[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27587-27589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12700]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21084; 812-9570]


WNC Housing Tax Credit Fund V, L.P., Series 3 Through 8, and WNC 
& Associates, Inc.; Notice of Application

May 18, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: WNC Housing Tax Credit Fund V, L.P. Series 3, WNC Housing 
Tax Credit Fund V, L.P., Series 4, WNC Housing Tax Credit Fund V, L.P., 
Series 5, WNC Housing Tax Credit Fund V, L.P., Series 6, WNC Housing 
Tax Credit Fund V, L.P., Series 7, WNC Housing Tax Credit Fund V, L.P., 
Series 8 (individually, a ``Series,'' and collectively, the ``Fund''), 
and WNC & Associates, Inc. (the ``General Partner'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from all 
provisions of the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit each 
Series to invest in limited partnerships that engage in the ownership 
and operation of apartment complexes for low and moderate income 
persons.

FILING DATE: The application was filed on April 14, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing.
    Interested persons may request a hearing by writing to the SEC's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the SEC by 5:30 p.m. 
on June 12, 1995, and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
may request notification of a hearing by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, D.C. 20549. 
Applicants, 3158 Redhill Avenue, Suite 120, Costa Mesa, California 
92626-3416.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at 
(202) 942-0572, or C. David Messman, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each Series was formed as a California limited partnership on 
March 28, 1995. Each Series will operate as a ``two-tier'' partnership, 
i.e., each Series, as a limited partner, will invest in other limited 
partnerships (``Local Limited Partnerships''). The Local Limited 
Partnerships in turn will engage in the ownership and operation of 
apartment complexes expected to be qualified for low income housing tax 
credit under the Internal Revenue Code of 1986.
    2. The objectives of each Series are to (a) provide current tax 
benefits primarily in the form of low income housing credits which 
investors may use to offset their Federal income tax liabilities, (b) 
preserve and protect its capital, and (c) provide cash distributions 
from sale or refinancing transactions.
    3. On April 13, 1995, the Fund filed a registration statement under 
the Securities Act of 1933, pursuant to which the Fund intends to offer 
publicity, in one or more series of offering, 50,000 units of limited 
partnership interest (``Units'') at $1,000 per unit. The minimum 
investment will be five Units. Purchasers of the Units will become 
limited partners (``Limited Partners'') of the Series offering the 
Units.
    4. A Series will not accept any subscriptions for Units until the 
requested exemptive order is granted or the Series receives an opinion 
of counsel that it is exempt from registration under the Act. 
Subscriptions for Units must be approved by the General Partner. Such 
approval will be conditioned upon representations as to suitability of 
the investment for each subscriber. The suitability standards provide, 
among other things, that investment in a Series is suitable only for an 
investor who either (a) has a net worth (exclusive of home, 
furnishings, and automobiles), of at least $35,000 and an annual gross 
income of at least $35,000, or (b) irrespective of annual income, has a 
net worth (exclusive of home, furnishings, and automobiles) of at least 
$75,000. Units will be sold only to investors who meet these 
suitability standards, or more restrictive standards as may be 
established by certain states for purchases of Units within their 
respective jurisdictions. In addition, transfers of Units will be 
permitted only if the transferee meets the same suitability standards 
as had been imposed on the transferor Limited Partner.
    5. Although a Series' direct control over the management of each 
apartment complex will be limited, the Series' ownership of interests 
in Local Limited Partnerships will, in an economic sense, be tantamount 
to direct ownership of the apartment complexes themselves. A Series 
normally will acquire at least a 90% interest in the profits, losses, 
and tax credits of the Local Limited Partnerships. However, in certain 
cases, the Series may acquire a lesser interest. In these cases, the 
Series normally will acquire at least a 50% interest in the profits, 
losses, and tax credits of the Local Limited Partnership. From 95% to 
100% of the proceeds from a sale or refinancing of an apartment complex 
normally will be paid to the Series until it has received a full return 
of that portion of the net proceeds invested in the Local Limited 
Partnership (which may be reduced by any cash flow distributions 
previously received). A Series also will receive a share of any 
remaining sale of refinancing proceeds. A Series' share of these 
proceeds may range from 10% to 90%.
    6. Each Series will have certain voting rights with respect to each 
Local Limited Partnership. The voting rights will include the right to 
dismiss and replace the local general partner on the basis of 
performance, to approve or [[Page 27588]] disapprove a sale or 
refinancing of the apartment complex owned by such Local Limited 
Partnership, to approve or disapprove the dissolution of the Local 
Limited Partnership, and to approve or disapprove amendments to the 
Local Limited Partnership agreement materially and adversely affecting 
the Series' investment.
    7. Each Series will be controlled by the General Partner, pursuant 
to a partnership agreement (the ``Partnership Agreement''). The Limited 
Partners, consistent with their limited liability status, will not be 
entitled to participate in the control of the business of the Series. 
However, a majority-in-interest of the Limited Partners will have the 
right to amend the Partnership Agreement (subject to certain 
limitations), to remove any General Partner and elect a replacement, 
and to dissolve the Series. In addition, under the Partnership 
Agreement, each Limited Partner is entitled to review all books and 
records of the Series.
    8. The Partnership Agreement and prospectus of the Series contain 
numerous provisions designed to insure fair dealing by the General 
Partner with the Limited Partners. All compensation to be paid to the 
General Partner and its affiliates is specified in the Partnership 
Agreement and prospectus. While the fees and other forms of 
compensation that will be paid to the General Partner and its 
affiliates will not have been negotiated at arm's length, applicants 
believe that the compensation is fair and on terms no less favorable to 
the Series than would be the case if such arrangements had been made 
with independent third parties.
    9. During the offering and organizational phase, the General 
Partner and its affiliates will receive a nonaccountable expense 
reimbursement equal to 1% of capital contributions. The General Partner 
also will be reimbursed by each Series for the actual amount of 
expenses incurred in connection with organizing the Series and 
conducting the offering. However, the General Partner has agreed to pay 
any organization and offering expenses (including selling commissions 
and the nonaccountable expense reimbursement) in excess of 14.5% of 
capital contributions.
    10. During the acquisition phase, each Series will pay the General 
Partner or its affiliates a selection fee equal to 7.5% for analyzing 
and evaluating potential investments in Local Limited Partnerships. The 
General Partner and its affiliates will be reimbursed by each Series 
for the actual amount of any partnership acquisition expenses advanced 
by them, provided that acquisition expenses will not exceed 1% of 
capital contributions. Aggregate acquisition fees and acquisition 
expenses paid in connection with the acquisition of Local Limited 
Partnership interests by each Series will be limited by the Partnership 
Agreement and will comply with guidelines published by the North 
American Securities Administration Association. These guidelines 
require that a specified percentage (generally 80%, but subject to 
reduction) of the aggregate Limited Partners' capital contributions to 
a Series be committed to Local Limited Partnership interests.
    11. During the operating phase, the General Partner will receive 1% 
of any cash available for distribution and each Series may pay certain 
fees and reimbursements to the General Partner or its affiliates. An 
asset management fee will be payable for services related to the 
administration of the affairs of each Series in connection with each 
Local Limited Partnership in which the Series invests. Other fees may 
be paid in consideration of property management services provided by 
the General Partner or its affiliates as to the management and leasing 
agents for some of the apartment complexes. In addition, the General 
Partner and its affiliates generally will be allocated 1% of profits 
and losses of each Series for tax purposes and tax credits.
    12. During the liquidation phase, and subject to certain prior 
payments to the General Partner or its affiliates a fee equal to 1% of 
the sales price of the properties sold in which the General Partner or 
its affiliates had provided a substantial amount of services. The 
General Partner also will receive 10% of any additional sale or 
refinancing proceeds remaining after the return of the General 
Partner's capital contribution, subject to certain prior payments.
    13. All proceeds from any Series of the public offering of Units 
initially will be placed in an escrow account with the National Bank of 
Southern California (``Escrow Agent''). Pending release of offering 
proceeds to an individual Series, the Escrow Agent will deposit 
escrowed funds in short-term United States Government securities, 
securities issued or guaranteed by the United States Government, and 
certificates of deposit or time or demand deposits in commercial banks. 
Upon receipt of a prescribed minimum amount of capital contributions 
for a Series, funds in escrow will be released to an individual Series 
and held by its pending investment in Local Limited Partnerships.
    14. If investment opportunities may be invested in by more than one 
entity that the General Partner or its affiliates advises or manages, 
the decision as to the particular entity which will be allocated the 
investment will be based upon such factors as the effect of the 
acquisition on diversification of each entity's portfolio, the 
estimated income tax effects of the purchase on each entity, the amount 
of funds of each entity available for investment, and the length of 
time such funds have been available for investment. Priority generally 
will be given to the entity having uninvested funds for the longest 
period of time. However, (a) any partnership which was formed to invest 
primarily in apartment complexes eligible only for Federal low income 
housing credits will be given priority with respect to any investment 
which is not eligible for California low income housing credits and (b) 
each Series and any other partnership which was formed to invest 
primarily in apartment complexes eligible for California low income 
housing credits as well as for Federal credits will be given priority 
with respect to any investment which is eligible for the California 
credits.

Applicants' Legal Analysis

    1. Applicants believe that the Fund and its Series will not be 
``investment companies'' under sections 3(a)(1) or 3(a)(3) of the Act. 
If the Fund and its Series are deemed to be investment companies, 
however, applicants request an exemption under section 6(c) from all 
provisions of the Act.
    2. Section 3(a)(1) of the Act provides that an issuer is an 
``investment company'' if it is or holds itself out as being engaged 
primarily, or proposes to engage primarily, in the business of 
investing, reinvesting, or trading in securities. Applicants, however, 
believe that the Partnership will not be an investment company under 
section 3(a)(1) because the Partnership will be in the business of 
investing in and being beneficial owner of apartment complexes, not 
securities.
    3. Section 3(a)(3) of the Act provides that an issuer is an 
``investment company'' if it is engaged or proposes to engage in the 
business of investing, reinvesting, owning, holding, or trading in 
securities, and owns or proposes to acquire ``investment securities'' 
having a value exceeding 40% of the value of such issuer's total assets 
(exclusive of government securities and cash items). Applicants, 
however, believe that the Local Limited Partnership interests should 
not be considered ``investment securities'' because those interests are 
not readily marketable, have no value [[Page 27589]] apart from the 
value of the apartment complexes owned by the Local Limited 
Partnerships, and cannot be sold without severe adverse tax 
consequences.
    4. Applicants believe that the two-tier structure is consistent 
with the purposes and criteria set forth in the SEC's release 
concerning two-tier real estate partnerships (the ``Release'').\1\ The 
Release states that investment companies that are two-tier real estate 
partnerships that invest in limited partnerships engaged in the 
development and operation of housing for low and moderate income 
persons may qualify for an exemption from the Act pursuant to section 
6(c). Section 6(c) provides that the SEC may exempt any person from any 
provision of the Act and any rule thereunder, if, and to the extent 
that, such exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.

    \1\ Investment Company Act Release No. 8456 (Aug. 9, 1974).
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    5. The Release lists two conditions, designed for the protection of 
investors, which must be satisfied by two-tier partnerships to qualify 
for the exemption under section 6(c). First, interests in the issuer 
should be sold only to persons for whom investments in limited profit, 
essentially tax-shelter, investments would not be unsuitable. Second, 
requirements for fair dealing by the general partner of the issuer with 
the limited partners of the issuer should be included in the basic 
organizational documents of the company.
    6. Applicants assert, among other things, that the suitability 
standards set forth in the application the requirements for fair 
dealing provided by the Partnership Agreement, and pertinent 
governmental regulations imposed on each Local Limited Partnership by 
various Federal, state, and local agencies provided protection to 
investors in Units comparable to that provided by the Act. In addition, 
applicants assert that the requested exemption is both necessary and 
appropriate in the public interest.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Maragret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12700 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M