[Federal Register Volume 75, Number 67 (Thursday, April 8, 2010)]
[Notices]
[Pages 17976-17978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7978]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29202; 812-13687]
WNC Tax Credits 38, LLC, WNC Tax Credits 39, LLC, WNC Housing Tax
Credits Manager, LLC and WNC & Associates, Inc.; Notice of Application
April 2, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
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 other than
rule 38a-1 under the Act.
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Applicants: WNC Tax Credits 38, LLC (``Fund 38'') and WNC Tax
Credits 39, LLC (``Fund 39'') (each a ``Fund,'' and collectively, the
``Funds''), WNC Housing Tax Credits Manager, LLC (the ``Manager'') and
WNC & Associates, Inc. (``WNC & Associates'').
Summary of the Application: Applicants request an order to permit
each Fund to invest in limited liability companies that engage in the
ownership and operation of apartment complexes for low and moderate
income persons (``Apartment Complexes'').
Filing Date: The application was filed on August 28, 2009, and
amended on January 11, 2010, March 31, 2010, and April 1, 2010.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on April 26, 2010, 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 Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, 17782 Sky Park
Circle, Irvine, CA 92614.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel,
(202) 551-6811, or Julia Kim Gilmer, Branch Chief, (202) 551-6821
(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 via the
Commission's Web site by searching for the file number, or an applicant
by using the Company name box, at http://www.sec.gov/search/search.htm
or by calling (202) 551-8090.
Applicants' Representations
1. Fund 38 and Fund 39 each was formed as a California limited
company in 2008 and 2009, respectively. Each Fund will operate as a
``two-tier'' partnership, i.e., each Fund will invest as a limited
partner or member in other limited partnerships or limited liability
companies that are characterized as partnerships for Federal income tax
purposes (``Local Limited Partnerships''). The Local Limited
Partnerships in turn will engage in the ownership and operation of
Apartment Complexes expected to be qualified for the low income housing
tax credit under the Internal Revenue Code of 1986, as amended. The
Manager is a California limited liability company whose sole member and
manager is WNC & Associates, a California corporation.
2. The objectives of each Fund are to provide current tax benefits
in the form of (a) predictable stream of low income housing credits
which investors may use to offset their Federal income tax liabilities
and (b) tax losses.
3. Each Fund intends to conduct a private placement of its units of
limited liability company member interest (the ``Units'') on a
commencement date to be determined by the Manager. Each Fund's
placement will be conducted as described in, and by means of a private
placement memorandum, to be supplemented periodically with updated
information for each Fund's placement (the ``Memorandum''). Purchasers
of Units in a Fund will be admitted as limited liability company
members (``Members'') of the issuing Fund. The Units will be offered
pursuant to the exemption from the registration requirements of the
Securities Act of 1933 (the ``Securities Act''), provided by Rule 506
of Regulation D under the Securities Act. Each Member will be required,
as condition to acceptance of a subscription, to qualify as an
``accredited investor,'' as that term is defined in Rule 501(a) of
Regulation D (an ``Accredited Investor''). Each Fund intends to offer
its Units at a price to be determined by the Manager prior to
commencement of the Fund's placement. The minimum investment per
Accredited Investor will be determined prior to commencement of the
offerings. Each Fund will establish its minimum and maximum
capitalization, and will disclose it by supplement to its Memorandum
and deliver the supplement to all prospective Accredited Investors
prior to subscription.
4. Each Fund will not accept any subscriptions for Units until the
requested exemptive order is granted or the Fund receives an opinion of
counsel that it is exempt from registration under the Act.
Subscriptions for Units must be approved by the Manager. The Accredited
Investor will execute representations confirming suitability and the
basis for such suitability. In addition, transfers of Units will be
permitted only if the transferee meets the same suitability standards
as had been imposed on the transferor Member.
5. Although a Fund's direct control over the management of each
Apartment Complex will be limited, the Fund's ownership of interests in
Local Limited Partnerships will, in an economic sense, be the
substantial equivalent of direct ownership of the Apartment Complexes
themselves. A Fund normally will acquire at least a 90% interest in the
profits, losses, and tax credits of the Local Limited Partnerships.
However, in certain cases, at the discretion of the Manager, the Fund
may acquire a lesser interest in a Local Limited Partnership.
6. Each Fund 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 Fund's investment.
7. Each Fund will be controlled by the Manager, pursuant to an
operating
[[Page 17977]]
agreement (the ``Operating Agreement''). The Members of each Fund,
consistent with their limited liability status, will not be entitled to
participate in the control of the Fund's business operations. However,
a majority-in-interest of the Members will have the right to amend the
Operating Agreement of their Fund (subject to certain limitations) with
the consent of the Manager, which shall not be unreasonably withheld,
to dissolve the Fund with the consent of the Manager, which shall not
be unreasonably withheld, and to remove any Manager and elect a
replacement. In addition, under the Operating Agreement, each Member is
entitled to review all books and records of the Member's Fund at any
and all reasonable times.
8. Applicants state that the Operating Agreement and Memorandum of
the Funds contain provisions to ensure fair dealing by the Manager with
the Members. Applicants also state that all compensation to be paid to
the Manager and its affiliates by a Fund is specified in the Operating
Agreement and Memorandum, and no compensation will be payable to the
Manager or any of its affiliates by the Fund unless so specified.
Applicants believe that the fees and other forms of compensation that
will be paid by each Fund to the Manager and its affiliates are fair
and on terms no less favorable to the Fund than would be the case if
such arrangements had been made with independent third parties.
9. During the offering and organizational phase, WNC Capital
Corporation, an affiliate of the Manager, will receive a dealer-manager
fee from each Fund for its services in managing a group of independent
broker-dealers who will sell the Units. The Manager or an affiliate
will also receive from each Fund a nonaccountable organizational and
offering expense allowance. In exchange for this allowance, the Manager
has agreed to pay all organizational and offering expenses of each Fund
(excluding retail selling commissions, the dealer-manager fee, and the
nonaccountable organizational and offering expense allowance). During
its acquisition phase, each Fund will pay to the Manager or its
affiliates an acquisition fee for analyzing and evaluating potential
investments in Local Limited Partnerships and for various other
services. The Manager or its affiliates will receive from each Fund a
nonaccountable acquisition expense allowance in consideration of which
the Manager or its affiliates will pay all acquisition expenses of each
Fund. All fees and expenses paid to all persons in connection with the
organization of each Fund, the offering of Units and the acquisition of
Local Limited Partnership interests will not exceed an amount equal to
22% of the Fund's gross offering proceeds.
10. During the operating phase, the Manager will receive a yearly
asset management fee from each Fund in an amount equal to 0.75% of the
Fund's invested assets for services rendered by the Manager in
connection with the administration of the affairs of the Fund and the
management of the Fund's assets. During the liquidation phase, each
Fund will pay the Manager or its affiliates a disposition fee in an
amount of up to 3% of the gross sales price of an Apartment Complex or
a Local Limited Partnership interest.
11. All proceeds of the private placement of a Fund's Units
initially will be placed in an escrow account with U.S. Bank, National
Association (``Escrow Agent''). Pending release of offering proceeds to
the Fund, the Escrow Agent will deposit escrowed funds in accordance
with instructions from time to time received from the Manager 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 gross operating proceeds for a Fund, funds
in escrow will be released to the Fund and held by it pending
investment in Local Limited Partnerships. Any of a Fund's offering
proceeds available for investment in Local Limited Partnership
interests that the Fund has not either invested or committed to invest
within 24 months following the termination of its offering of Units
will be distributed to investors pro rata as a return of capital.
12. 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.
Applicants' Legal Analysis
1. Applicants believe that the Funds will not be ``investment
companies'' under sections 3(a)(1)(A) or 3(a)(1)(C) of the Act. If the
Funds 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, except rule 38a-1
thereunder.
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 Funds will not be investment companies under section
3(a)(1)(A) because each Fund will be in the business of investing in
and being a 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 purposes and criteria set forth in the Commission'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 Commission 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 Commission to require companies exempted from
the registration requirements of the Act to comply with certain
specified provisions of the Act as though the
[[Page 17978]]
company were a registered investment company.
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\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 represent that Units will be sold only to persons for
whom investment in limited profit, essentially tax shelter, investments
would be suitable. Applicants further state that the requirements for
fair dealing by the Manager with the Members are included in the basic
organizational documents of each Fund. Applicants assert, among other
things, that the suitability standards set forth in the application,
the requirements for fair dealing provided by the Operating Agreement,
and pertinent governmental regulations imposed on each Local Limited
Partnership by various Federal, state, and local agencies provide
protection to Accredited Investors in Units. 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.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7978 Filed 4-7-10; 8:45 am]
BILLING CODE 8011-01-P