[Federal Register Volume 64, Number 157 (Monday, August 16, 1999)]
[Notices]
[Pages 44567-44569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21090]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Released No. 23937; 812-11590]


WNC Housing Tax Credit Fund VI, L.P., Series 7 and 8, and WNC & 
Associates, Inc.; Notice of Application

August 9, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of an application for an order under sections 6(c) and 
6(e) of the Investment Company Act of 1940 (the ``Act'') granting 
relief from all provisions of the Act, except sections 37 through 53 of 
the Act and the rules and regulations under those sections.

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APPLICANTS: WNC Housing Tax Credit Fund VI, L.P., Series 7 and WNC 
Housing Tax Credit Fund VI, L.P., Series 8 (each a ``Series,'' and 
collectively, the ``Fund''), and WNC & Associates, Inc. (the ``General 
Partner'').

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 22, 1999. Applicants 
have agreed to file an amendment to the application, the substance of 
which is reflected in this notice, during the notice period.

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 September 2, 
1999, 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 who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549-
0609. Applicants, 3158 Redhill Avenue, Suite 120, Costa Mesa, 
California 92626-3416.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Staff Attorney, at 
(202) 942-0634, or Michael W. Mundt, 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, 450 Fifth Street, N.W., Washington, D.C. 
20549-0102 (tel. no. 202-942-8090).

Applicants' Representations

    1. Each Series was formed in 1997 as a California limited 
partnership. Each Series will operate as a ``two-tier'' partnership, 
i.e., each Series will invest as a limited partner 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, as amended.
    2. The objectives of each Series are (a) to 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) 
to preserve and protect capital, and (c) to provide cash distributions 
from sale or refinancing transactions.
    3. On April 16, 1999, the Fund filed a registration statement under 
the Securities Act of 1933, pursuant to which the Fund intends to offer 
publicly, in two series of offerings, 25,000 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 in a Series is suitable only for an 
investor who either (a) as 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 purchasers 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 profits, losses, and 
tax credits of the Local Limited Partnerships. However, in certain 
cases, the Series may acquire a lesser interest in such partnerships. 
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 the capital 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 or refinancing proceeds, which may range from 10% to 
50%.
    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 partnership 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.

[[Page 44568]]

    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. Applicants state that the Partnership Agreement and prospectus 
of the Series contain provisions designed to ensure fair dealing by the 
General Partner with the Limited Partners. Applicants also state that 
all compensation to be paid to the General Partner and its affiliates 
is specified in the Partnership Agreement and prospectus. Applicants 
believe that the fees and other forms of compensation that will be paid 
to the General Partner and its affiliates are 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 4%, 
respectively, of capital contributions. The General Partner has agreed 
to pay all organizational and offering expenses (excluding selling 
commissions, the dealer-manager fee, and the nonaccountable expense 
reimbursement).
    10. During the acquisition phase, the Fund will pay the General 
Partner or its affiliates a fee equal to 7% of capital contributions 
for analyzing and evaluating potential investments in Local Limited 
Partnerships and for various other services. The General Partner and 
its affiliates will receive a nonaccountable acquisition expense 
reimbursement equal to 2% of capital contributions in consideration of 
which the General Partner will pay all acquisition expenses of the 
Fund. Aggregate fees and expenses paid in connection with the 
organization of the Fund, the offering of Units, and the acquisition of 
Local Limited Partnerships 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 the Fund be committed to Local Limited Partnership 
interests.
    11. During the operating phase, the General Partner will receive 
0.1% of any cash available for distribution, and the Fund 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 the Fund and ongoing 
management of the Fund. 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 0.1% of profits and losses of 
the Fund for tax purposes and tax credits.
    12. During the liquidation phase, and subject to certain prior 
payments to the Limited Partners, the Fund will pay the General Partner 
or its affiliates a fee equal to 1% of the sales price of the apartment 
complexes 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.
    13. All proceeds from a Series' public offering of Units initially 
will be placed in an escrow account with the Southern California Bank 
(``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 more than one entity that the General Partner or its 
affiliates advises or manages may invest in a particular investment 
opportunity, the decision as to the 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 state low income housing credits, and (b) any 
entity that was formed to invest primarily in apartment complexes 
eligible for state low income housing credits as well as for Federal 
credits will be given priority with respect to any investment that is 
eligible for the state credits.

Applicants' Legal Analysis

    1. Applicants believe that the Fund and its Series will not be 
``investment companies'' under sections 3(a)(1)(A) or 3(a)(1)(C) of the 
Act. If the Fund and its Series are deemed to be investment companies, 
however, applicants request an exemption under section 6(c) and 6(e) of 
the Act from all provisions of the Act, except sections 37 through 53 
of the Act and the rules and regulations under those sections.
    2. Section 3(a)(1)(A) 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 believe 
that the Fund will not be an investment company under section 
3(a)(1)(A) because the Fund will be in the business of investing in and 
being beneficial owner of apartment complexes, not securities.
    3. Section 3(a)(1)(C) 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 state 
that although the Local Limited Partnership interests may be deemed 
``investment securities,'' they are not readily marketable, cannot be 
sold without severe adverse tax consequences, and have no value apart 
from the value of the apartment complexes owned by the Local Limited 
Partnerships.
    4. Applicants believe that the two-tier structure is consistent 
with the purpose and criteria set forth in the SEC's release concerning 
two-tier real estate partnerships (the ``Release'').\1\ The Release 
states that investment

[[Page 44569]]

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. Section 6(e) permits the SEC to require 
companies exempted from the registration requirements of the Act to 
comply with certain specified provisions of the Act as though the 
company were a registered investment company.
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    \1\ Investment Company Act Release No. 8465 (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 quality 
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. In addition, applicants assert that the requested 
exemption is both necessary and appropriate in the public interests.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21090 Filed 8-13-99; 8:45 am]
BILLING CODE 8010-01-M