceeds), or any refinancings; provided, however, that
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(i) distributions of operating income which are deemed returns of capital
solely for federal income tax purposes, (ii) the payment of Capital
Contributions by the Partners and BACs holders, (iii) any refunds of capital
contributions to the Local Partnerships or cash portions of the purchase
price or cash deposits on the purchase price paid by the Partnership for a
Property or a Local Partnership Interest, or (iv) a Terminating Sale or
Disposition shall not be deemed a Sale or Refinancing.
"Sale or Refinancing Proceeds" means all cash receipts of the Partnership
arising from a Sale or Refinancing (including principal and interest received
on a debt obligation received on a Sale or Refinancing) less the following:
(a) the amount of cash paid or to be paid in connection with or as an expense
of such Sale or Refinancing, and, with regard to damage recoveries or
insurance or condemnation proceeds, cash paid or to be paid for repairs,
replacements or renewals resulting from damage to or partial condemnation of
the affected Property;
(b) the amount necessary for the payment of all debts and obligations of
the Partnership arising from or otherwise related to the particular Sale or
Refinancing; and
(c) any amount set aside by the General Partner for Reserves.
"Schedule A" means the Schedule, as amended from time to time, of
Partners' names, business or residence addresses, Capital Contributions and
Units (Schedule A in its initial form is attached hereto and hereby made a
part hereof).
"Secretary" means the Secretary of the Treasury or his or her delegate.
"Selling Agents" means those registered broker-dealers, if any, selected
by the Dealer Manager to participate in the sale of BACs.
"Selling Commissions" means the aggregate selling commissions and
wholesaling and marketing fees, up to a maximum of $75 per BAC sold, payable
by the Partnership to the Dealer Manager and which may be reallowed by the
Dealer Manager to the Selling Agents.
"Service" means the Internal Revenue Service.
"Special Limited Partner" means Independence SLP in its capacity as a
special limited partner or special member of a Local Partnership.
"Sponsor" shall include any of the following: (i) any Person directly or
indirectly instrumental in organizing, wholly or in part, the Partnership;
(ii) any Person who will manage or participate in the management of the
Partnership; or (iii) any Affiliate of a Person who is a Sponsor under this
definition; but does not include a Person whose only relation with the
Partnership is that of an independent property manager and whose only
compensation is as such. A Person may also be a Sponsor of the Partnership
by: (i) taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Partnership, either alone or
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in conjunction with one or more other Persons: (ii) receiving a material
participation in the Partnership in connection with the founding or
organizing of the business or enterprise 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 Partnership properties; (v)
receiving fees for providing services to the Partnership which are paid on a
basis that is not customary in the industry; and (vi) providing goods or
services to the Partnership on a basis which was not negotiated at arm's
length with the Partnership. "Sponsor" does not include wholly independent
third parties, such as attorneys, accountants, and broker-dealers whose only
compensation is for professional services rendered in connection with the
offering of BACs.
"State" means the State of Delaware.
"Substituted Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to the provisions of Section 7.2D.
"Tax Credits" means Historic Rehabilitation Tax Credits and Housing Tax
Credits.
"Tax-Exempt Entity" means any person or entity as defined in Section
168(h)(2) of the Code.
"Tax Item" means each item of income, gain, loss, deduction or credit of
the Partnership.
"Tax Matters Partner" means the Partner designated from time to time as
the Tax Matters Partner of the Partnership by the General Partner pursuant to
Section 9.5 hereof. The General Partner has been designated as the initial
Tax Matters Partner.
"10% Cumulative Return" means a cumulative return calculated for each
Limited Partner and BACs holder as 10% per annum simple interest on his or
her Unreturned Capital Contribution commencing on the date of the Final
Closing (but in no event will the level of the cumulative return for any
Limited Partner or BACs holder be calculated so as to be less than it would
have been had such return been calculated as a 6% per annum simple interest
on the Limited Partner's or BACs holder's Unreturned Capital Contribution
calculated beginning at the end of the calendar quarter of such Limited
Partner's admission as such or at the end of the calendar quarter in which
the date of the sale to such BACs holder of his BACs occurred).
"Terminating Sale or Disposition" means the sale of one or more Properties
in connection with the liquidation of the Partnership.
"Uniform Act" means the Delaware Revised Uniform Limited Partnership Act
as in effect in the State of Delaware and as amended from time to time.
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"Unit" means a unit of limited partner interest in the Partnership,
representing a cash contribution of $1,000 to the capital of the Partnership
as reduced by any Quantity Discount. Reference to a majority, or specified
percentage, in interest of the Limited Partners means Limited Partners (other
than the General Partner and its Affiliates) who, in the aggregate, own
greater than 50%, or such specified percentage, respectively, of the total
number of Units.
"United States Real Property Interest" means any direct or indirect
interest in United States real property as defined in Section 897(c) of the
Code and the Treasury Regulations thereunder.
"Unpaid Cumulative Return" means the 10% Cumulative Return reduced (but
not below zero) by distribution under Sections 4.3A and 4.3(B)(4).
"Unreturned Capital Contribution" of a Limited Partner or BACs holder as
of any date means the total Capital Contribution of the Limited Partner or
BACs holder (or the predecessor holders of the Units of such Limited Partner
or the BACs of such BACs holder) reduced by any distributions of Sale or
Refinancing Proceeds made to him pursuant to Section 4.3B(5) to the date of
determination. For the purpose of computing the Unreturned Capital
Contribution of any BACs holder with respect to BACs to which Quantity
Discounts were applicable, the Capital Contribution of such BACs holder with
respect to such BACs shall be deemed to be $1,000 for each such BAC.
"Voluntary Loan" has the meaning specified in Section 5.3B (ii).
ARTICLE TWO
CONTINUATION; NAME; PLACE OF BUSINESS; PURPOSE; AND TERM
SECTION 2.1. Continuation
Pursuant to the provisions of the Uniform Act the parties hereto hereby
continue the Partnership on the terms and conditions set forth herein. To the
extent that the laws of other jurisdictions shall be applicable, the
Partnership is intended to be qualified as a foreign limited partnership or
as a partnership in commendam under such laws.
SECTION 2.2. Name; Registered Office; Registered Agent for Service of Process
The Partnership shall continue to be conducted under the name and style of
Independence Tax Credit Plus L.P. IV. The place of business and principal
office of the Partnership shall be 625 Madison Avenue, New York, New York
10022. The registered office of the Partnership in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801. The registered agent of the Partnership for service of process at such
address is The Corporation Trust Company.
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SECTION 2.3. Purpose
The purpose and character of the business of the Partnership is to
acquire, hold and otherwise deal exclusively with Apartment Complexes and
Local Partnership Interests, except to the extent the Partnership may invest
in Permitted Interim Investments pursuant to Section 5.2A(xiii) or Escrow
Investments. The purpose of the Partnership includes the realization and
distribution of Sale or Refinancing Proceeds, notwithstanding the fact that
Sale or Refinancing transactions may cause the Partnership to dissolve and
terminate its business prior to December 31, 2031.
SECTION 2.4. Term
The term of the Partnership shall continue in full force and effect until
December 31, 2031 unless terminated prior thereto pursuant to this Agreement
or by law.
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.1. General Partner
The name, business or residence address and Capital Contribution of the
General Partner are as set forth in Schedule A hereto. The General Partner,
as such, shall not make any additional Capital Contributions to the
Partnership other than as provided in Section 8.2C.
SECTION 3.2. Original Limited Partner; Withdrawal; Assignor Limited Partner
Alan P. Hirmes is the Original Limited Partner. By his execution hereof,
and upon the admission of the Assignor Limited Partner as limited partner of
the Partnership, the Original Limited Partner shall withdraw as the Original
Limited Partner and his cash Capital Contribution as the Original Limited
Partner, if any, shall be returned to him. The Assignor Limited Partner shall
be deemed to be admitted to the Partnership as a Limited Partner as of the
time of execution of this Agreement.
SECTION 3.3. Capital Contributions of Limited Partners
A. The General Partner is authorized to conduct a public offering of BACs
and to sell not more than 200,000 BACs, provided that no BACs will be sold
prior to the Initial Closing at which a minimum of 5,000 BACs are sold.
B. The minimum investment of each BACs holder shall be five BACs
representing a Capital Contribution of $5,000. Such Capital Contribution
shall be made in cash in full on the date of the sale of BACs to each such
BACs holder.
C. Each Limited Partner shall, as a condition of being admitted to the
Partnership, satisfy the conditions of Section 12.2A. The names and business
or residence addresses of the Limited Partners and their Capital
Contributions and number of Units held shall be set forth in Schedule A
hereto.
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D. 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.
E. The agreements with the Dealer Manager and the Selling Agents provide
that all funds representing subscriptions for BACs shall be deposited by the
Dealer Manager and the Selling Agents in an interest-bearing account with the
Escrow Agent by noon of the next business day or by noon of the second
business day after receipt of the subscription after they receive such funds.
Subscriptions for BACs shall be accepted or rejected by the General Partner
within ten (10) days after their receipt by the Partnership. Upon receipt of
subscriptions for not less than 5,000 BACs acceptable to the General Partner
and the determination of the General Partner to proceed to Initial Closing,
the Escrow Agent shall release such subscriptions to the Partnership, and the
Initial Closing shall take place with respect to such BACs and the purchasers
thereof. If the Escrow Agent does not receive subscriptions acceptable to the
General Partner for at least 5,000 BACs on or before the Minimum Offering
Achievement Date, or if the Offering shall have been terminated prior to
occurrence of the Initial Closing, the Escrow Agent shall return all monies
deposited by subscribers for BACs, together with any interest earned on such
monies, within ten (10) business days after the Minimum Offering Achievement
Date or the date as of which the Offering has been terminated. "Minimum
Offering Achievement Date" means the date that is six (6) months after the
date of the Prospectus, unless such date is lawfully extended to a date no
later than twelve (12) months after the date of the Prospectus by mutual
agreement of the General Partner and the Dealer Manager. The Offering will
terminate no later than April 15, 1997. The General Partner and its
Affiliates shall have the right to subscribe for BACs for their own accounts,
but subscriptions for no more than 500 BACs shall be included for purposes of
determining whether the minimum number of subscriptions has been received.
Purchases of BACs by the General Partner or its Affiliates will be on the
same terms as apply to purchases by BACs holders and will be for investment
purposes only.
After Initial Closing, BACs shall be sold to additional subscribers whose
subscriptions are acceptable to the General Partner not later than the
fifteenth day of the month if such subscribers' subscriptions were accepted
during the first fifteen days of the month, and not later than the last day
of the month if such subscriptions were accepted between the sixteenth and
last days of such month.
Any interest earned on monies paid by BACs holders during the period that
such monies are held in escrow prior to the Closing of the sale of BACs to
such BACs holders shall be paid to such BACs holders by the Escrow Agent
following such Closing.
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All monies deposited by subscribers whose subscriptions are rejected by
the General Partners will be returned to such subscribers without any
interest or deduction thereon within ten (10) business days after such
rejection.
F. The Partnership presently contemplates the public offering of 100,000
BACs at an offering price of $1,000 per BAC or an aggregate offering price of
$100,000,000. The Partnership has the authority to offer and sell up to
100,000 additional BACs (i.e., a maximum of 200,000 BACs), all on the same
terms and conditions as the initial maximum of 100,000 BACs. Selling
Commissions of a maximum of $75 per BAC shall be paid to the Dealer Manager
with respect to the sale of the BACs. Notwithstanding the foregoing, the
Dealer Manager may terminate the Offering at any time after 5,000 BACs have
been sold.
G. To accomplish the purpose of this Section 3.3, the General Partner is
hereby authorized to do all things necessary to sell such BACs, including,
but not limited to, registering the BACs and Units 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 or perfecting exemptions from qualification, entering
into such underwriting or selling arrangements with the Dealer Manager for
the solicitation of the BACs upon such terms and conditions (including terms
granting the Dealer Manager the right to appoint Selling Agents and to
reallow to them up to the full Selling Commissions and such other
compensation as is contemplated by Section 5.9C) as the General Partner may
deem advisable and designating a form of certificate to represent such BACs.
The General Partner shall have the right to terminate the Offering at any
time.
SECTION 3.4. Partnership Capital
A. No Partner or BACs holder shall be paid interest on any Capital
Contribution.
B. The Partnership shall not redeem or repurchase any BACs or Units and no
Partner or BACs holder shall have the right to withdraw, or receive any
return of, his Capital Contribution, except as specifically provided herein.
No Limited Partner or BACs holder shall have priority over any other Limited
Partner or BACs holder, either as to the return of his Capital Contribution
or as to profits, losses or distributions, except as otherwise specifically
provided herein.
C. Under circumstances requiring a return of any Capital Contribution, no
Partner or BACs holder shall have the right to receive property other than
cash.
D. The General Partner shall have no personal liability for the repayment
of the Capital Contribution of any Limited Partner or BACs holder nor any
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obligation to make Capital Contributions (except as provided in Schedule A
and Section 8.2C and except as provided by law), loans or advances to the
Partnership.
E. Any portion of the Net Proceeds resulting from the sale of BACs (except
for any amounts set aside for Reserves) which is not invested or committed
for investment within the later of two years after commencement of the
offering or one year after the termination of the offering of BACs shall be
distributed pro rata to all Limited Partners and BACs holders (in proportion
to their Capital Contributions) by the Partnership as a return of capital,
together with the allocable portion of any Front End Fees payable to the
General Partner or its Affiliates other than that portion of Front End Fees
which represents a reimbursement of bona fide third party expenses in
connection with the selection of Properties for acquisition by the
Partnership, whether or not acquired. There shall be included in the amount
returned the portion of Selling Commissions and Organization and Offering
Expenses that is allocable to the portion of Net Proceeds required to be
returned hereby. For the purpose of this Agreement, funds will be deemed to
have been committed to investment and will not be returned to the Limited
Partners and BACs holders to the extent binding written commitments have been
executed with respect to the purchase of any Property and to the extent funds
have been reserved to make contingent payments in connection with the
purchase of any Property in which the Partnership has already made an
investment, provided that any funds so committed or reserved and not applied
for the purposes committed or reserved as scheduled shall immediately be
returned to the Limited Partners and BACs holders in accordance with this
Section 3.4E. If, after determination of the amount to be returned to Limited
Partners and BACs holders in accordance with the foregoing provisions of this
Section 3.4E, the level of Investment in Properties would be less than that
required by Section 5.9A, the General Partner shall cause there to be
included in the amount returned such portion of one or more Front End Fees
otherwise payable hereunder as is necessary to cause the level of Investment
in Properties to satisfy the requirements of Section 5.9A.
SECTION 3.5. Liability of Partners
A. The liability of each Limited Partner and BACs holder for the losses,
debts, liabilities and obligations of the Partnership shall, so long as such
Limited Partner and BACs holder complies with the provisions of Section 5.1B,
be limited to his Capital Contribution and his share of any assets and
undistributed profits of the Partnership; provided, however, that under
applicable law a Limited Partner and BACs holder may be liable under certain
circumstances to the extent of previous money or other distributions made to
him. No Limited Partner or BACs holder shall be required to lend any funds to
the Partnership or, after his Capital Contribution has been paid, to make any
further contribution to the Partnership. It is the intent of the Partners
that no distribution (or any part of any distribution) made to any Limited
Partner or BACs holder pursuant to Section 4.2A shall be
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deemed a return or withdrawal of contribution, even if such distribution
represents, in full or in part, an allocation of depreciation or any other
non-cash item accounted for as a loss or deduction from or offset to the
Partnership's income, and that no Limited Partner or BACs holder 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 BACs holder is obligated to make any such payment, such
obligation shall be the obligation of such Limited Partner or BACs holder and
not of the General Partner.
B. Notwithstanding the provisions of Section 3.5A, in the event the
Partnership is required, pursuant to applicable provisions of applicable law
or any Local Partnership Agreement, to return to any Local Partnership any
funds previously distributed by such Local Partnership to the Partnership,
which funds have been distributed by the Partnership, in turn, to each
Partner and BACs holder hereunder, the Partners and BACs holders shall be
required to return promptly to the Partnership that portion of such
Partnership distribution received by them (on a pro rata basis) as shall be
required by the Partnership to meet its obligation to return funds to such
Local Partnership. To the extent that any Partner or BACs holder fails to
return such distribution to the Partnership, the General Partner may withhold
further distributions to such Partner or BACs holder as an offset.
ARTICLE FOUR
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND
LOSSES; TAX CREDITS; CAPITAL ACCOUNTS
Section 4.1 Admission Date
Subscribers admitted to the Partnership as Investors will be allocated
Housing Tax Credits and be distributed Cash Distributions only for the period
beginning on their Admission Date to the Partnership. Historic Rehabilitation
Tax Credits, if any, shall be allocated only to the General Partner and those
Persons who were Investors on the date the related Property was placed in
service. Cash Distributions, if any, shall be made on an annual basis.
Section 4.2 Profits, Losses and Tax Credits
A. Except as otherwise provided in this Section 4.2, all Profits and
Losses, other than Profits and Losses arising from a Sale or Refinancing or a
Terminating Sale or Disposition, Tax Credits and any other tax credits shall
be allocated 99% to the Investors and 1% to the General Partner.
B. All Profits and Losses arising from a Sale or Refinancing or a
Terminating Sale or Disposition shall be allocated as follows:
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As to Profits:
(a) first, an amount of Profit shall be allocated to the Investors (if
any) having negative Adjusted Capital Account balances in proportion to
their negative Adjusted Capital Account balances until all such Adjusted
Capital Accounts shall have a zero balance;
(b) second, 99% to the Investors and 1% to the General Partner until the
Investors shall have positive Adjusted Capital Account balances equal to
the amount of their Unreturned Capital Contributions; and
(c) third, 99% to the Investors and 1% to the General Partner until each
Investor shall have been allocated in the aggregate Profits in an amount
equal to its Unpaid Cumulative Return.
(d) fourth, the remaining Profits, if any, shall be allocated 85% to the
Investors and 15% to the General Partner.
As to Losses:
(a) first, Losses shall be allocated to the Investors to the extent
necessary so that the ratio of positive Capital Account balances to
Capital Contributions for each Investor is the same.
(b) second, Losses shall be allocated 99% to the Investors and 1% to the
General Partner until all Capital Accounts shall have a zero balance.
(c) third, Losses shall be allocated 100% to the General Partner.
C. In the event there occurs a recapture of tax credits previously
allocated to Partners and BACs holders, the responsibility for the recapture
of such tax credits shall be allocated in accordance with the requirements of
the Code and the Treasury Regulations, namely:
1. In the case of Historic Rehabilitation Tax Credits and any other tax
credits other than Housing Tax Credits to the Partners and BACs holders
(if permitted by applicable law) who originally were entitled to the tax
benefits attributable to the tax credits being recaptured.
2. In the case of Housing Tax Credits to the Partners and BACs holders
(if permitted by applicable law) who are or are deemed to be Partners in
the year in which such recapture occurs, in accordance with their
interests in the Profits of the Partnership for that year.
D. Notwithstanding anything to the contrary that may be expressed or
implied in this Agreement, except for Section 4.2F, the aggregate interest of
the General Partner in each item of Partnership income, gain, loss, deduction
or Tax Credit shall be equal to at least 1% of each of those items at all
times during the existence of the Partnership. In determining the interests
of the General Partner in these items, any Units owned by the General Partner
shall not be taken into account.
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E. The following special allocations shall be made in the following order:
(a) Except as otherwise provided in Regulations Section 1.704-2(f), if
there is a net decrease in the Partnership's Partnership Minimum Gain
during a Partnership taxable year, each Investor and the General Partner
will be allocated, before any other allocation of Partnership items is
made pursuant to this Agreement, items of income and gain for the
Partnership taxable year (and, if necessary, subsequent Partnership
years), in proportion to, and to the extent of, an amount equal to the
portion of such Investor's or General Partner's share of the net decrease
in the Partnership's Minimum Gain during such year (as specified in
Regulations Section 1.704-(2)(g)). The items to be so allocated shall be
determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2).
(b) Except as otherwise provided in Regulations Section 1.704-2(i)(4),
notwithstanding any provision of this Agreement to the contrary, if there
is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
a Partner Nonrecourse Debt during a Partnership taxable year, each
Investor or General Partner that has a share of the Partner Nonrecourse
Debt Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of income and gain for such taxable year (and,
if necessary, subsequent Partnership years) in an amount equal to such
Investor's or General Partner's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4). The
items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2).
(c) Notwithstanding any provision of this Agreement to the contrary, no
Investor or General Partner shall be allocated Losses to the extent that
such allocation would cause the Partner to have a deficit balance in its
Adjusted Capital Account. If an Investor or General Partner receives an
unexpected adjustment, allocation or distribution described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which creates or increases a
deficit balance in the Investor's or General Partner's Adjusted Capital
Account, items of income and gain shall be allocated to such Investor or
General Partner in an amount and manner sufficient to eliminate the
Adjusted Capital Account deficit as quickly as possible.
(d) Any Partner Nonrecourse Deductions for any fiscal year of the
Partnership or other period shall be specially allocated to the Investor
or General Partner who bears the risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treas. Reg. Section 1.704-2(i).
F. All items of loss and deduction for federal income tax purposes
allocable to Investors prior to the Final Closing shall be allocated on the
basis
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of interim closings of the Partnership's books as the date of each Closing,
and, following the date of the Final Closing, on a semi-monthly basis to
Investors of record on semi-monthly record dates in accordance with Section
4.2G hereof. If an Investor transfers its Units or BACs, as the case may be,
allocations among the transferor and transferee shall be based upon actual
results of the Partnership operations and interim closing of the books of the
Partnership as of each closing date of such transfer and shall be in
accordance with the provisions of Section 706 of the Code.
G. (a) As of the fifteenth and last date of each month ("Monthly Record
Date") or as of the date of receipt of Sale or Refinancing Proceeds, as the
case may be, during the term of the Partnership, a determination shall be
made by an interim closing of the books of the amount of the Profits and
Losses which arose during such portion of the month or on the date of receipt
of Sale or Refinancing Proceeds and which was allocable to the Investors in
accordance with the provisions of Section 4.2 hereof. As of the day of
receipt of Sale or Refinancing Proceeds during the term of the Partnership, a
determination shall be made by an interim closing of the books of the amount
of Sale or Refinancing Proceeds for such Sale or Refinancing which was
allocable to the Investors in accordance with the provisions of Section 4.3
hereof.
(b) The amount of Profits and Losses not attributable to Sale or
Refinancing Proceeds determined in accordance with paragraph 4.2G(a) shall
be initially allocated among the Investors of record on each Monthly
Record Date in the ratio that (i) the number of Units held of record by
each such Investor as of such Monthly Record Date bears to (ii) the
aggregate number of Units outstanding on each such Monthly Record Date.
(c) The amount of distributions of Cash Flow to Investors will be
determined as of the last day of each fiscal year and will be distributed
to the Partners in the same ratio that the Profits and Losses are to be
allocated pursuant to Section 4.2.G(b) with respect to such fiscal year.
(d) Subject to Section 4.2, the amounts of Profits and Losses
attributable to Sale or Refinancing Proceeds determined in accordance with
paragraph 4.2G(b) shall be initially allocated and the above-referenced
amounts of Sale or Refinancing Proceeds shall be distributed among the
Investors of record on each day of receipt of Sale or Refinancing Proceeds
in the ratio that (i) the number of Units of record on such date held by
each such Investor bears to (ii) the aggregate number of Units outstanding
on such date.
H. Notwithstanding Section 4.2A hereof, any expenditures of the
Partnership which are neither deductible nor properly chargeable to capital
accounts under Code Section 705(a)(2)(B), or which are treated as such
expenditures under Regulations Section 1.704-1(b)(2)(iv)(i), shall be
allocated as follows: (a) to the extent such expenditures represent selling
commissions which constitute syndication expenditures under Code Section
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709 and which are paid by the Partnership, such expenditures shall be
allocated to the Units in respect of which such commissions were paid, and
(b) the balance of such expenditures shall be allocated among the Investors
on a per Unit basis.
I. Notwithstanding anything to the contrary in this Agreement, if the
Capital Accounts of the Partners are revalued pursuant to Regulations Section
1.704-1(b)(2)(iv)(f) then subsequent allocations of Profits and Losses as
determined for book and tax purposes shall be allocated among the Partners in
accordance with the principles of Section 704(c) of the Code.
Section 4.3 Distributions and Application of Cash Flow and Sale or Refinancing
Proceeds
Except as otherwise provided by this Agreement or required by law, Cash
Distributions shall be made to the General Partner and Investors on the
following bases, at such times and in such amounts as the General Partner in
its sole discretion shall determine.
A. Cash Distributions from Cash Flow in respect of each year will be
distributed 99% to the Investors and 1% to the General Partner.
B. Cash Distributions from Sale or Refinancing Proceeds shall be
distributed in the following order of priority:
(1) To the payment of liabilities of the Partnership then due and owing
to Persons other than the Partners;
(2) To establish such reserves as the General Partner in its sole
discretion determines to be reasonably necessary for any contingent or
foreseeable liability or obligation of the Partnership; provided, however,
that the amount of any such reserve shall not exceed the sum of (i) 5% of
the amount of such Sale or Refinancing Proceeds, and (ii) the amount that
the General Partner determines is or may be required for investment in
Properties in which the Partnership already has an interest in order to
preserve, protect or enhance the value of such interest of the Partnership
(including, without limitation, by way of complying with any requirements
of mortgage lenders or other creditors of the Local Partnership who
require additional equity investment in the Property, or making repairs to
the Property prior to its disposition); and provided, further, however,
that the balance of any such reserve remaining at such time as the General
Partner shall reasonably determine are no longer required for such
purposes shall be distributed in accordance with subparagraphs (3) through
(7) of this Section 4.3B;
(3) To the payment to the General Partner of an amount equal to the
unpaid balance, including accrued interest, of any Voluntary Loan;
(4) 99% to the Investors and 1% to the General Partner until each
Investor has received an amount equal to its Unpaid Cumulative Return.
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(5) 99% to the Investors and 1% to the General Partner until each Investor
has received an amount equal to its Unreturned Capital Contribution as
adjusted to reflect the amount of all prior distributions under this Section
4.3B(5);
(6) To the General Partner, an amount equal to its Capital
Contributions, reduced (but not below zero) by the amount of all prior
distributions to it under Section 4.3B(5) and this Section 4.3B(6); and
(7) The balance, if any, 85% to the Investors and 15% to the General
Partner; provided, however, in the case of a distribution of Sale or
Refinancing Proceeds when any Partner or BACs holder has a positive
Capital Account balance, such distributions shall be made 85% to the
Limited Partners and BACs holders, and 15% to the General Partner until
any Partner or BACs holder has a negative or zero Capital Account balance,
then distributions shall be made to the General Partner and Investors in
proportion to their positive Capital Account balances until all Capital
Accounts have a zero or negative balance, and thereafter such
distributions shall be made 85% to the Investors, and 15% to the General
Partner and provided further, that where the Special Limited Partner
receives distributions from a Local Partnership and/or a Local General
Partner is an Affiliate of the General Partner, the distributions received
by the Special Limited Partner and such Affiliated Local General Partner
will be deemed to have been received by the General Partner, and the total
of cash distributions to be received by the General Partner may not exceed
the sum of (A) 11% of Cash Distributions from Cash Flow and 1% of the Cash
Distributions from Sale or Refinancing Proceeds and (B) 15% of the Cash
Distributions from Sale or Refinancing Proceeds remaining after the
Limited Partners and BACs holders have received Cash Distributions from
all sources in an amount equal to a 6% noncompounded, cumulative return on
their Unreturned Capital Contribution (calculated from the end of the
calendar quarter in which each respective BACs holder made his Capital
Contribution) plus a return of their Capital Contributions from Cash
Distributions from Sale or Refinancing Proceeds.
C. Except as otherwise provided in this Section 4.2 or this Section 4.3,
each Partner and BACs holder shall share in distributions in accordance with
this Section 4.3 from its Admission Date. If there shall be at any time
during the term of the Partnership more than one General Partner, all Tax
Items, profits and losses or distributions to the General Partner as a Class
shall be allocated among the general partners of the Partnership as they
shall agree.
Section 4.4 Restricted Payments
The Partnership and the General Partner on behalf of the Partnership shall
not make a distribution to a Partner or BACs holder on account of its
interest in the Partnership if such distribution would violate Section 17-607
of the Uniform Act or other applicable law.
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ARTICLE FIVE
RIGHTS; POWERS AND DUTIES OF GENERAL PARTNER
SECTION 5.1. Management and Control of the Partnership
A. Subject to the Consent of the Limited Partners when required by this
Agreement and to the limitations on the authority of the General Partner set
forth herein, the General Partner shall have the full, complete and exclusive
discretion and authority to manage and control the Offering and the business
of the Partnership and all decisions with respect to the Offering and the
management of the Partnership and its affairs shall be made only by the
General Partner. In so doing, the General Partner shall take all actions
necessary or appropriate to protect the interests of the Limited Partners and
BACs holders.
B. No Limited Partner or BACs holder (except one who may also be a General
Partner, and then only in his capacity as General Partner within the scope of
his authority hereunder) shall participate in or have any control over
Partnership business or shall have any authority or right to act for or bind
the Partnership. The exercise by the Limited Partners of any of their voting
and other rights pursuant to and in accordance with this Agreement shall not
constitute participation in or control over Partnership business.
C. All of the Partnership's expenses shall be billed directly to and paid
by the Partnership. The Partnership shall pay the following costs and
expenses: (i) the costs of personnel employed by the Partnership and involved
in the business of the Partnership, other than Persons who are employees of
the General Partner or its Affiliates; (ii) the costs paid to any lender for
borrowed money, including Voluntary Loans made pursuant to Section 5.3B,
taxes and assessments on the Local Partnership Interests and other taxes
applicable to the Partnership; (iii) legal, audit, accounting, appraisal and
engineering fees; (iv) Selling Commissions, Organization and Offering
Expenses, and printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration and
recording of documents evidencing ownership of BACs and Units or in
connection with the business of the Partnership; (v) fees and expenses paid
to the Escrow Agent; (vi) fees and expenses in connection with the
acquisition, consulting and monitoring and sale, exchange or other
disposition or financing of Properties and Local Partnership Interests
(including the fees to be paid to the General Partner and its Affiliates as
set forth in Section 5.9 hereof); (vii) the cost of insurance in connection
with the business of the Partnership and ownership of Properties and Local
Partnership Interests; (viii) expenses of organizing, revising, amending,
converting, modifying or terminating the Partnership; (ix) the costs and
expenses incurred in qualifying the Partnership to do business in any
jurisdiction, including fees and expenses of any resident agent appointed by
the Partnership; (x) the cost of preparing and disseminating to Limited
Partners and BACs holders the reports described in Section 9.4 and the
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cost of preparing and filing reports and tax returns with governmental
agencies; (xi) the costs incurred in connection with any litigation or
regulatory proceedings in which the Partnership is involved; (xii) the cost
of any computer services used by the Partnership; and (xiii) amounts paid to
the General Partner as reimbursements in accordance with Section 5.1D hereof.
D. Reimbursement to the General Partner or any of its Affiliates by the
Partnership or the Local Partnerships shall not be allowed, except for (i)
reimbursement from Gross Proceeds of Organization and Offering Expenses
actually incurred by the General Partner or its Affiliates (including the
Dealer Manager) on behalf of the Partnership to the extent that the aggregate
amount of Organization and Offering Expenses incurred by or on behalf of the
Partnership exceeds an amount equal to 2.5% of the Gross Proceeds but does
not exceed an amount equal to 3.5% of the Gross Proceeds, (ii) the actual
cost to the General Partner or its Affiliates of goods, services and
materials supplied by Persons not affiliated with the General Partner or its
Affiliates used for or by the Partnership, (iii) direct travel and telephone
expenses of employees who are not controlling persons of the General Partner
and Affiliates on Partnership business, (iv) direct out-of-pocket expenses
incurred for legal, accounting, bookkeeping, computer, printing and public
relations services, and (v) if such reimbursement when added to the cost for
administrative services rendered does not exceed 90% of the competitive rate
for such services, the cost of preparing the information required by the
reports described in Section 9.4 hereof. For purposes of this Section 5.1D,
"controlling persons" shall include any person who performs functions for the
General Partner or its Affiliates similar to those performed by the Chairman
or members of the Board of Directors, executive management, senior management
or any person who holds a 5% or more equity interest in the General Partner
or who has the power to direct or cause the direction of the General Partner.
Reimbursement of rent, depreciation, utilities, capital equipment and other
items not specifically allowed by this Section 5.1D shall not be allowed.
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. The General Partner shall not be reimbursed pursuant to this
Article Five for services for which the General Partner is entitled to
compensation by way of a separable fee.
Expenses incurred by the General Partner or its Affiliates in connection
with the administration of the Partnership, including, but not limited to,
salaries, fringe benefits and travel expenses of controlling persons of the
General Partner, rent and such other items generally constituting General
Partner's overhead, shall not be charged to the Partnership, subject to the
terms of the previous paragraph, provided that the Partnership shall
reimburse the General Partner for the lesser of (i) the actual cost to the
General Partner of administrative services rendered by employees of the
General Partner who are not Affiliates of the General Partner, and (ii) the
amount
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the Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic location.
E. The General Partner shall establish initial Reserves in an amount at
least equal to 3.5% of the Capital Contributions of the Limited Partners and
BACs holders paid to the Partnership from time to time, commencing with the
Initial Closing (provided that the General Partner shall be authorized to
apply such amounts of Net Proceeds to Reserves as shall not cause the level
thereof to exceed 5% of Gross Proceeds). Such Reserves may be increased or
reduced by the General Partner as it deems appropriate under the
circumstances from time to time following the full investment, application to
Reserves or return to Limited Partners of all Net Proceeds. The General
Partner shall have the authority to pay Partnership Management Fees from
Reserves.
SECTION 5.2. Authority of the General Partner
A. Subject to Sections 5.2B, 5.3, 5.4, 5.9 and 5.10, the General Partner
for, and in the name and on behalf of, the Partnership is hereby authorized,
without limitation:
(i) to establish Local Partnerships and enter into the Local Partnership
Agreements and all other agreements, instruments and documents as may be
necessary or appropriate in connection with the acquisition of Properties
and Local Partnership Interests and the admission of the Partnership as a
partner or member of the Local Partnerships (including, without
limitation, those pertaining to the acquisitions, if any, described under
"Specified Investments" in the Prospectus), provided that no investment
shall be made in any Local Partnership unless such Local Partnership owns
or is developing an Apartment Complex that is qualified or is expected to
be qualified to give rise to Housing Tax Credits;
(ii) to give the consent of the Partnership in its capacity as a partner
or member of each Local Partnership to any action proposed to be taken by
such Local Partnership or any of the Local General Partners which, under
the provisions of its Local Partnership Agreement, requires the consent of
the Partnership as a partner or member;
(iii) to acquire, hold, encumber, sell, dispose of and otherwise deal
with and invest in Properties and Local Partnership Interests upon such
terms as it deems to be in the best interests of the Partnership,
including, but not by way of limitation, the power to vote to amend a
Local Partnership Agreement in such a manner as to reduce the Local
Partnership Interest of the Partnership in any Local Partnership, to vote
to reduce the Partnership's interests in the profits, losses and
allocations of a Local Partnership, and to assign a part of the Local
Partnership Interest in any Local Partnership, provided that such action
is, in the opinion of the General Partner, necessary to preserve the
economic value of the Partnership's Local Partnership Interest or
otherwise in the best interests of the Partnership (provided, however,
that any such
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actions taken by the General Partner pursuant to this Section 5.2A(iii)
which would have the effect of altering the investment objectives and
policies of the Partnership may not be taken without first amending this
Agreement pursuant to Section 10.2A(i)); subject to Section 5.3D, the
General Partner is authorized to acquire Local Partnership Interests in
the form of general partnership interests and/or joint venture interests;
subject to the provisions hereof, the General Partner is authorized to
acquire investments in Properties in such acquisition formats as may be
consistent with the Partnership's investment objectives and otherwise meet
the investment criteria applied by the Partnership, including without
limitation by establishing Local Partnerships that have the status of
ground lessees of the land component of Properties and/or acquiring
interests in Properties in a condominium form of ownership; in
circumstances where the General Partner concludes that the net after-tax
return to the Partnership from an investment in a Local Partnership
Interest would be maximized by making a charitable contribution of such
Local Partnership Interest, the General Partner is authorized to cause the
Partnership to make such charitable contribution;
(iv) to acquire by purchase, lease, exchange or otherwise, any real or
personal property necessary or appropriate to the accomplishment of the
purposes of the Partnership referred to in Section 2.3, provided that no
real property that does not constitute or is not being developed as an
Apartment Complex that is qualified or is expected to be qualified to give
rise to Housing Tax Credits shall be acquired by the Partnership;
(v) subject to Sections 5.4A(xxix), 5.4A(xxx) and 5.4A(xxxi), to borrow
money and issue evidences of indebtedness, including without limitation
Purchase Money Notes, and to secure the same by mortgage, deed of trust,
pledge or other lien on any Property, Local Partnership Interest or other
assets of the Partnership;
(vi) 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, commissions,
expenses, salaries, wages and other compensation to such Persons;
(vii) to pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and
upon such evidence as it may deem sufficient, any obligation, suit,
liability, cause of action or claim, including taxes, either in favor of
or against the Partnership;
(viii) to cause the Partnership to make or revoke any of the elections
under the Code that are made at the partnership level, and to cause the
Partnership to request and obtain interpretative or exemptive advice and
orders from federal and state regulatory authorities (including, with-
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out limitation, exemptions from the periodic reporting requirements of the
Securities Exchange Act of 1934);
(ix) to offer and sell BACs to the public directly or through any
licensed Person, including, without limitation, the Dealer Manager and the
Selling Agents, and to employ personnel, agents and dealers for such
purposes;
(x) to establish and maintain Reserves for such purposes and in such
amounts as it deems appropriate from time to time, subject to the initial
Reserve requirements set forth in Section 5.1E;
(xi) without the consent of the Limited Partners, in addition to any
amendment otherwise authorized herein to be made, to amend this Agreement
from time to time:
(A) to add to the representations, duties or obligations of the General
Partner or its Affiliates or surrender any right or power granted to the
General Partner or its Affiliates herein, for the benefit of the Limited
Partners and BACs holders;
(B) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with law or with any other provision herein, or to
add any other provision with respect to matters or questions arising under
this Agreement which will not be inconsistent with law or with the provisions
of this Agreement or diminish the share of any Partner or BACs holder in Tax
Items, or Cash Distributions without his Consent; provided that such
limitation shall not be deemed to limit the right to amend this Agreement to
the extent permitted by the Code and Regulations, based upon an opinion of
counsel to the Partnership, to modify the allocations set forth in Section
4.2 to provide that in any year after the year in which occurs the Final
Closing in which Housing Tax Credits are allowable, each Investor shall
receive an allocation of Housing Tax Credits in proportion to their
respective Units;
(C) to delete from or add any provision to this Agreement required to be so
deleted or added by the staff of the Securities and Exchange Commission or by
a state securities commissioner or similar such official, which addition or
deletion is deemed by such commission or official to be for the benefit or
protection of the Limited Partners and BACs holders;
(D) to change the name of the Partnership to any lawful name which it may
select in accordance with Section 12.2E;
(E) to reflect the addition or substitution of Limited Partners and BACs
holders or the reduction of capital accounts upon the return of capital to
Partners or to reflect the admission of General Partners who may be admitted
without the consent of the Limited Partners; and
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(F) to take such steps as the General Partner determines are advisable or
necessary, based upon an opinion of counsel to the Partnership, in order to
preserve the tax status of the Partnership as an entity which is not taxable
as a corporation for federal income tax purposes or to obtain or preserve
passive income treatment for profits from the Partnership (other than profits
from Permitted Interim Investments), including, without limitation, to cause
the Assignor Limited Partner to cancel all BACs and to cause the holders of
such BACs to become Substituted Limited Partners in the Partnership to the
extent of their holdings of BACs, provided the same do not involve a change
in the form of organization or fundamental purpose of the Partnership;
(xii) to deal with, or otherwise engage in business with, or provide
services to and receive compensation from any Person who has provided or
may in the future provide any services to, lend money to, sell property
to, or purchase property from, the General Partner or any of its
Affiliates;
(xiii) to invest in Permitted Interim Investments 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 Local Partnerships, (B) the Net Proceeds allocated for subsequent
investment in a particular Local Partnership after the Partnership has
made its initial capital contribution or paid a portion of its purchase
price to such Local Partnership, (C) Reserves, and (D) Cash Flow and/or
Sale or Refinancing Proceeds available for distribution to Partners
pending such distribution;
(xiv) to deal with Local Partnerships on the administrative level,
including establishing the books of the Local Partnership and providing
other administrative services, provided that (A) no reimbursement of
expenses in respect of such dealings shall be permitted that would not be
permitted pursuant to Section 5.1 if such dealings were undertaken
directly with the Partnership, and (B) no additional compensation not
expressly authorized herein shall be payable in respect to such services;
(xv) to cause the Partnership or a Local Partnership to furnish a bond
described in Section 42(j)(6) of the Code; and
(xvi) to engage in any kind of activity and to perform and carry out
contracts of any kind necessary to, or in connection with, the
accomplishment of the purposes of the Partnership.
B. The General Partner shall, except as otherwise provided in this
Agreement or in the Uniform Act, have all the rights and powers and be
subject to all the restrictions of partners in a partnership without limited
partners.
C. With respect to all of its obligations, powers and responsibilities
under this Agreement, the General Partner is authorized, subject to Sec-
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tions 5.4A(xxix), 5.4A(xxx) and 5.4A(xxxi), to execute and deliver, for and
on behalf of the Partnership, such notes and other evidences of indebtedness
(including Purchase Money Notes), 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.
D. Any Person dealing with the Partnership or the General Partner may rely
upon a certificate signed by the General Partner as to:
(i) the identity of any General Partner or Limited Partner hereof;
(ii) the existence or nonexistence of any fact or facts which constitute
a condition precedent to acts by the General Partner or in any other
manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document of or on behalf of the Partnership; or
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership.
SECTION 5.3. Authority of the General Partner and Its Affiliates to Deal with
the Partnership and Local Partnerships
A. Independence SLP shall be entitled to act as the Special Limited
Partner of a Local Partnership that is a limited partnership for the purpose
of exercising the powers described in Section 5.10, provided that as Special
Limited Partner of such Local Partnership, Independence SLP receives no
distributions or other compensation in excess of .01% of the tax credits and
distributable cash other than from the Sale or Refinancing of the Property
owned by such Local Partnership and other than the Annual Local
Administration Fee. Affiliates of the General Partner may, and shall have the
right to, become Local Affiliated Partners, including the sole Local General
Partner, of any Local Partnership. Affiliates of the General Partner may, and
shall have the right to, act as management agent of any Property on the terms
and conditions permitted by applicable governmental regulations, and shall be
compensated for such services in an amount not to exceed the lesser of (1) 5%
of the gross revenues annually from the Property in the case of services
rendered as management agent including leasing, re-leasing and leasing
related services (included in such fees shall be bookkeeping services and
fees paid to nonrelated persons for property management services) or (2)
amounts generally charged in an arm's-length transaction by others rendering
comparable services in the locality where the Property is located.
B. Without limitation upon the other powers set forth herein, the General
Partner is expressly authorized for, in the name and on behalf of, the
Partnership to:
(i) cause the Partnership to make the payments set forth in Section 5.9;
and
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(ii) borrow funds from the General Partner or any of its Affiliates (a
"Voluntary Loan") so long as such loan is not to provide permanent
financing for the Partnership; provided, however, that the Partnership may
not pay in connection with a Voluntary Loan (A) interest or other
financing charges or fees in excess of the amounts which would be charged
by unrelated lending institutions on comparable loans for the same purpose
in the same locality (and in no event may interest on such borrowings
exceed the lesser of 2% per annum above the prime rate of interest from
time to time announced by Chemical Bank, New York, New York or the maximum
rate permitted by applicable law) or (B) any prepayment charge or penalty.
For purposes of this Section 5.3B(ii), "permanent financing" shall mean
any indebtedness encumbering any Partnership properties the principal
amount of which is scheduled to be paid over a period of not less than 48
months and not more than 50 percent of the principal amount of which is
scheduled to be paid during the first 24 months. "Voluntary Loans" do not
include loans made to Local Partnerships by Affiliates of the General
Partner pursuant to and in accordance with Section 5.3C(iv) hereof.
C. (i) Other than as specifically authorized in this Article Five, the
General Partner is prohibited from providing other goods and services to the
Partnership or Local Partnerships. Neither the General Partner nor any
Affiliate of the General Partner shall receive any rebates or give-ups, or
participate in any reciprocal business arrangements which would circumvent
the provisions of this Article Five. Without limiting the generality of the
foregoing, the General Partner is prohibited from entering into any of the
following agreements, contracts or arrangements on behalf of the Partnership
or any Local Partnership, with any other General Partner who is to be
admitted to the Partnership as a general partner or any Affiliate of any such
General Partner:
(A) Neither any General Partner nor any such Affiliate shall be given an
exclusive right to sell or exclusive employment to sell any Local
Partnership Interest for the Partnership, or to sell any Property owned by
a Local Partnership.
(B) Neither any General Partner nor any such Affiliate shall be paid a
commission or fee in connection with the reinvestment or distribution of the
proceeds of a Property, except as provided in Section 5.9E herein.
(ii) Affiliates of the General Partner shall be allowed specifically to
provide insurance brokerage services in connection with obtaining insurance
on the Properties, so long as the cost of providing such service, including
cost of insurance, is no greater than the lowest quote obtained from two
unaffiliated insurance agencies and the coverage and terms are likewise
comparable. However, in no event may such services be provided by any such
Affiliate unless such Affiliate is independently engaged in the business of
providing such services to other than affili-
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ates of such Affiliate and at least 75% of such Affiliate's insurance
brokerage service gross revenue is derived from other than its affiliates.
(iii) The General Partner shall be permitted to allow Local Partnerships to
acquire mortgage origination services from Affiliates of the General Partner
provided that all of the following conditions are met with respect thereto:
(A) the services must be necessary to the prudent operation of the Local
Partnership;
(B) the compensation, price or fee must be equal to either (x) the lesser
of 90% of the compensation, price or fee of any nonaffiliated Person who is
rendering comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location or 90% of the compensation,
price or fee charged by the General Partner or its Affiliates for rendering
comparable services or selling or leasing comparable goods on competitive
terms, or (y) if at least 95% of gross revenues attributable to the business
of rendering such services is derived from Persons other than Affiliates, the
compensation, price or fee charged by any nonaffiliated Person who is
rendering comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location;
(C) the goods or services shall be provided pursuant to a written contract,
which precisely describes the goods or services and all compensation to be
paid. The contract may be modified only by the vote of a majority in interest
of the limited partners of the Local Partnership and shall be terminable
without penalty on 60 days' notice;
(D) the services to be provided must be fully and specifically described in
the Prospectus at the time the same is originally declared effective;
(E) the General Partner or its Affiliates must have been previously engaged
in the business of rendering such services as an ordinary and ongoing
business for a period of three years; and
(F) the General Partner or its Affiliates must receive at least 33% of
gross revenues for such goods or services from Persons other than Affiliates.
(iv) The General Partner shall be permitted to allow Local Partnerships to
obtain construction and/or permanent mortgage financing from Affiliates of
the General Partner provided that all of the following conditions are met
with respect thereto:
(A) an independent and qualified adviser must issue a letter of opinion to
the effect that any proposed loan to a Local Partnership by an Affiliate of
the General Partner is fair and at least as favorable to the Local
Partnership as a loan to an unaffiliated borrower in similar circum-
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stances. In addition, the General Partner must obtain a letter of opinion
from the independent adviser in connection with any disposition,
renegotiation or other subsequent transaction involving such loans. The
adviser's compensation shall not be payable or reimbursable by the Local
Partnership or the Partnership; and
(B) no loan proposed to be made to a Local Partnership by an Affiliate of
the General Partner shall be secured by an all-inclusive or wrap around note,
mortgage or deed of trust, or contain any prepayment charge or penalty except
to the extent that such prepayment charge or penalty is attributable to the
underlying encumbrance.
D. The Partnership shall not invest in general partnerships or joint
ventures with Affiliates of the Partnership. The Partnership shall be
permitted to invest in general partnerships or joint ventures with Persons
that are not Affiliates of the Partnership and that own and operate one or
more particular Apartment Complexes if the Partnership acquires a controlling
interest in such a general partnership or joint venture, but in no event
shall duplicate fees be permitted. For purposes of this Section 5.3D,
"controlling interest" means an equity interest possessing the power to
direct or cause the direction of the management and policies of the general
partnership or joint venture, including the authority to: (i) review all
contracts entered into by the general partnership or joint venture that will
have a material effect on its business or property;
(ii) cause a sale or refinancing of the property or its interest therein
subject in certain cases where required by the partnership or joint
venture agreement to limits as to time, minimum amounts and/or a right of
first refusal by the joint venture partner or consent of the joint venture
partner;
(iii) approve budgets and major capital expenditures, subject to a stated
minimum amount;
(iv) veto any sale or refinancing of the property, or, alternatively, to
receive a specified preference on sale or refinancing proceeds; and
(v) exercise a right of first refusal on any desired sale or refinancing by
the joint venture partner of its interest in the Property except for
transfers to an Affiliate of the joint venture partner.
E. The Partnership shall be permitted to invest in general partner
interests of limited partnerships owning one or more Apartment Complexes only
if such interest bestows on the Partnership a "controlling interest" as
defined in Section 5.3D (in accordance with Section V.H.1 of the Guidelines),
no duplicate fees are permitted, no additional compensation beyond that
permitted by Section 5.9 (in accordance with Section IV of the Guidelines)
shall be paid to the General Partner and its Affiliates, and the partnership
agreement of such partnership shall comply with Article Five (in accordance
with Section V of the Guidelines).
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F. The Partnership shall be permitted to invest in limited partner
interests of other limited partnerships or limited liability company
interests of limited liability companies (the "Lower-Tier Partnerships") only
if all of the following conditions are met:
(i) If the general partner or member with primary management
responsibilities of the Lower-Tier Partnership is an Affiliate of the
Partnership or any General Partner, the Partnership shall not invest in
such Lower-Tier Partnership unless (a) the Lower-Tier Partnership owns and
operates (or is constructing or rehabilitating and upon the completion
thereof will operate) an Apartment Complex to be qualified for Housing Tax
Credits pursuant to Section 42(g) of the Code, (b) the Local Partnership
Agreement of the Lower-Tier Partnership contains provisions complying with
the section of the Guidelines that lists those sections of the Guidelines
that must be included in the partnership agreements of "Programs" as
defined in the Guidelines, and provisions acknowledging privity between
the general partner or member with primary management responsibilities of
the Lower-Tier Partnership and the BACs holders, and provides that
compensation payable in the aggregate from both levels shall not exceed
the amounts permitted under Section IV of the Guidelines, (c) the
Lower-Tier Partnership has as its limited partners or members without
management responsibilities only publicly-registered limited partnerships
(except that special limited partners or special members which are not
Affiliates of the General Partner shall also be permitted if the interests
taken result in no diminution of the control exercisable by the other
limited partners or members without management responsibilities), and (d)
the investment in the Lower-Tier Partnership does not result in the
structure of the Partnership's investments having more than two tiers.
(ii) If the general partner or member with primary management
responsibilities of the Lower-Tier Partnership is not an Affiliate of the
Partnership or any General Partner, the Partnership shall not invest in the
Lower-Tier Partnership unless the Lower-Tier Partnership owns and operates
(or is constructing or rehabilitating and upon the completion thereof will
operate) an Apartment Complex to be qualified for Housing Tax Credits
pursuant to Section 42(g) of the Code and the limited partners or members
without management responsibilities of the Lower-Tier Partnership are
provided all of the rights and obligations required by Section VII of the
Guidelines.
(iii) There shall be no duplicate fees.
In the event of any inconsistency between the requirements of this Section
5.3F and any other provision of this Agreement (including, without
limitation, Sections 5.2A(i)-(iii), Section 5.4A(xxxv) and Section 5.10), the
requirements of this Section 5.3F shall control.
G. (i) One or more Affiliates of the General Partner or the General
Partner who is or becomes a Local General Partner or special limited partner
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or special member of any of the Local Partnerships ("Local Affiliated
Partners") may be entitled to receive various types of distributions,
allocations and other compensation from the Local Partnerships in such
capacities, including without limitation a distributive share of operating
cash flow, profits, losses, Tax Credits and proceeds of a sale or
refinancing, and incentive management fees. The total amount of cash
compensation received by Local Affiliated Partners shall be deemed to have
been received by the General Partner for purposes of compliance with this
Section 5.3G(i), and in no event shall the aggregate of all cash compensation
received by the General Partner from the Partnership and deemed to have been
received by the General Partner from the Local Partnerships exceed (A) 11% of
Cash Distributions of Cash Flow and 1% of the Cash Distributions from Sale or
Refinancing Proceeds and (B) 15% of the Cash Distributions from Sale or
Refinancing Proceeds remaining after the Limited Partners and the BACs
holders have received Cash Distributions from all sources in an amount equal
to a 6% noncompounded, cumulative return (calculated from the end of the
calendar quarter in which each respective BACs holder made his Capital
Contribution) plus a return of their Capital Contributions from Cash
Distributions from Sale or Refinancing Proceeds.
(ii) The General Partner agrees that the provisions relating to
reimbursement to the General Partner and its Affiliates to be contained in
any Local Partnership Agreement will be no more favorable to the General
Partner and its Affiliates than the provisions of Section 5.1D hereof are to
the General Partner, and that the General Partner and its Affiliates will not
be reimbursed pursuant to any Local Partnership Agreement for the cost of
services, goods or materials for which it is entitled to reimbursement from
the Partnership or for services for which it is entitled to compensation by
way of a separable fee.
H. (i) Notwithstanding anything to the contrary contained in this
Agreement, the General Partner or any of its Affiliates (including, without
limitation, the Sponsor) may purchase Properties and Local Partnership
Interests in its own name (and assume indebtedness in connection therewith)
and temporarily hold title thereto for the purpose of facilitating the
acquisition of such Properties or Local Partnership Interests, the borrowing
of money or obtaining financing for the Partnership or a Local Partnership,
the completion of construction or rehabilitation of a Property or any other
purpose related to the business of the Partnership; provided that all of the
following conditions are met with respect thereto:
(a) the Property or Local Partnership Interest is purchased by a Local
Partnership or the Partnership, as the case may be, for a price no greater
than the cost thereof to the General Partner or its Affiliate, except
compensation in accordance with Sections 5.3C(ii), 5.3C(iii) and 5.9B
hereof;
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(b) the Local Partnership or the Partnership reasonably anticipates that it
will have sufficient funds to enable it to purchase the Property or Local
Partnership Interest, as the case may be;
(c) there is no difference in the rate of interest on any indebtedness
secured by the Property or Local Partnership Interest at the time of
acquisition by the General Partner or its Affiliate and at the time of
acquisition by a Local Partnership or the Partnership, as the case may be;
(d) the Property or Local Partnership Interest to be so acquired may not
have been held by the General Partner or its Affiliate for more than 12
months prior to the commencement of the Partnership's Offering and may not
have been purchased previously by the General Partner or Affiliate from an
Affiliate; and
(e) the General Partner or its Affiliate shall not derive any benefit from
such transaction other than compensation otherwise permitted by the
Guidelines. In accordance with the foregoing, all income and expense
associated with the Property or Local Partnership Interest so acquired shall
be treated as belonging to the Local Partnership or the Partnership, as the
case may be.
(ii) In the event that the Partnership has insufficient Net Proceeds
available to acquire all of the Properties or Local Partnership Interests
initially acquired by the General Partner and/or its Affiliates on behalf of
the Partnership pursuant to Section 5.3H(i) above, the General Partner shall
select the Properties or Local Partnership Interests which the Partnership
will ultimately acquire by employing the following criteria: (a) the effects
of the investments on the Partnership's diversification; (b) the expected
cash flows from the investments; (c) the amount and terms of available
mortgage financing; (d) the other economic characteristics of the
investments; (e) the amount of time necessary to clear contingencies to
purchase obligations; and (f) the anticipated income tax effects of the
investments.
SECTION 5.4. Restrictions on Authority of the General Partner
A. The General Partner shall not:
(i) do any act in contravention of this Agreement or any applicable law
or regulation, or receive any rebate or give-up or participate in any
reciprocal business arrangements which would circumvent the provisions
hereof or of the Guidelines;
(ii) do any act which would make it impossible to carry on the ordinary
business of the Partnership, except as provided in this Agreement;
(iii) confess a judgment against the Partnership;
(iv) possess Partnership property, or assign the Partnership's right in
specific Partnership property, for other than a Partnership purpose;
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(v) admit a Person as a General Partner, except as provided in this
Agreement;
(vi) admit a Person as a Limited Partner, except as provided in this
Agreement;
(vii) knowingly perform any act that would subject any Limited Partner or
BACs holder to liability as a general partner in any jurisdiction;
(viii) cause the Partnership to lend any funds to any Person (other than in
connection with Permitted Interim Investments, or in connection with the sale
or other disposition of Local Partnership Interests or Properties, or as
expressly permitted by Section 5.8D);
(ix) cause the Partnership to acquire interests in a Local Partnership
owning unimproved or non-income producing property unless it is anticipated
that such property will be developed into an Apartment Complex within the
calendar year of the Partnership's acquisition of such interests, cause the
Partnership to acquire an interest in a Local Partnership that is a limited
partnership unless such Local Partnership owns a Property that is or is to be
qualified pursuant to Section 42(g) of the Code, or cause the Partnership to
acquire an interest in an Apartment Complex that is not or is not to be
qualified pursuant to Section 42(g) of the Code;
(x) cause the Partnership to acquire any interest in a Local Partnership
which enters into any arrangement pursuant to which a Development Fee or
similar fee to the provider of development services to the Local Partnership
is payable over time wholly or in part out of cash flow of the Local
Partnership or proceeds of a Sale or Refinancing;
(xi) cause the Partnership to reinvest Cash Flow or Sale or Refinancing
Proceeds except Sale or Refinancing Proceeds received within two years of the
date of the Initial Closing, after distribution to the Limited Partners and
BACs holders, pursuant to Section 4.2 of this Agreement, of sufficient
amounts to provide for the payment of the anticipated federal and state tax
liabilities of the Limited Partners and BACs holders which were created by
such sale or refinancing (other than recapture liabilities), assuming each
Limited Partner and BACs holder is in the 40% marginal combined federal and
state tax bracket;
(xii) directly or indirectly pay or cause the Partnership or its Affiliates
or Affiliates of the General Partner to pay or award any finder's fees,
commissions, or other compensation to any Person engaged by a potential
investor for investment advice as an inducement to such advisor to advise the
purchaser regarding the purchase of BACs; provided, however, that the General
Partner shall not be prohibited from paying the normal sales commissions
payable to a registered broker-dealer or other properly licensed person for
selling BACs;
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(xiii) cause the Partnership to acquire any Local Partnership Interest in
exchange for BACs;
(xiv) except for the sale of an interest in each Local Partnership to
Independence SLP as a "Special Limited Partner" as described in the
Prospectus as contemplated by Section 5.3A, cause the Partnership or any
Local Partnership to sell any Local Partnership Interest to any General
Partner or any Affiliate of a General Partner;
(xv) change the Partnership's purposes from those set forth in Section 2.3;
(xvi) redeem or repurchase any BACs or Units;
(xvii) except as expressly set forth in the Prospectus with respect to
Properties specified therein at the time of its initial distribution or as
permitted in Section 5.3(H), cause the Partnership or any Local Partnership
to purchase or lease property or Local Partnership Interests from or to sell
or lease property or Local Partnership Interests to any General Partner or
any of its Affiliates or acquire any property or Local Partnership Interests
from a Program in which any General Partner or any Affiliate has an interest.
The term "Program" as used in this subdivision (xvii) shall mean a limited or
general partnership, joint venture, unincorporated association or similar
organization other than a corporation formed and operated for the primary
purpose of investment in and the operation of or gain from an interest in
real property including such entities formed to make or invest in mortgage
loans;
(xviii) borrow or allow any Affiliate to borrow from the Partnership except
as expressly authorized by Section 5.8D;
(xix) except as expressly set forth in the Prospectus with respect to
Properties specified therein at the time of its initial distribution or as
permitted in Section 5.3(H), allow any Affiliate to provide development or
construction services to the Partnership or any Local Partnership;
(xx) allow any Affiliate to provide goods or services to the Partnership or
any Local Partnership other than those disclosed in the Prospectus and
expressly permitted in this Agreement;
(xxi) invest in junior trust deeds or similar obligations (except that
junior trust deeds or similar obligations may be taken back from purchasers
of Local Partnership Interests or Properties in connection with the sale
thereof by the Partnership or any Local Partnership);
(xxii) cause the Partnership or any Local Partnership to invest in the
securities of other issuers, except as provided in Section 5.2A or Section
5.3;
(xxiii) underwrite the securities of other issuers;
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(xxiv) invest in any mutual funds or other open end investment companies
sponsored by Affiliates;
(xxv) except as expressly set forth in the Prospectus at the time of its
initial distribution to prospective BACs holders, acquire any Local
Partnership Interests from the General Partner or any of its Affiliates;
(xxvi) commingle the funds of the Partnership with those of any other
Person except (A) that the use of a zero balance or clearing account shall
not constitute a commingling of funds, and (B) that funds of the Partnership
and funds of other partnerships sponsored by the General Partner or its
Affiliates may be held in an account or accounts established and maintained
for the purpose of making computerized disbursements and/or short-term
investments (provided, however, that Partnership funds are protected from
claims of other such partnerships and/or their creditors);
(xxvii) cause the Partnership or any Local Partnership to pay any real
estate brokerage commission on the resale of a Property in an amount greater
than the lesser of (a) the rate of compensation that is reasonable, customary
and competitive in light of the size, type and location of the Property, and
(b) 6% of the contract price for the sale of the Property;
(xxviii) cause the Partnership, directly or indirectly, to invest in any
general partnerships or joint ventures unless such general partnership or
joint venture owns or has a contract to acquire a particular Property, the
general partnership or joint venture invested in is not an Affiliate of any
General Partner, and such investment complies with Section 5.3D or 5.3E, or
cause the Partnership to invest in any limited partnership as a limited
partner or any limited liability company as a member unless such investment
complies with Section 5.3F;
(xxix) cause the Partnership to acquire any Local Partnership Interest if,
as a result of such acquisition, the total amount of indebtedness incurred by
the Partnership and the Local Partnerships would exceed the sum of 85% of the
aggregate acquisition price of all Properties in which the Partnership has
invested and that have not been refinanced and 85% of the aggregate fair
market value of all refinanced Properties in which the Partnership has
invested, as determined by the lender as of the date of refinancing;
provided, however, that the 85% figure in the preceding clause may be
increased as follows: if the Partnership invests in Properties ("Government
Financed Properties") financed by 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 them, then such 85%
figure may be increased by the product of 15 multiplied by a fraction, the
numerator of which is the total appraisal value of Government Financed
Properties and the denominator of which is the sum of the total appraisal
value of
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Properties that are not Government Financed Properties plus the total value
of Properties that are Government Financed Properties; for purposes of this
Section 5.4A(xxix) only, "indebtedness" shall include the principal of any
loan together with any interest that may be deferred pursuant to the terms of
the loan agreement which exceeds 5% per annum of the principal balance of
such indebtedness (excluding contingent participations in income and/or
appreciation in the value of the Property), and shall exclude any
indebtedness incurred by the Partnership or a Local Partnership for necessary
working capital and the appraisal value of a Property shall be the value
designated in the appraisal delivered pursuant to Section 5.5J;
(xxx) cause the Partnership to acquire any interest in a Local Partnership
which acquires its Apartment Complex by the issuance of an "all-inclusive" or
"wrap-around" note and deed of trust (an "All-Inclusive Note") unless (a)
where the Sponsor is the holder of the All-Inclusive Note, the Sponsor does
not receive interest on the amount of the underlying encumbrance included in
the All-Inclusive Note in excess of that payable to the lender on that
underlying encumbrance; (b) the Local Partnership receives credit on its
obligations under the All-Inclusive Note for payments made directly on the
underlying encumbrance; and (c) either a paying agent (which may be a bank,
escrow company, or savings and loan institution) collects payments (other
than any initial payment of prepaid interest or loan points not to be applied
to the underlying encumbrance) on the All-Inclusive Note and makes
disbursements therefrom to the holder of the underlying encumbrance prior to
making any disbursements to the holder of the All-Inclusive Note, subject to
the requirements of clause (a) above, or all payments on the All-Inclusive
Note and the underlying note are made directly by the Local Partnership;
(xxxi) cause the Partnership to acquire any interest in a Local Partnership
which acquires its Apartment Complex by the incurrence of indebtedness to the
seller of the Apartment Complex unless the seller is a federal, state or
local government or instrumentality thereof or a non-profit organization
whose exempt purpose includes fostering low-income housing and the
indebtedness to the non-profit organization (a) does not exceed 60% of the
basis of the Apartment Complex, (b) is secured by the Apartment Complex, and
(c) is to be fully repaid on or before the earlier of (I) the stated maturity
date of the indebtedness, (II) the 90th day after the close of the 15-year
Housing Tax Credit compliance period with respect to the Apartment Complex
and (III) the date of the Sale or Refinancing of the Apartment Complex
("Permitted Seller Financing");
(xxxii) cause the Partnership to acquire any Local Partnership Interest by
the incurrence of indebtedness to the seller of such interest, unless such
indebtedness is Permitted Seller Financing;
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(xxxiii) subject to Section 5.5J, cause the Partnership to acquire a Local
Partnership Interest for an amount which is greater than its fair market
value;
(xxxiv) cause the Partnership to acquire interests in a Local Partnership
owning a Development-Stage Complex (as such term is defined in the
Prospectus) unless the Local General Partner of such Local Partnership (A)
provides a construction or rehabilitation completion guarantee and (B)
secures the same through the establishment of personal guarantees, a cash
escrow, financial bond, or letter of credit approved by the General Partner;
or
(xxxv) allow any Sponsor of the Partnership to receive any interest in net
proceeds from the sale or refinancing of the Local Partnerships' Properties
(except insofar as the General Partner will receive the same at the
Partnership level in conformity with the Guidelines).
B. Without the Consent of a majority in interest of the Limited Partners
given pursuant to Article Ten, the General Partner may not:
(i) amend this Agreement, except for amendments expressly authorized
pursuant to Section 5.2A(xi);
(ii) voluntarily withdraw as a general partner of the Partnership;
(iii) appoint a new general partner of the Partnership;
(iv) sell at any one time or in a series of related transactions all or
substantially all the assets of the Partnership (as such term is defined in
Section 10.2A), except for (A) a liquidating sale of a final Local
Partnership Interest remaining after the sale of all other Local Partnership
Interests or (B) sales in connection with the liquidation and winding up of
the Partnership's business upon its dissolution;
(v) elect to dissolve the Partnership pursuant to Section 8.1A(iii); or
(vi) make application to judicially dissolve the Partnership (to the extent
applicable law permits such a restriction upon the ability of a general
partner to seek judicial dissolution).
SECTION 5.5. Duties and Obligations of the General Partner
A. The General Partner shall devote to the affairs of the Partnership such
time as may be necessary for the proper performance of its duties hereunder,
but the members of the General Partner and the officers and directors of such
members shall not be expected to devote their full time to the performance of
such duties.
B. The General Partner shall take such action as may be necessary or
appropriate for the continuation of the Partnership's valid existence under
the laws of the State and in order to form or qualify the Partnership under
the laws of any jurisdiction in which the Partnership is doing business or in
which such formation or qualification is necessary to protect the limited
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liability of the Limited Partners and BACs holders or in order to continue in
effect such formation or qualification. The General Partner shall file or
cause to be filed for recordation in the office of the appropriate
authorities of the State, and in the proper office or offices in each other
jurisdiction in which the Partnership is formed or qualified, such
certificates, including limited partnership and fictitious name certificates,
and other documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction.
C. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state
or local tax returns required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by the
Partnership.
D. The General Partner shall advise the Securities Division of the Office
of the Secretary of State of the Commonwealth of Massachusetts, the State
Securities Board of Texas and the Department of Commerce and Insurance of the
State of Tennessee of any securities violations that the General Partner or
the Partnership are alleged to have committed, and to supply such other
information in such regard as the Securities Board of Texas requests.
E. The General Partner shall use its best efforts to assure that the
Partnership shall not be deemed an investment company as such term is defined
in the 1940 Act.
F. The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or
not in its immediate possession or control. The General Partner shall not
employ, or permit another to employ, such funds or assets in any manner
except for the exclusive benefit of the Partnership. In addition, the General
Partner shall not allow any Limited Partner or BACs holder to contract away
the fiduciary duty owed to such Limited Partner or BACs holder by the General
Partner under common law and as provided in this Agreement.
G. The General Partner is authorized, in its sole discretion, to cause the
Partnership to acquire policies of limited partnership liability insurance,
insuring the Partners and BACs holders and certain of their Affiliates
against certain liabilities in connection with the business of the
Partnership and insuring the Partnership against certain liabilities with
respect to any indemnification it is legally required or permitted to provide
pursuant to Section 5.8 of this Agreement to such Partners and BACs holders
and such Affiliates. Such insurance may be purchased through the
Partnership's participation in "blanket" or other combined insurance programs
covering the Partnership and other programs that are Affiliates of the
Partnership so long as (i) the premium cost associated therewith is allocated
fairly and does not exceed the premium cost that the Partnership would incur
if it obtained similar coverage alone, and (ii) no provisions of such
insurance
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provide coverage in respect of actions or omissions for which indemnification
is not permitted under Section 5.8 of this Agreement.
H. The General Partner will use its best efforts to observe the standards
described under the caption "Investment Objectives and Policies" in the
Prospectus.
I. Subject to the provisions of this Article Five, the General Partner may
delegate any or all of the 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.
J. Each acquisition of a Local Partnership Interest will be supported by
an appraisal of the Property owned by such Local Partnership, and when the
appraisal is obtained during the developmental stage of a Property, it will
be prepared on an "as completed" basis. The appraisal will be prepared by a
competent, independent appraiser. The appraisal may take into account the
value of the Housing Tax Credits associated with the Local Partnership
Interest. The appraisal will be maintained in the Partnership's records for
at least five years, and shall be available for inspection and duplication by
any BACs holder or Limited Partner.
K. The General Partner shall require that counsel shall immediately notify
the Partnership in writing of any changes or modifications to its opinion as
to transferability of Units and BACs. The General Partner shall eliminate or
modify any restriction on substitution or assignment of Units and BACs at
such time that counsel to the Partnership opines that the restriction is no
longer necessary.
L. The General Partner shall cause the Special Limited Partner to take the
actions described in Section 10.2A(v) when required by the terms of such
Section.
SECTION 5.6. Compensation of the General Partner
The General Partner shall not in its capacity as general partner of the
Partnership receive any salary, fees, commissions, profits, distributions or
allocations except such profits, distributions, fees, commissions, and
allocations to which it is entitled under this Agreement.
SECTION 5.7. Other Business of Partners
Any Partner or BACs holder may engage independently or with others in
other business ventures of every nature and description, including, without
limitation, the rendering of advice or services of any kind to other
investors and the making or management of other investments, including,
without limitation, investments in real property. Neither the Partnership nor
any other Partner or BACs holder shall have any right by virtue of this
Agreement or the partnership relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived therefrom. Not-
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withstanding the foregoing, (i) the General Partner and its Affiliates
(excepting such Affiliates that are publicly or privately syndicated limited
partnerships) will not undertake an equity investment in any low-income
housing property that reasonably meets the investment objectives of the
Partnership unless the Partnership does not have funds available to
consummate the transaction on a timely basis and (ii) the General Partner and
its Affiliates may not engage in any venture that may be competitive with the
business of the Partnership unless (A) such venture is specifically described
and disclosed in the Prospectus under the caption "Conflicts of Interest," or
(B) if such venture is not so described and disclosed, the General Partner or
such Affiliates reasonably conclude that such venture would not have a
materially adverse effect on the business of the Partnership. Affiliates of
the General Partner that are publicly or privately syndicated limited
partnerships will only be permitted to undertake an equity investment in a
low-income housing property that reasonably meets the investment objectives
of the Partnership if such affiliated program has had investment funds
available for investment for a longer period than the Partnership.
SECTION 5.8. Limitation on Liability of General Partner; Indemnification
A. Subject to any further restrictions provided by applicable law, the
Partnership, its receiver or its trustee, shall indemnify and save harmless
the General Partner and its Affiliates from any liability or loss incurred by
it or by the Partnership by reason of any act performed or omitted to be
performed by it on behalf of the Partnership provided that such act or
omission was within the scope of authority of the General Partner as set
forth in this Agreement, including costs and reasonable attorneys' fees and
any amount expended in the settlement of any claim of liability or loss;
provided that (i) if such liability or loss arises out of any action or
inaction of any Affiliate, such action or inaction must have occurred while
such party was engaged in activities which could have been engaged in by a
General Partner in its capacity as such; (ii) if such liability or loss
arises out of any action or inaction of the General Partner or its
Affiliates, (A) the General Partner or its Affiliates (acting within the
scope of the General Partner's authority) must have determined, in good
faith, that such course of conduct which caused the loss or liability was in
the best interests of the Partnership, (B) the General Partner or its
Affiliates (acting within the scope of the General Partner's authority) were
acting on behalf of or performing services for the Partnership, and (C) such
course of conduct did not constitute fraud, negligence or misconduct by the
General Partner or its Affiliates; and (iii) any such indemnification shall
be recoverable only from the assets of the Partnership and not from the
assets of the Limited Partners or BACs holders. All judgments against the
Partnership and the General Partner or its Affiliates, wherein the General
Partner or its Affiliates are entitled to indemnification, must first be
satisfied from Partnership assets before such General Partner or its
Affiliates are responsible for these obligations.
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B. Notwithstanding anything to the contrary contained in Section 5.8A, the
General Partner and its Affiliates and any Person acting as a broker-dealer
shall not be indemnified for any losses, liabilities or expenses arising from
or out of an alleged violation of federal or state securities laws unless the
following conditions are met:
(i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee,
or
(ii) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee, or
(iii) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee and finds that indemnification of the
settlement and related costs should be made, and
(iv) in any of the foregoing instances, the court of law considering the
request for indemnification has been advised of the position of the
Securities and Exchange Commission, the Massachusetts Securities Division,
the Missouri Securities Division and the position of any other state
securities regulatory authority in which securities of the Partnership were
offered or sold as to indemnification for violations of securities laws
(provided that the court need only be advised of the positions of the
securities regulatory authorities of those states in which plaintiffs claim
they were offered or sold securities of the Partnership).
C. The Partnership may not incur the cost of that portion of liability
insurance which insures the General Partner or its Affiliates for any
liability as to which the General Partner or its Affiliates are prohibited
from being indemnified under this Section 5.8 (in accordance with Section
II.D of the Guidelines); provided that nothing contained herein shall
preclude the Partnership from purchasing and paying for such types of
insurance, including extended coverage liability and casualty and workers'
compensation, as would be customary for any Person owning comparable assets
and engaged in a similar business, or from naming the General Partner or its
Affiliates as additional insured parties thereunder, provided that such
addition does not add to the premiums payable by the Partnership. Nothing
contained herein shall constitute a waiver by any Limited Partner or BACs
holder of any right which he may have against any party under federal or
state securities laws.
D. The provision of advancement from Partnership funds to the General
Partner or its Affiliates for legal expenses and other costs incurred as a
result of any legal action is permissible if the following conditions are
satisfied:
(i) the legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the Partnership;
(ii) the legal action is initiated by a Limited Partner or BACs holder and
a court of competent jurisdiction specifically approves such
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advancement, or the legal action is initiated by a third party who is not a
Limited Partner or BACs holder; and
(iii) the General Partner or its Affiliates undertake to repay the advanced
funds to the Partnership in cases in which such party is not entitled to
indemnification under this Section 5.8 (in accordance with Section II.D.1 of
the Guidelines).
E. The General Partner agrees that the indemnification provisions to be
contained in any Local Partnership Agreement will be no more favorable to the
Local General Partners than the indemnification provisions of this Agreement
are to the General Partner.
SECTION 5.9. Certain Payments
A. In no event shall the total of all Front End Fees paid by anyone to all
parties in connection with the acquisition by the Partnership of Properties
and Local Partnership Interests result in the commitment to Investment in
Properties of less than the greater of sixty-nine and one-half percent
(69.5%) of all Capital Contributions paid by BACs holders or eighty-two and
one-half percent (82.5%) of all Capital Contributions paid by BACs holders
reduced by .1625% for each 1% of financing encumbering the Properties. For
this purpose, the percentage of financing encumbering Properties shall be
calculated by dividing (a) the amount of financing by (b) the amount of
Invested Assets, less Front End Fees and working capital Reserves of the
Partnership or the Local Partnerships in excess of 5% of Capital
Contributions. The quotient resulting from the foregoing calculation is
multiplied by .1625% to determine the percentage to be deducted from 82.5%.
In no event will total public offering expenses (the aggregate of Selling
Commissions and Organization and Offering Expenses) exceed 11% of Gross
Proceeds.
B. In consideration of services rendered by the General Partner and
Affiliates in assisting the Local Partnerships in acquiring the Properties
and in supervising the construction of the properties, the General Partner
and Affiliates shall be entitled to receive Consulting and Monitoring Fees
paid by the Partnership and/or the Local Partnerships in an aggregate amount
up to 6.0% of Gross Proceeds, and in addition shall receive the amounts
distributable to the General Partner pursuant to Section 4.2B(7).
C. The Partnership has executed an agreement with the Dealer Manager
pursuant to which said firm shall act as dealer manager for the sale of the
BACs and shall receive a brokerage commission of up to a maximum of $75 per
BAC sold. Also pursuant to such agreement, the Partnership shall pay to the
Dealer Manager an amount equal to 2.5% of the Gross Proceeds as a
non-accountable Organization and Offering Expenses allowance, in
consideration of which the Dealer Manager shall pay or cause to be paid (i)
all Organization and Offering Expenses applicable to the Partnership to the
extent that the aggregate amount of Organization and Offering Expenses
applicable to the Partnership do not exceed an amount equal to 2.5% of the
Gross Proceeds, and (ii) any Organization and Offering
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Expenses applicable to the Partnership to the extent that the aggregate
amount of Organization and Offering Expenses applicable to the Partnership
exceeds an amount equal to 3.5% of the Gross Proceeds.
D. After all other expenses of the Partnership are paid, the Partnership
shall pay to the General Partner an annual fee (the "Partnership Management
Fee") for its services in connection with the administration of the affairs
of the Partnership (including, without limitation, coordination of
communications between the Partnership and BACs holders and with the Local
Partnerships). The Partnership Management Fee will be an annual amount up to
a maximum of 0.5% of Invested Assets. The General Partner may determine to
defer payment of all or a portion of the Partnership Management Fee for any
year based on the Partnership's cash resources. Unpaid Partnership Management
Fees for any year will be deferred without interest and will be payable only
to the extent that the Partnership has funds available to pay the same after
making all distributions contemplated by Section 4.2B(1) through 4.2B(3). In
no event will the total of Partnership Management Fees and Annual Local
Administrative Fees paid for any year exceed 0.5% of Invested Assets, and no
General Partner will be entitled to receive any Partnership Management Fee in
any year in respect of any Property for which the General Partner receives a
property management fee in such year. The General Partner may, in certain
circumstances, replace a Local General Partner with an Affiliate of the
General Partner or the General Partner itself. Partnership Management Fees
for any year will be reduced to the extent that the sum of (i) the aggregate
amount of operating cash flow received by Affiliates of the General Partner
or the General Partner itself from Local Partnerships and (ii) the amount of
operating cash flow received by the General Partner from the Partnership
exceeds 1% of all distributions of operating cash flow by the Partnership for
such year. Partnership Management Fees may be paid from Reserves (provided
that Reserves may not be used to pay Partnership Management Fees if the use
of Reserves for such purpose would cause the Reserves to be less than 1% of
Gross Proceeds) or Sale or Refinancing Proceeds.
E. The General Partner shall be entitled to receive a disposition fee (the
"Disposition Fee") if the General Partner actually provides a substantial
amount of the services in connection with the sale of a Property or the sale
of a Local Partnership Interest. Payment of such fee shall be made solely out
of Sale or Refinancing Proceeds remaining after each Limited Partner and BACs
holder has received Cash Distributions from all sources in an amount equal to
a 6% noncompounded, cumulative return (calculated from the end of the
calendar quarter in which each respective Limited Partner or BACs holder made
his Capital Contribution) plus Cash Distributions of Sale or Refinancing
Proceeds in an amount equal to such Limited Partner's or BACs holder's
Unreturned Capital Contributions. Each Disposition Fee shall be in an amount
equal to the lesser of one-half the Competitive Real Estate Commission or 3%
of the sale price in respect of any such sale (including the principal amount
of any mortgage loans and any related
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seller financing with respect to a Property to which such sale is subject).
In no event shall the Disposition Fee and all other fees payable to the
General Partner or any of its Affiliates and any unrelated parties arising
out of any given sale exceed the lesser of the competitive rate or 6% of the
gross proceeds from such sale.
F. Independence SLP shall be entitled to receive an Annual Local
Administrative Fee of up to $5,000 per year from each Local Partnership of
which it is a Special Limited Partner, provided that Independence SLP has
agreed to waive the Annual Local Administrative Fee payable by a Local
Partnership to the Special Limited Partner for any year in which such Local
Partnership's Property was managed by an Affiliate of a General Partner. The
sum of the Annual Local Administrative Fee and the Partnership Management Fee
for any year will not exceed 0.5% of Invested Assets.
G. Payments under this Section, to the extent paid to a Partner, are
intended to be governed by 707(a) of the Code and made to that Partner other
than in his capacity as a member of the Partnership.
SECTION 5.10. Additional Restrictions on the General Partner
A. Except as is expressly set forth in the Prospectus at the time of its
initial distribution with respect to Properties, if any, described under
"Specified Investments" in the Prospectus (provided that such exception shall
not apply to the powers described in Section 5.10A(x), which shall be
required with respect to each Partnership investment), no investment in any
Local Partnership will be made unless the Partnership as general partner,
limited partner or member, or Independence SLP as Special Limited Partner, of
such Local Partnership, shall have the following powers pursuant to the Local
Partnership Agreement (provided that the exercise of any of the following
powers may be made subject to the approval or consent of applicable
government agencies, and provided further that the General Partner shall not
be required to obtain the powers described in Section 5.10A(xi) for the
Partnership or the Special Limited Partner if the General Partner obtains
other powers for the Partnership or the Special Limited Partner that in the
judgment of the General Partner provide equivalent protections under the
circumstances or if the General Partner concludes that other investment
characteristics of the Partnership's investment in such Local Partnership
and/or other Local Partnerships justify the absence of such powers):
(i) the right to approve the withdrawal of the Local General Partner and
the admission of a successor Local General Partner;
(ii) the right to remove the Local General Partner from the Local
Partnership, subject to certain limitations and the opportunity to remedy
defaults, in the event such Local General Partner violates the Local
Partnership Agreement in a material respect;
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(iii) the right to receive information and/or reports with regard to the
financial and physical condition of the Property owned by the Local
Partnership;
(iv) the right to appoint a Person to become the managing general partner
or member with primary management responsibilities of the Local Partnership
upon the occurrence of certain events, including the removal of the Local
General Partners;
(v) the right to remove and approve the selection of any managing agent for
the Property upon the occurrence of certain events, including the removal of
the Local General Partner;
(vi) the right to approve the selection of the accountants for the Local
Partnership;
(vii) the right to act as the "Tax Matters Partner" of the Local
Partnership, or the right to bring and defend administrative and judicial
actions and to approve or require the making of certain tax elections
involving tax matters affecting the Local Partnership;
(viii) the right to disapprove any proposed Sale or Refinancing or other
disposition of all or substantially all of the assets of the Local
Partnership;
(ix) the right to approve or disapprove of certain transactions not in the
ordinary course of business;
(x) in the case of a Local Partnership that is a limited partnership or
limited liability company, the right to remove the Local General Partner from
a Local Partnership upon a vote of the Limited Partners pursuant to Article
Ten; and
(xi) (a) if required by applicable law as a precondition of the right of
the Local Partnership to sell its Property free of the restrictions imposed
by law in order to qualify for Housing Tax Credits and subject to the Local
Partnership not having waived such right as a condition to such Local
Partnership having received an allocation, the right to require the Local
General Partner to request at any time after the fourteenth year of the
Housing Tax Credit compliance period applicable to such Property that the
applicable state housing credit agency endeavor to locate within one year
from the date of such request a purchaser who will maintain the Property as a
low-income Property at a purchase price that is not less than the debt
encumbering the Property plus the Local Partnership's equity in the Property
(adjusted for cost of living increases as permitted by applicable law), and
if such agency locates such a purchaser, the right to compel the Local
General Partner to accept the offer to purchase of such purchaser, and (b)
subject, if required, to the procedure described in clause (a) of this
Section 5.10A(xi), beginning in approximately the fifteenth to twentieth year
of the Partnership's investment in the Local Partnership, the right to
require the Local General Partner to
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use its best efforts to find a purchaser for the Property owned by such
Local Partnership and, if such effort is not successful on terms satisfactory
to the Partnership within a stated period of time, the right itself to locate
a purchaser of such Property and to obligate the Local General Partner to
approve the sale of the Property to such purchaser so long as the price and
other terms offered by such purchaser are at least as favorable as the best
offer, if any, located by the Local General Partner or to remove the General
Partner if it does not so approve such sale.
B. In exercising any of the foregoing rights and powers, the General
Partner or Independence SLP, as the case may be, shall act in the best
interests of the Limited Partners and BACs holders and will be accountable to
them as a fiduciary. The Limited Partners and BACs holders, however, also
recognize that the General Partner or Independence SLP, as the case may be,
may (but shall not be required to) have additional rights to assume the
position and duties of the Local General Partner of certain Local
Partnerships if the Local Partnerships' failure to meet negotiated net income
or tenant qualification standards indicates that a danger of foreclosure or
Tax Credit recapture is presented, and acknowledge that the exercise by
Independence SLP or the General Partner, as the case may be, of any such
rights will require the application of subjective judgment to complex facts
and that there may be circumstances in which a Local Partnership will fail to
meet such standards and in which the removal of the Local General Partner is
nonetheless not in the best interests of the Limited Partners and BACs
holders.
SECTION 5.11. Roll-up Transactions
A. The Partnership shall not participate in a transaction ("Roll-up")
involving the acquisition, merger, conversion or consolidation, either
directly or indirectly of the Partnership and the issuance of securities of a
partnership, real estate investment trust, corporation, trust or other entity
that would be created or would survive after the successful completion of a
proposed Roll-up transaction (the surviving entity being referred to herein
as the "Roll-up Entity"), unless each of the following conditions is met:
(1) An appraisal of all Partnership assets shall be obtained from a
competent Independent Expert. If the appraisal will be included in a
prospectus used to offer the securities of a Roll-up Entity, the appraisal
shall be filed with the SEC and the states as an exhibit to the
registration statement for the offering. In such event, the Roll-up Entity
using the appraisal may be subject to liability for violation of Section
11 of the Securities Act of 1933 and comparable provisions under state
laws for any untrue statement of a material fact or any omission to state
a material fact in the appraisal. Partnership assets shall be appraised on
a consistent basis. The appraisal shall be based on an evaluation of all
relevant information, and shall indicate the value of the Partnership's
assets as of a date immediately prior to the announcement of the proposed
Roll-up. The appraisal shall assume an orderly liquidation of the Partner-
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ship's assets over a 12-month period. The terms of the engagement of the
Independent Expert shall clearly state that the engagement is for the
benefit of the Partnership and its Limited Partners and BACs holders. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the
participants in connection with a proposed Roll-up.
(2) In connection with a proposed Roll-up, the person sponsoring the
Roll-up shall offer to Limited Partners and BACs holders who vote "no" on
the proposal the choice of:
(a) accepting the securities of the Roll-up Entity offered in the
proposed Roll-up; or
(b) one of the following: (i) remaining as Limited Partners or BACs
holders in the Partnership and preserving their interests therein on the
same terms and conditions as existed previously; or (ii) receiving cash
in an amount equal to the Limited Partners and BACs holders pro-rata
share of the appraised value of the net assets of the Partnership.
B. The term "Roll-up" does not include (1) a transaction involving
securities of the Partnership that have been listed for at least 12 months on
a national securities exchange or traded through the National Association of
Securities Dealers Automated Quotation National Market System or (2) a
transaction involving the conversion to corporate, trust or association form
of only the Partnership if, as a consequence of the transaction, there will
be no significant adverse change in any of the following: (a) the voting
rights of Limited Partners or BACs holders; (b) the term of existence of the
Partnership; (c) compensation of the General Partner; or (d) the
Partnership's investment objectives.
C. The Partnership shall not participate in any proposed Roll-up which
would result in Limited Partners or BACs holders having democracy rights in
the Roll-up Entity which are less than those provided for under Article Ten
of this Agreement. If the Roll-up Entity is a corporation, the voting rights
of shareholders in the corporation shall correspond to the voting rights
provided for in Article Ten to the greatest extent possible.
D. The Partnership shall not participate in any proposed Roll-up which
includes provisions which would operate to materially impede or frustrate the
accumulation by any purchaser of shares or other units of the securities of
the Roll-up Entity (except to the minimum extent necessary to preserve the
tax status of the Roll-up Entity). The Partnership shall not participate in
any proposed Roll-up which would limit the ability of a Limited Partner or
BACs holder to exercise the voting rights of securities in the Roll-up Entity
on the basis of the number of Units or BACs held by that Limited Partner or
BACs holder.
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E. The Partnership shall not participate in any proposed Roll-up in which
the right of Limited Partners or BACs holders to the records of the Roll-up
Entity will be less than those provided for under Section 9.1.
F. The Partnership shall not participate in any proposed Roll-up in which
any of the costs of the transaction would be borne by the Partnership if the
Roll-up is not approved by the Limited Partners and BACs holders.
ARTICLE SIX
SUCCESSOR AND ADDITIONAL GENERAL PARTNERS
SECTION 6.1. Admission of Successor and Additional General Partners
A. Except as provided in this Article Six and in Section 10.2A(iii), no
General Partner shall voluntarily dissolve or withdraw voluntarily from the
Partnership or sell, transfer or assign all or any portion of its General
Partner's Interest, and no assignee or transferee of all or any portion of a
General Partner's Interest shall have any right to become a General Partner.
B. A General Partner may voluntarily dissolve or withdraw voluntarily from
the Partnership or sell, or transfer or assign all or any portion of the
General Partner's Interest with the Consent of the other General Partners, if
there be any, and the approval of a majority in interest of the Limited
Partners (acting pursuant to Article 10), and upon such event such General
Partner shall, with the Consent of the other General Partners, if there be
any, and the approval of a majority in interest of the Limited Partners
(acting pursuant to Article 10), designate one or more Persons to be
successors to such General Partner or to be an additional General Partner, in
each case with such participation in such General Partner's Interest as such
General Partner and such successors or additional General Partners may agree
upon. With the Consent of the other General Partners, if there be any, and
the approval of a majority in interest of the Limited Partners (acting
pursuant to Article 10), any General Partner may at any time designate one or
more Persons to be an additional General Partner, in each case with such
participation in such General Partner's Interest as such General Partner and
such additional General Partner may agree upon.
C. Notwithstanding the provisions of Section 6.1B, without the Consent of
any other Partner, any General Partner may cause to be admitted to the
Partnership an additional General Partner or General Partners, with such
participation in such General Partner's Interest as such General Partner and
such additional General Partner or General Partners may agree upon, if such
General Partner deems the admission of such additional General Partner or
General Partners to be necessary or desirable to effect compliance with
Section 5.5B. In the event of the dissolution of a General Partner which is a
general partnership, limited partnership or limited liability company and
which is not the sole remaining General Partner, if the partners or members
thereof continue the business of such partnership or limited
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liability company after the dissolution in a successor Entity, such Entity
shall be substituted as a General Partner if notice is given and such
admission is approved as set forth in Section 6.1B. Each General Partner and
Limited Partner and BACs holder hereby consents to the admission of any
additional or successor General Partner pursuant to this Section 6.1C, and no
further consent or approval of any General Partner or Limited Partner or BACs
holder shall be required. A Person shall be admitted as an additional or
successor General Partner pursuant to this Section 6.1C upon satisfying the
conditions of Section 12.2A.
D. Notwithstanding anything to the contrary in this Article Six, a General
Partner's Interest shall at all times additionally be subject to the same
restrictions on transfer as those set forth for Limited Partners and BACs
holders in Section 7.1(i).
E. In any circumstance where there is at least one remaining General
Partner and the Partnership would dissolve pursuant to Section 8.1A(i) unless
a remaining General Partner agrees to carry on the business of the
Partnership, such remaining General Partner shall so agree as contemplated by
such Section 8.1A(i)(A). In any circumstance where an additional or successor
General Partner is admitted to the Partnership as provided in this Article
Six or in Section 10.2A(iii), the additional or successor General Partner,
together with all then remaining General Partners, shall continue the
business of the Partnership without dissolution (and if a successor General
Partner is to be admitted at a time when the withdrawing General Partner is
the sole remaining General Partner, such successor shall be admitted as a
General Partner immediately prior to the effective date of withdrawal of the
withdrawing General Partner, and such successor General Partner shall
continue the business of the Partnership without dissolution).
F. In any circumstance where the withdrawal or removal of a General
Partner would result in the Partnership having no remaining general partners,
the withdrawal or removal of such General Partner shall not be effective for
a period of at least 90 days during which time a majority-in-interest of the
Limited Partners (or such greater percentage in interest as is required by
the Uniform Act) shall have the right, pursuant to Section 10.2A(iii), to
elect a new general partner who shall be admitted as a General Partner
immediately prior to such withdrawal or removal and who shall agree to
continue the business of the Partnership without dissolution.
SECTION 6.2. Consent of Limited Partners to Admission of Successor or
Additional General Partners
Each of the Limited Partners, by the execution of this Agreement, Consents
to the admission of any Person as a successor or additional General Partner
the admission of which has been approved by a majority in interest of the
Limited Partners, other than Limited Partners that are Affiliates of the
General Partner, acting pursuant to Article Ten. If the admission is so
approved, such admission shall, without any further Consent or approval of
the Limited Partners, be an act of all the Limited Partners.
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SECTION 6.3. Valuation and Sale of Interest of Former General Partner
A. If the business of the Partnership is continued after the occurrence of
an event described in Section 8.1A(i) (except in the case of a removed
General Partner whose interest is purchased by a successor General Partner
pursuant to Section 10.2 and other than removal for fraud, gross negligence,
or willful misconduct), the Partnership shall purchase such General Partner's
Interest, as contemplated in Section 6.3B below, for a price equal to the
then present fair market value thereof (less any damages caused by such
event). Such then present fair market value shall be determined by two
independent appraisers, one selected by the former General Partner or his
representative and one by the Partnership or a majority in interest of the
Limited Partners in the event that there is no remaining General Partner. If
such appraisers are unable to agree on the value of the removed General
Partner's Interest, they shall jointly appoint a third independent appraiser,
whose determination shall be final and binding. The appraisers may act with
or without a hearing, and the cost of the appraisal will be borne equally by
such General Partner and the Partnership. In the event that the business of
the Partnership is continued after a General Partner is removed for fraud,
gross negligence or willful misconduct, the Partnership shall not be
obligated to purchase such removed General Partner's Interest.
B. The Partnership shall deliver its promissory note for the purchase
price of a General Partner's Interest as provided in Section 6.3A above,
which note shall provide, except when such termination has resulted from the
General Partner's voluntary withdrawal, voluntary dissolution or assignment
pursuant to Section 6.1B, for interest at the lesser of the then prime rate
of Chemical Bank, New York, New York, or the maximum rate permitted by
applicable law, for a term of not less than five (5) years and for equal
annual installments of interest and principal each year; where the
termination has resulted from the General Partner's voluntary withdrawal,
voluntary dissolution or assignment pursuant to Section 6.1B, such promissory
note shall be unsecured, shall bear no interest and will be payable only from
distributions which the terminated General Partner otherwise would have
received under the terms of this Agreement had such General Partner not
ceased to be a general partner of the Partnership. Within 120 days after the
determination of the fair market value of the former General Partner's
Interest, the Partnership may, with the Consent of any remaining General
Partner and a majority in interest of the Limited Partner, other than Limited
Partners that are Affiliates of the General Partner, acting pursuant to
Article Ten, sell such General Partner's Interest to one or more Persons, who
may be Affiliates of the remaining General Partner, and admit such Person or
Persons to the Partnership as successor General Partner(s); provided,
however, that the purchase price to be paid to the Partnership for the
General Partner's Interest of the former General Partner may be less than its
fair market value as determined by the appraisal described above.
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ARTICLE SEVEN
TRANSFERABILITY OF UNITS AND BACs
SECTION 7.1. Restrictions on Transfers of Units and BACs
With the prior written consent of the General Partner, a Limited Partner
or BACs holder may assign his Units or BACs pursuant to Section 7.3 or by a
duly executed, written instrument of assignment the terms of which are not in
contravention of any of the provisions of this Agreement. Prior to any
assignment of a beneficial interest in Units or BACs or a transfer of record
ownership of such Units or BACs, the assignor shall give notice of such
assignment to the General Partner, which notice shall include (1) the names
and addresses of the transferor and the transferee, (2) the taxpayer
identification number of the transferor and, if known, the transferee, (3)
the date of the assignment, sale or exchange, and (4) such other information
with respect to the transfer as the General Partner shall request. The
General Partner shall consent to such proposed sale, assignment, transfer or
exchange unless:
(i) in the opinion of counsel for the Partnership, such sale,
assignment, transfer or exchange would result (A) when considered with all
other sales, assignments, transfers and exchanges of Units and BACs (and,
if applicable, General Partners' Interests) within the previous 12 months,
in the Partnership's being considered to have been terminated within the
meaning of Section 708 of the Code and such termination would have adverse
tax consequences to the Limited Partners, or (B) in the Partnership's
being treated as a corporation for federal income tax purposes;
(ii) subject to Section 5.5K, absent a change in applicable tax law
under Section 7704 of the Code, such transfer would fall outside of the
safe harbor provisions of Internal Revenue Service Notice 88-75 (or other
safe harbors adopted by the Internal Revenue Service that protect against
treatment as a publicly traded partnership);
(iii) counsel for the Partnership shall be of the opinion that such
sale, assignment, transfer or exchange would be in violation of any
applicable federal or state securities laws (including any investor
suitability standards);
(iv) counsel for the Partnership shall be of the opinion that such sale,
assignment, transfer or exchange would result in the Partnership being
required to pay a recapture penalty for the accelerated portion of the Tax
Credits taken with respect to such Units or BACs or being required to post
a bond;
(v) except for transfers by gift or inheritance, intra-family transfers,
transfers resulting from family dissolutions and transfers to Affili-
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ates, the transferor or the transferee would hold Units or BACs
representing a Capital Contribution of less than $5,000 as a result of the
transfer; or
(vi) the transferee is a Foreign Person or Tax-Exempt Entity.
Any attempted sale, assignment, transfer or exchange in contravention of
the provisions of this Article Seven shall be void and ineffectual and shall
not bind or be recognized by the Partnership, the General Partner, the
Assignor Limited Partner, any transfer agent, the Dealer Manager or any other
agent of the General Partner or the Partnership.
SECTION 7.2. Assignees and Substituted Limited Partners and BACs Holders
A. If a Limited Partner or BACs holder dies, his executor, administrator
or trustee, or, if he is adjudicated incompetent, his committee, guardian or
conservator, or, if he becomes Bankrupt, the trustee or receiver of his
estate, shall have all the rights of a Limited Partner or BACs holder for the
purpose of settling or managing his estate and such power as the decedent or
incompetent possessed to assign all or any part of his Units or BACs and to
join with the assignee thereof in satisfying conditions precedent to such
assignee's becoming a Substituted Limited Partner or BACs holder. The death,
dissolution, adjudication of incompetence or Bankruptcy of a Limited Partner,
in and of itself, shall not dissolve the Partnership.
B. The Partnership need not recognize for any purpose any assignment or
transfer of all or any fraction of the Units of a Limited Partner (other than
pursuant to Section 7.3) or of the BACs of a BACs holder 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 (but not to
exceed $100) in connection with such assignment or transfer, including, but
not by way of limitation, any advice of counsel contemplated by Section 7.1
or otherwise in connection with such assignment or transfer; (ii) the
Partnership shall have received such evidence of the authority of the parties
to such assignment or transfer, including, but not by way of limitation,
certified corporate resolutions, and certificates of fiduciary authority, as
its counsel may request; and (iii) there shall have been filed with the
Partnership and recorded on the Partnership's books a duly executed and
acknowledged counterpart of the instrument making such assignment or
transfer, and such instrument evidences the written acceptance by the
assignee of all of the terms and provisions of this Agreement, represents
that such assignment or transfer was made in accordance with all applicable
laws and regulations (including investor suitability requirements) and in all
other respects is satisfactory in form and substance to the General Partner.
C. Any Limited Partner other than the Assignor Limited Partner who shall
assign all his Units shall cease to be a limited partner of the Partnership,
except that unless and until a Substituted Limited Partner is admitted in his
stead, such assigning Limited Partner shall not cease to be a lim-
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ited partner of the Partnership. Except as provided in Section 7.3, the
rights of an assignee of Units who does not become a Substituted Limited
Partner, and the rights of an assignee of BACs who does not comply with the
provisions of Sections 7.1 and 7.2, shall be limited to receipt of his share
of Cash Flow, Sale or Refinancing Proceeds, Tax Credits and Partnership
profits and losses as determined under Article Four and distributions upon
liquidation as determined under Section 8.2 (provided that to the fullest
extent permitted by law the General Partner shall be entitled to withhold
even such share from such an assignee if the General Partner is advised by
counsel that the Partnership might otherwise be treated as a publicly-traded
partnership under Section 7704 of the Code).
D. A BACs holder whose BACs are converted into Units pursuant to Section
5.2A(xi)(F) or Section 7.3G may become a Substituted Limited Partner only if
he has fulfilled the requirements of Section 12.2A. An assignee of a Unit may
become a Substituted Limited Partner only if all of the following conditions
are first satisfied:
(i) the instrument of assignment sets forth the intentions of the
assignor that the assignee succeed to the assignor's unit as a Substituted
Limited Partner in his place;
(ii) the assignee shall have fulfilled the requirements of Sections 7.1,
7.2B and 12.2A;
(iii) the assignee shall have paid all reasonable legal fees and filing
costs incurred by the Partnership in connection with his substitution as a
Limited Partner;
(iv) the assignee has certified to non-foreign status as required
pursuant to Section 11.1; and
(v) the assignee has certified that it is not a Tax-Exempt Entity as
required pursuant to Section 11.3.
E. This Agreement shall be amended not less often than quarterly to
recognize the admission of Substituted Limited Partners. A BACs holder
converting his BACs into Units pursuant to Section 5.2A(xi)(F) or Section
7.3G or an assignee of Units shall be deemed admitted as a Substituted
Limited Partner when he is listed as such in the books and records of the
Partnership. Assignees of Units shall be recognized as such (subject to the
satisfaction of the conditions in Section 7.1) on the first day of the
calendar month in which the Partnership receives the instrument of assignment
provided for in Section 7.2B if the Partnership receives such instrument of
assignment during the first 15 days of the month. If the Partnership receives
the instrument of assignment after the 15th day of the month, assignees of
Units shall be recognized as such (subject to the satisfaction of the
conditions in Section 7.1) on the 16th day of such month.
F. An assignee of Units who does not become a Substituted Limited Partner
and who desires to make a further assignment of his Units shall
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be subject to all the provisions of this Article Seven to the same extent and
in the same manner as a Limited Partner desiring to make an assignment of
Units.
SECTION 7.3. Issuance of BACs
A. Simultaneously with the closing of the sale of BACs by the Partnership,
the Assignor Limited Partner shall contribute to the Partnership from the
proceeds of such sale, on behalf of the purchasers of BACs, $1,000 for each
BAC sold and shall receive from the General Partner one Unit for each $1,000
so contributed. The Assignor Limited Partner thereupon shall deliver BACs
registered in the names of such BACs holders or their nominees in respect of
such Unit. By tendering payment for a BAC and by acceptance of the
confirmation of purchase or delivery of the BAC, a BACs holder shall be
deemed to have assented to all the terms and conditions of this Agreement.
B. The Assignor Limited Partner, by the execution of this Agreement,
irrevocably transfers and assigns to the BACs holders all of the Assignor
Limited Partner's rights and interests in and to the underlying Units
received by the Assignor Limited Partner pursuant to Section 7.3A (the
"Assigned Units") (except for record ownership and the right to vote directly
on matters submitted to Limited Partners for a vote) as of the earlier of the
Closing Date with respect to the BACs purchased or the time of release to the
Partnership of payments for the BACs. The rights and interests so transferred
and assigned shall include, without limitation, the following:
(i) all rights to receive Cash Distributions and allocations in respect
of the Assigned Units;
(ii) all rights to receive any proceeds on liquidation of the
Partnership in respect of the Assigned Units;
(iii) all rights to inspect books and records and to receive reports;
(iv) all voting rights and rights to call meetings, in respect of the
Assigned Units, which rights shall be exercised through the Assignor
Limited Partner in accordance with the procedures set forth herein; and
(v) all rights to institute legal actions to the fullest extent
permitted by law.
C. The General Partner, by execution of this Agreement, irrevocably
consents to and acknowledges that (i) the foregoing transfer and assignment
by the Assignor Limited Partner to the BACs holders of the Assignor Limited
Partner's rights and interests in the Assigned Units as described above is
effective, and (ii) the BACs holders shall be treated by the Partnership as
assignees of certain rights and privileges of the Assignor Limited Partner in
respect of the Assigned Units in accordance with Section 7.3A. The General
Partner covenants that, in accordance with the foregoing transfer and
assignment, the Assignor Limited Partner's assigned rights and privileges in
respect of the Assigned Units may be exercised by the
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BACs holders (provided, however, that the voting rights contained in Article
Ten must be exercised, if at all, by instruction to the Assignor Limited
Partner acting on behalf of the BACs holders pursuant to Section 10.1A).
D. The Assignor Limited Partner shall not be liable to any BACs holder for
any action or nonaction by it in reliance upon advice, written notice,
request or direction from a BACs holder believed by it to be genuine and to
have been signed or presented by the proper person(s). However, the Assignor
Limited Partner shall not allow any BACs holder to contract away the
fiduciary duty owed to such BACs holder by the Assignor Limited Partner under
common law and as provided in this Agreement. The Assignor Limited Partner
shall have fiduciary responsibility for the safekeeping and use of all funds
and assets of the Partnership whether or not in its possession or under its
control, and shall not employ, or permit another to employ such funds or
assets in any manner except for the exclusive benefit of the Partnership.
E. In accordance with the foregoing transfer and assignment, BACs holders
shall have the same rights and powers assigned to them by the Assignor
Limited Partner under this Agreement and shall be subject to the same
liabilities that Limited Partners have under this Agreement and Delaware law.
Without limiting the generality of the foregoing, Limited Partners (other
than the Assignor Limited Partner) and BACs holders shall share all
Distributions and allocations made to the Limited Partners and the BACs
holders pari passu on the basis of one BAC for one Unit, and shall be
considered as a single Class with respect to all rights to receive Cash
Distributions and allocations pursuant to this Agreement.
F. BACs shall be issued in registered form but shall be transferable only
on the conditions provided in Sections 7.1 and 7.2. A transferee of BACs
shall not be recognized as an assignee of the underlying Units until the day
such transfer is accepted and recorded by the transfer agent of the
Partnership in respect of the BACs (which transfer agent the General Partner
shall designate from time to time at its discretion and which absent any
other designation shall be Related Capital Corporation, an Affiliate of the
Partnership and the General Partner).
G. Any BACs holder who desires to convert his BACs into Units may do so by
fulfilling the requirements of Section 7.2D for the admission of Substituted
Limited Partners and the payment of a fee for legal and administrative costs
and recording fees (such fee not to exceed $100 and not to be imposed in the
case of an involuntary conversion of BACs into Units pursuant to Section
5.2A(xi)(F)). Persons who effect such conversion will receive one Unit for
each BAC they convert and shall not thereafter be permitted to re-exchange
their Units for BACs. The capital account of the Assignor Limited Partner
shall be reduced by an amount equal to the capital account of such former
BACs holder and such amount will be credited to such BACs holder's account as
a Substituted Limited Partner. BACs which have been converted into Units will
be cancelled and will not be reis-
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sued. Persons who convert BACs into Units may request and receive from the
Partnership certificates representing such Units.
H. Notwithstanding anything to the contrary set forth in this Agreement
and notwithstanding the assignment by the Assignor Limited Partner of any or
all of its Units, upon any such assignment, (i) the Assignor Limited Partner
shall not cease to be a limited partner of the Partnership, and shall, until
the admission to the Partnership with respect to any Units assigned by the
Assignor Limited Partner of a Substituted Limited Partner, continue to be a
limited partner of the Partnership with respect to that Unit, (ii) the
Assignor Limited Partner shall not cease to have any and all of the rights
and powers of a Limited Partner under this Agreement and the Uniform Act and
the power to exercise any and all of the rights and powers of a Limited
Partner under this Agreement and the Uniform Act, and shall, until the
admission to the Partnership with respect to any Units assigned by the
Assignor Limited Partner of a Substituted Limited Partner, continue to have
any and all such rights and powers and the power to exercise any and all such
rights and powers with respect to that Unit, provided that the Assignor
Limited Partner shall exercise all such rights and powers in accordance with
Section 7.3B to the full extent permitted by law, and (iii) the Assignor
Limited Partner shall be permitted to assign, and pursuant to Section 7.3B
shall be deemed, to the full extent permitted by law, to have assigned, to a
BACs holder, or otherwise permit a BACs holder to exercise, any or all of the
rights and powers of a Limited Partner under this Agreement and the Uniform
Act (including, without limitation, the power to vote provided for in this
Agreement and the right to inspect and copy the Partnership's books and
records, to obtain reports, information and documents from the Partnership
and to initiate actions that Limited Partners have the right to initiate
under this Agreement), which rights and powers shall be, in the sole and
absolute discretion of the Assignor Limited Partner, exercisable either
directly by a BACs holder or indirectly through the giving of a direction to
the Assignor Limited Partner by the BACs holder, in either case, as if the
BACs holder were a Limited Partner (provided that, in accordance with Section
7.3B, the Assignor Limited Partner agrees that, to the full extent permitted
by law, such rights and powers shall be exercised in accordance with such
Section 7.3B) and any such assignment to, or exercise by, a BACs holder of
such rights and powers shall be recognized by the Partnership as an effective
assignment and exercise of the said rights and powers. An assignment by the
Assignor Limited Partner to a BACs holder shall assign to the BACs holder any
and all economic rights attributable to Units to the extent assigned,
including, without limitation, entitling the BACs holder to share in such
profits and losses, to receive such distributions, and to receive such
allocations of income, gain, loss, deduction, credit or other items to which
the Assignor Limited Partner was entitled under this Agreement.
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ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.1. Events Causing Dissolution
A. The Partnership shall dissolve upon the happening of any of the
following events:
(i) the withdrawal, removal or Bankruptcy of a General Partner or the
assignment of all of the interest of a General Partner or any other event
that causes a General Partner to cease to be a general partner under the
Uniform Act unless (A) at that time there is a remaining General Partner
that agrees to carry on the business of the Partnership, or (B) if there
is no remaining General Partner, or if no remaining General Partner elects
to carry on the business of the Partnership, within 90 days of the date of
such event, a majority-in-interest of all remaining Partners (or such
greater percentage in interest as is required by the Uniform Act) agree in
writing to continue the business of the Partnership and to the appointment
as of the date of such event of a successor General Partner;
(ii) the passage of one hundred fifty days after the sale or other
disposition of all Local Partnership Interests and other assets of the
Partnership;
(iii) the election by the General Partner with the Consent of a majority
in interest of the Limited Partners (acting pursuant to Article Ten), or
the vote by the Limited Partners pursuant to Section 10.2A(ii), to
dissolve the Partnership; or
(iv) the expiration of the term of the Partnership specified in Section
2.4.
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 the assets of the Partnership shall have been distributed
as provided in Section 8.2 and the Certificate shall have been cancelled.
Notwithstanding the dissolution of the Partnership, prior to the termination
of the Partnership the business of the Partnership and the affairs of the
Partners shall continue to be governed by this Agreement.
SECTION 8.2. Liquidation
A. Upon dissolution of the Partnership, the General Partner shall
liquidate the assets of the Partnership, apply and distribute the proceeds
thereof as contemplated by this Section 8.2 and cause the cancellation of the
Certificate.
B. The proceeds of such liquidation shall be distributed to creditors,
including Partners who are creditors, to the extent otherwise permitted by
law, in satisfaction of liabilities of the Partnership (whether by payment or
the making of reasonable provision for the payment thereof) other than
liabilities for which reasonable provision for payment has been made and
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liabilities for distributions to Partners and BACs holders pursuant to this
Agreement. If the General Partner shall set aside as a reserve any amount for
any contingent liabilities or obligations of the Partnership, said reserve
may be paid over by the General Partner to a bank, trust company or other
financial institution to be held in escrow for the purpose of paying any such
contingent liabilities or obligations and, at the expiration of such period
as the General Partner may deem advisable, the amount in such reserve shall
be distributed in the manner set forth in Section 8.2C below.
C. After satisfying such liabilities in the manner contemplated by Section
8.2B above, the General Partner shall cause the remaining net assets of the
Partnership to be distributed to the Partners and BACs holders in accordance
with their positive Capital Account balances, after the same have been
adjusted to take account of the allocations required by, and any
distributions in accordance with, Article IV. The General Partner shall not
cause the Partnership to make any in-kind distribution of its assets to any
Partner or BACs holder in connection with the dissolution of the Partnership
and the liquidation of its assets, or otherwise. If on final liquidation, the
Capital Account of a General Partner is negative, such General Partner shall
make a contribution to the capital of the Partnership in an amount equal to
the lesser of (a) the deficit balance in his Capital Account or (b) an amount
equal to the excess of (i) 1.01% of the Capital Contributions of the Limited
Partners and BACs holders over (ii) the Capital Contributions of the General
Partner.
D. If the General Partner shall determine that an immediate sale of part
or all of the Partnership's assets would cause undue loss to the Partners and
BACs holders, the General Partner may, after having given Notification to all
the Limited Partners and BACs holders, 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.
E. Each Limited Partner and BACs holder 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 Flow, Sale or Refinancing
Proceeds, Tax Credits and profits and losses thereof, and, except as provided
in Section 8.2C, shall have no recourse therefor, upon dissolution, or
otherwise, against any General Partner or other Limited Partner and BACs
holder.
ARTICLE NINE
BOOKS AND RECORDS; ACCOUNTING; REPORTS; TAX ELECTIONS
SECTION 9.1. Books and Records
A. The books and records of the Partnership shall be maintained at the
principal office of the Partnership and there shall be available for exami-
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nation and copying by any Partner or BACs holder or his duly authorized
representatives during normal business hours. A reasonable charge for copying
books and records may be charged by the Partnership.
B. The General Partner will direct the Dealer Manager and the Selling
Agents to maintain for a period of at least six years (and to deliver to the
Partnership for maintenance until the dissolution of the Partnership) a
record of the information obtained to determine that an investment in the
Partnership is suitable and appropriate for each Limited Partner or BACs
holder and that each Limited Partner or BACs holder meets the suitability
standards set forth in the Prospectus and shall retain for five years any
appraisal obtained with respect to the value of a Property owned by a Local
Partnership in which the Partnership purchases a Local Partnership Interest.
C. An alphabetical list of the names, addresses and, to the extent
provided to the General Partner, telephone numbers of the Limited Partners
and BACs holders of the Partnership, along with the number of Units and BACs
held by each, shall be maintained as a part of the books and records of the
Partnership and shall be available for inspection by any Limited Partner or
BACs holder or his designated agent at the Partnership's principal office
upon the request of such Limited Partner or BACs holder. The list of Limited
Partners and BACs holders shall be updated at least quarterly to reflect
changes in the information contained therein that have been communicated to
the General Partner.
D. A copy of the list of Limited Partners and BACs holders shall be mailed
to any Limited Partner or BACs holder requesting such list within ten days of
the request. The copy of the list, containing the information described in
Section 9.1(C), shall be printed in alphabetical order, on white paper, and
in a readily readable type size (in no event smaller than 10-point type). A
reasonable charge for copying the list may be charged by the Partnership. The
purposes for which a Limited Partner or BACs holder may request a copy of the
list of Limited Partners and BACs holders include, without limitation,
matters relating to voting rights of Limited Partners and BACs holders under
this Agreement and the exercise of the rights of Limited Partners and BACs
holders under federal proxy laws.
E. If the General Partner neglects or refuses to exhibit, produce or mail
a copy of the list of Limited Partners and BACs holders as requested, the
General Partner shall be liable to any Limited Partner or BACs holder
requesting the list for the costs, including attorneys' fees, incurred by
that Limited Partner or BACs holder for compelling production of such list
and for actual damages suffered by any Limited Partner or BACs holder by
reason of such refusal or neglect. It shall be a defense that the actual
purpose and reason for the requests for inspection or for a copy of the list
of Limited Partners and BACs holders 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
applicant as a Lim-
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ited Partner or BACs holder relative to the affairs of the Partnership. The
General Partner may require the Limited Partner or BACs holder requesting the
list of Limited Partners and BACs holders to represent that such list is not
requested for a commercial purpose unrelated to the interest of the
requesting Limited Partner or BACs holder in the Partnership. The remedies
provided to Limited Partners and BACs holders in this Section 9.1 are in
addition to, and shall not in any way limit, other remedies available to
Limited Partners and BACs holders under federal law, or the laws of any
state.
SECTION 9.2. Accounting Basis and Fiscal Years
The books of the Partnership shall be kept on the accrual basis. The
fiscal year of the Partnership shall be the calendar year for income tax
purposes and the year ending March 31 for financial reporting purposes,
including the reports required by Sections 9.4A, B, C and E herein.
SECTION 9.3. Bank Accounts
The bank accounts of the Partnership shall be maintained in such banking
institutions as the General Partner shall determine. All deposits and other
funds not needed in the operation of the business may be invested in
Permitted Interim Investments.
SECTION 9.4. Reports
A. Until such time as the Partnership is registered under Section 12(g) of
the Securities Exchange Act of 1934, within 60 days after the end of the
Partnership's first six-month period of operations and of each first six-
month period of each Partnership year, the General Partner shall send to each
Person who was a Limited Partner or BACs holder during such period a balance
sheet and statements of income (or loss) and statement of cash flows for, or
as of the end of, such period, none of which need be audited, together with a
report of other pertinent information regarding the Partnership and its
activities during such six-month period.
B. If and at such time and for so long as the Partnership becomes and is
required to remain registered under Section 12(g) of the Securities Exchange
Act of 1934, within 60 days after the end of each of the first three quarters
of each year, the General Partner shall have prepared and shall send to each
Person who was a Limited Partner or BACs holder during such quarter,
commencing with the first quarterly period required after Section 12(g)
registration is effective, a balance sheet and statements of income (or loss)
and statement of cash flows for the year to date or as of the end of such
quarter, none of which need be audited, together with a report of other
pertinent information regarding the Partnership and its activities during
such quarter.
C. Within 60 days after the end of each of the first three quarters in
each year and within 120 days after the end of the fourth quarter in each
year, the General Partner shall cause to be prepared and distributed to each
Person who was a Limited Partner or BACs holder at any time during the quar-
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ter then ended (i) a detailed statement describing the amount of all fees and
other compensation paid by the Partnership during such quarter to the General
Partner or any Affiliates of the General Partner; and (ii) until the Capital
Contributions of the Limited Partners and BACs holders shall be fully
invested or returned to the Limited Partners and BACs holders, a report of
acquisitions of Local Partnership Interests during such quarter, including
(A) a description of each Local Partnership Interest purchased, including the
Local Partnership's Property (including its geographic locale and rental
market area) and the price, date and other terms and conditions of the
acquisition, (B) the cash expended from the Partners' and BACs holders'
Capital Contributions to acquire each Local Partnership Interest and (C) the
amount which then remains unexpended, stated in terms of both dollar amount
and percentage of the total amount of the Net Proceeds.
D. The General Partner shall send to each Person who was a Limited Partner
or BACs holder at any time during the year then ended such tax information as
shall be necessary for inclusion by such Limited Partner or BACs holder in
his federal income tax return and required state income and other tax
information with regard to jurisdictions in which the Partnership is formed
or qualified or owns investments. The General Partner shall send this
information within 75 days after the end of each year.
E. Within 120 days after the end of each year, the General Partner shall
send to each Person who was a Limited Partner or BACs holder at any time
during the year then ended (i) the balance sheet of the Partnership as of the
end of such year and statements of income (loss), Partners' and BACs holders'
equity and cash flows of the Partnership for such year, all of which shall be
prepared in accordance with generally accepted accounting principles and
accompanied by an auditor's report of the Accountants; (ii) a report of the
activities of the Partnership during such year; (iii) a statement (which need
not be audited) showing distributions to the Limited Partners and BACs
Holders on a per Unit and per BAC basis in respect of such year, which
statement shall separately identify distributions from (A) Cash Flow from
operations during the year, (B) Cash Flow from operations during prior years
which had been held as Reserves, (C) proceeds from the disposition of
property and investments and (D) Reserves from the Gross Proceeds of the
Offering originally obtained from BACs holders; and (iv) a statement setting
forth the reimbursements for expenses from the Partnership to the General
Partner accompanied by a verification of the Partnership's accountants with
respect to such reimbursements. The method of verification shall at minimum
provide (i) a review of the time records of individual employees the costs of
whose services were reimbursed; and (ii) a review of the specific nature of
the work performed by each such employee.
F. A copy of each report referred to in this Section 9.4 shall be filed
with all securities commissions requiring such filing at the time required by
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such commissions. To the extent any securities commission may require
additional information, such information shall be filed with such securities
commission at the time required.
SECTION 9.5. Designation, Duties and Expenses of Tax Matters Partner
A. The General Partner shall from time to time designate a Tax Matters
Partner pursuant to Section 6231 of the Code and hereby designates itself as
the initial Tax Matters Partner. If the General Partner resigns as Tax
Matters Partner, or is otherwise disqualified by, e.g., bankruptcy or
insolvency, the General Partner will designate a successor Tax Matters
Partner.
B. The Tax Matters Partner has the following duties:
(i) To the extent and in the manner required by applicable law and
regulations, the Tax Matters Partner shall furnish the name, address,
profits interest and taxpayer identification number of each Partner and
BACs holder to the Secretary; and
(ii) To the extent and in the manner required by applicable law and
regulations, the Tax Matters Partner shall keep each Partner informed of
administrative and judicial proceedings for the adjustment at the
Partnership or Local Partnership level of any item required to be taken
into account by a Partner for income tax purposes (such administrative
proceeding referred to hereinafter as "judicial review").
C. The Partnership shall indemnify 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. The payment of
all such expenses shall be made before any distributions are made from Cash
Flow or any Reserves. Neither the General Partner nor 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 5.8 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such.
SECTION 9.6. Authority of Tax Matters Partner
The Tax Matters Partner is hereby authorized, but not required:
(a) to enter into any settlement with the 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 and BACs holders, except that such settlement agreement
shall not bind any Partner or BACs holder who (within the time prescribed
pursuant to the Code and regulations thereunder) files a
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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 BACs holder;
(b) in the event that a notice of a final administrative adjustment at
the Partnership or Local Partnership level of any item required to be
taken into account by a Partner or BACs holder 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 for judicial
review of a final adjustment;
(d) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not allowed by
the Secretary, to file a petition for judicial review with respect to such
request;
(e) to enter into an agreement with the 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 BACs holder for tax purposes, or an item
affected by such item; and
(f) to take any other action on behalf of the Partners or the
Partnership in connection with any administrative or judicial tax
proceeding to the extent permitted by applicable law or regulations.
SECTION 9.7. Copies of Amendments to Limited Partners
Except as required under the Uniform Act, the General Partner shall not be
required to mail or deliver to the Limited Partners or BACs holders copies of
the Certificate or this Agreement or any amendment thereto.
ARTICLE TEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 10.1. Meetings
A. Meetings of the Limited Partners for any purpose on which the Limited
Partners are entitled to act may be called by the General Partner at any
time, and Notification of a meeting shall be issued by the General Partner
within ten days after receipt of a written request for such meeting signed by
10% or more in interest of the Limited Partners. Any such request shall state
the purpose of the proposed meeting and the matters proposed to be acted upon
thereat. Meetings shall be held not less than 15 days nor more than 60 days
after receipt of such request and shall be held at such place as may be
convenient to the Limited Partners. In addition, the General Partner may,
and, upon receipt of a request in writing signed by 10% or more in interest
of the Limited Partners, shall, submit
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any matter upon which the Limited Partners are entitled to vote to the
Limited Partners for a vote by written Consent without a meeting. The
Assignor Limited Partner shall canvass the preferences of all BACs holders on
all matters submitted to a vote of the Limited Partners and the Assignor
Limited Partner shall vote all underlying Units in accordance with the
directions of the BACs holders, with each underlying Unit entitled to one
vote; provided, however, that the General Partner and its Affiliates shall
not be entitled in their capacities as BACs holders to direct the Assignor
Limited Partner to vote on any matter involving a decrease in the General
Partner's duties, an increase in any of its compensation or its removal
pursuant to a vote of the Limited Partners. The Assignor Limited Partner
shall treat any Units for which it has not received instructions from the
holders of the related BACs as having voted against the position taken by the
General Partner in the matter at hand. Except as otherwise expressly provided
herein, a vote of a majority in interest of the Limited Partners shall be
required for the approval of any matter submitted for a vote of Limited
Partners. If at any time Limited Partners and BACs holders holding 10% or
more in interest of the combined outstanding BACs and Units (excepting Units
held by the Assignor Limited Partner) desire to call a meeting or submit a
matter for a vote by written Consent, the Assignor Limited Partner, upon the
request of the BACs holders who desire such a meeting or vote, shall, as the
holder of the underlying Units, execute any such request for a vote or a
meeting as directed by the BACs holders.
B. Within ten days of the receipt of the written request referred to
above, Notification of any meeting to be held pursuant to Section 10.1A shall
be given to each Limited Partner at his record address or at such other
address which he may have furnished in writing to the General Partner. Such
Notification shall state the place, date and hour of the meeting, and shall
indicate that the Notification is being issued at or by the direction of the
Partner or Partners calling the meeting. The Notification shall state the
purpose or purposes of the meeting. If a meeting is adjourned to another time
or place, and if an announcement of the adjournment of time or place is made
at the meeting, it shall not be necessary to give Notification of the
adjourned meeting. The presence in person or by proxy of a majority in
interest of the Limited Partners shall constitute a quorum at all meetings of
the Limited Partners; provided, however, that if there be no such quorum,
holders of a majority in interest of the Limited Partners so present or so
represented may adjourn the meeting from time to time without further
Notification, until a quorum shall have been obtained. No Notification of the
time, place or purpose of any meeting of Limited Partners need be given to
any Limited Partner who attends in person or is represented by proxy, except
for a Limited Partner attending a meeting for the express purpose of
disapproving at the beginning of the meeting to the transaction of any
business on the grounds that the meeting is not lawfully called or convened,
or to any Limited Partner entitled to such Notification who, in
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writing, executed and filed with the records of the meeting, either before or
after the time thereof, waives such Notification.
C. 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, the 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. 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 for a vote by
written Consent.
D. At each meeting of Limited Partners, the Limited Partners present or
represented by proxy shall elect such officers and adopt such rules for the
conduct of such meeting as they shall deem appropriate.
SECTION 10.2. Voting Rights of Limited Partners
A. Subject to the last sentence of this Section 10.2.A, a majority in
interest of the Limited Partners, without the concurrence of any General
Partner, may vote to:
(i) amend this Agreement or the Certificate, subject to the conditions
that such amendment (A) may not in any manner allow the BACs holders or
Limited Partners to take part in the control of the Partnership's business
or otherwise modify their limited liability and (B) may not, without the
consent of any General Partner affected, alter the rights, powers and
duties of such General Partner as set forth in Article Five, increase the
obligations of such General Partner hereunder, alter the interest of such
General Partner in profits and losses, Tax Credits, Cash Flow or Sale or
Refinancing Proceeds as set forth in Article Four, or alter the rights of
such General Partner as provided in Section 6.3;
(ii) dissolve the Partnership;
(iii) remove any General Partner with or without cause and/or propose
and approve a replacement therefor and/or elect a new General Partner or
General Partners. If the Limited Partners vote to remove a General Partner
pursuant to this Section 10.2, they shall provide the removed General
Partner with Notification thereof, which Notification shall set forth the
date upon which such removal is to become effective. If the Limited
Partners also vote to elect a new General Partner, the Partnership shall
purchase the removed General Partner's Interest (unless the General
Partner is removed for fraud, gross negligence or willful misconduct) for
the fair market value thereof determined in accordance with Section 6.3A.
Said successor General Partner may, at its option, purchase the General
Partner's Interest for the fair market value thereof determined in
accordance with Section 6.3A and elect to pay the purchase price of such
Interest in installments in the manner set forth in Section 6.3B;
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(iv) approve or disapprove the sale of all or substantially all of the
assets of the Partnership in a single sale, or in multiple sales in the
same twelve-month period, except in the liquidation and winding-up of the
business of the Partnership upon its termination and dissolution or in the
ordinary course of its business. For the purposes of Section 10.2A(iv), a
sale of all or substantially all of the assets of the Partnership shall
mean the sale of two-thirds or more of the Partnership's assets based on
the total number of Properties and Local Partnership Interests, the
aggregate purchase price of Properties and Local Partnership Interests, or
the current fair market value of the Properties and Local Partnership
Interests;
(v) advise the Special Limited Partner to exercise any of the rights
referred to in Section 5.10A(x), and the Special Limited Partner, if so
advised, shall promptly take such action as may be required so to exercise
such rights in accordance with the partnership agreement of such Local
Partnership; and
(vi) if any Affiliate of the Partnership or any General Partner is a
general partner of a Lower-Tier Partnership, direct the General Partner to
cause the Partnership to take any action permitted to the Partnership as a
limited partner of the Lower-Tier Partnership, and the Partnership and the
General Partner, notwithstanding anything herein to the contrary, shall
promptly take such action.
Notwithstanding anything to the contrary herein, the General Partner and
its Affiliates (other than the Assignor Limited Partner) shall not be
entitled in their capacities as Limited Partners to vote on any matter
involving a decrease in the General Partner's duties, an increase in any of
its compensation or its removal pursuant to a vote of the Limited Partners.
B. A Limited Partner shall be entitled to cast one vote for each Unit
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 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 prior to the date upon which the votes of the Limited Partners are to
be counted. Every proxy must be signed by the Limited Partner 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 his
attorney-in-fact executing it. Only the votes of Limited Partners of record
on the Notification date or such other record date as may be set pursuant to
Section 10.1C, whether at a meeting or otherwise, shall be counted. Blank or
improperly completed proxies and Units as to which no vote is cast by the
beneficial owner thereof shall be treated as votes against the position taken
by the General Partner in the matter at hand. In connection with each meeting
or vote without a meeting of the Limited Part-
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ners, the Partnership shall provide for proxies or written consents which
specify a choice between approval and disapproval of each matter to be acted
upon at the meeting or by vote without a meeting. In connection with any such
vote, the General Partner shall be empowered to establish reasonable rules
pertaining to the validity and use of proxies by Limited Partners that are
consistent with the provisions of this Agreement.
ARTICLE ELEVEN
FOREIGN INVESTORS AND TAX-EXEMPT ENTITIES
SECTION 11.1. Certification of Non-Foreign Status
A. Each BACs holder shall, by subscribing for BACs, be deemed to have
certified that he is not a Foreign Person. If at any time BACs or Units are
transferred or assigned, the transferee shall certify to non-foreign status
prior to the transfer or assignment of the BACs or Units. Such certifications
shall be made on a form to be provided by the General Partner.
B. Each Partner and BACs holder shall notify the General Partner if he
becomes a Foreign Person within 30 days of such change.
C. Prior to the Partnership's disposition of a United States Real Property
Interest or a distribution by the Partnership attributable to a disposition
of a United States Real Property Interest (or any other event which may
create an obligation on the Partnership to withhold tax under Chapter 3 of
the Code), each Partner and BACs holder may be required to certify to
non-foreign status.
SECTION 11.2. Withholding on Certain Amounts Attributable to Interests of
Foreign Investors
A. In the event that the Partnership (1) realizes any deemed amount upon
disposition of any United States Real Property Interest that is attributed to
a Foreign Investor or (2) realizes any income effectively connected with the
conduct of the Partnership's trade or business in the United States that is
attributed to a Foreign Investor or (3) distributes amounts subject to
withholding tax under Chapter 3 of the Code:
(i) any tax required to be withheld under Chapter 3 of the Code shall be
charged to that Foreign Investor's Capital Account as if the amount of
such tax had been distributed to such investor;
(ii) the General Partner shall have the right to make a Voluntary Loan
to the Partnership in an amount equal to the amount of tax required to be
withheld pursuant to Chapter 3 of the Code to the extent that cash is
needed to make the withholding payment attributable to that Foreign
Investor;
(iii) the General Partner may retain appropriate portions of a Foreign
Investor's distributions until any withholding obligations relating to
that Foreign Investor are satisfied and may apply such distributions to
any Voluntary Loan made pursuant to Section 11.2A(ii); and
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(iv) for purposes of this Section 11.2, any Person who fails to provide a
certification of non-foreign status when requested to do so by the General
Partner shall be treated as a Foreign Investor.
SECTION 11.3. Certification of Non-Tax-Exempt Status
Each Person shall, by subscribing for BACs, be deemed to have represented
that it is not a Tax-Exempt Entity within the meaning of Section 168(h)(2) of
the Code. If at any time BACs or Units or any interest therein are
transferred or assigned, the transferee shall represent that it is not a
Tax-Exempt Entity prior to the transfer of the BACs or Units. Such
certification shall be made on a form to be provided by the General Partner.
ARTICLE TWELVE
MISCELLANEOUS PROVISIONS
SECTION 12.1. Appointment of General Partner as Attorney-in-Fact
A. Each Limited Partner irrevocably constitutes and appoints, with full
power of substitution, each General Partner, the President and any Vice-
President of any corporate General Partner or any General Partner which is a
limited liability company, the general partner of any partnership General
Partner, any member of any General Partner that is a limited liability
company, and each of them acting singly, 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 such documents as may be necessary or appropriate to carry out
the provisions of this Agreement, including but not limited to:
(i) all certificates and other instruments (including counterparts of
this Agreement and the Certificate), 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 Uniform Act
on the date hereof) in any 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;
(ii) any other instrument or document which may be required to be filed
by the Partnership under the laws of any state or which any such Person
deems it advisable to file;
(iii) all amendments to this Agreement and the Certificate 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;
(iv) any instrument or document, including amendments to this Agreement
and the Certificate, which may be required to effect the continuation of
the Partnership, the admission of a Limited Partner or Sub-
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stituted Limited Partner or an additional or successor General Partner, or
the dissolution and termination of the Partnership (provided such
continuation, admission or dissolution and termination are in accordance
with the terms of this Agreement), or to reflect any reductions in amount
of contributions of Partners; and
(v) all elections that may be made by the Partnership or the Partners in
respect of the Partnership under the Code.
B. The appointment by each Limited Partner of each such Person 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 Person to act as
contemplated by this Agreement in any filing and other action by such Person
on behalf of the Partnership, and shall survive and not be affected by the
subsequent Bankruptcy, death, disability, incapacity, incompetence or
dissolution of any Person hereby giving such power and the transfer or
assignment of all or any part of the Units of such Person; provided, however,
that in the event of the transfer by a Limited Partner of all or any part of
his Units, the foregoing power of attorney of a transferor Limited Partner
shall survive such transfer only until such time, if any, as the transferee
shall have been admitted to the Partnership as a Substituted Limited Partner
and all required documents and instruments shall have been duly executed to
effect such substitution.
C. By rendering payment for the BACs and by acceptance of the confirmation
of purchase or delivery of the BACs, each BACs holder consents to the
granting by the Assignor Limited Partner of the foregoing special power of
attorney.
SECTION 12.2. Signatures; Amendments
A. Each Limited Partner, Substituted Limited Partner, additional General
Partner and successor General Partner shall become a signatory hereto by
signing, directly or by an attorney-in-fact, this Agreement and such other
instrument or instruments, and in such manner and at such time, as the
General Partner shall determine; provided, however, that no such instrument
or instruments may relate to a Person's qualification to invest in the
Partnership under the investor suitability standards set forth in the
Prospectus. By so signing, each Limited Partner, Substituted Limited Partner,
successor General Partner or additional General Partner, as the case may be,
shall have adopted, and have agreed to be bound by, all the provisions of
this Agreement, as amended from time to time.
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, (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, to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other provision
with
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respect to matters or questions arising under this Agreement which will not
be inconsistent with the provisions of this Agreement; (iii) to change the
name of the Partnership in accordance with Section 12.2E; (iv) 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 securities commissioner or such similar official, which deletion or
addition is deemed by such Commission, agency or official to be for the
benefit or protection of the BACs holders and Limited Partners; or (v) as
authorized by Section 5.2A(xi); provided, however, that no amendment shall be
adopted pursuant to this Section 12.2B unless the adoption thereof (A) is for
the benefit of or not adverse to the interests of the BACs holders and
Limited Partners; (B) is consistent with Section 5.1; (C) does not affect the
distribution of Cash Flow or Sale or Refinancing Proceeds or the allocation
of Tax Credits or profits and losses among the BACs holders and Limited
Partners or between the BACs holders and Limited Partners and the General
Partner; and (D) does not adversely affect the limited liability of the BACs
holders and Limited Partners 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 adding or
substituting a Limited Partner, the amendment to this Agreement shall be
signed by the General Partner and by the Person to be substituted or added,
and, if a Limited Partner is to be substituted, by 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 Partner or General Partners and by such additional General Partner.
If this Agreement shall be amended to reflect the withdrawal of a General
Partner, such amendment shall be signed by the other General Partner or
General Partners and by such withdrawing 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 General Partners.
D. In making any amendments, there shall be prepared and filed by the
General Partner for recording such documents and certificates as shall be
required to be prepared and filed under the Uniform Act and under the laws of
the other jurisdictions under the laws of which the Partnership is then
formed or qualified.
E. If at any time there is not any General Partner which is an Affiliate
of Related Independence Associates IV L.P., the Partnership shall forthwith
change its name in such a manner as not to include the name "Related", or any
abbreviation or derivation of either thereof. All parties to this Agreement
recognize that damages at law may be an inadequate remedy for breach of the
foregoing covenant, and consent that the same may be enforced by specific
performance, injunction or equitable remedy as well as in an action at law.
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SECTION 12.3. Ownership By Limited Partners of General Partner or Its
Affiliates
No Limited Partner or BACs holder shall at any time, either directly or
indirectly, own any stock or other interest in any General Partner or in any
Affiliate of any General Partner if such ownership by itself or in
conjunction with the stock or other interest owned by other Limited Partners
and BACs holders 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 BACs holder shall promptly
supply any information requested by the General Partner in order to establish
compliance by the Limited Partner and BACs holder with the provisions of this
Section 12.3.
SECTION 12.4. Merger
Subject to Section 5.11, the Partnership may merge with, or consolidate
into, another business entity (as defined in the Uniform Act) upon the
approval of the General Partner and the Consent of a majority in interest of
the Limited Partners (acting pursuant to Article Ten).
SECTION 12.5. Arbitration of Disputes
No provision hereof or in any subscription agreement for the purchase of
BACs or Units shall be construed to require the mandatory arbitration of
disputes between the Limited Partners or BACs holders and any Sponsor or the
Partnership; provided, however, that the foregoing shall not apply to any
preexisting contracts between broker-dealers and the Limited Partners or BACs
holders.
SECTION 12.6. 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.
SECTION 12.7. Applicable Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State.
SECTION 12.8. Actions Under Securities Laws
Notwithstanding Section 12.7, causes of action for violations of federal
or state securities laws shall be governed by the applicable federal or state
securities law.
SECTION 12.9. 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.
SECTION 12.10. 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
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invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those provisions of this Agreement which
are valid.
SECTION 12.11. Captions
Article and Section titles and any table of contents are for convenience
of reference only and shall not control or alter the meaning of this
Agreement as set forth in this text.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
RELATED INDEPENDENCE L.L.C.
By: _______________________________________
Alan P. Hirmes, a member
Withdrawing Original Limited Partner:
________________________________________________
Alan P. Hirmes
For Purposes of Sections 5.3A, 5.4A(xiv), 5.9F, 5.10 and 10.2A:
INDEPENDENCE SLP IV L.P.
By: Related Independence L.L.C., General Partner
By: ________________________________________
Alan P. Hirmes, a member
Assignor Limited Partner:
INDEPENDENCE ASSIGNOR INC.
By: ____________________________________________
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SCHEDULE A
GENERAL PARTNER INTERESTS
Name and Business Address Capital Contribution
- ----------------------------- ------------------------
Ralated Independence L.L.C. $1,000
625 Madison Avenue
New York, New York 10022
LIMITED PARTNER INTERESTS
Name and Business or Residential Address Number of Units(1)
- ------------------------------------------- ------------------
(1) Each Unit represents a capital contribution of $1,000.
A-79
<PAGE>
SCHEDULE A
GENERAL PARTNER INTERESTS
Name and Business Address Capital Contribution
- ----------------------------- ------------------------
Ralated Independence L.L.C. $1,000
625 Madison Avenue
New York, New York 10022
LIMITED PARTNER INTERESTS
Name and Business or Residential Address Number of Units(1)
- ------------------------------------------- ------------------
- -----------
1. Each Unit represents a capital contribution of $1,000.
<PAGE>
EXHIBIT B
INDEPENDENCE TAX CREDIT PLUS L.P. IV--ORDER FORM
IN ORDER FOR YOUR SUBSCRIPTION FOR BACs OF INDEPENDENCE TAX CREDIT PLUS L.P.
IV TO BE ACCEPTED, YOU MUST EXECUTE AND RETURN A COPY OF THIS SUBSCRIPTION
FORM.
YOU ARE ENTITLED TO CANCEL YOUR SUBSCRIPTION BY NOTIFYING INDEPENDENCE TAX
CREDIT PLUS L.P. IV WITHIN 5 BUSINESS DAYS FOLLOWING YOUR RECEIPT OF A COPY
OF THE FINAL PROSPECTUS OF INDEPENDENCE TAX CREDIT PLUS L.P. IV.
PLEASE COMPLETE
(Please Print and Use Black Ink)
SUBSCRIPTION AMOUNT NUMBER OF BAC's
(Minimum $5,000) $ __________ ($1,000 per BAC) __________
Account Name
Address
City State Zip Code
Area Code Telephone Number State of Residence
Social Security or Taxpayer I.D. Number
TAXABLE YEAR FOR FEDERAL INCOME TAX PURPOSES ENDS ON (MONTH AND DAY) __________
CIRCLE APPLICABLE ACCOUNT TYPE BELOW
1 INDIVIDUAL OWNERSHIP (ONE SIGNATURE REQUIRED)
2 JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (BOTH SIGNATURES REQUIRED)
3 TENANTS IN COMMON (BOTH SIGNATURES REQUIRED)
4 COMMUNITY PROPERTY (BOTH SIGNATURES REQUIRED IF BOTH NAMES ARE TO APPEAR ON
THE PARTNERSHIP AGREEMENT)
5 CORPORATION OR PARTNERSHIP
6 TRUST
7 AS CUSTODIAN FOR ________________________UNDER THE UNIFORM GIFT TO MINORS ACT
OF THE STATE OF
8 OTHER ________________________________________________________________________
REPRESENTATIONS AND SIGNATURE(S)
By signing this subscription form, the subscriber hereby represents as
follows (please initial each of the following):
_______ The subscriber has received a copy of the Prospectus of Independence
Initial Tax Credit Plus L.P. IV and has assented to all of the terms and
conditions of the Partnership's Amended and Restated Agreement of
Limited Partnership, including that the subscriber is not a "Foreign
Person" (see the Glossary in the Prospectus).
_______ The subscriber meets the suitability standards established by the
Initial Partnership or, if different, the standards applicable to residents
of the state in which the subscriber resides, as set forth in "Who
Should Invest" in the Prospectus.
_______ Under penalty of perjury, I certify that 1) the number shown on this
Initial form is my correct taxpayer identification number and 2) I am not
subject to back-up withholding. Certification Instructions--You must
cross out item 2) if you have been notified by the IRS that you are
currently subject to back-up withholding because of underreporting
interest or dividends on your tax return.
Please initial the following, if applicable:
_______ For Maine Investors--The subscriber meets the following minimum
Initial financial suitability standards: either (a) a net worth of at least
$60,000 (excluding home furnishings and automobiles) and an annual
gross income of at least $60,000 or (b) a net worth of at east
$225,000 (as computed above).
_______ For Arizona Investors--The subscriber represents that (a) the
Initial subscriber has either (i) an annual gross income of at least $75,000
and a net worth of at least $75,000 (exclusive of home, car and home
furnishings) or (ii) a net worth of at least $225,000
(Please See Other Side)
<PAGE>
(exclusive of home, car, home furnishings) and (b) the amount of the
investment subscribed for hereby is no more than 10% of the
subscriber's net worth (exclusive of home, car, home furnishings and
the value of all other investments in limited partnership interests).
Further, the subscriber represents that the subscriber, alone or with
one or more representatives, advisors or agents has the knowledge and
experience in financial and business matters to be capable of
evaluating the merits and risks of the offering.
_______ For Iowa Investors--The subscriber represents that the subscriber (a)
Initial can reasonably benefit from an investment in the Partnership; (b) has
the capacity of understanding the fundamental aspects of the
Partnership, as a result of nature of employment experience, level of
education, access to advice from qualified sources, such as attorney,
accountant and tax advisor, and prior experience with investments of
a similar nature; (c) has an understanding of the fundamental risks
and lack of liquidity of an investment in the Partnership; (d) has
the financial capability to invest in the Partnership; and (e) has
either (i) a net worth of at least $45,000 (excluding home, home
furnishings and automobiles) and an annual gross income of at least
$45,000 or (ii) a net worth of at least $150,000 (as computed above).
IF JOINT OWNERSHIP, ALL PARTNERS MUST SIGN (IF FIDUCIARY, PARTNERSHIP OR
CORPORATION, INDICATE TITLE OR SIGNATORY UNDER SIGNATURE LINE).
Subscriber's Signature Subscriber's Signature
_______________________________________________________________________________
Title Date Title Date
PAYMENT
PAYMENT FOR SUBSCRIPTIONS MAY BE MADE BY DELIVERY TO THE SELLING AGENT OF A
CHECK MADE PAYABLE TO "UNITED STATES TRUST COMPANY OF NEW YORK, ESCROW AGENT
FOR INDEPENDENCE TAX CREDIT PLUS L.P. IV" FOR DEPOSIT IN THE ESCROW ACCOUNT.
AMERICAN EXPRESS FINANCIAL ADVISORS, INC. AND OTHER SELLING AGENTS WHO ARE
PERMITTED TO RECEIVE CUSTOMER FUNDS, BY REASON OF HAVING THE REQUISITE LEVEL
OF "NET CAPITAL" UNDER THE APPLICABLE FEDERAL SECURITIES REGULATIONS, MAY
INSTRUCT THEIR CUSTOMERS TO MAKE THEIR SUBSCRIPTION CHECKS FOR BACS PAYABLE
DIRECTLY TO THE SELLING AGENT.
IF THE SUBSCRIBER MAINTAINS A SECURITIES ACCOUNT WITH HIS SELLING AGENT, THE
SUBSCRIBER MAY AUTHORIZE HIS SELLING AGENT TO DEBIT HIS SECURITIES ACCOUNT IN
THE AMOUNT OF THE SUBSCRIPTION. SUBSCRIBERS WHO AUTHORIZE THEIR SELLING AGENT
TO DEBIT THEIR SECURITIES ACCOUNT MUST HAVE THEIR SUBSCRIPTION PAYMENT IN
THEIR ACCOUNT ON THE SPECIFIED SETTLEMENT DATE WHICH WILL OCCUR NOT LATER
THAN THREE BUSINESS DAYS FOLLOWING NOTIFICATION TO THEIR SELLING AGENT AND
THE INVESTOR OF THE ACCEPTANCE OF THE SUBSCRIPTION.
================================================================================
FINANCIAL ADVISOR/REGISTERED REPRESENTATIVE ACKNOWLEDGEMENT
I am familiar with the standards of suitability set forth in Section 3 to
Article III, Section 34, of the NASD Rules of Fair Practice and have made a
good faith effort to confirm that the representations made by the Purchaser
regarding the suitability of this program for the Purchaser, including
representations regarding a financial position appropriate to enable such
Purchaser to realize to a significant extent the benefits described in the
Prospectus and regarding a fair market net worth sufficient to sustain the
risks inherent in the program, are accurate. I have informed the Purchaser of
all pertinent facts relating to the liquidity and marketability of the BACs.
APPROVED:
____________________________________ ____________________________________
Signature of Financial Advisor/ Signature of Branch Manager/
Registered Representative Registered Principal
Date: _______________________
<PAGE>
FINANCIAL ADVISOR/REGISTERED REPRESENTATIVE INFORMATION
__________________________________ __________________________________
Name of Broker/Dealer Planner's/Registerd Rep's Address
__________________________________ __________________________________
Advisor's/Registered Rep's
First Name Last Name
__________________________________ __________________________________
Advisor's/Resistered Rep's Number City State
( )
__________________________________ __________________________________
Area Code Telephone Number Zip Code
==============================================================================
<PAGE>
INDEPENDENCE TAX CREDIT
PLUS L.P. IV
PROSPECTUS
DATED JULY 6, 1995
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus or in Supplements to this Prospectus, or in literature issued by
the Partnership, the General Partner or the Dealer Manager (which shall not
be deemed to be a part of this Prospectus), in connection with the offer
contained herein and if given or made such information or representation must
not be relied upon. The statements in this Prospectus or in any Supplement
are made as of the date hereof or thereof, unless another time is specified,
and neither the delivery of this Prospectus or any Supplement nor any sale
made hereunder shall, under any circumstances, create an implication that
there has been no change in the facts set forth herein since the date hereof
or thereof. However, if any such material adverse changes occur during the
period when a Prospectus is required to be delivered, this Prospectus or any
Supplement will be amended or supplemented accordingly.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Summary of the Offering 5
Risk Factors 17
Terms of the Offering 22
Who Should Invest 23
Estimated Use of Proceeds 33
Compensation and Fees to the General Partner and Affiliates 37
Conflicts of Interest 46
Fiduciary Responsibility of the General Partner and Affiliates 50
Management of the Partnership 52
Low-Income Housing and Historic Rehabilitation Tax Credits 56
Investment Objectives and Policies 77
Prior Performance Summary 125
Management's Discussion and Analysis of Financial Condition of the Partnership 140
Profits, Losses and Distributions 143
Federal Income Tax Considerations 149
State and Local Tax Consequences 187
Reports 187
Description of BACs 189
Summary of Partnership Agreement 191
The Offering and Plan of Distribution 202
Legal Opinions 207
Experts 207
Sales Literature 207
Additional Information 207
Glossary 208
Index of Financial Statements F-1
Prior Performance Tables P-1
Partnership Agreement--Exhibit A A-1
Subscription Agreement--Exhibit B
</TABLE>
Until October 4, 1995, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters with respect to
subscriptions.
<PAGE>
Master Supplement No. 2
INDEPENDENCE TAX CREDIT PLUS L.P. IV
Master Supplement No. 2
July 14, 1996
To the Prospectus
dated July 6, 1995
This Master Supplement No. 2 ("Master Supplement No. 2" or "Supplement")
supplements the Prospectus of the Partnership, dated July 6, 1995, and
supersedes and consolidates Supplement No. 1 to the Prospectus, dated April
5, 1996 and Master Supplement No. 1, dated April 5, 1996 (collectively, the
"Prior Supplements"). This Master Supplement No. 2 is part of, and should be
read together with, the Prospectus of the Partnership. Capitalized terms used
and not defined in this Master Supplement No. 2 have the same meanings as in
the Prospectus.
- -------------------------------------------------------------------------------
Summary of Supplement
Status of the Offering (Page 2)
This section of Master Supplement No. 2 contains information with respect to
the Closings of the sale of BACs held through the date hereof, and the
application of such sales to investments in Local Partnerships.
Consummated and Prospective Investments in Local Partnerships (Pages 2-8)
This section of Master Supplement No. 2 contains information related to the
acquisition by the Partnership of Local Partnership Interests in three Local
Partnerships, and the prospective acquisition by the Partnership of Local
Partnership Interests in one additional Local Partnership.
Management's Discussion and Analysis (Pages 8-10)
This section of Master Supplement No. 2 contains an updated Management's
Discussion and Analysis with respect to the Partnership for the year ended
March 31, 1996.
Financial Statements (F-1)
This section of Master Supplement No. 2 contains updated financial statements
of the Partnership.
- --------------------------------------------------------------------------------
INVESTORS WHO HAVE SUBSCRIBED FOR BACS BETWEEN FEBRUARY 23 AND APRIL 10,
1996 SHOULD NOTE THAT THE PRIOR SUPPLEMENTS TO THE PROSPECTUS WERE NOT TIMELY
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THAT INVESTORS MAY HAVE
RIGHTS WITH RESPECT TO THEIR INVESTMENT AS A RESULT OF SUCH FAILURE TO TIMELY
FILE SUCH PRIOR SUPPLEMENTS.
1
<PAGE>
STATUS OF THE OFFERING
As of the date of this Supplement thirteen Closings have been held, at
which a total of 33,069 BACs have been sold to a total of 2,000 investors,
representing a total of $33,069,000 in Gross Proceeds. Of such Gross
Proceeds, $4,670,441 has been committed for investment in three Local
Partnerships. The Partnership has identified one Local Partnership in which
it will seek to invest an additional $4,920,000. The solicitation of
subscription for BACs terminated on May 22, 1996. Of the 100,000 BACs
registered for sale by the Partnership, 66,931,000 remain to be sold.
Consummated and Prospective Investments in Local Partnerships
This Supplement describes the acquisition by the Partnership of Local
Partnership Interests in the following Local Partnerships:
<TABLE>
<CAPTION>
Local Partnership Name Property Location
- ------------------------------------------- ---------------------------- --------------------------
<S> <C> <C>
Bx 8A Team Associates, L.P. 1473 Bryant Avenue Bronx, New York
(the "Bryant Avenue Local Partnership")
Westminster Park Plaza, a Westminster Park Plaza Los Angeles, California
California Limited Partnership
(the "Westminster Local Partnership")
Fawcett Street Limited Partnership Fawcett Street Apartments Tacoma, Washington
(the "Fawcett Street Local Partnership")
</TABLE>
This Supplement also describes the prospective acquisition by the
Partnership of Local Partnerships Interests in the following Local
Partnership:
<TABLE>
<CAPTION>
Local Partnership Name Property Location
- -------------------------------------------- ---------------------------- -----------------------
<S> <C> <C>
Webster Place Apartments, L.P. 1971 Webster Avenue Bronx, New York
(the "Webster Place Local Partnership")
</TABLE>
The tables and narrative descriptions included below in this Supplement
provide details concerning the Partnerships consummated and prospective
acquisitions of the Local Partnerships listed above. Except for the interests in
Westminster Local Partnership, the Partnership has acquired or expects to
acquire 98.95% of the limited partner interests in each of the Local
Partnerships owning such Properties and the Special Limited Partner will acquire
a .05% interest in cash of the Local Partnership owning such Properties. The
Partnership acquired a 47.29% interest in the Westminster Local Partnership on
the date of its admission to such Partnership, and has the right to acquire an
additional 48.7% percent interest on or after the date following the first
anniversary of its admission to the Westminster Local Partnership, and an
additional 3% interest on or after the date following the second anniversary of
its admission to the Westminster Local Partnership. On the date of its admission
to the Westminster Local Partnership RCC Westminster GP Corp. was admitted an
additional general partner. RCC Westminster GP Corp. has a 0.5% interest in the
Westminster Local Partnership.
The General Partner believes that it is reasonably probable that the
Partnership will consummate the prospective acquisition of Local Partnership
Interests in the Webster Place Local Partnership described herein. However,
such acquisition is not subject to a binding agreement as of the date hereof
and there can be no assurance that such acquisition will be consummated or
that, if such acquisition is consummated, the terms thereof will not vary
from those described. The Partnership will not acquire Local Partnership
Interests in Pines of Westbury, Ltd., described in the prior supplements.
2
<PAGE>
[Restubbed table]
PROPERTY INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Property Name 1473 Bryant Avenue Westminster Park Plaza
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Location Bronx, New York Los Angeles, California
- ----------------------------------------------------------------------------------------------------------------------
Date of Admission to October 1, 1995 (1) June 15, 1996 (2)
Local Partnership
- ----------------------------------------------------------------------------------------------------------------------
Property Type Substantial Rehabilitation Existing
- ----------------------------------------------------------------------------------------------------------------------
Estimated Date of Completed in August, 1994 Completed in 1989
Completion of
Construction/
Rehabilitation
- ----------------------------------------------------------------------------------------------------------------------
Occupancy 95% occupied as of March 1, 1996 91% occupied as of March 1, 1996
- ----------------------------------------------------------------------------------------------------------------------
Number of Apartment 20-1 BR-590 sq. ft.-$286-425 13-1 BR-648 sq. ft.-$370-570
Units--Type--Unit 13-2 BR-840 sq. ft.-$312-400 65-2 BR- 809 sq. ft.-$390-670
Size--Rents 8-3 BR-990 sq. ft.-$349-625 35-3 BR-1020 sq. ft.-$560-775 15-4 BR-1367
41 Total sq. ft.-$612-785
2-5 BR-1976 sq. ft.-$615-770
130 Total
- ----------------------------------------------------------------------------------------------------------------------
Annual Real Estate None (6) None (7)
Taxes
- ----------------------------------------------------------------------------------------------------------------------
Unit Features Full kitchen with frost-free Vaulted ceilings, electric range, oven,
refrigerator, self-cleaning oven, garbage disposals and mini blinds
range and mini-blinds
- ----------------------------------------------------------------------------------------------------------------------
Project Amenities Buzzer intercom, video surveillance Day care center and seven tot lots, 253
and laundry facility parking spaces (104 covered) and seven
laundry rooms
- ----------------------------------------------------------------------------------------------------------------------
Local General 1473 Bryant, Inc. DVA, Inc., Williams Greer, Inc. RCC
Partners (3) (5) Westminster GP Corp. (an affiliate of the
General Partner) and Westminster
Neighborhood Housing Project, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Guarantors (4) (5) Local General Partner and Alex Local General Partners and RCC Management
Berkovitch Company
- ----------------------------------------------------------------------------------------------------------------------
Management Agent S&J Crown Management, Inc., an RCC Management Company, an affiliate of the
affiliate of the Local General General Partner
Partner
- ----------------------------------------------------------------------------------------------------------------------
Management Fee 7% of annual rental revenues 5% of gross rental revenues
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Property Name Fawcett Street Apartments 1971 Webster Avenue
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Location Tacoma, Washington Bronx, New York
- ----------------------------------------------------------------------------------------------------------------------
Date of Admission to June 18, 1996 December, 1996 (Projected)
Local Partnership
- ----------------------------------------------------------------------------------------------------------------------
Property Type New Construction New Construction
- ----------------------------------------------------------------------------------------------------------------------
Estimated Date of December 1, 1996 June 1998
Completion of
Construction/
Rehabilitation
- ----------------------------------------------------------------------------------------------------------------------
Occupancy Not Applicable Not Applicable
- ----------------------------------------------------------------------------------------------------------------------
Number of Apartment 23-1 BR-560 sq. ft.-$365-507 6-1 BR- 650 sq.ft.-$459-515
Units--Type--Unit 25-2 BR-790 sq. ft.-$356-507 59-2 BR-850 sq.ft.-$551-618
Size--Rents 12-3 BR-990 sq. ft.-$356-507 12-3 BR-1050 sq.ft.-$637-714
60 Total Units 77 Total Units
- ----------------------------------------------------------------------------------------------------------------------
Annual Real Estate $6,000 for each of the first 10 years None (6)
Taxes
- ----------------------------------------------------------------------------------------------------------------------
Unit Features Dishwashers, garbage disposals, Electric range, oven,
self-cleaning ovens, frost-free refrigerator, walk-in-closets
refrigerator, mini-blinds, exterior
storage, community room, tot lot,
central laundry, security intercom
- ----------------------------------------------------------------------------------------------------------------------
Project Amenities Laundry room, tot lot with "Big Toy," Elevators, community room, parking
48 parking spaces lot and laundry room
- ----------------------------------------------------------------------------------------------------------------------
Local General Metropolitan Development RMF Realty Corporation
Partners (3) (5) Council, a Washington Non-Profit
Corporation Local General Partner
- ----------------------------------------------------------------------------------------------------------------------
Guarantors (4) (5) Local General Partners and Pasqua
Local General Partner Fogliano
- ----------------------------------------------------------------------------------------------------------------------
Management Agent Metropolitan Development Council To Be Determined
- ----------------------------------------------------------------------------------------------------------------------
Management Fee $18,000 annually 6% of annual rental revenues
actually collected
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
[End restubbed table]
<PAGE>
1. The Partnership's interest in the Bryant Avenue Local Partnership was
acquired by paying $100 upon its admission to the Bryant Avenue Local
Partnership. The balance of its capital contribution was not payable until
certain conditions, including the receipt by the Bryant Avenue Local
Partnership of satisfactory terms of permanent financing, on the terms
described herein have been satisfied. Until such conditions occurred, the
Partnership had the right to withdraw from the Bryant Avenue Local
Partnership and the Local General Partner had the right to purchase the
Partnership's interest in such Local Partnership for $100. On May 22, 1996,
the Partnership delivered in escrow the purchase price for its interests in
the Bryant Avenue Local Partnership and since substantially all of the
conditions have been met it is anticipated that the escrow will be released
within thirty days.
2. The Partnership acquired a 47.29% interest in the Westminster Local
Partnership upon its admission to such Local Partnership. Upon such
admission, the Partnership acquired from the existing limited partners of
the Westminster Local Partnership interests aggregating 47.29% of the
Westminster Local Partnership for a purchase price of $514,269. On or
after the first anniversary of the Partnership's admission to the
Westminster Local Partnership, the Partnership has the additional right to
acquire an additional 48.7% interest in the Westminster Local Partnership
for an additional purchase price of $529,490. On or after the second
anniversary of the Partnership's admission to the Westminster Limited
Partnership, the Partnership has the right to purchase an additional 1%
interest in the Westminster Local Partnership for an additional purchase
price of $32,617.
3. This row indicates the persons and/or entities that constitute the Local
General Partners of the Local Partnerships owning the Properties described
above. RCC Westminster GP Corp. is an affiliate of the General Partner and
has the right to be admitted as an additional General Partner of the
Westminster Local Partnership with a .5% interest.
4. In the case of certain Local Partnerships, one or more persons and/or
entities other than the Local General Partner have provided or are
expected to provide to the Partnership the development deficit, rent-up
and operating deficit guarantees that are described in the Table of Terms
of Local Partnership Investments later in this Supplement. For such Local
Partnerships, this row indicates the identities of such other guarantors.
5. No representation is made as to the net worth of any Local General Partner
or other guarantor. Investors should be aware that a substantial portion
of any net worth of the Local General Partner or other guarantor may not
be liquid and that there can be no assurance that any such persons or
entities will have sufficient funds available to meet their obligations to
the Partnership in a timely manner. See "Risk Factors--Risks Associated
With the Financial Resources of the Local General Partners or Guarantors"
in the Prospectus.
6. The Bryant Avenue and Webster Place properties have been or will be
qualified for J-51 status as a result of which no real estate taxes will
be payable for a period of 20 years following the completion of the
rehabilitation of the respective properties. Thereafter, taxes will be
abated for a 12 year period. As a result of the J-51 status, the
Partnership will be subject to the New York City Rent Stabilization Law,
which limits the rentals chargeable to the Apartment Units, upon vacancy
and reletting of such units. Such restriction is not anticipated to have a
substantial adverse effect on the operations of the Partnership during the
anticipated 15 year holding period.
7. The Property is expected to qualify for a total abatement of real estates
taxes because Westminster Neighborhood Housing Project, Inc. is a managing
General Partner of the Westminster Local Partnership and a not-for-profit
corporation. The law allowing this abatement is currently subject to
annual review by the California State Legislature. As a result, the
existence of the tax abatement is uncertain. Annual real estate taxes,
assuming no abatement, are estimated to be $78,766.
4
<PAGE>
[Restubbed table]
TERMS OF LOCAL PARTNERSHIP INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Property Name 1473 Bryant Avenue Westminster Park Plaza
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Partnership's Cash Payment (1) $931,529 $1,076,376 (2)
- ----------------------------------------------------------------------------------------------------------------------
Total Purchase Price (2) $2,550,844 $9,500,000
- ----------------------------------------------------------------------------------------------------------------------
Acquisition Fee $70,304 $82,032
Payable by the Local
Partnership to the General
Partner
- ----------------------------------------------------------------------------------------------------------------------
Government None Los Angeles Community
Assistance (3) Redevelopment Agency Loan
- ----------------------------------------------------------------------------------------------------------------------
Permanent Mortgages (4) First Mortgage First Mortgage
Lender--Community Lender--Citibank FSB
Preservation Corporation (9) amount--$3,300,000
Amount--$383,000 Interest--8.71% years 1-10, 2.25% above
Interest--9.36% weekly average yield on US Treasury
Term--15 Years Securities years 11-20, 2.25% as above
Second Mortgage years 21-30
Lender--New York Term--30 Years
Department for Housing Second Mortgage
Preservation and Development Lender--Los Angeles
Amount--$1,004,751 Community Redevelopment
(first tranche) Agency
Interest--1% Amount--$5,000,000
Amount--$231,564 Interest--5% simple interest
(second tranche) Term--30 Years
Interest--0%
Term--15 Years
- ----------------------------------------------------------------------------------------------------------------------
Amount and Achievement Date 95% already achieved None (Rental Achievement has occurred)
of Rent-up Guarantee Payable
by the Guarantor to the
Partnership (5)
- ----------------------------------------------------------------------------------------------------------------------
Operating Deficit Guarantee $300,000 None (Stabilization has occurred)
Payable by the Guarantor to
the Partnership (Maximum)
- ----------------------------------------------------------------------------------------------------------------------
Election Date of Development During period in which Development Not Applicable
Deficit Guarantee Payable by Deficit Guarantee is in effect(13)
the Guarantor to the
Partnership (6)
- ----------------------------------------------------------------------------------------------------------------------
Estimated Depreciable $3,059,853 $9,500,000
Basis (7)
- ----------------------------------------------------------------------------------------------------------------------
Anticipated Low- Income $172,412 1996 = $235,503
Housing Tax Credits (8) 1997-1999 = $471,007 each year
2000 = $109,895
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Webster Place
- ----------------------------------------------------------------------------------------------------------------------
Property Name Fawcett Street Apartments Apartments
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Partnership's Cash Payment (1) $2,662,536 $4,920,000
- ----------------------------------------------------------------------------------------------------------------------
Total Purchase Price (2) $4,585,036 $8,731,832
- ----------------------------------------------------------------------------------------------------------------------
Acquisition Fee $200,946 $371,321
Payable by the Local
Partnership to the General
Partner
- ----------------------------------------------------------------------------------------------------------------------
Government None None
Assistance (3)
- ----------------------------------------------------------------------------------------------------------------------
Permanent Mortgages (4) First Mortgage First Mortgage
Lender--Washington Lender--
Community Reinvestment Association Amount--$1,000,000
Amount--$750,000 Interest--9%
Interest--the greater of 8% or the most Term--15 Years
recently available one-week average Second Mortgage
yield on U.S. Treasury Constant Lender--Housing Trust Fund
Maturities Rate plus 1.5 percentage Amount--$2,811,832
points rounded to the higher .0125 Interest--1%
percent Term--30 Years Term--30 Years
Second Mortgage
Lender--City of Tacoma
Amount--$50,000
Interest--None
Term--5 Years
Third Mortgage
Lender--Washington State
Communities Trade
& Economic Dev
Amount--$1,122,500
Interest--1%
Term--50 Years
- ----------------------------------------------------------------------------------------------------------------------
Amount and Achievement Date None; $452,631 is to be withheld until $984,000 upon achievement of 95%
of Rent-up Guarantee Payable property achieves 93% occupancy occupancy
by the Guarantor to the
Partnership (5)
- ----------------------------------------------------------------------------------------------------------------------
Operating Deficit Guarantee $146,500 $100,000
Payable by the Guarantor to
the Partnership (Maximum)
- ----------------------------------------------------------------------------------------------------------------------
Election Date of Development October 1, 1996 During period in which Development
Deficit Guarantee Payable by Deficit Guarantee is in effect(13)
the Guarantor to the
Partnership (6)
- ----------------------------------------------------------------------------------------------------------------------
Estimated Depreciable $4,044,366 $8,065,014
Basis (7)
- ----------------------------------------------------------------------------------------------------------------------
Anticipated Low- Income $443,748 $887,206
Housing Tax Credits (8)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[End of reswtubbed table]
5
<PAGE>
1. A portion of the purchase price paid by the Partnership for the acquisition
of a Local Partnership Interest for each of the Local Partnerships other than
the Westminster Local Partnership is applied towards the payment of fees or
amounts to the Local General Partner for its services in connection with
development and/or rehabilitation of the Property. In general, such fee or
amount is payable only if funds are available from debt and equity
contributions after the construction or rehabilitation of the Property is
completed and it is operating at break-even levels. Thus, because such fee or
amount is not fixed and is contingent, it is not possible to know at this
time the actual fee or amounts that the Local General Partner will receive,
which could be substantial. The Partnership acquired a 47.29% interest in the
Westminster Local Partnership upon its admission to such Local Partnership.
Upon such admission, the Partnership acquired from the existing limited
partners of the Westminster Local Partnership interests aggregating 47.29% of
the Westminster Local Partnership for a purchase price of $514,269. On or
after the first anniversary of the Partnership's admission to the Westminster
Local Partnership, the Partnership has the additional right to acquire an
additional 48.7% interest in the Westminster Local Partnership for an
additional purchase price of $529,490. On or after the second anniversary of
the Partnership's admission to the Westminster Limited Partnership, the
Partnership has the right to purchase an additional 3% interest in the
Westminster Local Partnership for a purchase price of $32,617.
2. The total purchase price is calculated by adding the cash payment shown
in the row above and the amount of the permanent mortgages shown three
rows below.
3. This row indicates the government assistance program(s) from which the
Property is expected to benefit, if any, and the current expiration date
for such assistance. See "Investment Objectives and Policies-Financing
Structure; Non-Subsidized Local Partnerships; Government Subsidy
Programs" in the Prospectus.
4. This row describes the general terms of the permanent mortgages or the
commitments for permanent mortgages unless otherwise specified.
5. This row indicates the amount of liquidated damages that are expected to
be paid to the Partnership by the Local General Partner (or other
guarantor) if the Property does not achieve the specified occupancy rate
by the specified date (which undertaking is referred to in the table as
the "Rent-Up Guarantee").
6. This row indicates the date on which the Partnership may elect to cause
the guarantor to repurchase the Local Partnership Interest if
construction or rehabilitation of the Property is not then complete
(which undertaking is referred to in the table as the "Development
Deficit Guarantee").
7. It is anticipated that a portion of the estimated depreciable basis of
the Local Partnership in its Property will be attributable to personal
property and depreciated over a useful life of seven years.
8. This row indicates the amount of Housing Tax Credits that the Local
Partnership is expected to be entitled to claim each year during the
Credit Period with respect to its Property. The Partnership has agreed
that in the event that a Local Partnership becomes entitled to claim Tax
Credits subsequent to the date of the Partnership's investment therein,
the Partnership will purchase such additional Tax Credits at a rate
agreed upon at the time of the Partnership's initial investment. The
Partnership's obligation to purchase such additional Tax Credits is
conditioned upon the availability of sufficient uncommitted Gross
Proceeds.
9. Equity from Independence IV will be used to write down the Community
Preservation loan. The maximum allowable debt service has been set at
$45,000.
10. Subject to receipt of a binding commitment which has not been attained.
Principal repayments are to be made in accordance with a 30-year
amortization schedule.
11. Adjustments are to be made at year 11 based on 20 year amortization and
at year 21 based on 10 year amortization.
12. Residual receipts split 25% to Local Partnership; 75% to Los Angeles
Community Redevelopment Agency.
13. The Development Deficit Guarantee remains in effect until the end of the
first three-month period after completion during which the Property
operates at a break-even level. The Partnership may require the
Guarantors to repurchase the Partnership's Local Partnership Interest if
a foreclosure action is commenced during the period in which the
Development Deficit Guarantee is in effect.
6
<PAGE>
A. Description of Properties
The acquisition by the Partnership of Local Partnership interests involves
certain risks. See "Risk Factors--Risks Related to Local Partnership
Interests."
1473 Bryant Avenue
1473 Bryant Avenue consists of a 5-story building with 41 residential
units. The property is located in an area that has experienced a
revitalization in recent years with the development of single family attached
homes and renovation of apartment buildings. Corona Park is within 1/2 mile
of the property and offers a baseball field, soccer field, swimming pool and
playground. The property has excellent access to shopping, public
transportation and neighborhood services. The area in which this Property is
located currently has a 96% occupancy rate. 94% of the area's residents are
renters and current demand is greater than supply for apartment units at
rentals similar to those charged for this Property.
Webster Place Apartments
Webster Place Apartments consists of one building with 77 residential
units. The property is located approximately 1/2 mile south of the Fordham
Road shopping district--the third largest generator of retail sales in the
City of New York. It is in proximity to the Cross Bronx Expressway and Bronx
River Parkway, Webster Avenue Bus Line, Fordham Road Bus, the subway and
Metro North Railroad.
Westminster Park Plaza
Westminster Park Plaza consists of 14 buildings with 130 residential
units. The property is located on 7.28 acres and is adjacent to a large
neighborhood park. Westminster Park Plaza is in a residential neighborhood
with schools, shopping and public transportation in walking distance. The
property has easy access to downtown Los Angeles. The Project has maintained
since its opening in 1990 stabilized occupancy, which is currently at
approximately a 93% occupancy level. The area includes four recently developed
Housing Tax Credit eligible projects all of which are at least 90% occupied.
78 of the 130 Units are eligible for Housing Tax Credits, provided that they
are leased to households having incomes less than 60% of the area median income
at rentals not exceeding 30% of the imputed monthly income, adjusted for
family size. In addition, by reason of the loan from the City of Los Angeles
Community Redevelopment Agency, the units are subject to restrictions limiting
20% of the units to households earning no more than 50% of the area median
income adjusted for family size, 40% of the units to households earning no more
than 120% of the area median income adjusted for family size.
Fawcett Street Apartments
Fawcett Street Apartments consists of one building with 60 residential
units. The property is located within the North Tacoma market area, in a
neighborhood with a mix of residential buildings, retail stores and
commercial properties. Fawcett Street Apartments have excellent access to
transportation, shopping, employment and public schools. The completion of
the new branch campus of the University of Washington is expected to have a
significant positive influence in the north Tacoma neighborhood, as no
student housing is proposed. The North Tacoma market area has experienced little
multi-family apartment development in the past fifteen years. Existing multi-
family housing has experienced approximately a 96% occupancy level. A recently
developed Housing Tax Credit eligible project in the area achieved full rental
in approximately three months. There are currently three additional planned
apartment projects in the area, with a total of 172 units, of which 43 units are
anticipated to be eligible for Housing Tax Credits. Tenants of the Fawcett
Street Property will be limited to famlies having income less than 50% of the
area median income.
B. General Property Information
Lease expirations. With minor exceptions, none of the leases for the
apartments at the Properties described herein obligates either the Local
Partnership or the tenant for a term of more than one year.
Insurance. In the opinion of the General Partner, each of the Properties
described is or upon acquisition will have insurance coverage which is
customary for similar properties in the areas in which such Properties are
located. However, there can be no assurance that such coverage will be
sufficient to cover all risks. In addition, it may not be economically
feasible, due to high premium costs, to obtain insurance for earthquakes and
similar risks.
Competition. Each of the Properties described herein is subject to
competition from other apartment complexes in its area.
Environmental Regulation. Based upon environmental surveys received for
each of the Properties other than the Webster Local Partnership, it is not
believed that any of these Properties are in violation of environmental laws
or regulations. As a condition to obtaining an interest in the Webster Place
Local Partnership, the Partnership will obtain an environmental survey, and
such interest will not be acquired unless any environmental conditions which
violate any environmental laws are remediated.
Rent Control Regulations. Each of the Properties are subject to
limitations on rentals chargeable as a result of their being eligible for
Housing Tax Credits. See "Low-Income Housing and Historic Rehabilitation Tax
Credits" for a discussion on the
7
<PAGE>
limitations imposed by the Housing Tax Credit. It is anticipated that each of
the Properties will be subject to such limitations for at least 30 years.
Additionally, as a result of the J-51 status of the Bryant Avenue Property
and the anticipated J-51 tax abatement status of the Webster Place Property,
such Properties will be subject to New York City's Rent Stabilization Law
which limits the rentals which may be charged on the apartment units during
the period of the tax abatement. It is not anticipated that the limitations
under the Rent Stabilization Law will be materially greater than the
limitations imposed by reason of the limitations required as a condition to
receiving an allocation of Housing Tax Credits.
II. Management's Discussion and Analysis
The section of the Prospectus captioned "Management's Discussion and
Analysis of Financial Condition of the Partnership" is hereby supplemented
with the following additional information with respect to results of
operations of the Partnership for the Fiscal year ended March 31, 1996.
Liquidity and Capital Resources
The Partnership's primary source of funds include (i) gross proceeds from
the sale of BACs and (ii) interest earned on Gross Proceeds which are
invested in tax-exempt money market instruments pending final payments to the
Local Partnerships and (iii) working capital reserves in the original amount
of 2.5% of gross proceeds raised and interest earned thereon. All these
sources of funds are available to meet obligations of the Partnership.
The Partnership has received $27,333,000 in gross proceeds (all of which
was raised during the year ended March 31, 1996) for BACs pursuant to a
public offering resulting in net proceeds available for investment of
approximately $21,730,000 after volume discounts, payment of sales
commissions, acquisition fees and expenses, organization and offering
expenses and establishment of a working capital reserve.
As of March 31, 1996, the Partnership has invested approximately $932,000
(including approximately $902,000 classified as a loan repayable from
sale/refinancing proceeds in accordance with the Contribution Agreement and
not including acquisition fees of approximately $70,000) of net proceeds in
one Local Partnership, all of which remains to be paid to the Local
Partnership as certain benchmarks, such as occupancy level, must be attained
prior to the release of the funds. The one Local Partnership was acquired
during the year ended March 31, 1996. The Partnership has approximately
$20,728,000 available for future investments. The Partnership will be
acquiring additional Local Partnership Interests, and the Partnership may be
required to fund potential purchase price adjustments based on tax credit
adjustor clauses.
During the year ended March 31, 1996, cash and cash equivalents increased
approximately $8,484,000. This increase is primarily attributable to capital
contributions of $27,333,000, proceeds from construction loans of $2,039,000,
and cash flow from operations of $9,000 which exceeded an increase in cash
flow held in escrow of $3,000,000, acquisition of property and equipment of
$2,369,000, an increase in investments available for sale of $11,505,000, an
increase in deferred costs of $1,656,000 and an increase in offering costs of
$2,837,000. Included in adjustments to reconcile the net income to cash flow
used in operations is depreciation and amortization of approximately $29,000.
Included in cash and cash equivalents is working capital reserve of
approximately $683,000 has been established from the Partnership's funds
available for investment, which includes amounts which may be required for
potential purchase price adjustments based on tax credit adjustor clauses. At
March 31, 1996, all of this reserve remains unused. The General Partners
believe that these reserves, plus any cash distributions received from the
operations of the Local Partnerships will be sufficient to fund the
Partnership's ongoing operations for the foreseeable future.
The Partnership will be negotiating Development Deficit Guarantees with
the Local Partnerships in which it will invest. The Local General Partners
will agree to fund development deficits through the breakeven dates of each
of the Local Partnerships. As of March 31, 1996, there were no Development
Deficit Guarantees. The terms of the Development Deficit Guarantees will vary
for each Local Partnership, with maximum dollar amounts to be funded for a
specific period of time, generally three years, commencing on the break-even
date.
8
<PAGE>
The Partnership will be negotiating Operating Deficit Guaranty Agreements
with all Local Partnerships by which the general partners of the Local
Partnerships will agree to fund operating deficits for a specified period of
time. The terms of the Operating Deficit Guaranty Agreements will vary for
each Local Partnership, with maximum dollar amounts to be funded for a
specified period of time, generally three years, commencing on the break-even
date. The gross amount of the one Operating Deficit Guarantee aggregates
approximately $300,000, none of which has expired as of March 31, 1996. The
current operating deficit guarantee expires within the next three years. As
of March 31, 1996, $0 has been funded under the Operating Deficit Guaranty
agreement. Amounts funded under such agreement will be treated as
non-interest bearing loans, which will be paid only out of 50% of available
cash flow or out of available net sale or refinancing proceeds.
In addition, Local Partnerships will have Rent-Up Guaranty Agreements, in
which the Local General Partner will agree to pay liquidating damages if
predetermined occupancy rates are not achieved. The terms of the Rent-Up
Guaranty Agreements will vary for each Local Partnership, with maximum dollar
amounts to be funded for a specified period of time. The gross amount of the
one Rent-Up Guarantee aggregates approximately $764,000 of which none has
expired as of March 31, 1996. The current rent-up deficit guarantee expires
within the next three years. There has not been any funding under the
guaranty agreement. Amounts received under rental guaranty from the sellers
of the properties purchased by the Partnership will be treated as a reduction
of the asset.
The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements,
and Development Deficit Guaranty Agreements will be negotiated to protect the
Partnership's interest in the Local Partnerships and to provide incentive to
the Local General Partners to generate positive cash flow.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are
likely to impact liquidity in a material way. Management believes the only
impact would be for laws that have not yet been adopted. The portfolio will
be diversified by the location of the properties around the United States so
that if one area of the country is experiencing downturns in the economy, the
remaining properties in the portfolio may be experiencing upswings. However
the geographic diversification of the portfolio may not protect against a
general downturn in the national economy. The Partnership anticipates
investing the proceeds of its offering in Local Partnerships, all of which
will fully have their tax credits in place. The tax credits will be attached
to the project for a period of ten years, and will be transferable with the
property during the remainder of the ten-year period. If trends in the real
estate market warranted the sale of a property, the remaining tax credits
would transfer to the new owner; thereby adding significant value to the
property on the market, which will not be included in the financial statement
carrying amount.
Results of Operations
Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition
fees and expenses, and any other costs incurred in acquiring the properties.
A provision for loss on impairment of assets is recorded when estimated
amounts recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired and the depreciated cost exceeds estimated fair value. Through March
31, 1996, the Partnership has not recorded any provisions for loss on
impairment of assets or reduction to estimated fair value.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived
assets and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership intends to adopt SFAS No. 121,
consistent with the required adoption period. The Partnership does not expect
the implementation to have a material impact on its financial condition or
its future results of operations.
9
<PAGE>
The following is a summary of the results of operations of the Partnership
for the year ended March 31, 1996 (the 1995 Fiscal Year).
The net income for the 1995 Fiscal Year totaled $161,397.
The Partnership and BACs holders will begin to recognize Housing Tax
Credits with respect to a Property when the Credit Period for such Property
commences. Because of the time required for the acquisition, completion and
rent-up of Properties, it is expected that the amount of Tax Credits per BAC
will gradually increase over the first three years of the Partnership.
Housing Tax Credits not recognized in the first three years will be
recognized in the 11th through 13th years. The Partnership generated $42,668
Housing Tax Credits during the 1995 tax year.
As of March 31, 1996, the Partnership had acquired an interest in one
Local Partnership. The Partnership intends to utilize the net proceeds of the
offering to acquire additional interests in Local Partnerships.
The Partnership's results of operations for the year ended March 31, 1996
consisted primarily of (1) approximately $222,000 of tax-exempt interest
income earned on funds not currently invested in Local Partnerships and (2)
the results of the Partnership's investment in one consolidated Local
Partnership.
The results of operations are not reflective of future operations of the
Partnership due to the continued utilization of the net proceeds of the
Offering to invest in Local Partnerships and the continued offering of BACs
for sale. The Partnership will utilize the net proceeds of the Offering to
invest in Local Partnerships owning apartment complexes which are eligible
for the Housing Tax Credit, some of which may also be eligible for the
Historic Tax Credit. In addition, interest income will decrease in future
periods since a substantial portion of the proceeds from the Offering will be
invested in Local Partnerships. For the year ended March 31, 1996 there was
one consolidated Local Partnership, whose property had completed
construction.
Other
The Partnership's investment as a limited partner in the Local Partnership
is subject to the risks of potential losses arising from management and
ownership of improved real estate. The Partnership's investment also could be
adversely affected by poor economic conditions generally, which could
increase vacancy levels and rental payment defaults and by increased
operating expenses, any or all of which could threaten the financing
viability of one or more of the Local Partnerships.
There also are substantial risks associated with the operation of
Apartment Complexes receiving government assistance. These include
governmental regulations concerning tenant eligibility, which may make it
more difficult to rent apartments in the complexes; difficulties in obtaining
government approval for rent increases; limitations on the percentage of
income which low and moderate income tenants may pay as rent; the possibility
that Congress may not appropriate funds to enable the Department of Housing
and Urban Development to make the rental assistance payments it has
contracted to make; and that when the rental assistance contracts expire
there may not be market demand for apartments at full market rents in a Local
Partnership's Apartment Complex.
The Local Partnerships are impacted by inflation in several ways.
Inflation allows for increases in rental rates generally to reflect the
impact of higher operating and replacement costs. Inflation also affects the
Local Partnerships adversely by increasing operating costs as, for example,
for such items as fuel, utilities and labor.
10
<PAGE>
- --------------------------------------------------------------------------------
INDEX OF FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Independence Tax Credit Plus L.P. IV
Independent Auditor's Report...........................................................................F-1
Consolidated Balance Sheet as of March 31, 1996 and March 31, 1995 ....................................F-2
Consolidated Statements of Operations for the year ended March 31, 1996 ...............................F-3
Consolidated Statement of Changes in Partners' Capital for year ended
March 31, 1996 and the period February 22, 1995
(Date of Inception) through March 31, 1995 .........................................................F-4
Consolidated Statement of Cash Flows for the nine months ended December 31, 1995
(Unaudited).........................................................................................F-5
Notes to Consolidated Financial Statements.............................................................F-6
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Independence Tax Credit Plus L.P. IV and Subsidiary
(A Delaware Limited Partnership)
We have audited the accompanying consolidated balance sheets of
Independence Tax Credit Plus L.P. IV and Subsidiary (a Delaware Limited
Partnership) as of March 31, 1996 and 1995, and the related consolidated
statements of operations and cash flows for the year ended March 31, 1996 and
consolidated statements of changes in partners' capital for the year ended March
31, 1996 and period February 22, 1995 (inception) through March 31, 1995. 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 audits. We did not audit the financial statements of the subsidiary
partnership, whose net loss for the year ended March 31, 1996 was $22,536 and
whose assets constituted 10% of the Partnership's assets at March 31, 1996.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for the
subsidiary partnership, is based solely on the report of the other auditors.
We conducted our audits 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 audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits, and the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Independence Tax
Credit Plus L.P. IV and Subsidiary at March 31, 1996 and 1995, and the results
of their operations and their cash flows for the year ended March 31, 1996 in
conformity with generally accepted accounting principles.
Friedman Alpren & Green LLP
New York, New York
June 28, 1996
F-2
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------
1996 1995
---------------------- --------------------
ASSETS
<S> <C> <C>
Property and equipment - at cost, less accumulated depreciation $ 2,657,976 $ 0
(Notes 2 and 4)
Cash and cash equivalents (cost approximates market) (Notes 2 8,484,832 1,010
and 10)
Investments available for sale (Note 2) 11,502,412 0
Cash held in escrow (Note 5) 3,000,000 0
Deferred costs, less accumulated amortization (Notes 2 and 6) 1,700,358 50,000
Other assets 260,114 0
---------- ---------
Total assets $27,605,692 $ 51,010
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Construction loan payable (Note 7) $ 2,039,174 $ 0
Accounts payable and other liabilities 106,084 55,245
Due to local general partners and affiliates 311,987 0
Due to general partner and affiliates (Note 8) 288,599 114,246
----------- ---------
2,745,844 169,491
----------- ---------
Minority interest 321,081 0
----------- ---------
Commitments and contingencies (Note 10)
Partners' capital:
Limited partners (100,000 BACs authorized;
27,333 and 0 issued and outstanding
in 1996 and 1995, respectively) (Note 1) 24,536,153 (119,481)
General partner 2,614 1,000
---------- --------
Total partners' capital 24,538,766 (118,481)
---------- ---------
Total liabilities and partners' capital $27,605,692 $ 51,010
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31,1996
Revenues
Rental income $ 47,060
Other income (principally interest on capital contributions) 222,969
-------
270,029
Expenses
General and administrative 16,112
General and administrative-related parties (Note 8) 25,916
Repairs and maintenance 294
Operating and other 17,635
Insurance 4,071
Interest 15,957
Depreciation and amortization 28,872
-------
108,857
Net income before minority interest 161,172
Minority interest in loss of subsidiary partnership 225
--------
Net income $ 161,397
=========
Net income per limited partnership interest $ 159,783
=========
Weighted average number of BACs outstanding $ 8,241
=========
Net income per weighted average BAC $ 19.39
=========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FEBRUARY 22, 1995 (INCEPTION) THROUGH
MARCH 31, 1995 AND THE YEAR ENDED MARCH 31,1996
<TABLE>
<CAPTION>
Limited General
Total Partners Partner
<S> <C> <C> <C>
Capital contributions $ 1,010 $ 10 $ 1,000
Offering costs (119,491) (119,491) 0
----------- ----------- ---------
Partners' capital - March 31, 1995 (118,481) (119,481) 1,000
Capital contributions 27,333,000 27,333,000 0
Distributions (10) (10) 0
Offering costs (2,837,139) (2,837,139) 0
Net income 161,397 159,783 1,614
------------ ------------ -----------
Partners' capital - March 31, 1996 $24,538,767 $24,536,153 $ 2,614
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
YEAR ENDED MARCH 31, 1996
Cash flows from operating activities:
Net income $ 161,397
---------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 28,872
Minority interest in loss of subsidiary partnership 225
Increase in assets
Other assets (210,031)
Increase in liabilities
Accounts payable and other liabilities 756
Due to general partners and affiliates 28,214
-------
Total adjustments (151,964)
Net cash provided by operating activities 9,433
--------
Cash flows from investing activities:
Acquisition of property and equipment (2,368,940)
Cash held in escrow (3,000,000)
Increase in investments available for sale (11,502,412)
Increase in deferred costs (1,656,279)
Net cash used in investing activities (18,527,631)
------------
Cash flows from financing activities:
Capital contributions received 27,333,000
Capital distributions paid (10)
Proceeds from construction loan 2,039,174
Increase in due to general partner and affiliates 146,139
Increase in offering costs (2,837,139)
Increase in capitalization of consolidated subsidiary
attributable to minority interest 320,856
------------
Net cash provided by financing activities 27,002,020
------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
INCREASE IN CASH AND CASH EQUIVALENTS
Net increase in cash and cash equivalents $ 8,483,822
Cash and cash equivalents at beginning of period 1,010
-------------
Cash and cash equivalents at end of period $ 8,484,832
=============
Supplemental disclosure of cash flows information:
Cash paid during the year for interest $ 15,957
Retainage included in other assets and accounts
payable and other liabilities $ 50,083
Development fees due to local general partners and
affiliates capitalized to property and equipment $ 311,987
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - General
Independence Tax Credit Plus L.P. IV (a Delaware Limited
Partnership) (the "Partnership") was organized on February 22, 1995, and
commenced a public offering on July 6, 1995. The general partner of the
Partnership is Related Independence L.L.C., a Delaware limited liability company
(the "General Partner").
The Partnership's business is to invest in other partnerships
("Local Partnerships," "subsidiaries" or "subsidiary partnerships") owning
leveraged apartment complexes that are eligible for the low-income housing tax
credit ("Tax Credit") enacted in the Tax Reform Act of 1986, some of which
complexes may also be eligible for the historic rehabilitation tax credit.
The Partnership has acquired an interest in one subsidiary
partnership as of March 31, 1996. In the future the Partnership anticipates
acquiring interests of approximately 99% in subsidiary partnerships. Through the
rights to remove the general partner of the subsidiary local partnership and
the right of an affiliate of the General Partner to approve certain major
operating and financial decisions, the Partnership has a controlling financial
interest in the subsidiary local partnership.
The Partnership was authorized to issue a total of 100,000
($100,000,000) Beneficial Assignment Certificates ("BACs") which have been
registered with the Securities and Exchange Commission for sale to the public.
Each BAC represents all of the economic and virtually all of the ownership
rights attributable to a limited partnership interest. As of March 31, 1996 the
Partnership has raised a total of $27,333,000 representing 27,333 BACs.
The terms of the Amended and Restated Agreement of the Limited
Partnership provide, among other things, that net profits or losses and
distributions of cash flow are, in general, allocated 99% to the limited
partners and BACs holders and 1% to the General Partner.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The Partnership's fiscal year ends on March 31. The subsidiary
partnership has a fiscal year ending December 31. Accounts of the subsidiary
have been adjusted for intercompany transactions from January 1 through March
31. The books and records of the Partnership are maintained on the accrual basis
of accounting, in accordance with generally accepted accounting principles.
b) Basis of Consolidation
The consolidated financial statements include the accounts of the
Partnership and one subsidiary partnership for the year ended March 31, 1996, in
which the Partnership is a limited partner. All intercompany accounts and
transactions with the subsidiary partnership have been eliminated in
consolidation.
The increase in the capitalization of the consolidated subsidiary
attributable to minority interest arise from cash contributions from the
minority interest partners.
F-8
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Losses attributable to minority interest which exceed the minority
interests' investment in a subsidiary are charged to the Partnership. The
Partnership's investment in the subsidiary is equal to the subsidiary's
partners' equity less minority interest capital.
c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks,
and investments in short-term highly liquid investments purchased with original
maturities of three months or less.
d) Investments Available For Sale
At inception, the Partnership adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." At March 31, 1996, the Partnership has classified its
securities as available for sale.
Available for sale securities are carried at fair value with
net unrealized gain (loss) reported as a separate component of partners' capital
until realized. A decline in the market value of any available for sale security
below cost that is deemed other than temporary is charged to earnings, resulting
in the establishment of a new cost basis for the security.
At March 31, 1996, the Partnership's investments classified as
investments available for sale are carried at cost which approximates fair
market value, have maturities of less than one year and consists of municipal
bonds and municipal bond instruments. As further clarification, the maturities
of the investments are approximately one month and therefore there are no
material unrealized gains or losses.
e) Property and Equipment
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. The cost
of property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line methods. Expenditures for repairs and maintenance
are charged to expense as incurred; major renewals and betterments are
capitalized. At the time property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are eliminated from the
assets and accumulated depreciation accounts and the profit or loss on such
disposition is reflected in earnings. A provision for loss on impairment of
assets is recorded when estimated amounts recoverable through future operations
and sale of the property on an undiscounted basis are below depreciated cost.
However, depreciated cost, adjusted for such reductions in value, if any, may be
greater than the fair value. Property investments themselves are reduced to
estimated fair value (generally using discounted cash flows) when the property
is considered to be impaired and the depreciated cost exceeds estimated fair
value. Through March 31, 1996, the Partnership has not recorded any provisions
for loss on impairment of assets or reduction to estimated fair value.
F-9
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 2 - Summary of Significant Accounting Policies (Continued)
f) Income Taxes
The Partnership is not required to provide for, or pay, any
federal income taxes. Net income or loss generated by the Partnership is passed
through to the partners and is required to be reported by them. The Partnership
may be subject to state and local taxes in jurisdictions in which it operates.
For income tax purposes, the Partnership has a fiscal year ending December 31
(Note 9).
g) Organization and Offering Costs
Costs incurred to organize the Partnership, including but not
limited to legal, accounting and registration fees, are considered deferred
organization expenses. These costs are capitalized and are being amortized over
a 60-month period. Costs incurred in connection with obtaining permanent
mortgage financing are amortized over the lives of the related mortgage notes.
Costs incurred to sell BACs including brokerage and the nonaccountable expense
allowance are considered selling and offering expenses. These costs are charged
directly to limited partners' capital.
h) Deferred Acquisition Costs
Acquisition costs and fees incurred in connection with the
proposed purchase of interests in certain subsidiary partnerships have been
deferred. In the event these partnerships are acquired, these amounts will be
capitalized as property costs. If the subsidiary partnerships are not acquired,
these amounts will be charged to operations.
i) Loss Contingencies
The Partnership records loss contingencies as a charge to
income when information becomes available which indicates that it is probable
that an asset has been impaired or a liability has been incurred as of the date
of the financial statements and the amount of loss can be reasonably estimated.
j) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
k) Accounting Pronouncements Not Yet Implemented
In March 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". Under SFAS No. 121, the
Partnership is required to review long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the book value of an asset may not be recoverable. An impairment loss
should be recognized whenever the review demonstrates that the book value of a
long-lived asset is not recoverable.
F-10
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Effective April 1, 1996, the Partnership intends to adopt SFAS No.
121, consistent with the required adoption period. The Partnership does not
expect the implementation to have a material impact on its financial condition
or its future results of operations.
NOTE 3 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents, Certificates of Deposit, and Escrow
Deposits.
The carrying amount approximates fair value.
Construction Loan Payable
The carrying amount approximates fair value.
The carrying amount of other assets and liabilities reported on the
consolidated balance sheets that require such disclosure approximates fair
value.
NOTE 4 - Property and Equipment
The components of property and equipment and their estimated useful
lives at March 31, 1996 are as follows:
Estimated
Useful Lives
(Years)
-----------------------
Land $ 5,849 --
Building and improvements 2,675,078 27.5
---------
2,680,927
Less: Accumulated 22,951
depreciation -----------
$ 2,657,976
===========
Included in property and equipment for the year ended March 31, 1996
was $70,304 of acquisition fees paid to the General Partner.
F-11
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 4 - Property and Equipment (Continued)
In connection with the rehabilitation of the properties, the
subsidiary partnership has incurred developer's fees of $311,987 to the local
general partners and affiliates as of March 31, 1996. Such fees have been
included in the cost of property and equipment.
Depreciation expense for the year ended March 31, 1996 amounted to
$22,951.
NOTE 5 - Cash Held in Escrow
Cash was held in escrow at March 31, 1996 for the potential
acquisition of a subsidiary partnership. In June 1996 such amount was returned
to the Partnership.
NOTE 6 - Deferred costs
The components of deferred costs and their periods of amortization
are as follows:
March 31,
--------------------------------
1996 1995 Period
--------------------------------- ----------
Financing costs $ 75,036 $ 0 *
Deferred acquisition costs 1,581,243 0 **
Organization costs 50,000 50,000 60 months
---------- ----------
1,706,279 50,000
Less: Accumulated amortization 5,921 0
---------- ----------
$ 1,700,358 $ 50,000
========== ==========
*Over the life of the related anticipated mortgage note.
**Will be capitalized as part of the cost of future acquisitions.
Amortization expense for the year ended March 31, 1996 amounted to $5,921.
NOTE 7 - Construction Loan Payable
The subsidiary partnership's construction loan is payable in
interest only monthly installments of approximately $5,300 at a rate of 3.12%
per annum, until permanent mortgage loan closing takes place. The loan is
collateralized by the land and building of the subsidiary partnership, the
assignment of certain subsidiary partnership's rents and leases, and is without
further recourse.
F-12
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 8 - Related Party Transactions
An affiliate of the General Partner has a .01% interest as a special
limited partner in the Local Partnership.
The General Partner and its affiliates perform services for the
Partnership. The costs incurred for the year ended March 31, 1996 are as
follows:
A) Acquisition Fees and Expenses
The General Partner is entitled to an acquisition fee equal to 6.0%
of the gross proceeds of the offering paid upon investor closing, for its
services in connection with the selection and evaluation of Local Partnerships.
Such fees are capitalized as a cost of the investments upon closing of
subsidiary partnerships acquisitions. As of March 31, 1996, $1,639,980 of such
costs have been incurred.
Pursuant to the Partnership Agreement and the Local Partnership
Agreements, the General Partner and affiliate receives their pro-rata share of
profits, losses and tax credits.
B) Public Offering Costs
Costs incurred to organize the Partnership and certain costs of
offering the BACs including but not limited to legal, accounting, and
registration fees are considered organization and offering costs. Related
Equities Corporation, the Dealer Manager is entitled to a non-accountable
organization and offering expense allowance equal to 2.5% of Gross Proceeds, in
consideration of which it is obligated to pay all such expenses up to the amount
of such allowance. The Partnership is obligated to pay all such expenses that
are in excess of 2.5% of Gross Proceeds and up to 3.5% of Gross Proceeds. The
Dealer Manager is responsible for all such expenses in excess of 3.5% of Gross
Proceeds. The selling commissions and a non-accountable marketing expense
allowance are considered offering costs. These costs are charged directly to
limited partners' capital. As of March 31, 1996, offering costs totaled
$906,655, and along with selling commissions (see Note 8(C)) were charged
directly to limited partner's capital.
C) Selling Commissions and Fees
The Partnership will pay up to 7.5% of the aggregate purchase price
of BACs sold, without regard to quantity discounts, to Related Equities
Corporation, an affiliate of the General Partner. Through March 31, 1996
$2,049,975 was paid or incurred to Related Equities Corporation and then fully
reallocated to other broker/dealers.
D) Guarantees
The Partnership will be negotiating Development Deficit Guarantees
with the Local Partnerships in which it will invest. The Local General Partners
will agree to fund development deficit through the breakeven dates of each of
the Local Partnerships. As of March 31, 1996, there were no Development Deficit
Guarantees. The terms of the Development Deficit Guarantees will vary for each
Local Partnership, with maximum dollar amounts to be funded for a specific
period of time, generally three years, commencing on the breakeven date.
F-13
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 8 - Related Party Transactions (Continued)
The Partnership has negotiated an Operating Deficit Guaranty
Agreement with the Local Partnership by which the general partners of the Local
Partnership have agreed to fund operating deficits for a specified period of
time. The Local General Partner has agreed to fund operating deficits through
the break-even date. The gross amount of the Operating Deficit Guarantees
aggregates approximately $300,000, none of which has expired as of March 31,
1996. The current Operating Deficit Guarantee expires within the next three
years. As of March 31, 1996, $0 has been funded under the Operating Deficit
Guaranty Agreement. Amounts funded under such agreement are treated as non
interest bearing loans, which will be paid only out of 50% of available cash
flow or out of available net sale or refinancing proceeds.
In addition, the one Local Partnership has a Rent-Up Guaranty
Agreement, in which the Local General Partners agree to pay liquidating damages
if predetermined occupancy rates are not achieved. The Local General Partners
have agreed to fund per Rent-Up Guarantee through the break-even date. The gross
amount of this Rent-Up Guarantee for the Local Partnership aggregates
approximately $764,000, none of which has expired as of March 31, 1996. There
have not been any fundings under these guaranty agreements. Amounts received
under rental guarantee from the sellers of the properties purchased by the
Partnership are treated as a reduction of the asset.
The Operating Deficit Guaranty Agreement, Rent-Up Guaranty Agreement
and Development Deficit Guaranty Agreement were negotiated to protect the
Partnership's interest in the Local Partnership and to provide an incentive to
the Local General Partner to generate positive cash flow.
E) Other Related Party Expenses
The costs incurred to related parties for the year ended March 31,
1996 were as follows:
Partnership management fees (a) $ 6,667
Expense reimbursement (b) 11,659
Property management fees (c) 2,590
Local administrative fee (d) 5,000
---------
$ 25,916
=========
(a) The General Partner is entitled to receive a partnership
management fee, after payment of all Partnership expenses, which together with
the annual local administrative fees will not exceed a maximum of 0.5% per annum
of invested assets (as defined in the Partnership Agreement), for administering
the affairs of the Partnership. Subject to the foregoing limitation, the
partnership management fee will be determined by the General Partner in its sole
discretion based upon its review of the Partnership's investments. Unpaid
partnership management fees for any year will be accrued without interest and
will be payable only to the extent of available funds after the Partnership has
made distributions to the limited partners of sale or refinancing proceeds equal
to their original capital contributions plus a 10% priority return thereon (to
the extent not theretofore paid out of cash flow).
F-14
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 8 - Related Party Transactions (Continued)
(b) The Partnership reimburses the General Partners and their
affiliates for actual Partnership operating expenses incurred by the General
Partners and their affiliates on the Partnership's behalf. The amount of
reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement.
(c) Property management fees incurred by the Local Partnership
amounted to $2,590 for the year ended March 31, 1996, all of which was incurred
to affiliates of the subsidiary partnership's General Partner.
(d) Independence SLP IV L.P., a limited partner of the subsidiary
partnership is entitled to receive a local administrative fee of up to $5,000
per year.
F) Due to Local General Partners and Affiliates
Due to local general partners and affiliates as of December 31, 1995
consisted of a development fee payable in the amount of $311,987.
NOTE 9 - Income Taxes
A reconciliation of the financial statement net income to the income
tax loss for the Partnership and its consolidated subsidiaries follows:
For the Year Ended
December 31, 1995
------------------
Financial statement net income $ 161,397
Differences resulting from parent company
having a different fiscal year for income
tax and financial reporting purposes (141,908)
Tax exempt interest income (68,937)
Other, including accruals for financial reporting not
deductible for tax purposes until paid 7,322
----------
Net Loss as shown on the income tax return for the
calendar year ended December 31, 1995 $ (42,126)
============
F-15
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,1996
NOTE 10 - Commitments and Contingencies
a) Uninsured Cash and Cash Equivalents
The Partnership maintains its cash and cash equivalents in
various banks. The accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation up to $100,000. At March 31, 1996, uninsured cash and cash
equivalents approximated $8,469,000.
b) Other
The Partnership is subject to the risks incident to potential
losses arising from the management and ownership of improved real estate. The
Partnership can also be affected by poor economic conditions generally, however
the Partnership intends to purchase additional properties which will diversify
its portfolio. There are also substantial risks associated with owning
properties receiving government assistance, for example the possibility that
Congress may not appropriate funds to enable HUD to make rental assistance
payments. HUD also restricts annual cash distributions to partners based on
operating results and a percentage of the owners equity contribution. The
Partnership cannot sell or substantially liquidate its investments in subsidiary
partnerships during the period that the subsidy agreements are in existence,
without HUD's approval. Furthermore there may not be market demand for
apartments at full market rents when the rental assistance contracts expire.
The Partnership and BACs holders will begin to recognize Housing
Tax Credits with respect to a property when the credit period for such property
commences. Because of the time required for the acquisition, completion and
rent-up of properties, it is expected that the amount of Tax Credits per BAC
will gradually increase over the first three years of the Partnership. Housing
Tax Credits not recognized in the first three years will be recognized in the
11th through 13th years. For the 1995 tax year, Housing Tax Credits of $42,668
were generated.
NOTE 11 - Subsequent Events
The Partnership has received $5,736,000 of gross proceeds
representing the purchase price for 5,736 BACs for the period April 1, 1996 to
June 28, 1996.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Omitted
Item 31. Sales to Special Parties
On February 22, 1995, Independence Tax Credit Plus L.P. IV was formed and
sold a limited partnership interest to Alan P. Hirmes for a $10.00 contribution.
Item 32. Recent Sales of Unregistered Securities
On February 22, 1995, Independence Tax Credit Plus L.P. IV sold a limited
partnership interest to Alan P. Hirmes for a $10.00 contribution. Since the
foregoing transaction was not considered to have involved a "public offering"
within the meaning of Section 4(2) of the Securities Act of 1933, as amended,
the interests were deemed to be exempt from registration under such Act.
Item 33. Indemnification of Directors and Officers
Indemnification of the General Partner and its members, directors,
officers, employees, partners, subsidiaries and affiliated assigns is provided
for in Section 5.8 of Registrant's Amended and Restated Agreement of Limited
Partnership which is Exhibit A to the Prospectus in this Registration Statement
and is incorporated herein by reference.
Item 34. Treatment of Proceeds from Stock Being Registered
Not applicable
Item 35. Financial Statements and Exhibits
(a) Financial Statements:
(i) Independence Tax Credit Plus L.P. IV Independent Auditor's Report
Consolidated Balance Sheet as of March 31, 1996 and March 31, 1995
Consolidated Statements of Operations for the year ended March 31, 1996
Consolidated Statement of Changes in Partners' Capital for the year
ended March 31, 1996 and the period February 22, 1995 (Date of
Inception) through March 31, 1995 ^ Consolidated Statement of Cash
Flows for the nine months ended December 31, 1995 (Unaudited)
Notes to Consolidated Financial Statements;
(ii) Independence Assignor Inc. Report of Independent Certified Public
Accountants Balance Sheets Notes to Financial Statements (included in
the Prospectus following "Glossary");
(iii) Related Independence L.L.C.
Report of Independent Certified Public Accountants
Balance Sheet
II-1
<PAGE>
Notes to Balance Sheet (included in the Prospectus following "Glossary");
(b)Exhibits:
*(1A) Form of Sales Agency Agreement;
*(1B) Form of Soliciting Dealer Agreement;
*(3A) Agreement of Limited Partnership of Independence Tax Credit Plus L.P.
IV;
*(3B) Form of Amended and Restated Agreement of Limited Partnership of
Independence Tax Credit Plus L.P. IV (attached to Prospectus as Exhibit
A);
*(3C) Certificate of Limited Partnership of Independence Tax Credit Plus L.P.
IV;
*(5) Opinion of Delaware counsel as to the legality of the securities being
registered;
*(8A) Opinion of Proskauer Rose Goetz & Mendelsohn LLP as to certain tax
matters;
*(8B) Form of opinions of Proskauer Rose Goetz & Mendelsohn LLP with respect
to certain tax matters pertaining to the Partnership's acquisition of
an interest in a Local Partnership;
*(10A) Form of Subscription Agreement (attached to the Prospectus as Exhibit
B);
*(10B) Form of Escrow Agreement between Registrant and Escrow Agent;
*(10C) Form of Purchase and Sale Agreement pertaining to the Partnership's
acquisition of Local Partnership Interests;
*(10D) Form of Amended and Restated Agreement of Limited Partnership of Local
Partnerships;
(23A) Consent of Registrant's Independent Certified Public Accountants;
*(23B) Consent of Delaware counsel (contained in opinion, see Exhibit 5);
*(23C) Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion,
see Exhibit 8(A));
*(24) Power of Attorney (included on the signature page of the Registration
Statement).
(27) Financial Data Schedule.
- --------------------------
* Previously filed
II-2
<PAGE>
Item 36. Undertakings
The undersigned 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 (the "Act");
(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
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 Act, each
such post--effective amendment may be deemed to be a new registration statement
relating to the securities offered therein, and offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof;
(3) that all post-effective amendments will comply with the applicable
forms, rules and regulations of the Securities and Exchange Commission, in
effect at the time such post-effective amendments are filed; and
(4) 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.
A. The Registrant undertakes to send to each BACs holder and Limited Partner at
least on an annual basis a detailed statement of any transaction 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.
B. The Registrant undertakes to file, after the end of the distribution period,
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% or more (on a
cumulative basis) of the net proceeds of the offering, and to provide the
information contained in such report to Holders of BACs at least once each
quarter after the distribution period of the offering has ended.
C. The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Act during the distribution period 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 Holders of BACs. Such sticker supplement also will
II-3
<PAGE>
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.
D. Registrant undertakes to provide each BACs holder, within 45 days after the
close of each quarterly fiscal period, the information specified by Form 10-Q,
if such report is required to be filed with the Commission.
E. Registrant undertakes to provide each BACs holder with the financial
statements required by Form 10-K for the first full fiscal year of operations of
the Partnership.
F. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to the General Partner and members, directors, officers
and controlling persons of the General Partner of Registrant or Registrant, 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 director, officer or controlling person of the General
Partner of Registrant or Registrant, or an Underwriter in the successful defense
of any action, suit or proceeding) is asserted against Registrant by the General
Partner or any such director, officer or controlling person in connection with
the securities being registered, the General Partner of 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 of whether
such indemnification by Registrant is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
TABLE VI
AFFILIATES OF THE GENERAL PARTNER
ACQUISITION OF PROPERTIES BY PROGRAMS
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
The following table includes information relating to all properties
acquired between January 1, 1992 and March 31, 1995 by prior public limited
partnerships with investment objectives similar to those of the Partnership and
sponsored by Affiliates of the General Partner. The Table should be read in
conjunction with the Prior Performance Tables of Affiliates of the General
Partner - Appendix A and the accompanying notes.
Notes to Table VI:
Note 1 - Initial date for determination of cash
distributions to partners and as used in Tables II
and III for properties constructed by the
partnership.
Note 2 - This is the total cost of constructing the
project. Because the projects were constructed and
not brought in a completed state, there are no
amounts shown for down payments or other cash
expenditures. Total acquisition costs equal total
capitalized costs for each project.
Total Acquisition Cost consists substantially of Mortgage Financing as well
as the capital raised from the limited partners reduced by selling commissions
and organization costs.
II-5
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
1992
-----------------------------------------
Name, Location, Type of Properties Harmony Gate Apt.
Hollywood, CA
Family Apartments
Number of Units and 70 units
Total Square Feet of Units 62,530 sq. ft.
Date of Purchases or Date of Final
Endorsements (1), as applicable January 1992
Mortgage Financing $2,178,000
Total Acquisition Costs $6,928,000
including Acquisition Fees (2)
II-6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P.
1992
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name, Location, Type of Properties Lancaster Terrace Landreth Philadelphia, Rio Point Apartments Catholic Presbyterian
Salem, OR PA Homestead, FL Baton Rouge, LA
Family Apartments Family Apartments Family Apartments Family Apartments
Number of Units and 104 units 51 units 123 units 195 units
Total Square Feet of Units 92,278 sq. ft. 29,950 sq. ft. 99,014 sq. ft. 85,257 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable February 1992 March 1992 March 1992 March 1992
Mortgage Financing $1,782,000 $3,442,309 $4,638,645 $5,372,306
Total Acquisition Costs
including Acquisition Fees (2) $3,729,814 $6,572,859 $6,949,672 $8,326,415
Name, Location, Type of Properties Bethel Villas MPB Parish School Susquehanna II Apts.
Wilmington, DE Philadelphia, PA Philadelphia, PA
Family Apartments Family Apartments Family Apartments
Number of Units and 150 units 20 units 47 units
Total Square Feet of Units 101,694 sq. ft. 31,050 sq. ft. 52,850 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable April 1992 May 1992 May 1992
Mortgage Financing $7,600,230 $1,560,240 $1,950,970
Total Acquisition Costs
including Acquisition Fees (2) $9,668,391 $3,376,211 $3,882,970
</TABLE>
II-7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P.
1992
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name, Location, Type of Properties Intervale-Magnolia Woodledge Apartments Norwell Apartments
Apartments Boston, MA Boston, MA
Boston, MA Family Apt. Family Apt.
Family Apt.
Number of Units and 130 units 130 units 45 units
Total Square Feet of Units * * *
Date of Purchase or Date
of Final Endorsements
(1), as applicable August 1992 August 1992 August 1992
Mortgage Financing $3,613,891 $5,475,971 $1,568,637
Total Acquisition Costs
including Acquisition Fees (2) $4,979,366 $6,833,856 $2,072,097
Name, Location, Type of Properties Lajas Gardens Lares Gardens Arlington-Rodeo
Apartments Apartments Los Angeles, CA
Lajas, PR Lares, PR Family Apt.
Family Apt. Family Apt.
Number of Units and 99 units 102 units 29 units
Total Square Feet of Units 86,066 sq. ft. 87,452 sq. ft. 23,094 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable August 1992 August 1992 August 1992
Mortgage Financing $4,116,420 $4,381,938 $3,507,692
Total Acquisition Costs
including Acquisition Fees (2) $4,960,420 $5,215,136 $5,633,109
</TABLE>
- --------
* Collectively, the above 3 properties are called "The Long Bay Projects."
Total net rentable square footage of "The Long Bay Projects" is
approximately 232,000 sq. ft.
II-8
<PAGE>
II-9
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P.
1992
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name, Location, Type of Properties Conifer Bateman Hampden Hall Fifth Street Apartments
Lowville, NY St. Louis, MO Chester, PA
Family Apartments Family Apartments Family Apartments
Number of Units and 24 units 75 units 20 units
Total Square Feet of Units 15,668 sq. ft. 37,592 sq. ft. 14,880 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable August 1992 September 1992 September 1992
Mortgage Financing $1,089,000 $3,469,183 $824,670
Total Acquisition Costs
including Acquisition Fees (2) $2,409,716 $6,488,315 $1,693,670
Riverwalk II
Apartments Public School 157 The Cloisters L.P., II
Homestead, FL New York, NY Philadelphia, PA
Name, Location, Type of Properties Family Apartments Family Apartments Family Apartments
Number of Units and 112 units 73 units 65 units
Total Square Feet of Units 89,796 sq. ft. 68,100 sq. ft. 49,312 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable October 1992 November 1992 November 1992
Mortgage Financing $4,647,060 $6,821,100 $ --
Total Acquisition Costs
including Acquisition Fees (2) $6,676,517 $8,615,416 $3,670,176
</TABLE>
II-10
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P.
1992
------------------------------------------------
Name, Location, Type of Properties The Gardens Milford Crossing Apts.
Opa-Locka, FL Milford, DE
Family Apartments Family Apartments
Number of Units and 390 units 73 units
Total Square Feet of Units 319,887 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable December 1992 December 1992
Mortgage Financing $12,870,000 $2,690,496
Total Acquisition Costs
including Acquisition Fees (2) $20,595,160 $4,474,068
II-11
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P.
1993
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name, Location, Type of Properties Los Angeles Elderly Rio Christine Apartments Wyndhurst
Piedras, PR Buffalo, NY Plainsboro, NJ
Elderly Apartments Family Apartments Family Apartments
Number of Units and 124 units 32 units 126 units
Total Square Feet of Units 61,514 sq. ft. 22,742 sq. ft. 103,296 sq. ft.
Date of Purchase or Date
of Final Endorsements
(1), as applicable May 1993 June 1993 July 1993
Mortgage Financing $3,600,000 $1,245,000 $6,305,789
Total Acquisition Costs
including Acquisition Fees (2) $6,719,556 $2,149,171 $9,795,749
</TABLE>
II-12
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P.
1993
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type of Properties Rolling Green Beaumont Avenue Apartments
Syracuse, NY Bronx, NY
Family Apartments Family Apartments
Number of Units and 394 units 85 units
Total Square Feet of Units 329,000 sq. ft. 53,931 sq.ft.
Date of Purchase or Date of Final October 1993 January 1993
Endorsement (1), as applicable
Mortgage Financing $17,424,000 $4,824,935
Total Acquisition Cost $20,708,190 $8,346,036
including Acquisition Fees (2)
</TABLE>
II-13
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
1993
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name, Location, Type of Properties Abraham Lincoln Germano-Millgate Mansion Court Apartments
Hotel Apartments Philadelphia, PA
Reading, PA Chicago, IL Family Apartments
Family Apartments Family Apt.s
Number of Units and 52 units 350 units 30 units
Total Square Feet of Units 32,344 sq. ft. 265,125 sq. ft. 27,000 sq. ft.
Date of Purchase of Date of Final April 1993 October 1993 November 1993
Endorsement (1), as applicable
Mortgage Financing $2,600,000 $11,190,735 $1,505,862
Total Acquisition Cost $5,680,000 $15,457,335 $3,207,762
including Acquisition Fees (2)
</TABLE>
II-14
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
1994
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Derby Run Properties Renaissance Plaza
of Properties Hampton, Virginia Baltimore, Maryland
Family Apartments Family Apartments
Number of Units and 160 units 95 units
Total Square Feet of 157,792 sq. ft. 97,577 sq. ft.
Units
Date of Purchase of February 1994 February 1994
Date of Final
Endorsement (1), as
applicable
Mortgage Financing $4,613,400 $6,534,000
Total Acquisition Cost $7,664,011 $13,709,000
including Acquisition Fees (2)
Name, Location, Type Tasker Village Apartments Paradise Arms
of Properties Philadelphia, PA Los Angeles, CA
Family Apartments Family Apartments
Number of Units and 28 units 43 units
Total Square Feet of 33,116 sq. ft. 39,920 sq. ft.
Units
Date of Purchase or Date of Final May 1994 September 1994
Endorsements (1), as applicable
Mortgage Financing $1,638,332 $4,201,119
Total Acquisition Cost $3,334,460 $6,541,249
including Acquisition Fees (2)
</TABLE>
II-15
<PAGE>
INDEPENDENCE TAX CREDIT PLUS II L.P.
1994
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name, Location, Type Martha Bryant Manor Apartments Colden Oak Apartments Brynview Terrace
of Properties Los Angeles, CA Los Angeles, CA Los Angeles, CA
Family Apartments Family Apartments Family Apartments
Number of Units and 77 units 38 units 8 units
Total Square Feet of 69,616 sq. ft. 40,913 sq. ft. 7,920 sq. ft.
Units
Date of Purchase of Date of Final September 1994 September 1994 September 1994
Endorsement (1), as applicable
Mortgage Financing $7,269,053 $5,263,285 $1,007,716
Total Acquisition Cost $11,391,816 $6,331,421 $1,603,766
including Acquisition Fees (2)
Name, Location, Type Clinton Gardens Apartments P&P Home for the Elderly Clear Horizons Apartments
of Properties Miami, FL Los Angeles, CA Shreveport, LA
Family Apartments Family Apartments Family Apartments
Number of Units and 102 units 107 units 84 units
Total Square Feet of Units 106,590 sq. ft. 47,402 sq. ft.
Date of Purchase or Date of Final September 1994 September 1994 December 1994
Endorsements (1), as applicable
Mortgage Financing $3,445,200 $6,405,249 $1,390,950
Total Acquisition Cost $5,551,960 $9,901,106 $2,390,950
including Acquisition Fees (2)
</TABLE>
II-16
<PAGE>
INDEPENDENCE TAX CREDIT PLUS III L.P.
1994
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type The Edward Hotel Arena Gardens Apartments
of Properties Los Angeles, CA Miami, FL
Family Apartments Family Apartments
Number of Units and 47 units 65 units
Total Square Feet of 16,500 sq. ft. 35,689 sq. ft.
Units
Date of Purchase of Date of Final November 1994 December 1994
Endorsement (1), as applicable
Mortgage Financing $2,375,464 $1,483,252
Total Acquisition Cost $3,696,635 $2,773,252
including Acquisition Fees (2)
Name, Location, Type Eastern Parkway
of Properties Brooklyn, NY
Family Apartments
Number of Units and 39 units
Total Square Feet of Units 28,696 sq. ft.
Date of Purchase or Date of Final December 1994
Endorsements (1), as applicable
Mortgage Financing $1,979,088
Total Acquisition Cost $3,029,088
including Acquisition Fees (2)
</TABLE>
II-17
<PAGE>
RM TAX CREDIT PARTNERS
1993
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Fenton Apts. Ridgewood Vista Apts.
of Properties Fenton, Michigan Jackson County, Michigan
Family Apartments Family Apts.
Number of Units and 150 units 150 units
Total Square Feet of
Units
Date of Purchase of Date of Final June 1993 June 1993
Endorsement (1), as applicable
Mortgage Financing $5,745,762 $7,486,875
Total Acquisition Cost $7,806,762 $10,126,300
including Acquisition Fees (2)
</TABLE>
II-18
<PAGE>
HIGHGATE ASSOCIATES, L.P.
1993
-------------------------------------------------------
Name, Location, Type The Highgate
of Properties Altantic, New Jersey
Family Apartments
Number of Units and 162 units
Total Square Feet of Units
Date of Purchase or Date of Final November 1993
Endorsements (1), as applicable
Mortgage Financing $2,500,000
Total Acquisition Cost $10,998,369
including Acquisition Fees (2)
II-19
<PAGE>
HILLVIEW GLEN LIMITED PARTNERSHIP
1993
-------------------------------------------------------
Name, Location, Type of Properties Hillview Glen Apts.
San Jose, CA
Family Apts.
Number of Units and Total Square 138 units
Feet of Units
Date of Purchase or Date of Final October 1993
Endorsements (1), as applicable
Mortgage Financing $11,500,000
Total Acquisition Cost including $18,000,000
Acquisition Fees (2)
II-20
<PAGE>
RELATED L.A. CORPORATE PARTNERS, L.P.
1993
-------------------------------------------------------
Name, Location, Type Fame Gardens
of Properties Los Angeles, CA
Family Apartments
Number of Units and 81 units
Total Square Feet of
Units
Date of Purchase of Date of Final August 1993
Endorsement (1), as applicable
Mortgage Financing $10,525,451
Total Acquisition Cost $16,566,691
including Acquisition Fees (2)
II-21
<PAGE>
RELATED CORPORATE PARTNERS, L.P.
1993
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Fame Manor Apts. Monterey Apartments
of Properties Los Angeles, California New York, New York
Family Apartments Family Apartments
Number of Units and 56 units 522 units
Total Square Feet of 58,412 sq. ft. 331,750 sq. ft.
Units
Date of Purchase of Date of Final August 1993 June 1993
Endorsement (1), as applicable
Mortgage Financing $5,665,987 $51,756,080
Total Acquisition Cost $7,939,836 $56,177,983
including Acquisition Fees (2)
Name, Location, Type Providence Square Apts. Walden Pond Villa
of Properties New Brunswick, NY Dade County, Florida
Family Apartments Family Apartments
Number of Units and 98 units 290 units
Total Square Feet of Units 97,887 sq. ft. 231,396 sq. ft.
Date of Purchase or Date of Final
Endorsements (1), as applicable
Mortgage Financing $6,184,596 $10,197,000
Total Acquisition Cost $11,122,346 $15,197,000
including Acquisition Fees (2)
</TABLE>
II-22
<PAGE>
RELATED CORPORATE PARTNERS II, L.P.
1993
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type The Falls at Bonaventure Biscayne Woods Apt.
of Properties Fort Lauderdale, Florida Leisure City, Florida
Family Apartments Family Apartments
Number of Units and 300 units 114 units
Total Square Feet of 283,120 sq. ft. 83,136 sq. ft.
Units
Date of Purchase of Date of Final November 1993 December 1993
Endorsement (1), as applicable
Mortgage Financing $5,940,000 $3,762,000
Total Acquisition Cost $21,839,000 $4,797,787
including Acquisition Fees (2)
Name, Location, Type Teal Pointe Apts. Yonkers Apt.
of Properties Homestead, Florida Yonkers, NY
Family Apartments Family Apartments
Number of Units and 45 units 129 units
Total Square Feet of Units 42,942 sq. ft.
Date of Purchase or Date of Final December 1993 December 1993
Endorsements (1), as applicable
Mortgage Financing $1,633,500 $8,316,000
Total Acquisition Cost $2,133,584 $13,366,000
including Acquisition Fees (2)
</TABLE>
II-23
<PAGE>
RELATED CORPORATE PARTNERS II, L.P.
1994
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Balfour Place Apt. Hewitt Place Apts.
of Properties Seattle, Washington Troutdale, Oregon
Family Apartments Family Apartments
Number of Units and 200 units 44 units
Total Square Feet of 80,050 sq. ft. 60,016 sq. ft.
Units
Date of Purchase of Date of Final January 1994 January 1994
Endorsement (1), as applicable
Mortgage Financing $8,052,025 $1,645,491
Total Acquisition Cost $13,592,025 $2,670,406
including Acquisition Fees (2)
Name, Location, Type Valley View Apts. Cox Cro Landing
of Properties Orange, New Jersey Toms River, New Jersey
Family Apartments Family Apartments
Number of Units and 24 units 125 units
Total Square Feet of Units 24,030 sq. ft. 131,299 sq. ft.
Date of Purchase or Date of Final February 1994 March 1994
Endorsements (1), as applicable
Mortgage Financing $1,812,224 $6,433,515
Total Acquisition Cost $2,851,084 $8,963,515
including Acquisition Fees (2)
</TABLE>
II-24
<PAGE>
RELATED CORPORATE PARTNERS II, L.P.
1994
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Model Cities 6 Apts. Fern Ridge Apts.
of Properties Philadelphia, Pennsylvania Olympia, Washington
Family Apartments Family Apartments
Number of Units and 71 units 99 units
Total Square Feet of 64,230 sq. ft. 76,827 sq. ft.
Units
Date of Purchase of Date of Final March 1994 May 1994
Endorsement (1), as applicable
Mortgage Financing $2,804,476 $3,904,703
Total Acquisition Cost $5,661,476 $7,744,703
including Acquisition Fees (2)
Name, Location, Type Riverwalk III Apt. Gabrielle Apts.
of Properties Homestead, Florida Highland Park, Michigan
Family Apartments Elderly Apartments
Number of Units and 220 units 336 units
Total Square Feet of Units 164,924 sq. ft. 269,195 sq. ft.
Date of Purchase or Date of Final May 1994 June 1994
Endorsements (1), as applicable
Mortgage Financing $8,405,100 $10,884,753
Total Acquisition Cost $11,385,898 $15,834,753
including Acquisition Fees (2)
</TABLE>
II-25
<PAGE>
RELATED CORPORATE PARTNERS II, L.P.
1994
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Willow Glen Apt. Temple-Edgeware Apts.
of Properties Central Point, Oregon Los Angeles, California
Family Apartments Family Apartments
Number of Units and 74 units 108 units
Total Square Feet of 66,398 sq. ft. 99,880 sq. ft.
Units
Date of Purchase of Date of Final June 1994 September 1994
Endorsement (1), as applicable
Mortgage Financing $2,003,760 $8,705,367
Total Acquisition Cost $3,888,760 $16,417,367
including Acquisition Fees (2)
Name, Location, Type Stuart Place Apts. Anderson Avenue Apt.
of Properties Olympia, WA Bronx, NY
Family Apartments Family Apartments
Number of Units and 36 units 52 units
Total Square Feet of Units
Date of Purchase or Date of Final October 1994 December 1994
Endorsements (1), as applicable
Mortgage Financing $643,500 $2,451,249
Total Acquisition Cost $2,318,500 $3,161,249
including Acquisition Fees (2)
</TABLE>
II-26
<PAGE>
RELATED CORPORATE PARTNERS II, L.P.
1994
------------------------------------------------
Name, Location, Type Park North Apts.
of Properties New York, NY
Family Apartments
Number of Units and 89 units
Total Square Feet of
Units
Date of Purchase of Date of Final December 1994
Endorsement (1), as applicable
Mortgage Financing $5,218,765
Total Acquisition Cost $6,579,218
including Acquisition Fees (2)
II-27
<PAGE>
FILLMORE MARKETPLACE L.P.
1994
------------------------------------------------
Name, Location, Type
of Properties Fillmore Marketplace
San Francisco, CA
Family Apartments
Number of Units and 120 units
Total Square Feet of 111,676 sq. ft.
Units
Date of Purchase of Date of Final March 1994
Endorsement (1), as applicable
Mortgage Financing $9,100,000
Total Acquisition Cost $18,395,000
including Acquisition Fees (2)
II-28
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES ONE
1994
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Tiffany Mews Apts. Grays Ferry Apts.
of Properties Brooklyn, NY Philadelphia, PA
Family Apartments Family Apartments
Number of Units and 70 units 71 units
Total Square Feet of 66,104 sq. ft. 64,222 sq. ft.
Units
Date of Purchase of Date of Final May 1994 September 1994
Endorsement (1), as applicable
Mortgage Financing $2,970,000 $2,899,738
Total Acquisition Cost $10,479,714 $6,019,738
including Acquisition Fees (2)
Name, Location, Type Portage Place Apts. Meadowbrook Apts.
of Properties Portage, Michigan Butler, Pennsylvania
Family Apartments Family Apartments
Number of Units and 144 units 120 units
Total Square Feet of Units 146,736 sq. ft. 115,268 sq. ft.
Date of Purchase or Date of Final September 1994 October 1994
Endorsements (1), as applicable
Mortgage Financing $4,549,218 $3,103,313
Total Acquisition Cost $8,124,118 $7,453,613
including Acquisition Fees (2)
</TABLE>
II-29
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES ONE
1994
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type La Mirada Senior Apts. Crown Ridge Apts.
of Properties La Mirada, CA Janesville, WI
Elderly Apartments Family Apartments
Number of Units and 100 units 52 units
Total Square Feet of 58,108 sq. ft. 53,696 sq. ft.
Units
Date of Purchase of Date of Final October 1994 November 1994
Endorsement (1), as applicable
Mortgage Financing $4,165,425 $1,683,000
Total Acquisition Cost $7,567,273 $3,034,370
including Acquisition Fees (2)
Name, Location, Type Wakeman Square Apts. Dooley's Orchard Apts.
of Properties Newark, NJ Columbus, Ohio
Family Apartments Family Apartments
Number of Units and 42 units 216 units
Total Square Feet of Units 42,000 sq. ft. 215,920 sq. ft.
Date of Purchase or Date of Final November 1994 November 1994
Endorsements (1), as applicable
Mortgage Financing $2,265,120 $7,057,823
Total Acquisition Cost $5,356,120 $12,014,522
including Acquisition Fees (2)
</TABLE>
II-30
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES ONE
1994
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Waterview Apts. Woodbury Apts.
of Properties Hendersonville, Tennessee Bradenton, Florida
Family Apartments Family Apt.
Number of Units and 160 units 270 units
Total Square Feet of 156,920 sq. ft. 265,716 sq. ft.
Units
Date of Purchase of Date of Final November 1994 December 1994
Endorsement (1), as applicable
Mortgage Financing $6,138,000 $6,957,720
Total Acquisition Cost $9,173,200 $15,832,720
including Acquisition Fees (2)
Name, Location, Type Hainlin Mill Apts. Royal Coast Apartments
of Properties Miami, Florida Miami, Florida
Family Apartments Family Apartments
Number of Units and 144 units 174 units
Total Square Feet of Units 130,164 sq. ft. 119,940 sq. ft.
Date of Purchase or Date of Final December 1994 December 1994
Endorsements (1), as applicable
Mortgage Financing $4,098,600 $4,851,000
Total Acquisition Cost $8,399,600 $7,721,000
including Acquisition Fees (2)
</TABLE>
II-31
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES ONE
1994
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Presbyterian Homes of Pasco Hughes Avenue Crescent
of Properties New Port Richey, FL Bronx, NY
Family Apartments Family Apartments
Number of Units and 196 units 63 units
Total Square Feet of 257,700 sq. ft. 52,554 sq. ft.
Units
Date of Purchase of Date of Final December 1994 December 1994
Endorsement (1), as applicable
Mortgage Financing $7,241,902 $4,618,350
Total Acquisition Cost $12,261,902 $8,974,493
including Acquisition Fees (2)
</TABLE>
II-32
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES ONE
1995
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type East Lake Gardens Apts. Temple Gardens and The
of Properties Dover, DE Emersonian*
Family Apartments Baltimore, Maryland
Family Apartments
Number of Units and 48 units 207 units
Total Square Feet of 44,640 sq. ft. 205,206 sq. ft.
Units
Date of Purchase of Date of Final February 1995 February 1995
Endorsement (1), as applicable
Mortgage Financing $1,853,035 $16,929,000
Total Acquisition Cost $3,105,308 $29,879,000
including Acquisition Fees (2)
</TABLE>
- --------
* Related Corporate Partners III, L.P. - Series One and Two each purchased a
portion of the properties. Numbers disclosed in the aggregate.
II-33
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES TWO
1994
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Location, Type Cabot's Mill Apartments Creekside Village Apartments
of Properties Columbus, Ohio Sunbury, Ohio
Family Apartments Family Apartments
Number of Units and 80 units 80 units
Total Square Feet of 93,450 sq. ft. 78,896 sq. ft.
Units
Date of Purchase of Date of Final October 1994 October 1994
Endorsement (1), as applicable
Mortgage Financing $3,632,981 $2,739,911
Total Acquisition Cost $6,136,741 $4,622,711
including Acquisition Fees (2)
Name, Location, Type River Valley Apts.
of Properties Lancaster, Ohio
Family Apartments
Number of Units and 144 units
Total Square Feet of Units 190,436 sq. ft.
Date of Purchase or Date of Final October 1994
Endorsements (1), as applicable
Mortgage Financing $4,734,816
Total Acquisition Cost $8,078,716
including Acquisition Fees (2)
</TABLE>
II-34
<PAGE>
RELATED CORPORATE PARTNERS III, L.P. - SERIES TWO
1995
-----------------------------------------------------------------------
Name, Location, Type Winchester Gardens Apartments
of Properties Dade County, Florida
Family Apartments
Number of Units and 117 units
Total Square Feet of 90,621 sq. ft.
Units
Date of Purchase of Date of Final March 1995
Endorsement (1), as applicable
Mortgage Financing $5,064,132
Total Acquisition Cost $8,219,132
including Acquisition Fees (2)
Name, Location, Type Temple Gardens and The
of Properties Emersonian*
Baltimore, Maryland
Family Apartments
Number of Units and 207 units
Total Square Feet of Units 205,206 sq. ft.
Date of Purchase or Date of Final February 1995
Endorsements (1), as applicable
Mortgage Financing $16,929,000
Total Acquisition Cost $29,879,000
including Acquisition Fees (2)
- --------
* Related Corporate III - Series One and Two each purchased a portion of the
properties. Numbers disclosed in the aggregate.
II-35
<PAGE>
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 3 to the Registration Statement for Independence Tax Credit Plus
IV L.P. and Independence Assignor Inc. to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 17th day of July, 1996.
INDEPENDENCE TAX CREDIT PLUS L.P. IV
By: Related Independence L.L.C., its general partner
By: /s/ Alan P. Hirmes
Alan P. Hirmes, a member
INDEPENDENCE ASSIGNOR INC.
By: /s/ Alan P. Hirmes
Alan P. Hirmes, Senior Vice President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to the registration statement on Form S-11 has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Director and President of RCMP, Inc., the general
partner of Related General II L.P., a Member of 7/17/96
/s/ Stephen M. Ross Related Independence L.L.C.
Stephen M. Ross
Director and Executive Vice President of RCMP,
Inc., the general partner of Related General II L.P., 7/17/96
/s/ Andrew D. Augenblick a Member of Related Independence L.L.C.
Andrew D. Augenblick
Director and Executive Vice President of RCMP,
Inc., the general partner of Related General II L.P., 7/17/96
/s/ Michael J. Wechsler a Member of Related Independence L.L.C.
Michael J. Wechsler
President and Member of Related Independence
L.L.C. and President and Director of Independence 7/17/96
Assignor Inc. (Principal Executive Officer)
/s/ J. Michael Fried
J. Michael Fried
Senior Vice President and Member of Related 7/17/96
/s/ Alan P. Hirmes Independence L.L.C.
Alan P. Hirmes
Vice President and Member of Related 7/17/96
/s/ Stuart J. Boesky Independence L.L.C.
Stuart J. Boesky
Treasurer of Related Independence L.L.C. and
Independence Assignor Inc. (Principal Financial 7/17/96
/s/ Lawrence J. Lipton and Accounting Officer)
Lawrence J. Lipton
</TABLE>
By:/s/ Alan P. Hirmes
Alan P. Hirmes,
Attorney-in-fact
granted in Registration
Statement No. 33-89968 as filed
on March 3, 1995
<PAGE>
Exhibits
*(1A) Form of Sales Agency Agreement;
*(1B) Form of Soliciting Dealer Agreement;
*(3A) Agreement of Limited Partnership of Independence Tax Credit Plus L.P. IV;
*(3B) Form of Amended and Restated Agreement of Limited Partnership of
Independence Tax Credit Plus L.P. IV (attached to Prospectus as Exhibit
A);
*(3C) Certificate of Limited Partnership of Independence Tax Credit Plus L.P.
IV;
*(5) Opinion of Delaware counsel as to the legality of the securities being
registered;
*(8A) Opinion of Proskauer Rose Goetz & Mendelsohn LLP as to certain tax
matters;
*(8B) Form of opinions of Proskauer Rose Goetz & Mendelsohn LLP with respect to
certain tax matters pertaining to the Partnership's acquisition of an
interest in a Local Partnership;
*(10A) Form of Subscription Agreement (attached to the Prospectus as Exhibit B);
*(10B) Form of Escrow Agreement between Registrant and Escrow Agent;
*(10C) Form of Purchase and Sale Agreement pertaining to the Partnership's
acquisition of Local Partnership Interests;
*(10D) Form of Amended and Restated Agreement of Limited Partnership of Local
Partnerships;
(23A) Consent of Registrant's Independent Certified Public Accountants;
*(23B) Consent of Delaware counsel (contained in opinion, see Exhibit 5);
*(23C) Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion,
see Exhibit 8(A));
*(24) Power of Attorney (included on the signature page of the Registration
Statement).
(27) Financial Data Schedule.
- --------------------------
* Previously filed
II-39
<PAGE>
Exhibit 23A
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated May 4, 1995 with respect to
Independence Assignor Inc. in the prospectus constituting part of Post-Effective
Amendment No. 3 to the registration statement on Form S-11. We also consent to
the references to us under the heading "Experts" in such prospectus.
Trien, Rosenberg, Felix, Rosenberg, Barr &
Weinberg
New York, New York
July 16, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our reports, dated June 29, 1995 and June 28,
1996 with respect to Independence Tax Credit Plus L.P. IV, and Related
Independence L.L.C. in the prospectus constituting part of Post-Effective
Amendment No. 3 to Registration Statement on Form S-11. We also consent to the
references to us under the heading "Experts" in such prospectus.
Friedman Alpren & Green LLP
New York, New York
July 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Schedule contains summary
financial information extracted
from the financial statements of
Independence Tax Credit Plus L.P.
IV and is qualified in its entirety
by reference to such financial
statements
</LEGEND>
<CIK> 0000940329
<NAME> Independence Tax Credit Plus L.P. IV
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 19,987,244
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,960,472
<PP&E> 2,680,927
<DEPRECIATION> 22,951
<TOTAL-ASSETS> 27,605,692
<CURRENT-LIABILITIES> 706,670
<BONDS> 2,039,174
0
0
<COMMON> 0
<OTHER-SE> 24,859,848
<TOTAL-LIABILITY-AND-EQUITY> 27,605,692
<SALES> 0
<TOTAL-REVENUES> 270,029
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 92,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,957
<INCOME-PRETAX> 161,172
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,172
<EPS-PRIMARY> 161,172
<EPS-DILUTED> 0
</TABLE>
