[Federal Register Volume 62, Number 85 (Friday, May 2, 1997)]
[Notices]
[Pages 24144-24146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11455]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22639; 812-10600]


WNC Housing Tax Credit Fund VI, L.P., Series 5 and 6, and WNC & 
Associates, Inc.; Notice of Application

April 28, 1997.
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 VI, L.P., Series 5 and WNC 
Housing Tax Credit Fund VI, L.P., Series 6 (each 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 DATES: The application was filed on April 1, 1997. Applicants 
will file an amendment during the notice period, the substance of which 
is reflected herein.

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 
request should be received by the SEC by 5:30 p.m. on May 23, 1997, 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 Fifth Street NW., Washington, DC 20549. 
Applicants, 3158 Redhill Avenue, Suite 120, Costa Mesa, California 
92626-3416.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, or Mary Kay Frech, 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 3, 1997. 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 Fund capital, and (c) provide cash distributions 
from sale or refinancing transactions.

[[Page 24145]]

    3. On March 27, 1997, the Fund filed a registration statement under 
the Securities Act of 1993 pursuant to which the Fund intends to offer 
publicly, in one or more series of offerings, 50,000 units of limited 
partnership interest (``Units'') at $1,000 per unit. The minimum 
investment will be five Units for most investors, although employees of 
the General Partner and its affiliates and/or investors in syndications 
previously sponsored by the General Partner may purchase a minimum of 
two 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 is 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 such more restrictive suitability 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 such partnerships. 
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 an 
cash flow distributions previously received). A Series also will 
receive a share of any remaining sale or 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 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 dealer-manager fee and a 
nonaccountable expense reimbursement in amounts equal to 2% and 1%, 
respectively, 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 organizational and 
offering expenses (including selling commissions, the dealer-manager 
fee, and the nonaccountable expense reimbursement) in excess of 13% of 
capital contributions.
    10. During the acquisition phase, each Series will pay the General 
Partner or its affiliates a fee equal to 7% 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 1.5% 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 Administrators 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 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 Limited Partners, each Series will pay 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 have 
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 Limited Partners' capital 
contribution, subject to certain prior payments.
    13. All proceeds from a Series' public offering of Units initially 
will be placed

[[Page 24146]]

in an escrow account with the National Bank of Southern California 
(``Escrow Agent''). Pending release of offering proceeds to the 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 the Series and held by it 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 decisions as to the particular entity that 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 entity that 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 
that is not eligible for California low income housing credits, and (b) 
any entity that 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 
that 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 or 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 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.
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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 provide 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-11455 Filed 5-1-97; 8:45 am]
BILLING CODE 8010-01-M