<Page>
Y
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 2001
FILE NO. 333-63510
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
(SERIES 41 AND 42)
AND
BCTC IV ASSIGNOR CORP.
(Exact name of registrant as specified in their governing instruments)
ONE BOSTON PLACE, SUITE 2100
BOSTON, MASSACHUSETTS 02108
(Address of principal executive offices)
RICHARD J. DeAGAZIO, EXECUTIVE VICE PRESIDENT
BOSTON CAPITAL PARTNERS, INC.
ONE BOSTON PLACE, SUITE 2100
BOSTON, MASSACHUSETTS 02108
(Name and address of agent for service)
------------------
COPY TO:
SCOTT NEMEROFF, ESQ.
NIXON PEABODY LLP
401 9TH STREET, N.W.
SUITE 900
WASHINGTON, D.C. 20004-2128
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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]
================================================================================
<Page>
BOSTON CAPITAL TAX CREDIT FUND IV L.P.'S
POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON FORM S-11
CROSS REFERENCE SHEET
<Table>
<Caption>
ITEM LOCATION IN
NO. CAPTION PROSPECTUS
1. Forepart of Registration Statement and Outside Front Cover Page of
Prospectus Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Bank
Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges Summary; Conflicts of Interest;
Risk Factors
4. Determination of Offering Price *
5. Dilution *
6. Selling Securities *
Holders
7. Plan of The Offering
Distribution
8. Use of Proceeds Estimated Use of Proceeds;
Investment Objectives and
Acquisition Policies
9. Selected Financial *
Data
10. Management's Discussion and Analysis of Financial Condition and
Results of Operations Investment Objectives and
Acquisition Policies; Investment
in Operating Partnerships
11. General Information as to Registrant Summary; Management; Investment
Objectives and Acquisition
Policies; Summary of Certain
Provisions of the Fund Agreement
12. Policy With Respect to Certain Activities Summary; Investment Objectives and
Acquisition
<Page>
Policies; Summary of
Certain Provisions of the Fund
Agreement
13. Investment Policies of Registrant Summary; Investment Objectives
and Acquisition Policies;
Investment in Operating
Partnerships
14. Description of Real Investment Objectives and
Estate Acquisition Policies; Investment
in Operating Partnerships
15. Operating Data *
16. Tax Treatment of Registrant and its Security
Holders Summary; Risk Factors; Federal
Income Tax Matters
17. Market Price of and Dividends on Registrant's Common Equity and
Related Stockholder Matters *
18. Description of Registrant's Securities Summary; Risk Factors; Investment
Objectives and Acquisition
Policies; Sharing Arrangements:
Profits, Credits, Losses, Net Cash
Flow and Residuals
19. Legal *
Proceedings
20. Security Ownership of Certain Beneficial
Owners and Management Management; Conflicts of Interest;
The Offering
21. Directors and Executive Officers Management
22. Executive Compensation Management; Compensation and Fees;
Conflicts of Interest
23. Certain Relations and Related Transactions Management; Conflicts of Interest;
Compensation and Fees
24. Selection, Management and Custody of
<Page>
Registrant's Investment Investment Objectives and
Acquisition Policies; Investment
in Operating Partnerships;
Management; Compensation and Fees;
Conflicts of Interest
25. Policies With Respect to Certain
Transactions Conflicts of Interest; Management
26. Limitations of Liability Risk Factors; Fiduciary
Responsibility of the General
Partner; Summary of Certain
Provisions of the Fund Agreement
27. Financial Statements and Information Reports of Independent Certified
Public Accountants and Financial
Statements
28. Interests of Named Experts and Counsel *
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Fiduciary Responsibility of the
General Partner
</Table>
- ----------------------
* Omitted since answers are negative or inapplicable.
<Page>
Y
JANUARY 1, 2002
SUPPLEMENT NO. 2 TO PROSPECTUS FOR
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
DATED
AUGUST 1, 2001
(SUPPLEMENT OFFERING BCTC IV SERIES 42 AND
IDENTIFYING CERTAIN ANTICIPATED INVESTMENTS)
This Supplement is part of, and should be read in conjunction with, Boston
Capital's Prospectus and it supersedes all previous supplements. Capitalized
terms used herein but not defined have the meanings ascribed to them in the
Prospectus.
SERIES 42'S PURPOSE--
- - To invest in other limited partnerships that will each develop, own and
operate an apartment complex used as low and moderate income housing.
TERMS OF OFFERING--
- - Series 42 is offering at least 250,000 ($2.5 million) and up to 3,500,000
($35 million) Beneficial Assignee Certificates that are the equivalent of
limited partnership interests in Series 42;
- - the price of the certificates is $10 each with a minimum investment of
$5,000;
- - this offering will end no later than July 31, 2002; and
- - your money will be held in escrow until at least 250,000 certificates are
sold.
SERIES 42'S INVESTORS WILL RECEIVE--
- - federal housing tax credits;
- - tax losses that can offset passive income from any other investments; and
- - profits, if any, from the sale of the apartment complexes.
<Page>
PRIOR PERFORMANCE OF BOSTON ASSOCIATES AND ITS AFFILIATES
Boston Capital Tax Credit Fund IV L.P. Series 41 and 42 (the "Fund") already has
issued and closed Series 41. The Fund received orders for a total of ___________
Series 41 certificates ($__________), and issued the last of these certificates
on December __, 2001. The fees paid as of ________, 2001 to Boston Capital and
affiliates for Series 41 totaled $_______. No additional Series 41 certificate
will be issued. In addition, Boston Capital Tax Credit Fund IV L.P. has issued
other series in other offerings - Series 20 to Series 40. See "Prior Performance
of Boston Associates and Its Affiliates" in the Prospectus for information about
Series 20 through 40.
NEW LEGISLATIVE DEVELOPMENTS
On December 15, 2000, the United States Congress passed a bill which revised
certain provisions of the federal housing tax credit. When the initial
legislation was enacted in 1986 creating the federal housing tax credit, the tax
credit allocable to each state per year was limited to an amount of $1.25 for
each resident in the state. Among the many provisions in this bill, was an
increase of the $1.25 cap on the federal housing tax credit to $1.75 per state
resident. The increase will be in two steps - to $1.50 in 2001 and to $1.75 in
2002.
Thereafter, this legislation calls for an automatic adjustment indexed for
inflation beginning in 2003. This means that through bi-partisan support,
additional incentives should be available to finance the construction and
rehabilitation of housing for low and moderate income people.
INVESTMENT OBJECTIVES AND ACQUISITION POLICIES
Series 42's principal business is to invest, as a limited partner, in other
limited partnerships (the "Operating Partnerships"), each of which will develop,
own and operate an apartment complex which is expected to qualify for federal
housing tax credits in order to achieve the investment goals set forth in the
Prospectus.
To achieve its investment objectives, Series 42 will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes, averaging approximately $.95 to $1.00 per
certificate annually--9.5%-10% annual tax credit as a percentage of capital
invested--for the ten-year credit period. After consulting with the underwriter
regarding tax-free returns currently available to investors in other similar tax
credit investments, Series 42 has selected as an investment objective a 9.5%-10%
annual tax credit as a percentage of capital invested. No additional tax credits
will be available for the remaining term of the fifteen-year federal housing tax
credit compliance period. This calculation assumes:
- - the applicability of current tax law;
- - each apartment complex is occupied with qualifying individuals throughout
the fifteen-year federal housing tax credit compliance period; and
- - investors cannot use any passive tax losses generated by Series 42.
POSSIBLE INTERNAL RATE OF RETURN
The internal rate of return is the rate at which the present value of your
future tax benefits would equal the cost of your investment. In essence, it
illustrates your future tax credit benefit as a return of principal and interest
in today's dollars.
For investors in the 15%-35% tax bracket respectively, the tax-free rate of
return goal is approximately 1.8%-3.9%, exclusive of any cash available for
distribution, if:
- - none of the apartment complexes invested in has any value at the end of the
fifteen-year federal housing tax credit compliance period; and
<Page>
- - investors do use for tax purposes the assumed loss of the investor's entire
capital contributions.
The tax-free rate of return will exceed 1.8%-3.9% if:
- - the value of the apartment complexes exceeds indebtedness plus sale expenses;
and
- - investors receive distributions from these sales or refinancings.
In accordance with the rules for the allocation of federal housing tax credits,
Series 42's investment goal is for the following annual tax-free amounts for
each $10,000 investment in Series 42: $0 - $100 in 2002; $500 - $700 in 2003;
$950 - $1,000 in 2004 - 2011; $850 - $1,000 in 2012; and $250 - $500 in 2013.
This tax credit investment goal is not a forecast of anticipated tax credits,
nor does it represent a yield or return on investment. Rather it is an
investment goal of Series 42 for the credit period applicable to its
investments. There is no assurance that any particular tax-free internal rate of
return will be achieved.
The attainment of Series 42's investment objectives will depend on many factors,
including the ability of Boston Associates to select suitable investments on a
timely basis, the timely completion and successful management of such
investments and future economic conditions in the United States. Accordingly,
there can be no assurance that Series 42 will meet its investment objectives.
ANTICIPATED INVESTMENTS
Series 42 expects to invest in the ten Operating Partnerships described below.
Each Operating Partnership will use a significant part of the funds invested by
Series 42 to pay fees to the Operating General Partners. See the table entitled
"Terms of Investment in Operating Partnerships" in this Supplement.
While Boston Associates believes that Series 42 is reasonably likely to acquire
interests in the apartment complexes described below, it may not be able to do
so. Before any acquisition is made, Boston Associates will complete its due
diligence review as to the Operating Partnership and its apartment complex. This
process will include the review and analysis of information concerning, among
other matters, market competition and environmental factors. If any significant
adverse information is obtained by Boston Associates, either action will be
taken to mitigate the adverse factor(s), or the acquisition will not be made. It
is also possible that the acquisition terms may differ significantly from those
described below. Accordingly, investors should not rely on the ability of Series
42 to invest in these apartment complexes or under the described investment
terms in deciding whether to invest in Series 42. If Series 42 raises the entire
$35 million, the anticipated acquisition of the Operating Partnership interests,
described below, will represent approximately 75% of the total money which
Series 42 currently expects to spend.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Because Series 42 is currently in the offering phase, it has no material assets
or any operating history. Series 42 expects to acquire interests in the
following 10 Operating Partnerships, which will develop, own and operate
apartment complexes, 9 of which are to be newly constructed and 1 of which is to
be rehabilitated:
<Table>
<Caption>
PARTNERSHIP OPERATING GENERAL PARTNER(S)
----------- ----------------------------
1. Garden Village Senior Living, LP Cascade Housing Group, LLC
(the "Garden Village Senior Partnership")
New Construction
2. Great Bridge Rochester, LP Great Bridge Rochester, LLC
(the "Great Bridge Rochester Partnership")
New Construction
</Table>
<Page>
<Table>
<Caption>
PARTNERSHIP OPERATING GENERAL PARTNER(S)
----------- ----------------------------
3. Greenwood Village, LP HDC, Inc.
(the "Greenwood Village II Partnership")
New Construction
4. San Diego/Fox Hollow, LP Affirmed Housing Group
(the "Hollywood Palms Partnership") City Heights Community
New Construction Development Corporation
5. Center Street Urban Renewal Associates, LP Conifer Realty, LLC
(the "Merchantville Senior Partnership")
New Construction
6. Pembroke Commons Apartments, LP Cascade Housing Group, LLC
(the "Pembroke Commons Partnership")
New Construction
7. Quebec 172 Associates, LP Silverwood Associates, Inc.
(the "Quebec 172 Partnership")
Property Rehabilitation
8. Roxbury Court LDHA, LP Royal Castle
(the "Roxbury Court Partnership")
New Construction
9. Spring Ridge Senior Apartments, LP Conifer Realty, LLC
(the "Spring Ridge Senior Partnership")
New Construction
10. Wesparke Village Two, LP Continental Realty, Inc.
(the "Wesparke Village Two Partnership")
New Construction
</Table>
None of the Operating General Partners or the management companies are
affiliated with Boston Associates.
Permanent mortgage loan financing for the apartment complexes will be provided
from a variety of sources. Boston Associates believes that each of the apartment
complexes will have adequate property insurance. The tables included in this
Supplement describe in greater detail information concerning the apartment
complexes and the anticipated terms of investment in each Operating Partnership.
The priority return base for Series 42 is $1.00 per certificate (10%). The
priority return base is the level of return that investors must receive before
Boston Associates may receive a 5% share in the proceeds from the sale or
refinancing of apartment complexes. In establishing the priority return base,
Boston Associates does not represent that Series 42 is expected to provide this
level of return to investors. Boston Associates will receive fees and
compensation for services prior to investors receiving the priority return.
<Page>
<Table>
<Caption>
INFORMATION CONCERNING THE APARTMENT COMPLEXES
BASIC GOVERNMENT PERMANENT MORTGAGE ANNUAL
OPERATING LOCATION NUMBER MONTHLY ASSISTANCE MORTGAGE INTEREST RESERVE MANAGEMENT
PARTNERSHIP NAME OF PROPERTY OF UNITS RENTS(1) ANTICIPATED LOAN RATE AMOUNT AGENT
- ------------------------------------------------------------------------------------------------------------------------------------
1. Garden Village Portland, 50 $477- Federal Housing US Bank 6.77% $10,649 Cascade
Senior Oregon $581 1BR Tax Credits $2,900,000 Property
Partnership $571- (2a) Management
$696 2BR US Bank 3%
$345,000
(2b)
2. Great Bridge Rochester, 90 $710- Mortgage New Hampshire 7% $27,000 Stewart
Rochester New Hampshire $714 2BR Insurance Finance Property
Partnership through the U.S. Authority Management
Department of $4,400,000
Housing and (3a)
Urban New Hampshire 1%
Development Finance
Section 8 Authority
Program(3a) $1,500,000
HOME Investment (3b)
Partnerships
Program(3b)
<Caption>
ANNUAL
OPERATING MANAGEMENT
PARTNERSHIP NAME FEE
- ---------------------------------------
1. Garden Village 5% of net
Senior rental income
Partnership
2. Great Bridge 6.09% of net
Rochester rental income
Partnership
</Table>
(1) Exclusive of utilities, unless indicated otherwise.
(2) (a) The terms of the Garden Village Senior Partnership's anticipated
permanent first mortgage loan in the amount of $2,900,000 are expected
to include a term of 30 years, an interest rate of 6.775% and payments
of principal and interest on the basis of a 30-year amortization
schedule.
(b) The terms of the Garden Village Senior Partnership's anticipated
permanent second mortgage loan in the amount of $345,000 are expected
to include a term of 40 years, an interest rate of 3% and payments of
principal and interest on the basis of a 40-year amortization
schedule.
(3) (a) The terms of the Great Bridge Rochester Partnership's anticipated
permanent first mortgage loan in the amount of $4,400,000 are expected
to include a term of 40 years, an interest rate of 7% and payments of
principal and interest on the basis of a 40-year amortization schedule.
(b) The terms of the Great Bridge Rochester Partnership's anticipated
permanent second mortgage loan in the amount of $1,500,000 are
expected to include a term of 30 years, an interest rate of 1% and
payments of principal and interest on the basis of a 30-year
amortization schedule.
<Page>
<Table>
<Caption>
BASIC GOVERNMENT PERMANENT MORTGAGE ANNUAL
OPERATING LOCATION NUMBER MONTHLY ASSISTANCE MORTGAGE INTEREST RESERVE MANAGEMENT
PARTNERSHIP NAME OF PROPERTY OF UNITS RENTS(1) ANTICIPATED LOAN RATE AMOUNT AGENT
- ------------------------------------------------------------------------------------------------------------------------------------
3. Greenwood Hillsdale, 48 $189- Federal Michigan State 4.50% $9,600 WS Smith
Village II Michigan $450 1BR Housing Housing and
Partnership $226- Tax Credits Development
$523 2BR Authority
$265- $2,139,000
$618 3BR (4a)
Michigan State 1%
Housing and
Development
Authority
$665,000(4b)
<Caption>
ANNUAL
OPERATING MANAGEMENT
PARTNERSHIP NAME FEE
- ---------------------------------------
3. Greenwood 6.05% of net
Village II rental income
Partnership
</Table>
(4) (a) The terms of the Greenwood Village II Partnership's anticipated
permanent first mortgage loan in the amount of $2,139,000 are expected
to include a term of 35 years, an interest rate of 4.50% and payments
of principal and interest on the basis of a 35-year amortization
schedule.
(b) The terms of the Greenwood Village II Partnership's anticipated
permanent second mortgage loan in the amount of $665,000 are expected
to include a term of 30 years, an interest rate of 1% and payments of
principal and interest on the basis of a 30-year amortization
schedule.
<Page>
<Table>
<Caption>
BASIC GOVERNMENT PERMANENT MORTGAGE ANNUAL
OPERATING LOCATION NUMBER MONTHLY ASSISTANCE MORTGAGE INTEREST RESERVE MANAGEMENT
PARTNERSHIP NAME OF PROPERTY OF UNITS RENTS(1) ANTICIPATED LOAN RATE AMOUNT AGENT
- -----------------------------------------------------------------------------------------------------------------------------------
4. Hollywood Palms San Diego, 94 $571- City of San Housing 6.50% $18,800 City Heights
Partnership California $699 2BR Diego (5d) Authority of Community
$631- the City of Development
$774 3BR San Diego Corporation
$673- $5,640,000
$827 4BR (5a)
$882 5BR Housing 5.90%
Authority of
the City of
San Diego
$416,000
(5b)
Housing 6.50%
Authority of
the City of
San Diego
$300,000(5c)
San Diego
Housing 3%
Commission
$2,200,000
(5d)
An affiliate 0%
$998,024 (5e)
<Caption>
ANNUAL
OPERATING MANAGEMENT
PARTNERSHIP NAME FEE
- ---------------------------------------
4. Hollywood Palms 4.50% of net
Partnership rental income
</Table>
(5) (a) The terms of the Hollywood Palms Partnership's anticipated permanent
first mortgage loan in the amount of $5,640,000 are expected to include
a term of 30 years, an interest rate of 6.50% and payments of principal
and interest on the basis of a 30-year amortization schedule.
(b) The terms of the Hollywood Palms Partnership's anticipated permanent
second mortgage loan in the amount of $416,000 are expected to include
a term of 10 years, an interest rate of 5.90% and payments of
principal and interest on the basis of a 10-year amortization
schedule.
(c) The terms of the Hollywood Palms Partnership's anticipated permanent
third mortgage loan in the amount of $300,000 are expected to include
a term of 2 years, an interest rate of 6.50% and payments of principal
and interest on the basis of a 2-year amortization schedule.
(d) The terms of the Hollywood Palms Partnership's anticipated permanent
fourth mortgage loan in the amount of $2,200,000 are expected to
include a term of 30 years, an interest rate of 3% and payments of
principal and interest on the basis of a 30-year amortization
schedule.
<Page>
(e) The terms of the Hollywood Palms Partnership's anticipated permanent
fifth mortgage loan in the amount of $998,024 are expected to include
a term of 10 years, an interest rate of 0% and payments of principal
and interest on the basis of a 10-year amortization schedule.
<Page>
<Table>
<Caption>
BASIC GOVERNMENT PERMANENT MORTGAGE ANNUAL
OPERATING LOCATION NUMBER MONTHLY ASSISTANCE MORTGAGE INTEREST RESERVE MANAGEMENT
PARTNERSHIP NAME OF PROPERTY OF UNITS RENTS(1) ANTICIPATED LOAN RATE AMOUNT AGENT
- -----------------------------------------------------------------------------------------------------------------------------------
5. Merchantville Merchantville, 74 $481- Federal Housing Boston Capital 8% $22,200 Home
Senior New Jersey $800 1BR Tax Credits Finance, LLC Properties
Partnership $572- $1,838,385 of New York,
$1,000 2BR (6a) LP
New Jersey 0%
Department of
Community
Affairs
$1,985,143
(6b)
6. Pembroke Commons Portland, 120 $565 1BR Federal Housing US Bank 6.45% $30,000 Cascade
Partnership Oregon $685 2BR Tax Credits $8,500,000 Property
$810 3BR (7) Management
7. Quebec 172 Arlington 172 $600 0BR Arlington County Virginia Housing 7.25% $43,000 Solari
Partnership County, $825- Loan (8b) Development Enterprises,
Virginia $925 1BR Authority Inc.
$950- $12,800,000
$1,075 2BR (8a)
$1,140- Arlington County
$1,400 3BR $2,800,000 6%
(8b)
<Caption>
ANNUAL
OPERATING MANAGEMENT
PARTNERSHIP NAME FEE
- ----------------------------------------
5. Merchantville 6% of net
Senior rental income
Partnership
6. Pembroke Commons 5% of net
Partnership rental income
7. Quebec 172 5% of net
Partnership rental income
</Table>
(6) (a) The terms of the Merchantville Senior Partnership's anticipated
permanent first mortgage loan in the amount of $1,838,385 are expected
to include a term of 30 years, an interest rate of 8% and payments of
principal and interest on the basis of a 30-year amortization schedule.
(b) The terms of the Merchantville Senior Partnership's anticipated
permanent second mortgage loan in the amount of $1,985,143 are
expected to include a term of 30 years, an interest rate of 0% and
payments of principal and interest on the basis of a 30-year
amortization schedule.
(7) The terms of the Pembroke Commons Partnership's anticipated permanent first
mortgage loan in the amount of $8,500,000 are expected to include a term of
30 years, an interest rate of 6.45% and payments of principal and interest
on the basis of a 30-year amortization schedule.
(8) (a) The terms of the Quebec 172 Partnership's anticipated permanent first
mortgage loan in the amount of $12,800,000 are expected to include a
term of 30 years, an interest rate of 7.25% and payments of principal
and interest on the basis of a 30-year amortization schedule.
<Page>
(b) The terms of the Quebec 172 Partnership's anticipated permanent second
mortgage loan in the amount of $2,800,000 are expected to include a
term of 30 years, an interest rate of 6% and payments of principal and
interest on the basis of a 30-year amortization schedule.
<Page>
<Table>
<Caption>
BASIC GOVERNMENT PERMANENT MORTGAGE ANNUAL
OPERATING LOCATION NUMBER MONTHLY ASSISTANCE MORTGAGE INTEREST RESERVE MANAGEMENT
PARTNERSHIP NAME OF PROPERTY OF UNITS RENTS(1) ANTICIPATED LOAN RATE AMOUNT AGENT
- -----------------------------------------------------------------------------------------------------------------------------------
8. Roxbury Court Clio, 90 $175- HOME Investment Independent Bank 7.85% $18,000 Sterling
Partnership Michigan $485 1BR Partnerships $2,085,000 Management
$383- Program(9b) (9a) Ltd.
$614 2BR Genesee County 3%
$750,000(9b)
9. Spring Ridge Frederick, 144 $825- Federal Housing AGM Financial 6.75% $28,800 Home
Senior Maryland $915 1BR Tax Credits Services, Inc. Properties
Partnership $880- $11,905,200 of New York,
$1,150 2BR (10) LP
10. Wesparke Village Topeka, 53 $455 1BR Federal Housing Midland Companies 8.38% $10,600 Continental
Two Partnership Kansas $525- Tax Credits $1,900,000 Management,
$550 2BR (11) Inc.
<Caption>
ANNUAL
OPERATING MANAGEMENT
PARTNERSHIP NAME FEE
- -----------------------------------------
8. Roxbury Court 5.10% of net
Partnership rental income
9. Spring Ridge 4% of net
Senior rental income
Partnership
10. Wesparke Village 5% of net
Two Partnership rental income
</Table>
(9) (a) The terms of the Roxbury Court Partnership's anticipated permanent
first mortgage loan in the amount of $2,085,000 are expected to include
a term of 30 years, an interest rate of 7.85% and payments of principal
and interest on the basis of a 30-year amortization schedule.
(b) The terms of the Roxbury Court Partnership's anticipated permanent
second mortgage loan in the amount of $750,000 are expected to include
a term of 30 years, an interest rate of 3% and payments of principal
and interest on the basis of a 30-year amortization schedule.
(10) The terms of the Spring Ridge Senior Partnership's anticipated permanent
first mortgage loan in the amount of $11,905,200 are expected to include a
term of 40 years, an interest rate of 6.75% and payments of principal and
interest on the basis of a 40-year amortization schedule.
(11) The terms of the Wesparke Village Two Partnership's anticipated permanent
first mortgage loan in the amount of $1,900,000 are expected to include a
term of 30 years, an interest rate of 8.38% and payments of principal and
interest on the basis of a 30-year amortization schedule.
<Page>
<Table>
<Caption>
TERMS OF INVESTMENT IN OPERATING PARTNERSHIPS
OWNERSHIP
INTEREST(%)
PROFITS, FUND'S DEVELOPMENT
LOSSES, OPERATING APPROXIMATE FEE/OTHER
BCTC IV CREDIT/NET GENERAL OPERATING OPERATING AVERAGE ANNUAL DISTRIBUTIONS
PARTNERSHIP CAPITAL CASH FLOW/ PARTNER DEFICIT PARTNERSHIP'S ANTICIPATED TO OPERATING
NAME CONTRIBUTION BACKEND CONTRIBUTION GUARANTEE CREDIT BASE FEDERAL CREDIT GP
- ---------------------------------------------------------------------------------------------------------------------------------
1. Garden Village $1,115,200 99.99/20/20 $100 $95,229 in the $3,842,158 $135,986 $630,000
Senior aggregate for 3
Partnership years
2. Great Bridge $2,388,518 99.99/20/20 $100 $500,000 in the $8,678,970 $307,205 $810,000
Rochester aggregate for 3
Partnership years
3. Greenwood $1,006,473 99.90/10/10 $100 Unlimited in $3,558,587 $126,204 $503,311
Village II duration and
Partnership amount
4. Hollywood $4,280,062 99.99/15/10 $100 $500,000 in the $15,105,353 $534,674 $1,200,000
Palms aggregate for 3
Partnership years
5. Merchantville $3,162,961 99.98/10/10 $100 $475,000 in the $4,993,152 $405,508 $495,000
Senior aggregate for 3
Partnership years
6. Pembroke $2,187,577 99.90/20/20 $100 $232,566 in the $7,802,901 $275,167 $1,340,000
Commons aggregate for 3
Partnership years
7. Quebec 172 $3,806,215 97.00/10/20 $100 Unlimited in $6,528,637 $468,457 $1,988,415
Partnership amount through
rental
achievement.
Upon rental
achievement,
$100,000 per
year for 3 years.
8. Roxbury Court $3,671,969 99.90/20/40 $100 $400,000 in the $6,096,919 $503,009 $795,250
Partnership aggregate for 3
years
9. Spring Ridge $1,610,328 99.90/10/10 $100 Unlimited in $5,712,972 $206,452 $1,750,245
Senior amount for 3
Partnership years
<Caption>
ANNUAL
PARTNERSHIP ASSET
MANAGEMENT FEE MANAGEMENT FEE
PARTNERSHIP TO OPERATING TO BOSTON
NAME GP CAPITAL
- ------------------------------------------------------
1. Garden Village $2,500 $2,500
Senior
Partnership
2. Great Bridge $5,000 $5,000
Rochester
Partnership
3. Greenwood $2,400 $2,400
Village II
Partnership
4. Hollywood $36,660 $3,250
Palms
Partnership
5. Merchantville $5,550 $5,550
Senior
Partnership
6. Pembroke $6,000 $6,000
Commons
Partnership
7. Quebec 172 $50,000 $5,000
Partnership
8. Roxbury Court $3,500 $3,500
Partnership
9. Spring Ridge $10,800 $10,800
Senior
Partnership
</Table>
<Page>
<Table>
<Caption>
TERMS OF INVESTMENT IN OPERATING PARTNERSHIPS
OWNERSHIP
INTEREST(%)
PROFITS, FUND'S DEVELOPMENT
LOSSES, OPERATING APPROXIMATE FEE/OTHER
BCTC IV CREDIT/NET GENERAL OPERATING OPERATING AVERAGE ANNUAL DISTRIBUTIONS
PARTNERSHIP CAPITAL CASH FLOW/ PARTNER DEFICIT PARTNERSHIP'S ANTICIPATED TO OPERATING
NAME CONTRIBUTION BACKEND CONTRIBUTION GUARANTEE CREDIT BASE FEDERAL CREDIT GP
- ---------------------------------------------------------------------------------------------------------------------------------
10. Wesparke $2,905,119 99.99/30/30 $100 $300,000 in the $4,571,190 $387,349 $455,000
Village Two aggregate for 3
Partnership years
<Caption>
ANNUAL
PARTNERSHIP ASSET
MANAGEMENT FEE MANAGEMENT FEE
PARTNERSHIP TO OPERATING TO BOSTON
NAME GP CAPITAL
- ------------------------------------------------------
10. Wesparke $5,000 $5,000
Village Two
Partnership
</Table>
<Page>
THE GARDEN VILLAGE SENIOR PARTNERSHIP
(Garden Village Senior Living Apartments)
Garden Village Senior Living Apartments is a 50-unit apartment complex
for senior citizens which is to be constructed in Portland, Oregon. Garden
Village Senior Living Apartments will consist of 14 one-bedroom units and 36
two-bedroom units contained in 8 buildings. The complex will offer a community
room and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher and air
conditioning.
Construction of Garden Village Senior Living Apartments is anticipated
to begin in January, 2002. The Operating General Partner anticipates that
construction completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
15 August, 2002 15 January, 2003
12 September, 2002 12 February, 2003
10 October, 2002 10 March, 2003
7 November, 2002 7 April, 2003
6 December, 2002 6 May, 2003
</Table>
THE GREAT BRIDGE ROCHESTER PARTNERSHIP
(Ledgeview Apartments)
Ledgeview Apartments is a 90-unit apartment complex for families which
is to be constructed in Rochester, New Hampshire. Ledgeview Apartments will
consist of 90 two-bedroom units contained in 1 building. The complex will offer
a community room and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning, wall-to-wall carpeting and cable television hook-up.
Construction of Ledgeview Apartments is anticipated to begin in
December, 2001. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
9 February, 2002 9 September, 2002
9 March, 2002 9 October, 2002
9 April, 2002 9 November, 2002
9 May, 2002 9 December, 2002
9 June, 2002 9 January, 2003
9 July, 2002 9 February, 2003
9 August, 2002 9 March, 2003
9 September, 2002 9 April, 2003
9 October, 2002 9 May, 2003
9 November, 2002 9 June, 2003
</Table>
THE GREENWOOD VILLAGE II PARTNERSHIP
(Greenwood Village II Apartments)
Greenwood Village II Apartments is a 48-unit apartment complex for
families which is being constructed on Barr Street in Hillsdale, Michigan.
Greenwood Village II Apartments will consist of 8 one-bedroom units, 24
two-bedroom units and 16 three-bedroom units contained in 5 buildings. The
complex will offer a community room, pool and recreation room.
<Page>
Individual units will contain a refrigerator, range, dishwasher,
disposal, washer/dryer hook-ups, air conditioning, wall-to-wall carpeting and
cable television hook-up.
Construction of Greenwood Village II Apartments began in September,
2001. The Operating General Partner anticipates that construction completion and
occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
6 January, 2002 6 May, 2002
6 February, 2002 6 June, 2002
6 March, 2002 6 July, 2002
6 April, 2002 6 August, 2002
6 May, 2002 6 September, 2002
6 June, 2002 6 October, 2002
6 July, 2002 6 November, 2002
6 August, 2002 6 December, 2002
</Table>
THE HOLLYWOOD PALMS PARTNERSHIP
(Hollywood Palms Apartments)
Hollywood Palms Apartments is a 94-unit apartment complex for families
which is to be constructed in San Diego, California. Hollywood Palms Apartments
will consist of 44 two-bedroom units, 28 three-bedroom units, 20 four-bedroom
units and 2 five-bedroom units contained in 12 buildings. The complex will offer
a community room and central laundry facilities.
Individual units will contain a refrigerator, range, ceiling fans and
wall-to-wall carpeting.
Construction of Hollywood Palms Apartments is anticipated to begin in
November, 2001. The Operating General Partners anticipate that construction
completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
24 January, 2002 24 May, 2002
24 February, 2002 24 June, 2002
23 March, 2002 23 July, 2002
23 April, 2002 23 August, 2002
</Table>
THE MERCHANTVILLE SENIOR PARTNERSHIP
(Merchantville Senior Housing Apartments)
Merchantville Senior Housing Apartments is a 74-unit apartment complex
for senior citizens which is to be constructed in Merchantville, New Jersey.
Merchantville Senior Housing Apartments will consist of 62 one-bedroom units and
12 two-bedroom units contained in 1 building. The complex will offer a community
room, recreation room and central laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning, wall-to-wall carpeting, cable television hook-up, an
emergency call system and a patio or porch.
<Page>
Construction of Merchantville Senior Housing Apartments is anticipated
to begin in January, 2002. The Operating General Partner anticipates that
construction completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
7 February, 2002 7 July, 2002
7 March, 2002 7 August, 2002
7 April, 2002 7 September, 2002
7 May, 2002 7 October, 2002
7 June, 2002 7 November, 2002
7 July, 2002 8 December, 2002
8 August, 2002 8 January, 2003
8 September, 2002 8 February, 2003
8 October, 2002 8 March, 2003
8 November, 2002 7 April, 2003
</Table>
THE PEMBROKE COMMONS PARTNERSHIP
(Pembroke Commons Apartments)
Pembroke Commons Apartments is a 120-unit apartment complex for
families which is to be constructed in Portland, Oregon. Pembroke Commons
Apartments will consist of 36 one-bedroom units, 42 two-bedroom units and 42
three-bedroom units contained in 8 buildings. The complex will offer central
laundry facilities.
Individual units will contain a refrigerator, range, dishwasher and air
conditioning.
Construction of Pembroke Commons Apartments is anticipated to begin in
February, 2002. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
12 March, 2002 12 August, 2002
12 April, 2002 12 September, 2002
12 May, 2002 12 October, 2002
12 June, 2002 12 November, 2002
12 July, 2002 12 December, 2002
12 August, 2002 12 January, 2003
12 September, 2002 12 February, 2003
12 October, 2002 12 March, 2003
12 November, 2002 12 April, 2003
12 December, 2002 12 May, 2003
</Table>
THE QUEBEC 172 PARTNERSHIP
(Quebec Apartments)
Quebec Apartments is an existing 172-unit apartment complex for
families which is to be rehabilitated. The Apartment Complex is located in
Arlington County, Virginia. Quebec Apartments will consist of 2 studio units, 78
one-bedroom units, 68 two-bedroom units and 24 three-bedroom units contained in
15 buildings. The complex will offer central laundry facilities.
Individual units will contain a refrigerator, range, wall-to-wall
carpeting and cable television hook-up.
<Page>
Rehabilitation of Quebec Apartments is anticipated to begin in
November, 2001. The Operating General Partner anticipates that completion of
rehabilitation and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
23 January, 2002 23 April, 2002
23 March, 2002 23 June, 2002
34 April, 2002 34 July, 2002
23 May, 2002 23 August, 2002
23 June, 2002 23 September, 2002
23 August, 2002 23 November, 2002
23 October, 2002 23 January, 2003
</Table>
THE ROXBURY COURT PARTNERSHIP
(Roxbury Court Apartments)
Roxbury Court Apartments is a 90-unit apartment complex for senior
citizens which is to be constructed on Smith Street in Clio, Michigan. Roxbury
Court Apartments will consist of 45 one-bedroom units and 45 two-bedroom units
contained in 1 building. The complex will offer a community room.
Individual units will contain a refrigerator, range, dishwasher,
washer/dryer hook-ups, disposal, air conditioning, wall-to-wall carpeting, cable
television hook-up and an emergency call system.
Construction of Roxbury Court Apartments is anticipated to begin in
November, 2001. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
36 January, 2002 36 January, 2003
6 February, 2002 6 February, 2003
6 March, 2002 6 March, 2003
6 April, 2002 6 April, 2003
6 May, 2002 6 May, 2003
6 June, 2002 6 June, 2003
6 July, 2002 6 July, 2003
6 August, 2002 6 August, 2003
6 September, 2002 6 September, 2003
6 October, 2002 6 October, 2003
</Table>
THE SPRING RIDGE SENIOR PARTNERSHIP
(Spring Ridge Senior Apartments)
Spring Ridge Senior Apartments is a 144-unit apartment complex for
senior citizens which is to be constructed in Frederick, Maryland. Spring Ridge
Senior Apartments will consist of 113 one-bedroom units and 31 two-bedroom units
contained in 1 building. The complex will offer a community room and central
laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
disposal, air conditioning, wall-to-wall carpeting, cable television hook-up, an
emergency call system and a patio or porch.
<Page>
Construction of Spring Ridge Senior Apartments is anticipated to begin
in November, 2001. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
9 February, 2002 12 January, 2003
15 March, 2002 12 February, 2003
15 April, 2002 12 March, 2003
15 May, 2002 12 April, 2003
15 June, 2002 12 May, 2003
15 July, 2002 12 June, 2003
15 August, 2002 12 July, 2003
15 September, 2002 12 August, 2003
15 October, 2002 12 September, 2003
15 November, 2002 12 October, 2003
12 November, 2003
12 December, 2003
</Table>
THE WESPARKE VILLAGE TWO PARTNERSHIP
(Wesparke Village Two Apartments)
Wesparke Village Two Apartments is a 53-unit apartment complex for
senior citizens which is to be constructed in Topeka, Kansas. Wesparke Village
Two Apartments will consist of 7 one-bedroom units and 46 two-bedroom units
contained in 6 buildings. The complex will offer a community room and central
laundry facilities.
Individual units will contain a refrigerator, range, dishwasher,
washer/dryer hook-ups, disposal, air conditioning and an emergency call system.
Construction of Wesparke Village Two Apartments is anticipated to begin
in December, 2001. The Operating General Partner anticipates that construction
completion and occupancy will occur as follows:
<Table>
<Caption>
NUMBER OF UNITS COMPLETION NUMBER OF UNITS RENT-UP
--------------- ---------- --------------- -------
13 February, 2002 13 July, 2002
13 March, 2002 13 August, 2002
14 April, 2002 14 September, 2002
13 May, 2002 13 October, 2002
</Table>
* * * * * * * *
<Page>
PROSPECTUS
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
SERIES 41 AND 42
BOSTON CAPITAL'S PURPOSE--
- - to invest in other limited partnerships that will each develop, own and
operate an apartment complex used as low and moderate income housing.
TERMS OF OFFERING--
- - Series 41 will be offered first and Series 42 will begin after Series 41 is
finished;
- - Each series will be offering at least 2,000,000 Beneficial Assignee
Certificates that are the equivalent of limited partnership interests in each
series;
- - the price of the certificates is $10 each with a minimum investment of
$5,000;
- - your money will be held in escrow until at least 250,000 certificates are
sold.
BOSTON CAPITAL'S INVESTORS WILL RECEIVE--
- - Federal housing tax credits;
- - tax losses that can offset passive income from any other investments;
- - profits, if any, from the sale of the apartment complexes.
RISK FACTORS AS TO BOSTON CAPITAL, WHICH BEGIN ON PAGE 30 OF THIS PROSPECTUS--
- - Tax credit rules can be complicated and the failure of apartment complexes to
comply with them can result in the loss of tax credits;
- - the use of tax credits is limited so the investor may not be able to use them
all;
- - tax credits may be the only material benefit from the investment;
- - when the apartment complexes are eventually sold, there may not be enough
money to return the original investment;
- - there are limits on the transferability of the certificates;
- - it is unlikely that there will be a market for the certificates.
<Table>
<Caption>
FEES AND
PROCEEDS EXPENSES
SELLING TO WORKING OF GENERAL
PUBLIC COMMISSIONS BOSTON APARTMENT CAPITAL PARTNER AND
PRICE AND FEES CAPITAL COMPLEXES RESERVES AFFILIATES
- --------------------------------------------------------------------------------------
Per Certificate $10.00 $0.90 $9.10 $7.20-7.30 $.40 $1.40-1.50
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[BOSTON CAPITAL LOGO] Services, Inc.
August 1, 2001
<Page>
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. Boston
Capital Tax Credit Fund IV L.P. is not a mutual fund or any other type of
investment company within the meaning of the Investment Company Act of 1940 and
is not subject to regulation thereunder.
Any investor or prospective investor may obtain, without charge, a copy of any
document included as an exhibit to the Registration Statement filed with the
Securities and Exchange Commission with respect to the securities offered hereby
upon written request to Boston Capital Tax Credit Fund IV L.P., c/o Boston
Capital Partners, Inc., One Boston Place, Suite 2100, Boston, Massachusetts
02108, Attention: Richard J. DeAgazio.
The use of forecasts in this offering is prohibited. Any representation to the
contrary and any prediction, written or oral, except as set forth in this
Prospectus, as to the amount or certainty of any present or future cash benefit
or tax consequence which may flow from an investment in Boston Capital is not
permitted.
For a period of ninety days after the date of this Prospectus, all dealers
effecting transactions in the registered securities, whether or not
participating in the distribution, may be required to deliver a prospectus. This
obligation is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
The investment described in this Prospectus has been registered with the
Internal Revenue Service (the "IRS") as a tax shelter pursuant to procedures set
forth in the Tax Reform Act of 1984. The IRS has given the fund registration tax
shelter identification number 93355000022. Investors must include it on their
tax returns for the period of time in which they are investors. Issuance of a
registration number does not indicate that this investment or the claimed tax
benefits have been reviewed, examined or approved by the IRS.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representation must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
state in which, or to any person to whom, it is unlawful to make such offer.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of Boston Capital since the respective dates at which information is
given herein, at the date hereof; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
2
<Page>
TABLE OF CONTENTS
PAGE
SUMMARY 8
ADDITIONAL SUMMARY INFORMATION FOR CORPORATE INVESTORS 20
SUITABILITY OF AN INVESTMENT IN CERTIFICATES 23
ESTIMATED USE OF PROCEEDS 28
RISK FACTORS 30
General Risks of Boston Capital's Investments 30
Investors will not be able to evaluate all of the
apartment complexes in which the series will invest 30
Sale of less than all certificates may result in fewer
investments for Boston Capital 30
Boston Associates may not be able to buy certificates to
fund start up costs of Boston Capital 30
Investors may not receive cash if apartment complexes are sold 31
A decrease in an individual investor's taxable income
will limit his benefit received from tax credits 31
Investors may not be able to liquidate their investment
promptly at a reasonable price 31
Investors are liable for a period of time for the amount
of their returned contributions to any Boston Capital creditors 31
Investors may have limited rights of action against Boston Associates 32
A series may be liable for the liabilities of other series 32
An independent underwriter will not make an
independent investigation of Boston Capital 32
The prohibition on mergers in the Fund Agreement may
limit the operational flexibility of Boston Capital 33
Third party lenders may be able to foreclose on an
operating partnership interest prior to the sale of
all of the Certificates 33
Real Estate Risks 34
If the expenses of apartment complexes are greater than
their income, Boston Capital may have to pay any operating shortfalls 34
Leveraged investments may increase the risk of loss
because of the debt payments 34
Operating general partners have limited financial resources and
if they fail to meet their obligations, Boston Capital may have
limited remedies against them 34
Government regulations regarding apartment complexes receiving
government assistance may limit the flexibility of those
complexes to rent to tenants or increase rents, thereby
restricting the economic benefit of Boston Capital 34
Tax Risks 35
IRS may challenge Boston Capital's tax positions which
could result in the loss or recapture of tax benefits 35
IRS may audit Boston Capital which might increase the
chance that investors' returns are audited 35
3
<Page>
PAGE
Apartment complexes must adhere to complex rules in
order to be eligible for tax credits 36
Under the tax code, investors are limited in what they can
deduct from passive activities so it is possible that
investors may not be able to use all of the tax benefits 36
The restrictions imposed by the alternative minimum tax
and business credit issues may limit the tax liability
that can be offset by tax credits 36
IRS may unfavorably change the allocation of credits and losses 37
Investors may realize taxable gain on sale or disposition of
certificates 37
Investors may have tax liability in excess of cash 37
FIDUCIARY RESPONSIBILITY OF BOSTON ASSOCIATES 37
CONFLICTS OF INTEREST 39
Inconsistent Interests 40
Common Management; Selection of Operating Partnership Interests 42
Public Limited Partnerships 42
Other Transactions with Boston Associates or Its Affiliates. 43
Expenses 43
Annual Report 44
Services 44
Miscellaneous 45
Employment of Professionals 45
COMPENSATION AND FEES 46
INVESTMENT OBJECTIVES AND ACQUISITION POLICIES 49
Investment Objectives 49
Acquisition Policies 52
Repurchase Events 56
Adjuster Provisions 56
Interim Third Party Loans 57
Loans to Operating Partnerships 57
Capital Contributions 58
Boston Capital's Limited Liability 60
The Operating General Partners 61
Regulatory Restrictions 62
Unused or Returned Funds 62
Preliminary Investments and Reserves 63
Borrowing Policies 64
Other Policies 64
INVESTMENT IN OPERATING PARTNERSHIPS 65
TAX CREDIT PROGRAMS 65
The Tax Credit 66
Summary of the Tax Credit Program 66
Qualified Apartment Complexes 69
Eligible Basis and Qualified Basis 71
Use of the Tax Credit 72
4
<Page>
PAGE
Credits Subject to State Allocation 74
Qualified Allocation Plans 74
State Housing Tax Credit Programs 75
Historic Tax Credit 76
GOVERNMENT ASSISTANCE PROGRAMS 77
Rural Housing Service ("RHS") Programs 77
USHUD Mortgage Loan Insurance Programs and Insurance
Subsidy Programs 78
USHUD Rental Assistance Programs 82
Rent Supplement Programs 84
Transfer of Physical Assets Procedure 85
Government National Mortgage Association/Federal
National Mortgage Association 85
State and Local Financing Programs 85
HOME Program 87
MANAGEMENT 89
The General Partner 89
Boston Capital Partners, Inc. and Its Affiliates 89
PRIOR PERFORMANCE OF BOSTON ASSOCIATES AND ITS AFFILIATES 94
Private Placements (with Similar Investment Objectives) 96
Public Offerings 96
DESCRIPTION OF CERTIFICATES 98
The Certificates 98
Transfers 99
SHARING ARRANGEMENTS: PROFITS, CREDITS, LOSSES, NET
CASH FLOW AND RESIDUALS 101
From Boston Capital to the Investors 101
From the Operating Partnerships to Boston Capital 103
Authority of the Boston Associates to Vary Allocations to
Preserve and Protect Partners' and Investors' Intent 104
Allocations of Profits, Credits and Losses and Cash
Distributions Pending Final Issuance of Certificates 104
FEDERAL INCOME TAX MATTERS 105
General Considerations 105
Brief Overview of Federal Income Tax Considerations 106
Opinions of Counsel 106
Classification as a Partnership 106
Investments in Operating Partnerships 107
Tax Treatment of Electing Large Partnerships 107
Limitations on Use of Credits and Losses 107
Allocation of Fund Income, Gain, Credits and Loss 109
Depreciation 110
Historic Tax Credit and Its Recapture 110
Tax Treatment of Certain Partnership Expenses 110
Sales or Disposition of Operating Partnership Property 110
5
<Page>
PAGE
Sales or Disposition of Certificates 111
Transferability--Termination of Boston Capital 111
Tax Rates and Capital Gains 111
Alternative Minimum Tax 111
Tax Returns and Tax Information 112
Tax Shelter Registration 112
Changes in Tax Law 112
Opinions of Counsel 112
Tax Rates 114
Classification as a Partnership 115
Classification of Investors as Partners for Tax Purposes 116
Fund Allocations and Distributions 117
Federal Housing Tax Credit 126
State Designation of Apartment Complexes 127
Historic Tax Credit 128
Passive Loss and Tax Credit Limitations 129
Individuals 130
Corporations 131
All Taxpayers 133
At-Risk Limitation on Credits and Losses 133
Purchase of Existing Apartment Complexes from Tax-Exempt or
Governmental Entities 134
Investment by Tax-Exempt Entities 136
Recapture of Tax Credits 137
Depreciation 139
Construction Period Expenditures 139
Fees Paid From Capital Contributions or Boston Capital
or Operating Partnership Cash Flow 140
Sale or Disposition of Certificates 142
Sale or Other Disposition of an Apartment Complex and
Interests in Operating Partnerships 143
Excess Investment Interest Limitation 144
Certain Tax Elections 145
IRS Audit Considerations 146
Limitations for Deductions Attributable to Activities Not
Engaged in for Profit 148
Overall Evaluation of Tax Benefits 149
Certain Other Tax Considerations 150
"Tax Shelter" Registration 152
Future Federal Income Tax Legislation and Regulations 153
State and Local Taxes 153
6
<Page>
PAGE
THE OFFERING 153
Selling Arrangements 157
Escrow Arrangements 159
SUMMARY OF PROVISIONS OF THE FUND AGREEMENT 159
Withdrawal of Boston Associates 160
Removal of Boston Associates 160
Liability of Partners and Investors to Third Parties 160
Withdrawal of Capital and Redemption of Investors' Interest 161
Management of Boston Capital 161
Mergers and Rollups 161
Voting Rights and Meetings 161
Amendments to the Fund Agreement 163
Dissolution and Liquidation 163
Tax Election 164
Tax Matters Partner Designation 164
Books and Records 164
Successor in Interest 164
Power of Attorney 165
Applicable Law 165
SALES LITERATURE 165
EXPERTS 165
INVESTOR REPORTS 165
LEGAL MATTERS 166
REGISTRATION STATEMENT 166
GLOSSARY 167
APPENDIX I--Reports of Independent Certified Public
Accountants, Financial
Statements and Tabular Information
Concerning Prior Limited Partnerships I-1
EXHIBIT A--Fund Agreement A-1
EXHIBIT B--Investor Form B-1
7
<Page>
SUMMARY
THIS SUMMARY OUTLINES THE MAIN POINTS OF THE OFFERING, BUT DOES NOT REPLACE A
FULL AND CAREFUL READING OF THIS PROSPECTUS, AND IS QUALIFIED BY THIS
PROSPECTUS. ALL PROSPECTIVE INVESTORS SHOULD READ THIS PROSPECTUS IN ITS
ENTIRETY.
Boston Capital Tax Credit Fund IV L.P. ("Boston Capital") is organized as a
limited partnership because that structure allows the pass through of tax
benefits. Each series of certificates issued by Boston Capital assigns
beneficial interests in the limited partner interests allocated to that series
to the purchaser of those certificates. Certificates of beneficial interests are
being issued instead of direct limited partner interests because dealing with
the transfer of the certificates is less cumbersome than dealing with the
transfer of direct limited partner interests. Each series of certificates issued
by Boston Capital is separate from the other series.
The structure of the investment in Boston Capital involves two tiers. In the
bottom tier is the operating partnership which will be the owner of an apartment
complex. Any tax credits, profits, losses or net cash produced by the operations
of, or sale or refinancing transactions with regard to, an apartment complex for
the operating partnership will be shared between Boston Capital and the general
partners of the operating partnership in percentages to be negotiated between
Boston Capital and each operating partnership. Boston Capital expects that it
will usually receive 99% of the tax credits, profits and losses available from
the operating partnership. Boston Capital will allocate 99% of the profits,
losses, tax credits it receives and 99% of the net cash flow it has available
from operations to the owners of the certificates and 1% of those items will go
to the general partner, Boston Capital Associates IV L.P. ("Boston Associates").
Net proceeds from sale or refinancing transactions will be split 95% to
investors and 5% to Boston Associates; however, if investors have not received a
return from cash distributions and tax credits equal to 10.5% per year on a
cumulative basis from the quarter in which they invested, Boston Associates' 5%
share will be sub#ordinated until investors have received enough to meet the
priority return.
8
<Page>
The following organization chart shows the basic structure of the investment
and the identity of the parties:
<Table>
INVESTORS
+ |
| 100% |
proceeds/ | |
tax benefits (3) | capital
| contributions
| |
CERTIFICATES |
| |
| |
capital capital | |
General contributions contributions | +
Partner ----------------------+ SERIES +-------------------- Assignor
Boston 41 + Limited Partner
Associates +---------------------- 42 --------------------+ BCTC IV Assignor
proceeds/ + |
tax benefits (2) | |
| |
proceeds/ | |
tax benefits (1) | |
limited partner
| |
| |
tax benefits (1) | |
| |
Operating +------------------- Operating
General Partners -------------------+ Partnership
capital contributions + |
| |
| |
| |
| |
| |
tax benefits | | cost of apartment complex
| |
| +
Apartment Complex
</Table>
(1) Split percentages to be negotiated.
(2) 1% of tax credits, profits, losses, net cash flow; 5% of net proceeds from
sale or refinancing transactions after the priority return.
(3) 99% of tax credits, profits, losses, net cash flow; 95% of net proceeds from
sale or refinancing transactions after receiving the priority return.
RISK FACTORS
Investors should be aware that an investment in Boston Capital entails risk. The
"Risk Factors" section of this Prospectus contains a detailed discussion of the
material risks.
General risks associated with Boston Capital's investments include:
- - The only benefit of this investment may be tax credits. Investors may not get
their capital back from the sale or refinancing of the apartment complexes.
In such instance, a material portion of the tax credits will represent a
return of the money originally invested in Boston Capital.
9
<Page>
- - Boston Capital will depend upon the ability, integrity and expertise of
Boston Associates, as general partner, in selecting the appropriate mix of
properties.
- - There is no trading market for certificates and there are no assurances that
any market will develop. Accordingly, investors may not be able to sell their
certificates promptly and should therefore consider certificates to be a
long-term investment.
- - Investors will not have the benefit of an independent underwriter's
investigation of Boston Capital because the lead underwriter is an affiliate
of Boston Associates.
Real Estate Risks:
- - If a lender forecloses on an apartment complex that has not timely paid its
mortgage, a significant portion of tax credits previously received will be
taken back.
Tax Risks:
- - The use of tax credits can be limited because of the complicated nature of
the tax credit rules in the Internal Revenue Code. Failure to comply with any
of these complicated rules by an apartment complex could cause the loss of
some of the tax credits.
- - Tax credits are generated over a ten-year period, but Boston Capital intends
to hold the apartment complexes for at least fifteen years. Although
investors are not required to hold their certificates for any particular
period of time, there is no assurance a market will develop and there are
restrictions on their transfer in the agreement of limited partnership.
- - There are significant continuing occupancy requirements that each apartment
complex must comply with for a fifteen-year period after the federal housing
tax credits are first taken. Failure to comply with these requirements could
result in the loss of some tax credits.
- - Tax credits cannot be used to offset alternative minimum tax.
THE OFFERING
Boston Capital is offering certificates in separate series on a best efforts
basis, which means that no specified amount of capital will be raised. Each
series of certificates will consist of at least 2,000,000 certificates
($20,000,000). Only one series will be offered at a time. Boston Associates and
the Dealer-Manager are responsible for deciding when one series stops and the
next one starts. Boston Capital will separately account for, and issue
information with respect to, each series. No series of certificates will be sold
unless at least 250,000 certificates are sold. Each series will invest in
separate pools of apartment complexes that qualify for tax credits. The
description of the apartment complexes which the current series expects to
invest in are described in the supplement delivered with this Prospectus. The
investment and tax risks for each series will be materially identical.
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Boston Capital will place initial monies raised in an escrow account until the
$2,500,000 minimum is achieved for each series. During that time, interest will
be earned at savings account rates. The interest will be paid to the investor
even if the minimum is not reached.
Boston Capital will use approximately $0.72 to $0.73 of each dollar raised for
investments in apartment complexes. About one-half of the balance will be used
to pay fees and expenses to Boston Associates or its affiliates. See "Estimated
Use of Proceeds" and "Compensation and Fees" in this Prospectus. The offering of
each series will not exceed twelve months.
SUITABILITY OF AN INVESTMENT IN CERTIFICATES
CONSIDERATIONS FOR CONSIDERATIONS FOR
INDIVIDUAL INVESTORS CORPORATE INVESTORS
- - individuals should invest in tax credits - tax credits cannot be used
only if they expect to have income taxes against the corporate
which the tax credits can offset. alternative minimum tax.
- - tax credits cannot be used against the - the general limitations on
alternative minimum tax. business tax credits apply.
- - tax credits cannot be used in IRA, Keogh - corporations generally have no
or other retirement plans. limits on the amount of tax
credits and passive losses they
- - non-resident aliens cannot use tax may use each year.
credits.
- closely held, personal service
- - married persons filing separately and and S Corporations are specially
living together in any year may not use limited in their use of tax
tax credits against taxes owed in that credits.
year on income derived from wages,
salaries, dividends or interest income.
See "Suitability of an Investment in Certificates" for a detailed explanation of
these limitations for each category of investor and a description of the minimum
net worth and income requirements that various states impose on investors.
ESTIMATED USE OF PROCEEDS
We will use the proceeds in the following way:
- - invest approximately $0.72 to $0.73 of each dollar we raise directly in
constructing or rehabilitating the apartment complexes;
- - hold $0.04 of each dollar in working capital reserves;
- - use the rest to pay fees and expenses to Boston Associates and others.
See "Estimated Use of Proceeds" for a detailed breakdown of Boston Capital's
estimate of the use of the capital it raises.
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FIDUCIARY RESPONSIBILITY OF BOSTON ASSOCIATES
Boston Associates will act as a fiduciary to Boston Capital. Boston Capital will
partially indemnify Boston Associates, and therefore may be required to pay some
of Boston Associates' business costs in connection with its operation of Boston
Capital that Boston Capital would not otherwise be required to pay. As described
under "Conflicts of Interest," Boston Associates will be permitted to engage in
some activities that potentially may involve a conflict of interest, such as
sponsoring other programs investing in apartment complexes that generate tax
credits without providing the benefits of those activities to Boston Capital
investors.
CONFLICTS OF INTEREST
The interests of investors may conflict with the interests of Boston Associates.
Its affiliates are committed to the management of many other limited
partnerships that have investments similar to those made by Boston Capital.
Boston Associates and its affiliates, including the Dealer-Manager, will receive
substantial fees, commissions, compensation and other income from transactions
with and by Boston Capital regardless of the success of your investment.
COMPENSATION AND FEES
Boston Associates will manage the business of Boston Capital, including the
investment and management of its assets, and will receive substantial
compensation and fees from Boston Capital and/or the apartment complexes in
connection with this offering. The section of this Prospectus entitled
"Compensation and Fees" specifies the compensation payable to Boston Associates
and its affiliates. The most significant items of compensation are as follows:
COMPENSATION WHO RECEIVES THE WHAT THE COMPENSATION
CATEGORY COMPENSATION EQUALS
Reimbursement for Boston Associates or - equal to all accountable
Accountable Expenses its affiliates expenses paid to third
parties.
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COMPENSATION WHO RECEIVES THE WHAT THE COMPENSATION
CATEGORY COMPENSATION EQUALS
Dealer-Manager Fee Boston Capital - equal to $0.20 per
Services, Inc. certificate sold.
- also may receive selling
commissions of up to
$0.70 per certificate
sold.
- also may receive
accountable and
non-accountable due
diligence expense
reimbursements of up to
$0.15 per certificate
sold.
Asset Acquisition Fee Boston Capital - equal to $0.85 per
Holdings Limited certificate sold.
Partnership
Annual Fund Management Boston Associates or - annually equal to 0.5% of
and Reporting Fees its affiliates the aggregate cost of the
apartment complexes,
which is the sum of
equity invested by Boston
Capital in the apartment
complex plus the amount
of mortgage debt on the
apartment complex;
- could be about $36,000
per year if $2,500,000 is
raised and $504,000 if
$35,000,000 is raised.
Share of Boston Capital Boston Associates - 1% of tax credits;
Distributions - 1% of any cash
distributions;
- 5% of net proceeds of the
sale of the apartment
complexes.
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INVESTMENT OBJECTIVES AND ACQUISITION POLICIES
Boston Capital's principal business is to invest, as a limited partner, in other
limited partnerships (the "Operating Partnerships"), each of which will develop,
own and operate an apartment complex which is expected to qualify for tax
credits in order to:
(1) GENERATE TAX CREDITS, WHICH CAN BE USED BY INVESTORS TO OFFSET FEDERAL
INCOME TAXES FROM ALL SOURCES. These tax credits include federal housing tax
credits, and a small number of historic tax credits in limited instances.
Occupancy requirements must be met for each apartment complex during the initial
fifteen-year period.
(2) PRESERVE AND PROTECT INVESTORS' CAPITAL. Boston Capital requires the
general partners of the Operating Partnerships to:
- - guarantee completion of the apartment complex;
- - fund any construction cost overruns;
- - pay operating shortfalls for a limited period;
- - guarantee a specific amount of tax credits.
(3) PROVIDE TAX BENEFITS IN THE FORM OF PASSIVE LOSSES. Individual investors
generally may deduct tax losses only to the extent of their income other than
wages, salaries, dividends and interest.
(4) DISTRIBUTE NET CASH, IF ANY, FROM THE SALE OR REFINANCING OF APARTMENT
COMPLEXES. Investors can get money back from the sale or refinancing of an
apartment complex equal to their original investment only if the net sales price
is large enough to pay fees and expenses paid in this offering, estimated to be
27% of your initial investment, plus all costs of the sale of the apartment
complexes.
To achieve these investment objectives, each series will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes, averaging approximately $0.95 to $1.00 per
certificate annually--9.5%-10% annual tax credit as a percentage of capital
invested--for the ten-year credit period and passive tax losses averaging
approximately $0.50 to $0.60 per certificate annually for the ten-year credit
period. If only the annual tax credit goal is met, it should result in an
approximate tax-free internal rate of return of 1.8%-3.9% even assuming none of
the apartment complexes invested in has any value in excess of indebtedness plus
sale expenses at the end of the fifteen-year federal housing tax credit
compliance period, and investors use for tax purposes the assumed loss of the
investor's entire capital contributions. There is no assurance that any
particular tax-free internal rate of return will be achieved.
The internal rate of return is the rate at which the present value of your
future tax benefits will be equal to the cost of your investment. In essence, it
illustrates your future tax credit benefit as return of principal and interest
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in today's dollars. The tax-free internal rate of return can exceed 1.8%-3.9% if
the value of the apartment complexes exceeds indebtedness plus sale expenses and
the investors receive distributions from those sale or refinancing transactions.
After consulting with the underwriter regarding tax-free returns currently
available to investors in other similar tax credit investments, Boston Capital
has selected as its investment objective a 9.5%-10% annual tax credit as a
percentage of capital invested. No additional tax credits will be available for
the remaining term of the fifteen-year federal housing tax credit compliance
period. This calculation assumes:
- - the applicability of current tax law;
- - each apartment complex is occupied with qualifying individuals throughout the
fifteen-year federal housing tax credit compliance period;
- - investors cannot use any passive tax losses generated by Boston Capital.
The attainment of Boston Capital's investment objectives will depend on many
factors, including the ability of Boston Associates to select suitable
investments on a timely basis, the timely completion and successful management
of such investments and future economic conditions in the United States.
Accordingly, there can be no assurance that Boston Capital will meet its
investment objectives.
BOSTON CAPITAL AND INVESTOR PROTECTIONS
Boston Capital will try to protect your investment in a number of ways. First,
each series will invest its capital in each apartment complex 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 Boston Capital 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, Boston Capital's permission will be required to make major decisions,
such as the decision to sell an apartment complex. Other specific protections
are as follows:
TAX CREDIT ADJUSTER. If the amount of tax credits achieved by an apartment
complex is less than expected, Boston Capital will decrease its capital
contribution to that apartment complex. Decreasing its capital contribution to
one apartment complex may increase its effective return and may allow Boston
Capital to buy other tax credits from another apartment complex.
CONSTRUCTION GUARANTEES. The operating general partner(s) will provide financial
assurances that construction of the apartment complex will be completed in a
timely manner and in accordance with all requirements necessary to obtain the
required certificates of occupancy. The cost of completing the construction may
be greater than the operating general partner's guarantee.
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OPERATING DEFICIT GUARANTEES. The operating general partner(s) may guarantee to
cover operating expenses arising from the operation of each apartment complex.
The amount of such operating deficit guarantees may, in some instances, be
limited to a specified term and/or dollar amount.
REPURCHASE OF OPERATING PARTNERSHIP INTEREST. The operating general partner(s)
must repay Boston Capital's capital contributions if the apartment complex fails
to: (1) receive the allocation of tax credits; (2) remain eligible for tax
credits during the period when capital contributions of Boston Capital are due
to the operating partnership; or (3) obtain permanent mortgage loan financing.
TAX CREDIT PROGRAMS
Section 42 of the tax code offers tax credits to encourage investments in
qualified apartment complexes for use by persons of low and moderate income. The
U.S. Bureau of Census estimates that in the year 2000, there was an unmet
national demand for five million units of affordable rental housing.
The tax code has prefunded federal house tax credits since 1987 and will make
available to eligible properties up to $4.2 billion in 2001 and $4.9 billion in
every year thereafter of federal housing tax credits. In 1993, Congress passed
permanent legislation that annually funds this ten-year tax credit allocation
for additional tax credit properties. The allocation of tax credits to a
particular building is for the full ten-year credit period and no
reauthorization of the tax credit program is required for any such existing
allocation of tax credits.
Investors in a partnership that owns an apartment complex are eligible to
receive, for a ten-year period, a credit against federal tax liability. A tax
credit is a dollar-for-dollar reduction in tax liability, while a tax deduction
is a subtraction from adjusted gross income. The laws and rules authorizing tax
credits defined:
- - the types of apartment complexes that qualify for the federal housing tax
credit;
- - the income attributes of tenants that must live in the apartment complex;
- - the rents the tenants may be charged and costs of construction or renovation
of the apartment complexes.
These rules are complicated and must be followed for investors to receive tax
credits, and are described in the section of this Prospectus entitled "Tax
Credit Programs."
Because tax credits do not reduce a taxpayer's basis, a taxpayer's gain upon the
sale or other disposition of certificates is not increased by the allowed tax
credits.
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The federal housing tax credit program requires that its rules be complied with
during the fifteen-year period after tax credits are first taken. To the extent
the tax credit rules are not adhered to during the fifteen-year period,
investors would have to repay a portion of the tax credits previously generated
by the non-complying dwelling units in the applicable apartment complex. See
"Tax Credit Programs--The Federal Housing Tax Credit."
Investors may use the increased cash flow from the use of tax credits to make
other investments such as dollar cost averaging into mutual funds, saving for
retirement or future college expenses, funding life insurance expenses or
simply diversifying a tax advantaged or conventional investment portfolio.
The tax credit benefit itself also may be used to offset the tax liability
arising from retirement plan withdrawals or used to reduce quarterly
estimated tax payments.
MANAGEMENT
Boston Capital maintains its principal office c/o Boston Capital Partners, Inc.,
One Boston Place, Suite 2100, Boston, Massachusetts 02108-4406, telephone (617)
624-8900.
The general partner of Boston Capital Tax Credit Fund IV L.P. is Boston Capital
Associates IV L.P. ("Boston Associates"), a Delaware limited partnership. The
general partner of Boston Associates is BCA Associates Limited Partnership, a
Massachusetts limited partnership whose sole general partner is C&M Management,
Inc., and whose two limited partners are Herbert F. Collins and John P. Manning
("Manning"). The business address of Boston Associates is the same as that of
Boston Capital.
Boston Associates has complete authority in the overall management and operation
of each series and will have responsibility for supervising Boston Capital's
selection, negotiation and investment in apartment complexes.
PRIOR PERFORMANCE OF BOSTON ASSOCIATES
AND ITS AFFILIATES
Affiliates of Boston Capital have raised approximately $2.5 billion in real
estate equity from approximately 74,500 investors in more than 360 investment
programs to acquire interests in approximately 2,200 properties containing
approximately 110,000 apartment units and 90 commercial buildings in 48 states
and territories, representing approximately $7.88 billion in original
development and acquisition costs.
The section of this Prospectus entitled "Prior Performance of Boston Associates
and Its Affiliates" contains a discussion of the prior real estate investment
programs in which Boston Associates' affiliates have been involved and it is not
intended as an assurance of future performance. The Prior Performance Tables
attached to this Prospectus following the Financial Statements contain tabular
and statistical data regarding the prior investment programs of Boston
Associates' affiliates that have invested in low-income and government-assisted
housing.
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DESCRIPTION OF CERTIFICATES
Investors will invest in certificates, representing assignments of units of the
beneficial interest of Boston Capital issued to BCTC IV Assignor Corp., a
Delaware corporation that is owned by Manning (the "Assignor Limited Partner").
The Assignor Limited Partner was formed for the purpose of serving in that
capacity for Boston Capital and will not engage in any other business. Investors
will be entitled to all the rights and economic benefits of a limited partner of
Boston Capital, including the rights to a percentage of Boston Capital's income,
gain, credits, losses, deductions and distributions. No investor will be
personally liable for the debts, liabilities, contracts or other obligations of
Boston Capital. See "Summary of Provisions of the Fund Agreement-Liability of
Partners and Investors to Third Parties." Investors will be bound by the terms
of the Fund Agreement of Limited Partnership. The Assignor Limited Partner
agrees that on any matter calling for a vote of the limited partners, it will
vote the assigned limited partnership interests only if and as directed by the
investors.
We anticipate the certificates to be transferable, subject to some restrictions.
No more than 50% of the certificates will be permitted to be transferred in any
twelve-month period. This prevents any potential recapture of tax credits upon
the transfer of certificates. See "Description of Certificates," "Risk
Factors--Certain Other Risks--Transferability" and "Federal Income Tax
Matters--Recapture of Tax Credits." We will identify each certificate as
representing a particular series.
SHARING ARRANGEMENTS: PROFITS, CREDITS, LOSSES
NET CASH FLOW AND RESIDUALS
Boston Capital will allocate or distribute, as applicable, to the investors:
- - 99% of its tax credits and tax losses from normal operations;
- - 99% of its cash generated after all expenses are paid, if any.
The remaining amount will go to Boston Associates provided that Boston
Associates' distribution of cash will be subordinated to the achievement of the
priority return to investors.
From Boston Capital to investors, if there is a sale or refinancing of an
apartment complex or the sale of Boston Capital's interest in an operating
partnership, Boston Capital will distribute 95% of the proceeds to the amount of
tax credits.the investors, and 5% of the proceeds to Boston Associates; provided
that Boston Associates' distribution will be subordinated to the achievement of
the priority return to investors.
FEDERAL INCOME TAX MATTERS
The section of this Prospectus entitled "Federal Income Tax Matters" contains a
more detailed discussion of the numerous federal income tax issues already
mentioned in this Summary. It is expected that each purchaser of a
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certificate (1) will be treated as a partner for federal income tax purposes;
and (2) will be entitled to its allocable share of the tax credits, profits
and losses from the respective series. It is also expected that federal
income tax will be imposed only at the partner level with regard to an
investment in Boston Capital avoiding the double taxation applicable to
corporations. The "Federal Income Tax Matters" section of this Prospectus
also contains the legal opinions of Nixon Peabody LLP as to all material
federal income tax matters with respect to an investment in Boston Capital.
See pages 112 through 114 of this Prospectus for a summarization of the
precise nature of the legal opinions being given with respect to these
matters.
SUMMARY OF PROVISIONS OF THE FUND AGREEMENT
The Fund Agreement that will govern the relationship between investors and
Boston Associates is a legal document, described in the section of this
Prospectus entitled "Summary of Provisions of the Fund Agreement." Other
important portions of the Fund Agreement are summarized under "Sharing
Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals" and
"Description of Certificates."
Investors should particularly be aware of the following terms of the Fund
Agreement:
- - VOTING RIGHTS. The Fund Agreement gives a majority of certificates the right
to:
(1) approve or disapprove the sale of all or substantially all of the assets
of a series at any one time;
(2) amend the Fund Agreement, subject to important limitations;
(3) remove Boston Associates with or without cause and elect a replacement;
(4) dissolve Boston Capital.
The majority vote of each series will still bind investors who do not vote with
the majority in interest of their fellow investors.
- - CHANGES IN THE RIGHTS OF INVESTORS.
The Fund Agreement may not be amended to:
(1) alter the rights and obligations of each investor under the Fund
Agreement;
(2) modify the order of distributions or allocations of tax credits or cash
distributions without the approval of any affected investor.
- - CHANGES IN INVESTMENT OBJECTIVES AND POLICIES. Boston Associates cannot change
the investment objectives or policies of a series unless the Fund Agreement is
amended by the approval of a majority in interest of the investors in that
series. If such an amendment is made, the majority vote
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will still bind investors who do not vote with the majority in interest of
their fellow investors.
- - MERGERS AND ROLLUPS. The Fund Agreement specifically prohibits the merger or
combination of Boston Capital with any other entity.
Under the Revised Uniform Limited Partnership Act as enacted in the State of
Delaware, a limited partner in a limited partnership is liable only for the
amount of the capital contributions that the limited partner agrees to make.
If a limited partner does not participate in the management of a partnership and
does not receive a distribution from the limited partnership or have knowledge
at the time of the distribution that the distribution was in violation of the
Revised Uniform Limited Partnership Act of the State of Delaware or the
applicable partnership agreement, he or she will have no additional financial
liability to the limited partnership or to creditors of the limited partnership.
All rights accorded limited partners in a limited partnership under the laws of
the State of Delaware extend to investors under the terms of the Fund Agreement.
INVESTOR REPORTS
Each investor will receive:
- - an acknowledgment of receipt of the investment;
- - a letter after the applicable Closing Date, confirming the assignment of
certificates;
- - quarterly reports with unaudited financial information for each of the first
three fiscal quarters of each year;
- - annual reports with audited financial statements;
- - Schedule K-1 and other necessary tax information.
EXPERTS
Counsel for Boston Capital is: Accountants for Boston Capital are:
Nixon Peabody LLP Reznick Fedder & Silverman
401 9th Street, N.W. 4520 East-West Highway
Washington, D.C. 20004 Bethesda, Maryland 20814
ADDITIONAL SUMMARY INFORMATION FOR
CORPORATE INVESTORS
An investment in Boston Capital may enable C Corporations to reduce current
taxes due, increase cash flow and increase net income for the purposes of
financial reporting.
If the cost method of accounting is available to an investor, the investment in
certificates would be carried as an asset on its balance sheet. The passive
losses would not be recorded for the purposes of financial reporting.
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USE OF LOSSES AND CREDITS
Generally, there are no special limitations on a corporation's ability to use
either tax credits or passive losses to reduce its taxes on all sources of
income, including active income, passive income and portfolio income, except for
specific rules applicable to the use of all business tax credits and except in
the case of closely held corporations and personal service corporations. Closely
held corporations may not use tax credits and passive losses to reduce taxes on
portfolio income, but may reduce taxes on active and passive income. Generally,
personal service corporations will be allowed to use tax credits and passive
losses to reduce taxes only on passive income. Because a corporation subject to
Subchapter S of the tax code is treated as a pass-through entity for federal
tax purposes, each shareholder is generally subject to the limitations on the
use of tax credits and passive losses which apply to individuals. See "Federal
Income Tax Matters--Passive Loss and Tax Credit Limitations" and "Suitability of
an Investment in Certificates."
In computing alternative minimum tax, losses and credits from passive activities
may be used only to offset income from passive activities of a taxpayer. See
"Federal Income Tax Matters--Other Tax Considerations--Alternative Minimum Tax."
INCOME STATEMENT AND BALANCE SHEET EXAMPLE
Assume a C Corporation makes an investment of $1,000,000 in a series and Boston
Capital allocates to the C Corporation $100,000 of tax credits and $60,000 of
losses. Further, assume that the cost method of accounting is available to the
corporation for its investment in the series. Such investment and allocations
would have a number of effects upon the income statement and the balance sheet
of the corporation. The following chart illustrates the expected principal
effects:
INCOME STATEMENT BALANCE SHEET
- - income tax liability can be reduced - current assets would increase by
by up to $100,000--$95,000 of credits $121,000 because of the increase in
plus 35% of the $60,000 of losses--if cash flow caused by the reduction
the corporation can fully use both in tax liability;
losses at a 35% marginal rate and
credits; - the $1,000,000 investment would
reduce current assets, but increase
long term investment by the same
amount;
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INCOME STATEMENT BALANCE SHEET
- - the use of tax credits does not create - under the cost method of
a deferred tax liability and, accounting, the investment is shown
consequently, does affect net income to at cost and is not reduced by
the extent that the tax credits are losses; therefore, the use of
used, thereby increasing earnings per losses does not affect net income
share; for financial reporting purposes;
- - the use of losses creates a deferred - the deferred income tax liability
tax liability and, consequently, does of $21,000 is recorded as a
not affect net income because the liability;
reduction in current tax liability is
exactly offset by deferred tax - depending upon the corporation's
liability. dividend policies, an increase in
net earnings could increase
retained earnings by $100,000--the
amount of tax credits.
Such an investment would likely have other effects on the income statement of a
corporation. For example, if the corporation were to liquidate short-term
investments such as certificates of deposit in order to generate funds to invest
in Boston Capital, the income from such investments would no longer be
available. While this would reduce the corporation's tax liability by the amount
of tax on the foregone income from such investments, it would also reduce net
income and earnings per share by the amount of foregone net after-tax income
from such investments.
The example above assumes that the corporation is not a closely held
corporation, a personal service corporation or a corporation subject to
Subchapter S of the tax code which would limit their use of losses and credits
from passive activities. Moreover, the above example assumes that the
corporation is not subject to the alternative minimum tax or the limitations on
the use of business tax credits, and that the corporation has sufficient tax
liability to use the full amount of the tax credits and losses from passive
activities.
The example above is presented for illustrative purposes only and should not be
deemed a projection or representation with respect to the amount, availability,
or timing of any benefit arising from an investment in certificates. The example
above is not intended to be a complete discussion of all of the possible income
tax effects or financial statement effects of the situation described. Each
potential corporate investor is strongly advised to consult its own tax advisor
regarding the effect of an investment in Boston Capital.
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CONSIDERATIONS FOR CORPORATE INVESTORS
<Table>
<Caption>
C-CORPORATIONS CLOSELY HELD PERSONAL SERVICE
CORPORATIONS CORPORATIONS
Definition - not subject to - more than 50% - principal activity is
Subchapter S of the owned, by value the performance of
tax code. directly or indirectly, personal services by
by five or fewer a corporation's
individuals, using employees/owners.
the rules of ownership
attribution, at any
time during the last
half of the relevant
taxable year.
Income offset by tax - income from all - active or passive - passive income.
credits and losses sources. income, excluding
portfolio income.
Time frame that you - ten to twelve years - ten to twelve years - ten to twelve years
must reasonably after your after your investment after your investment
expect to have investment in in certificates. in certificates.
appropriate income certificates.
to offset
</Table>
SUITABILITY OF AN INVESTMENT IN CERTIFICATES
ALL INVESTORS
The certificates being offered for sale through this Prospectus are suitable for
all investors who (1) reasonably expect to have a tax liability during the next
twelve years against which the tax credits can be used to offset their federal
income tax liability, regardless of income; and (2) have adequate financial
means to bear the lack of liquidity and the economic risks associated with
long-term investments in real estate. Boston Capital does not deem sales of
certificates completed until five business days after an investor has received
this Prospectus, during which you may receive a refund of your subscription.
The certificates may not be suitable for investors that must pay the alternative
minimum tax or are tax-exempt. Moreover, if the investor distributes its
certificates as a gift, the donor and the not the donee must satisfy all
applicable suitability requirements.
ALTERNATIVE MINIMUM TAX/TENTATIVE MINIMUM TAX
The tax code imposes an alternative minimum tax on all taxpayers, except certain
qualifying small corporations, to the extent that this tax exceeds their
regularly computed income tax liability. Generally, the alternative minimum tax
requires that taxpayers pay a percentage of income as taxes, regardless
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of the presence of certain items that the taxpayer would otherwise be able to
deduct. Tax credits cannot be used to offset this tax. Consequently, an
investment in certificates may not be a suitable investment for an investor
expecting to be subject to the alternative minimum tax or an investor that
expects the difference between his tax liability and the tentative minimum
tax to be minimal.
Regardless of whether or not a prospective investor is otherwise subject to the
alternative minimum tax, each prospective investor must determine what his
tentative minimum tax would be, in order to determine the maximum amount of tax
credits which you can use in any given year. The amount of tax credits which an
investor may use in any year may not exceed the difference between (1) your
income tax as computed under the normal formula for determining income tax
liability and (2) your tentative minimum tax as computed under the alternative
minimum tax formula.
For example, an investor, not otherwise subject to the alternative minimum tax,
with $15,000 in regular income tax liability and $10,000 in tentative minimum
tax liability, could use up to $5,000 in tax credits to offset his regular
income tax liability. Any additional tax credits allocated to such investor for
the applicable year which could not be utilized in that year, could be carried
back one year or forward twenty years, subject to limitations on carry-backs for
certain taxpayers. See the sections in this Prospectus entitled "Risk
Factors--Alternative Minimum Tax Could Reduce or Eliminate the Benefits of the
Investment" and "Federal Income Tax Matters--Certain Other
Considerations--Alternative Minimum Tax."
TAX-EXEMPT ENTITIES
It is unlikely that a tax-exempt entity would be able to use tax credits because
of its lack of income tax liability. However, if a tax-exempt entity has, and
expects to continue to have, unrelated business taxable income ("UBTI"), it
could use tax credits to offset the federal tax on such income. See "Federal
Income Tax Matters Investment by Tax-Exempt Entities."
CONSIDERATIONS FOR INDIVIDUAL AND
OTHER NON-CORPORATE INVESTORS
- - investors must have minimum annual gross income for the current year of
$45,000 and a net worth--excluding home, home furnishings and automobiles--of
not less than $45,000; or net worth--excluding home, home furnishings and
automobiles--of not less than $150,000.
- - if more than one investor purchases certificates together, each investor must
satisfy all applicable suitability requirements.
- - even an investor without passive income can use the investment in certificates
for ten to twelve years to reduce federal income taxes by up to $25,000 in any
tax year, but not in excess of the investor's federal income tax liability.
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- - married individuals filing separately may not use tax credits to offset taxes
on non-passive income unless they live apart for the entire year.
- - if married persons live apart for the entire year, each individual may use tax
credits to offset taxes on up to $12,500 of non-passive income for that year.
- - there are special rules governing an investor's ability to carry unused tax
credits and historic tax credits forward to future years. See "Federal Income
Tax Matters--Passive Loss and Tax Credit Limitations".
- - investors can fully use the historic tax credit only if the adjusted gross
income is not greater than $200,000 in that year; the use of the historic tax
credit is phased out when adjusted gross income is between $200,000 and
$250,000; and investors cannot use the historic tax credit at all if their
adjusted gross income is greater than $250,000.
CONSIDERATIONS FOR FOREIGN INVESTORS
- - definition: natural person and resident of the United States, but a citizen of
another country.
- - must have, and expect to have in the future, income subject to taxation by the
United States sufficient to use the expected tax credits to offset federal
income tax liability.
- - the tax code may require Boston Capital to withhold up to 30% of any
distributions.
- - the Foreign Investment in Real Property Tax Act may require Boston Capital to
withhold part of any distribution of proceeds from the sale of an apartment
complex or interest in an operating partnership otherwise due.
- - should consult a legal, tax and/or business advisor because your tax
consequences of an investment in certificates by foreign investors may differ
significantly from those described in this Prospectus.
25
<Page>
Various states have established suitability standards for investors that are in
addition to those established by Boston Capital and which must be met by
investors residing in any such state, as illustrated by the following chart:
<Table>
<Caption>
ADDITIONAL
MINIMUM
ADDITIONAL NET WORTH
MINIMUM (EXCLUSIVE OF
ANNUAL HOME, HOME
GROSS FURNISHINGS,
STATE INCOME AUTOMOBILES) OTHER
California $60,000, plus $60,000, or For investments by or on
Iowa behalf of a fiduciary
Washington no minimum, plus $175,000 account, the suitability
requirements must be met
by either the donor of
the funds for investment,
or the beneficiaries of
the fiduciary account (in
which case, the
beneficiaries' share of
the fiduciary account may
be included in
determining whether such
standards are met).
Maine $50,000, and $50,000, or Additional investments
not made at the time if
no minimum, plus $200,000 initial investment must
be for a minimum of
$5,000.
Nebraska none none Investors are allowed at
least five business days
after they receive this
Prospectus until the sale
of certificates is final;
they may not invest more
than ten percent (10%) of
net worth in any
series.
New Hampshire $50,000 $125,000, or
no minimum, plus $250,000
New Jersey $50,000, plus $60,000, or
no minimum, plus $150,000
Ohio none none Investors may not invest
more than ten percent
(10%) of liquid net
worth.
26
<Page>
Pennsylvania amount equal to or amount sufficient Investors must be in a
greater than ten to sustain the financial position to
times investor's risks described enable them to realize
dollar amount of in this to a significant
certificates Prospectus. extent the benefits
purchased. described in this
Prospectus.
Investments in
certificates must be
otherwise suitable for
each investor;
investor will not be
admitted to Boston
Capital until at least
$5,000,000 has been
raised.
South Dakota $60,000, plus $60,000; or
no minimum, plus $175,000
Tennessee none none Investors may withdraw
their subscriptions
within five business
days from receipt or
confirmation,
whichever is
later.
Texas $60,000, plus $60,000; or
no minimum, plus $175,000
</Table>
Investors in the following states must execute an investor form provided by the
Soliciting Dealer or Dealer-Manager on behalf of Boston Capital: Alabama,
Arizona, Arkansas, California, Iowa, Maine, Massachusetts, Michigan, Minnesota,
Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina,
Oklahoma, Oregon, South Dakota, Texas, Washington and Wisconsin.
27
<Page>
ESTIMATED USE OF PROCEEDS
The proceeds of the offering will provide all of the working capital, without
which each series will not be able to achieve its investment objectives. The
following table sets forth the estimated use of the sum of the proceeds of the
sale of certificates for each series. These figures represent Boston Capital's
present estimates; the actual figures may differ. We will use the proceeds in
the following way:
- - invest approximately $0.72 to $0.73 of each dollar we raise directly in
constructing or rehabilitating the apartment complexes;
- - hold $0.04 of each dollar in working capital reserves;
- - use the rest to pay fees and expenses to Boston Associates and others.
Boston Capital will hold all proceeds of the offering in trust for the benefit
of the investors to be used only for the purposes set forth below.
<Table>
<Caption>
DOLLAR DOLLAR
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
Gross Offering Proceeds
per series $2,500,000 100.0% $35,000,000 100.0%
========== ===== =========== =====
Less Public Offering
Expenses:
Selling Commissions (1) $175,000 7.0% $2,450,000 7.0%
Dealer-Manager Fee 50,000 2.0% 700,000 2.0%
Organization and
Offering Expenses (2) 112,500 4.5% 1,225,000 3.5%
Total Offering Expenses 337,500 13.5% 4,375,000 12.5%
---------- ----- ----------- -----
Amount Available after
Offering Expenses: $2,162,500 86.5% $30,625,000 87.5%
========== ===== =========== =====
Acquisition Expenses (3) 50,000 2.0% 700,000 2.0%
Asset Acquisition Fee (3) 212,500 8.5% 2,975,000 8.5%
Working Capital Reserve (4) 100,000 4.0% 1,400,000 4.0%
---------- ----- ----------- -----
Capital Contributions to
Operating Partnerships (5) $1,800,000 72.0% $25,550,000 73.0%
========== ===== =========== =====
</Table>
28
<Page>
- ---------------
(1) Selling Commissions of up to 7% payable to brokers, most of whom are not
affiliated with Boston Capital. See "The Offering--Selling Arrangements."
(2) Includes among others legal, accounting, escrow, printing, travel,
marketing, registration, qualification, distribution, filing and other
accountable expenses paid by the series directly, or in connection with the
organization of the series, the structuring of the series' investments and
the offering of certificates. Organization and offering expenses also
include an accountable expense reimbursement to Boston Capital in the
amount of up to 0.5% of total offering proceeds and a non-accountable
expense allowance to Boston Capital in the amount of up to 1.0% of total
offering proceeds to be paid to Boston Capital and its affiliates, as
described under the caption "The Offering--Selling Arrangements." If actual
organization and operating expenses exceed these estimates, they will still
be paid from the offering proceeds; provided, however, if the organization
and offering expenses and the selling commissions exceed 15% of the total
offering proceeds, the excess will be paid by Boston Associates and not the
series.
(3) Consists of legal and accounting fees and travel, communication and other
expenses to be paid to third parties and amounts to be paid to Boston
Associates for selecting, evaluating, negotiating and closing the series
investments in apartment complexes. Acquisition expenses do not include,
and Boston Capital will not incur, any expenses for mortgage origination
and real estate brokerage fees from the proceeds of the offering.
(4) Money in the working capital reserve will be available for contingencies
relating to the operation, management and administration of the apartment
complexes, operating partnerships and Boston Capital, including payment of
the annual Fund Management Fee, to the extent other funds are not so
available. In addition, funds held in the working capital reserve can be
used for option and/or other payments and interest expense incurred to
secure the acquisition of apartment complexes.
(5) At a minimum, the amount of offering proceeds which will be invested in
apartment complexes will be the greater of: (1) 82.5% of the total offering
proceeds reduced by 0.1625% for each 1% of financing encumbering the
apartment complexes, or (2) 69.5% of the total offering proceeds. It is
anticipated that each apartment complex will be leveraged with significant
mortgage debt.
29
<Page>
RISK FACTORS
Investing in certificates involves various risks. Therefore, prospective
investors should consider, in addition to the matters set forth elsewhere in
this Prospectus, the following risk factors before making a decision to purchase
certificates.
GENERAL RISKS OF BOSTON CAPITAL'S
INVESTMENTS
INVESTORS WILL NOT BE ABLE TO EVALUATE ALL OF THE APARTMENT COMPLEXES IN WHICH
THE SERIES WILL INVEST. Boston Associates has not yet identified all of the
apartment complexes in which the series will invest. Investors must rely on the
ability of Boston Associates to find suitable investments for Boston Capital.
Investors should read the sections "Management" and "Prior Performance of Boston
Associates and Its Affiliates" to learn about the prior real estate experience
of Boston Associates. All of Boston Capital's investments are required to meet
Boston Capital's investment objectives and acquisition policies, as described in
the section of this Prospectus entitled "Investment Objectives and Acquisition
Policies." Boston Capital does not guarantee that it will be able to find
investments meeting its investment objectives or that any investment it does
make will generate income for investors or increase in value over time.
SALE OF LESS THAN ALL CERTIFICATES MAY RESULT IN FEWER INVESTMENTS FOR BOSTON
CAPITAL. The more certificates that are sold, the more money Boston Capital will
have to invest in apartment complexes. If fewer than all of the certificates in
any series are sold, Boston Capital will invest in fewer apartment complexes.
The fewer the apartment complexes Boston Capital invests in, the less
diversified its portfolio of apartment complexes will be. Also if Boston Capital
invests in several apartment complexes in the same geographic area, there will
be less diversity. In such circumstances, apartment complexes which suffer poor
operating results can have a greater negative effect on Boston Capital's
operations as a whole. See "The Offering--Issuance of Certificates in Series."
BOSTON ASSOCIATES MAY NOT BE ABLE TO BUY CERTIFICATES TO FUND START UP COSTS OF
BOSTON CAPITAL. Boston Capital can borrow money in order to make investments in
apartment complexes before all of the money is raised from the offering. Any
such loan is to be repaid from the money that is raised from the offering. If
insufficient money is raised in the offering to repay such loans, Boston
Associates has agreed to buy enough certificates to provide Boston Capital with
money to repay such loan(s). If Boston Associates does buy certificates, they
will be purchased on the same terms as any other investor, except Boston
Associates will not pay commissions and fees that otherwise would go to it or
its affiliates. There is a possibility that Boston Associates will not have
enough money to meet these obligations.
30
<Page>
INVESTORS MAY NOT RECEIVE CASH IF APARTMENT COMPLEXES ARE SOLD. There is no
assurance that investors will receive any cash distributions from the sale or
refinancing of an apartment complex. The price at which an apartment complex is
sold may not be large enough to pay the mortgage and other expenses which must
be paid at such time. If that happens, investors will not get all of their
investment back, and the only benefit from an investment in Boston Capital will
be the tax credits received.
A DECREASE IN AN INDIVIDUAL INVESTOR'S TAXABLE LIABILITY MAY LIMIT HIS BENEFIT
RECEIVED FROM TAX CREDITS. A change in an individual investor's personal tax
situation which reduces his taxable income will substantially reduce, defer or
eliminate the benefits to him of the tax credits. If an investor's adjusted
gross income increases to more than $200,000 in a particular year, any allocated
historic tax credits also will be substantially reduced, deferred or eliminated.
INVESTORS MAY NOT BE ABLE TO LIQUIDATE THEIR INVESTMENT PROMPTLY AT A REASONABLE
PRICE. Although it is possible that the certificates in all series may be listed
on a national securities exchange, there is no guarantee that such a listing can
or will be accomplished or that a public trading market will develop. Currently,
no certificates have been listed on a national securities exchange. The transfer
of certificates will be limited in some cases. Investors should consider their
investment in Boston Capital to be a long-term investment. See "Description of
Certificates--Transfers" and "Federal Income Tax Matters--Classification as a
Partnership" and "--Fund Income."
Boston Associates can impose restrictions on the transfers of certificates in
order to prevent a termination of Boston Capital for tax purposes or prevent a
classification of Boston Capital as something other than a partnership for
federal income tax purposes. In addition, Boston Associates will not allow sales
of certificates to an investor who does not meet the then-applicable suitability
standards. See "Federal Income Tax Matters--Sale or Disposition of
Certificates."
INVESTORS ARE LIABLE FOR A PERIOD OF TIME FOR THE AMOUNT OF THEIR RETURNED
CONTRIBUTIONS TO ANY BOSTON CAPITAL CREDITORS. In general, limited partners are
not liable for partnership obligations unless they take an active part in the
day-to-day management or control of the partnership's business. The Delaware
Revised Uniform Limited Partnership Act presently allows the investors to
exercise all of their rights in the Fund Agreement without jeopardizing their
limited liability. All rights given limited partners under the laws of the State
of Delaware extend to investors under the terms of the Fund Agreement. Unless an
investor is deemed to be taking part in the control of Boston Capital's
business, his liability is limited to the amount invested in Boston Capital.
Under Delaware law, if an investor has received the return of any part of his
investment without violation of Delaware law or the Fund Agreement,
31
<Page>
the investor is liable for a period of one year for the amount of his returned
contribution which would be necessary to pay Boston Capital's creditors for
liabilities incurred during the period the contribution was held by Boston
Capital. However, if any of the money returned to an investor was returned in
violation of applicable Delaware law or the Fund Agreement, then the investor is
liable for a period of three years for the amount of the contribution wrongfully
returned.
INVESTORS MAY HAVE LIMITED RIGHTS OF ACTION AGAINST BOSTON ASSOCIATES. Under
Delaware law, Boston Associates is required to exercise good faith and integrity
in handling the affairs of Boston Capital. The Fund Agreement provides that
Boston Associates will not be liable to investors for its actions or omissions
made in good faith and in a manner it reasonably believes was allowed under the
Fund Agreement and in the best interest of Boston Capital. However, if Boston
Associates' conduct constitutes fraud, bad faith, negligence or misconduct, it
would be liable to investors. Therefore, investors may have more limited rights
of action against Boston Associates than would otherwise be available, absent
these provisions in the Fund Agreement.
A SERIES MAY BE LIABLE FOR THE LIABILITIES OF OTHER SERIES. Certificates are
issued in series, and the Fund Agreement provides that each series will be
treated for economic purposes as a separate partnership, sharing in a separate
and distinct pool of apartment complexes. The rights of investors in all series
will be identical in all other respects, except with respect to voting rights
and accounting matters applicable only to a particular series. See "The
Offering--Issuance of Certificates and Series."
It is possible, however, that each series may not stand on its own with respect
to outside creditors. In such an event, such creditors would be able to reach
all of the assets of Boston Capital, despite the fact that the matter affecting
the creditor related only to a particular series. Therefore, in the event that a
creditor makes a claim against the assets of Boston Capital and it can be
determined that such claim relates to one series only, Boston Associates will
assume liability for any such claim to the extent that the series does not have
sufficient funds to satisfy the claim. In the event there is a proper claim
against more than one series, if the proportional liability of a particular
series can be determined, such series will be liable only for such proportional
amount of the claim. Boston Capital intends to require that the various series
reimburse each other to the extent that expenses relating to a particular series
are borne by another series, but a series may be financially unable to do so.
There is a risk, therefore, that investors in a particular series will be
affected by the performance of another series. This could result in lower
returns on their investments than would otherwise be the case.
AN INDEPENDENT UNDERWRITER WILL NOT MAKE AN INDEPENDENT INVESTIGATION OF BOSTON
CAPITAL. The Dealer-Manager will receive commissions
32
<Page>
and other compensation as an agent of Boston Capital. The Dealer-Manager has not
retained counsel separate from Boston Capital's counsel, but has conducted such
due diligence investigation as it deems necessary under the circumstances.
However, because the Dealer-Manager is an affiliate of Boston Associates,
investors will not have the benefit of an independent investigation of Boston
Capital as is customarily made by independent underwriters.
THE PROHIBITION ON MERGERS IN THE FUND AGREEMENT MAY LIMIT THE OPERATIONAL
FLEXIBILITY OF BOSTON CAPITAL. Although at this time, Boston Associates has no
intent to effect a merger of Boston Capital with any other entity, the presence
of this prohibition in the Fund Agreement may make it more difficult to effect
any sort of change in control that would involve a merger in the future.
THIRD PARTY LENDERS MAY BE ABLE TO FORECLOSE ON AN OPERATING PARTNERSHIP
INTEREST PRIOR TO THE SALE OF ALL OF THE CERTIFICATES. To encourage the purchase
of operating partnership interests, Boston Capital intends to make initial
investments in operating partnerships or enter into commitments to make
investments in operating partnerships at any time, including without limitation,
any time prior to the commencement or completion of the sale of the Certificates
for a particular series. Such investments or commitments to make investments
would be made in anticipation of receiving offering proceeds. It is possible
that Boston Capital will not receive sufficient offering proceeds to meet the
obligations with respect to such investments or commitments. If Boston Capital
fails to satisfy its obligations with respect to investments or commitments, an
operating general partner could sue to require performance of such obligations.
As described in "Investment Objectives and Acquisition Policies--Third Party
Loans," Boston Capital has obtained a line of credit from a national bank to
acquire operating partnership interests prior to receipt of sufficient offering
proceeds to purchase such operating partnership interest. Boston Capital has
secured its obligations under this line of credit by giving a security interest
to the national bank in certain of the assets of a series which is acquiring the
operating partnership interest(s), including the operating partnership interest
acquired using the line of credit. If Boston Capital does not receive sufficient
proceeds to pay off any outstanding debt under the revolving line of credit or
otherwise defaults under the revolving line of credit, Boston Capital could lose
all or a significant portion of the operating partnership interest(s) which are
securing the revolving line of credit.
The revolving line of credit imposes certain restrictions on Boston Capital
which may limit the flexibility of Boston Capital. For example, Boston Capital
may not acquire operating partnership interests in a particular series without
providing the lender the opportunity to approve that transaction if the lender
has lent money to the series. The best interest of the lender as a
33
<Page>
creditor may not always be in complete agreement with the best interest of
investors and the acquisition disapproval power granted to the lender could
restrict Boston Capital from making investments which Boston Capital believes is
in the best interest of the investors.
REAL ESTATE RISKS
IF THE EXPENSES OF APARTMENT COMPLEXES ARE GREATER THAN THEIR INCOME, BOSTON
CAPITAL MAY HAVE TO PAY ANY OPERATING SHORTFALLS. If the expenses of an
apartment complex are greater than its income, Boston Capital may have to
provide money to pay the shortfall. Otherwise, the apartment complex may need to
be sold on disadvantageous terms in order to raise money. Also, if the apartment
complex does not generate enough income to pay its mortgage payments and
property taxes, the lender could foreclose and Boston Capital could lose its
investment, including a partial recapture of tax credits.
LEVERAGED INVESTMENTS MAY INCREASE THE RISK OF LOSS BECAUSE OF THE DEBT
PAYMENTS. Each of the apartment complexes will have mortgage debt which
leverages Boston Capital's investment in the apartment complex. Leveraging
allows Boston Capital to increase the amount of property that can be invested in
with the amount of money raised from the offering, and thus increase the amount
of tax credits available to Boston Capital. However, leveraging also can
increase the risk of loss. If there is a foreclosure of a mortgage loan on an
apartment complex, there can be a tax liability to investors including a partial
recapture of tax credits previously taken.
OPERATING GENERAL PARTNERS HAVE LIMITED FINANCIAL RESOURCES AND IF THEY FAIL TO
MEET THEIR OBLIGATIONS, BOSTON CAPITAL MAY HAVE LIMITED REMEDIES AGAINST THEM.
The operating general partner is responsible for completing the construction or
renovation and then renting and operating the apartment complex. If there are
cost overruns in the construction or renovation, or if rental income is not
enough to pay operating expenses, the operating general partner usually is
required to pay such shortfalls with its own money. In addition, the operating
general partners generally will be required to pay Boston Capital some amounts
if the amount of tax credits generated by the apartment complex falls below an
agreed upon level. See "Investment Objectives and Acquisition
Policies--Acquisition Policies." There is no guarantee that such operating
general partners will have enough money to meet their obligations. If any of the
operating general partners fail to meet their obligations to make these
payments, the remedies of Boston Capital may be limited to removing the
operating general partner as general partner of the operating partnership.
GOVERNMENT REGULATIONS REGARDING APARTMENT COMPLEXES RECEIVING GOVERNMENT
ASSISTANCE MAY LIMIT THE FLEXIBILITY OF THOSE COMPLEXES TO RENT TO TENANTS OR
INCREASE RENTS, THEREBY RESTRICTING THE ECONOMIC BENEFIT TO BOSTON CAPITAL. Some
of the apartment complexes may receive
34
<Page>
government assistance. Generally, rents in an apartment complex receiving
government assistance cannot be increased without the prior approval of the
applicable government agencies. If needed rent increases are not approved in a
timely manner, an apartment complex may have operating deficits.
Some government regulations may restrict the type of tenants that can rent
apartments in the apartment complex. This would reduce the pool of potential
renters available to rent apartments in the apartment complex. Other government
assistance programs provide rent supplement payments to tenants. These payments
are fixed in amount, unless Congress and/or the appropriate agency has approved
funding for an increase in the payments. If there are no increases in rent
supplement payments, the operating expenses of an apartment complex could
increase without a corresponding increase in rental income, ultimately leading
to a foreclosure on the apartment complex and the loss or recapture of tax
credits.
Apartment complexes that receive government assistance generally are subject to
restrictions on when and how they can be sold or refinanced. Due to these
restrictions, it may not be possible to sell or refinance an apartment complex
when it is in the economic interest of Boston Capital or investors to do so.
TAX RISKS
IRS MAY CHALLENGE BOSTON CAPITAL'S TAX POSITIONS WHICH COULD RESULT IN THE LOSS
OR RECAPTURE OF TAX BENEFITS. Boston Capital will not request any tax rulings
from the IRS. Thus, there is no certainty as to the tax consequences of
investing in Boston Capital. Nixon Peabody LLP, counsel to Boston Capital and
Boston Associates, provides its legal opinion with regard to many of the
material tax issues involved in investing in Boston Capital. However, Nixon
Peabody LLP's opinion does not cover some material tax issues because those
issues depend upon the specific investments made by Boston Capital which have
not yet been identified. Nixon Peabody LLP's opinion is not binding on the IRS
or on any court. It is possible that the IRS will challenge tax deductions and
tax credits Boston Capital claims. If such a challenge is successful, it will
have a material and adverse effect on the tax benefits expected from an
investment in Boston Capital. Each investor is urged to speak with his or her
own tax advisor with respect to the federal and state tax consequences from an
investment in Boston Capital.
IRS MAY AUDIT BOSTON CAPITAL WHICH MIGHT INCREASE THE CHANCE THAT INVESTORS'
RETURNS ARE AUDITED. The IRS may audit the income tax returns of Boston Capital
and the operating partnerships. In fact, the IRS has audited 31 limited
partnerships of a total of more than 3,450 such limited partnerships with which
affiliates of Boston Capital are associated. Twenty-five of these audits have
been settled with the IRS without material changes and six are still pending. If
the income tax returns of Boston Capital or an
35
<Page>
operating partnership are audited, the returns of investors also may be audited.
APARTMENT COMPLEXES MUST ADHERE TO COMPLEX RULES IN ORDER TO BE ELIGIBLE FOR TAX
CREDITS. In order for an investor to receive tax credits, the apartment
complexes must satisfy the complex rules for the federal housing tax credit and,
in some cases, the historic tax credit. The rules that determine whether an
apartment complex is eligible for tax credits and the rules regarding the use of
tax credits are complicated. The tax credits are generated during ten to twelve
years of an investment in each apartment complex. Therefore, investors must
reasonably expect to owe federal income taxes for each of the next twelve years
against which tax credits can be used. If an apartment complex is not built on
time, or fails to meet applicable income and rent restrictions, it will not
generate any tax credits. Typically, Boston Capital invests in an apartment
complex before construction has been completed and before the apartment complex
has been rented.
Even though tax credits are generated during a ten to twelve-year period, the
apartment complex must satisfy the applicable income and rent restrictions
during an initial fifteen-year compliance period. If an apartment complex fails
to satisfy the applicable income and rent restrictions at any time during the
initial fifteen-year tax credit compliance period, there will be a recapture of
a portion of the tax credits and a loss of tax credits for the year the failure
took place and for future years. In addition, if Boston Capital sells its
interest in an apartment complex during the initial fifteen-year compliance
period, a portion of tax credits previously received could be recaptured. Prior
to investing in any apartment complex, Boston Capital will require legal
opinions that state, based on specific assumptions, that investors will be
entitled to the tax benefits from the apartment complex owned by the operating
partnership. See "Investment Objectives and Acquisition Policies--Acquisition
Policies" and "Federal Income Tax Matters--Federal Housing Tax Credit" and
"--Historic Tax Credit."
UNDER THE TAX CODE, INVESTORS ARE LIMITED IN WHAT THEY CAN DEDUCT FROM PASSIVE
ACTIVITIES SO IT IS POSSIBLE THAT INVESTORS MAY NOT BE ABLE TO USE ALL OF THE
TAX BENEFITS. The tax credits and losses allocated to investors will be "passive
activity credits and losses" and may be deducted by investors only to the extent
of their income from other passive activities or tax on net passive income,
except in some limited circumstances. See "Federal Income Tax Matters--Passive
Loss and Tax Credit Limitations."
THE RESTRICTIONS IMPOSED BY THE ALTERNATIVE MINIMUM TAX AND BUSINESS TAX CREDIT
ISSUES MAY LIMIT THE TAX LIABILITY THAT CAN BE OFFSET BY TAX CREDITS. Tax
credits are subject to an IRS rule governing general business credits that
limits the amount of tax liability that may be offset. Also, neither federal
housing tax credits nor historic tax credits can be used to reduce any liability
for the alternative minimum tax.
36
<Page>
IRS MAY UNFAVORABLY CHANGE THE ALLOCATION OF CREDITS AND LOSSES. Boston Capital
will allocate ninety-nine percent of all of its profits, credits and losses. If
the IRS audits Boston Capital, it may try to reallocate profits, credits and
losses in a manner less favorable to the investors. In the opinion of Boston
Capital's attorneys, if the matter were litigated, it is more likely than not
that the allocations will be respected. See "Federal Income Tax
Matters--Allocation of Profits, Credits, Losses, and Other Items in Accordance
with Fund Agreements" and "Calculation of Investor's Basis in His Certificates
or Fund Interests" and "Sharing Arrangements: Profits, Credits, Losses, Net Cash
Flow and Residuals."
INVESTORS MAY REALIZE TAXABLE GAIN ON SALE OR DISPOSITION OF CERTIFICATES. Upon
the sale or other taxable disposition of certificates, investors will realize
taxable income to the extent that their allocable share of the nonrecourse
mortgage indebtedness on the apartment complexes, together with the money they
receive from the sale of the certificates, is greater than the original cost of
their certificates. This realized taxable income is reduced to the extent that
investors have suspended passive losses or credits. It is possible that the sale
of certificates may not generate enough cash to pay the tax obligations arising
from the sale. See "Federal Income Tax Matters--Depreciation," "--Sale of Fund
Interests" and "--Certain Other Tax Considerations--Alternative Minimum Tax."
INVESTORS MAY HAVE TAX LIABILITY IN EXCESS OF CASH. Investors eventually may be
allocated profits for tax purposes which exceed any cash Boston Capital
distributes to them. Under these circumstances, unless an investor has passive
losses or credits to reduce such tax liability, the investor will have to pay
federal income tax without a corresponding cash distribution from Boston
Capital. Similarly, in the event of a sale or foreclosure of an apartment
complex or a sale of certificates, an investor may be allocated taxable income,
resulting in tax liability, in excess of any cash distributed to him or her as a
result of such event. See "Federal Income Tax Matters--Sale or Disposition of
Certificates" and "--Sale or Other Disposition of an Apartment Complex and
Interests in Operating Partnerships."
FIDUCIARY RESPONSIBILITY OF
BOSTON ASSOCIATES
Boston Associates, as general partner, is accountable to the limited partnership
as a fiduciary and consequently must exercise good faith and integrity in
handling Boston Capital's affairs. A court in which any legal action against
Boston Associates is instituted will interpret what constitutes good faith and
integrity.
Where the question has arisen, courts have held that a limited partner may
institute legal action on behalf of himself and all other similarly situated
limited partners--a class action--to recover damages for a breach by a general
37
<Page>
partner of its fiduciary duty, or on behalf of the partnership--a partnership
derivative action--to recover damages from third parties.
The Fund Agreement provides that an investor may bring a derivative action on
behalf of a series to recover a judgment to the same extent as a limited partner
has such rights under the Delaware Revised Uniform Limited Partnership Act (the
"Act"). The Act provides for such rights although it requires that the person
bringing a derivative action be a limited partner of the partnership.
There is no specific Delaware judicial or statutory authority governing the
question of whether an assignee of a limited partner has the right to bring a
derivative action where a specific provision exists in the Fund Agreement
granting such rights. Furthermore, there is no express statutory authority for a
limited partner's class action in Delaware, and whether a class action may be
brought by investors to recover damages for breach of the general partner's
fiduciary duties in Delaware state courts is unclear. Accordingly, there is no
assurance that legal remedies will be available or affordable if fiduciary
duties are breached, although it is anticipated that the ability of the
investors to enforce their rights against Boston Associates will be
substantially the same as the rights of the limited partners.
Under applicable Delaware law, Boston Associates, as general partner, is
accountable to investors as a fiduciary and, consequently, is required to
exercise good faith and integrity in handling the affairs of the series.
However, the Fund Agreement provides that Boston Associates and some of its
affiliates shall not be liable, responsible, or accountable in damages or
otherwise to Boston Capital or to any of the investors for any act or omission
performed or omitted by Boston Associates or some of its affiliates in good
faith and in the best interest of Boston Capital, except for conduct
constituting fraud, bad faith, negligence, misconduct or breach of fiduciary
duty. Boston Capital also indemnifies Boston Associates and some of its
affiliates against and for loss, liability or damages--including all judgments,
costs and attorneys' fees and amounts expended in the settlement of any claims
of liability or damages--incurred by them in good faith and in a manner
reasonably believed by them to be in Boston Capital's best interests, in
connection with any act or omission in connection with the business of Boston
Capital, provided that the course of conduct which caused the loss or liability
is not attributable to fraud, bad faith, negligence, misconduct or breach of
fiduciary duty with respect to any such act or omission. Such indemnification is
recoverable only out of the assets of Boston Capital and not from investors.
Under the provisions of the Fund Agreement, investors may have a more restricted
right of action against Boston Associates and some of its affiliates than would
be the case absent these provisions.
The Fund Agreement provides that neither Boston Associates, nor its affiliates,
the Dealer-Manager nor Boston Capital shall be indemnified against such
liabilities arising under federal or state securities laws, rules or
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regulations, unless: (1) Boston Associates, or its affiliates, the
Dealer-Manager or Boston Capital are successful in defending such action, such
claim is dismissed or a court of competent jurisdiction approves a settlement of
such claim and (2) such indemnification is specifically approved by a court of
law which shall have been advised as to the current position of the Securities
and Exchange Commission and the securities department of Massachusetts and other
applicable state securities laws administrators regarding indemnification for
violations of securities law. Notwithstanding the foregoing, the Assignor
Limited Partner shall be indemnified only as long as it is an affiliate of
Boston Associates.
TO THE EXTENT THAT THE PROVISIONS OF THE FUND AGREEMENT INCLUDE INDEMNIFICATION
FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, SUCH INDEMNIFICATION
IS, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION AND CERTAIN STATE
SECURITIES DIVISIONS, CONTRARY TO PUBLIC POLICY AND THEREFORE UNENFORCEABLE. IN
ANY CLAIM FOR INDEMNIFICATION FOR FEDERAL OR STATE SECURITIES LAW VIOLATIONS,
THE PARTY SEEKING INDEMNIFICATION WILL PLACE BEFORE THE COURT THE POSITION OF
THE SECURITIES AND EXCHANGE COMMISSION AND CERTAIN STATE SECURITIES DIVISIONS
WITH RESPECT TO THE ISSUE OF INDEMNIFICATION FOR SECURITIES LAW VIOLATIONS.
Investors should also be aware that Boston Associates could have various
defenses available to it if the investors were to bring an action for breach of
its fiduciary duty. Such defenses could include technical defenses such as those
based on statutes of limitations. Also, Boston Associates could attempt to
establish that even though it made an error in judgment, it had, in good faith,
attempted to act in the best interest of Boston Capital. In other words, a mere
mistake in judgment may not constitute a breach of fiduciary duty.
The matter of the fiduciary responsibility of general partners is an evolving
area of the law and investors who have questions concerning the duties of Boston
Associates should consult with their legal counsel. Boston Capital will not
incur the cost of that portion of any insurance, other than public liability
insurance, which insures any party against any liability, the indemnification
for which is prohibited within this Prospectus.
CONFLICTS OF INTEREST
Boston Associates and the Dealer-Manager are affiliates. John P. Manning and
Richard J. DeAgazio equally own all the stock of BCS Group, Inc., the parent
company of the Dealer-Manager. Any transactions between Boston Capital and
Boston Associates and its affiliates will be entered into without the benefit of
arm's-length bargaining and will involve conflicts of interest.
Management and operation of Boston Capital will subject Boston Associates to
certain conflicts of interest. Some agreements and arrangements among Boston
Capital and Boston Associates and its affiliates have been established
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by Boston Associates and are not the result of arm's-length negotiations.
Although some provisions of the Fund Agreement are designed to mitigate such
conflicts of interest by limiting the authority of Boston Associates and its
ability to enter into transactions with Boston Capital, such conflicts cannot be
completely eliminated. See "Fiduciary Responsibility of Boston Associates" for a
discussion of Boston Associates' fiduciary duties to the investors, which, in
general, require Boston Associates to consider the best interests of investors
in managing Boston Capital.
In considering the risks and merits of an investment in Boston Capital,
prospective investors should carefully consider the following potential
conflicts of interest:
INCONSISTENT INTERESTS
Your interests may be inconsistent in some respects with Boston Associates'
interests. Also, Boston Capital's interests in the operating partnerships may be
inconsistent in some respects with the interests of the applicable operating
general partners.
These inconsistent interests arise due to: (1) Boston Associates' interest in
Boston Capital, (2) Boston Associates' receipt of fees from Boston Capital, and
in some cases, from one or more operating partnerships and (3) Boston
Associates' ongoing business relationships with some of the operating general
partners.
Conflicts of interest between Boston Associates and its affiliates also arise in
connection with their performance of activities, such as the decisions they can
make in the following circumstances without your prior consent:
- - withholding payments of capital contributions to the operating partnerships;
- - removing any of the operating general partners;
- - exercising the repurchase obligation of the operating general partners upon
the occurrence of a repurchase event.
Other transactions, such as terminating Boston Capital's business, selling
operating partnership interests, selling or refinancing an apartment complex, or
liquidating an operating partnership, may produce profits for Boston Associates
and/or its affiliates and/or the operating general partner(s) at a time when it
produces adverse tax or other consequences for you. Conversely, Boston Capital's
or an operating partnership's decision to continue business may be advantageous
to them at a time when termination may be advantageous to you.
Each Operating Partnership Agreement will restrict the right of the applicable
operating general partner(s) to sell or otherwise dispose of an apartment
complex and to refinance the permanent mortgage loan as to an apartment
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complex without the approval of Boston Associates. In general, Boston Associates
will consent to the sale or disposition of an apartment complex where such sale
or disposition is consistent with Boston Capital's investment policies. See
"Investment Objectives and Acquisition Policies--Acquisition Policies."
The operating general partners of some or all of the operating partnerships may
receive a Sales Preparation Fee upon the sale of the applicable apartment
complex for their services in preparing that apartment complex for sale. The
amount of the Sales Preparation Fee is expected to be 3% of the gross sale price
of the applicable apartment complex. It is not expected that any comparable fee
will be payable for any refinancing of the permanent mortgage loan for an
apartment complex. Therefore, the interest of the operating general partners to
arrange for the sale of an apartment complex--and thereby receive a Sales
Preparation Fee--may be in conflict with the interest of Boston Capital, and
therefore the investors, to receive benefits from a refinancing of the permanent
mortgage loan.
The inherent conflict caused by the affiliation of a builder of an apartment
complex and an operating general partner causes certain government agencies to
require that an independent architect review the work of each builder so
affiliated. Because many of the management agents are expected to be affiliated
with the operating general partners, a continuing conflict of interest will
exist because there may not be any independent review of their performance on
behalf of the operating partnership.
Each Operating Partnership Agreement should provide that if an apartment complex
is subject to substantial building code violations which are not cured within
six months after notice from the applicable governmental agency or department,
or if certain operational performance standards are not met, then, at Boston
Associates' request and subject to the applicable agency's approval, the
operating general partners must terminate the Management Agreement and appoint a
new management agent, which shall not be an affiliate of the operating general
partners.
Under the Fund Agreement and the Operating Partnership Agreements, Boston
Associates or the operating general partner(s), as applicable, are or will be
authorized to employ their respective affiliates to perform services for, or to
sell goods to, Boston Capital or the operating partnership, as applicable, thus,
potentially causing additional conflicts of interest.
The Fund Agreement, however, sets forth significant restrictions on the terms of
agreements for the provision of any goods and services to Boston Capital by
Boston Associates and its affiliates. Such restrictions generally require the
terms of transactions with affiliates to be no less favorable to Boston Capital
than the terms obtainable from nonaffiliated entities rendering similar services
as an ongoing activity in the same geographical location.
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As general partner of Boston Capital, Boston Associates must fulfill its
fiduciary duty to exercise good faith and integrity in handling all of Boston
Capital's affairs.
COMMON MANAGEMENT; SELECTION OF
OPERATING PARTNERSHIP INTERESTS
Boston Associates and its affiliates are committed to the continuing management
of numerous public and private limited partnerships which have invested or will
invest in limited partnerships that own apartment complexes similar to the
operating partnerships in which Boston Capital will invest. The operating
general partners also are committed to the continuing management of other
limited partnerships which are similar to the operating partnerships. Moreover,
operating general partners may be general partners of other partnerships that
may own apartment complexes located proximate to or in the same market area, and
compete with Boston Capital's apartment complexes.
PUBLIC LIMITED PARTNERSHIPS
If Boston Associates or any of its affiliates offer interests in public limited
partnerships with similar investment objectives as Boston Capital and which will
acquire operating partnership interests that would satisfy the same criteria and
standards of operating partnership interests to be acquired by Boston Capital,
Boston Associates and its affiliates will review the investment portfolio of
each partnership, including any series being offered by each such entity. To the
extent that they have selected and/or evaluated operating partnership interests,
they will in their sole determination decide which entity will acquire the
investment on the basis of various factors.
These factors include: (1) the amount of funds available and the length of time
the funds have been available for investment, (2) the cash requirements of each
entity and (3) the effect of the acquisition on each entity's portfolio. If
funds should be available to two or more public limited partnerships to acquire
a given investment and all factors have been evaluated and deemed equally
applicable to each entity, then Boston Associates and its affiliates will
acquire investments for the entities on a basis of priority determined by the
dates of formation of the entities, including any series being offered by each
partnership.
In the event that two or more of Boston Capital's series have funds available at
the same time for investment, and investment opportunities become available in
operating partnership interests, conflicts may arise as to which of Boston
Capital's series should invest in the investments involved. In that event,
Boston Associates and its affiliates will review the investment portfolio of any
such series in the same manner in which they evaluated the public limited
partnerships in the preceding paragraph. Boston Capital will not
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invest, with respect to any series of certificates, in any operating partnership
owned or controlled by any of its affiliates.
Boston Associates and its affiliates, will devote only as much of their time to
Boston Capital's business as in their judgment and experience is reasonably
required. Because Boston Associates' officers and employees are also officers
and/or employees of other affiliates of Boston Associates, they will have
conflicts of interest in allocating management time, services and functions
among Boston Capital and any present and future partnerships or other ventures
which are or may be organized by Boston Associates' affiliates. If necessary,
Boston Capital will hire its own employees to help carry out its business and
operations. Boston Associates and its affiliates will allocate their management
time, services and functions among the various operating partnership interests,
and if additional series of certificates are issued, among the several series of
certificates, as in their discretion best serves the interest of Boston Capital
and investors. For an indication of the number and size of partnerships which
are presently being managed by Boston Associates' affiliates, see "Prior
Performance of Boston Associates and Its Affiliates."
OTHER TRANSACTIONS WITH BOSTON ASSOCIATES
OR ITS AFFILIATES
Boston Associates and its affiliate(s) should provide services to Boston Capital
in connection with finding, analyzing, structuring and acquiring operating
partnership interests. Boston Associates and its affiliates, including the
Dealer-Manager, will receive substantial fees, commissions, compensation and
other income from transactions with Boston Capital as described in this
Prospectus and the Fund Agreement. See "Compensation and Fees."
EXPENSES
All of Boston Capital's expenses must be billed directly to and paid by the
respective series. Boston Associates and its affiliates may be reimbursed for
the actual costs of goods and materials used for or by Boston Capital; provided,
however, that unless Boston Associates or its affiliates purchase the goods or
materials on behalf of Boston Capital from an independent third party, the
reimbursement to Boston Associates or its affiliates therefor shall not exceed
the lesser of the cost of such goods and materials or 90% of the competitive
price which would be charged by non-affiliated persons. If Boston Associates or
its affiliates purchase goods or materials from an independent third party which
are used by Boston Capital, Boston Associates may be reimbursed at its cost as
set forth in Section 5.01(e) of the Fund Agreement.
No reimbursement shall be permitted for services for which Boston Associates or
its affiliates are entitled to compensation by way of a separate fee.
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Also excluded from the allowable reimbursement, except as permitted under
Section 5.01(e) of the Fund Agreement, shall be general overhead expenses in
connection with the ongoing administration of Boston Capital during its
operational phase, such as rent or depreciation, utilities, capital equipment,
other administrative expenses or salaries or fringe benefits incurred by or
allocated to any of their controlling persons, as defined in Section V.E.1. of
the NASAA Guidelines, which includes any of their officers, directors, senior
management personnel or persons owning 5% or more of the equity of Boston
Associates or any affiliate thereof, or persons having the power to cause the
direction of the Boston Associates or any of its affiliates.
ANNUAL REPORT
Boston Capital's annual report must contain a breakdown of any costs reimbursed
to Boston Associates and its affiliates. Boston Associates and its affiliates
shall cause its accountants to verify the allocation of such costs to Boston
Capital. The method of verification shall, at minimum, provide: (1) a review of
the time records of individual employees, the cost of whose services were
reimbursed and (2) a review of the specific nature of the work performed by each
of those employees. Accountants will itemize the additional costs of the
verification on a program-by-program basis. Boston Capital may reimburse Boston
Associates for these costs in accordance with this provision only to the extent
that such reimbursement, when added to the cost for administrative services
rendered, does not exceed the competitive rate for such services as determined
above.
SERVICES
Any services beyond those described under "Compensation and Fees" and in the
Fund Agreement that Boston Associates or its affiliates perform for Boston
Capital may be provided only under extraordinary circumstances and must meet the
following criteria:
- - the compensation, price or fee must be comparable and competitive with the
compensation, price or fee of any other person who is rendering comparable
services or selling or leasing comparable goods which could reasonably be made
available to Boston Capital and shall be on competitive terms; provided,
however, that the services will be provided at a price which does not exceed
the lesser of the cost of such services to Boston Associates or its affiliates
or 90% of the competitive price which would be charged by non-affiliated
persons rendering similar services in the same or comparable geographic
location;
- - the fees and other terms of the contract for services shall be disclosed in a
supplement to this Prospectus if the services are rendered during the offering
period or in the annual reports to be provided to investors pursuant to
Article IX of the Fund Agreement;
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- - Boston Associates or its affiliates must be previously engaged in the business
of rendering such services or selling or leasing such goods, independently of
Boston Capital and as an ordinary and ongoing business;
- - all services or goods for which Boston Associates or its affiliates are to
receive compensation shall be embodied in a written contract which precisely
describes the services to be rendered and all compensation to be paid. Each
contract must contain a clause allowing termination without penalty on sixty
days' notice. In addition, all such services must be necessary to the prudent
operation of Boston Capital.
MISCELLANEOUS
No rebates or give-ups may be received by Boston Associates or its affiliates,
nor may Boston Associates or its affiliates participate in any reciprocal
business arrangements that would circumvent the Fund Agreement. Furthermore,
reciprocal business arrangements that would circumvent the restrictions of the
Fund Agreement against dealing with affiliates are prohibited.
Boston Capital's monies may not be commingled with the funds of any other
person. Nothing contained in this provision, however, shall prohibit Boston
Associates from establishing a master fiduciary account pursuant to which
separate subtrust accounts are established for the benefit of affiliated
entities.
Boston Capital may invest in joint venture arrangements with another program
formed by Boston Associates or its affiliates if the conditions set forth under
"The Offering--Issuance of Certificates in Series" are met.
Boston Capital may obtain loans from Boston Associates or any affiliate of
Boston Associates, subject to the limitations as to interest rates set forth
under "Compensation and Fees," and as to borrowing policies under "Investment
Objectives and Acquisition Policies--Borrowing Policies." However, Boston
Associates may not borrow money from Boston Capital.
EMPLOYMENT OF PROFESSIONALS
Nixon Peabody LLP in Washington, D.C., is Counsel to Boston Capital, Boston
Associates and affiliates of the Boston Associates, the Assignor Limited
Partner, the Dealer-Manager and to other entities in which affiliates of Boston
Associates are general partners.
If any dispute should arise between Boston Capital and Boston Associates or any
affiliate of Boston Associates, depending on the nature of the dispute, Boston
Associates may cause Boston Capital to retain separate counsel for such matters
as and when appropriate.
Reznick Fedder & Silverman, of Bethesda, Maryland, are accountants and auditors
for Boston Capital, Boston Associates, the Assignor Limited Partner and for
other entities in which Boston Associates and/or its affiliates are general
partners.
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COMPENSATION AND FEES
The amounts and kinds of all of the compensation and fees to be paid to Boston
Associates and its affiliates, during the various phases of the organization,
operation and termination of Boston Capital are summarized below. None of the
fees to be paid to Boston Associates and its affiliates has been or will be
negotiated at arm's-length. No compensation that duplicates the fees to be paid
to Boston Associates and its affiliates will be paid to the operating general
partners or their affiliates in connection with organization and operation of
the operating partnerships. Compensation and/or fees in one category in excess
of the maximum amounts disclosed below may not be recovered by reclassifying
them under a different category. Boston Capital shall not pay, directly or
indirectly, a commission or fee to Boston Associates or its affiliates in
connection with the reinvestment or distribution of sale or refinancing proceeds
of the apartment complexes.
<Table>
<Caption>
COMPENSATION WHO RECEIVES THE WHAT THE COMPENSATION
CATEGORY COMPENSATION EQUALS
-------- ------------ ------
Reimbursement for Boston Associates and its - equal to all costs and expenses
Organization & Offering affiliates paid in connection with the
Expenses organization of Boston Capital
and offering of certificates,
including but not limited to
legal, accounting and investor
communications and computer
services, printing, travel,
distribution and filing.
- actual amount depends on the
number of certificates sold,
but is not expected to exceed
$1,225,000 if the maximum of
$35,000,000 of certificates
are sold in each series.
- if the Front End Fees,
including Organization and
Offering Expenses and Selling
Commissions, exceed the amount
allowed by Section IV.C.2 of
the NASAA Guidelines--up to 30.5%
of the Gross Offering Proceeds--
Boston Associates will pay the
excess.
- --------------------------------------------------------------------------------------------------
Selling Commissions Boston Capital Services, - equal to $0.70 per certificate
Inc. (7%) sold.
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Dealer-Manager Fee Boston Capital Services, - equal to $0.20 per certificate
Inc. (2%) sold.
- all or a portion of which may
be reallowed to Soliciting
Dealers.
- --------------------------------------------------------------------------------------------------
Reimbursement for Boston Capital Services, - equal to up to $0.05 per
Accountable Due Inc. certificate (0.5%).
Diligence Expenses - Dealer-Manager anticipates that
most of this reimbursement will
be reallowed to Soliciting
Dealers.
- --------------------------------------------------------------------------------------------------
Non-Accountable Expense Boston Associates - equal to up to $0.10 per
Allowance and its affiliates certificate (1%) sold.
- Dealer-Manager anticipates that
most of this reimbursement will
be reallowed to Soliciting
Dealers.
- --------------------------------------------------------------------------------------------------
Asset Acquisition Fee Boston Associates - equal to $0.85 per certificate
and its affiliates (8.5%) sold.*
- --------------------------------------------------------------------------------------------------
Reimbursement for Boston Capital Partners, - equal to all costs and
Investment Expenses Inc. expenses paid in connection
with the structuring and
making of Boston Capital's
investments, including the
reimbursement of any interest
expense incurred in obtaining
funds with which to make:
1. loans and/or option and/or
deposit payments to
operating partnerships prior
to Boston Capital's
acquisition of an interest.
2. investments in operating
partnerships prior to the
sale of the number of
certificates whose net
offering proceeds would
enable Boston Capital to
acquire interests.
- these reimbursements will not
exceed $15 million.
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Annual Fund Management Boston Associates or - annually equal to 0.5% of the
and Reporting Fees its affiliates aggregate cost of the apartment
complexes, which is the sum of
equity invested by Boston
Capital in the apartment complex
plus the amount of mortgage debt
on the apartment complex.
- could be about $383,250 per year
if $35,000,000 of certificates
are sold in each series.
- the annual Fund Management Fee will
be reduced by the amount of any
Reporting Fees paid to affiliates
of Boston Associates to the extent
the combined amounts of the Fund
Management Fee and the Reporting
Fees exceed 0.5% of the aggregate
cost of the applicable apartment
complexes on an annual basis.
- --------------------------------------------------------------------------------------------------
Management Fee Affiliates of Boston - equal to the lesser of:
Associates (1) 5% of the gross receipts of
any apartment complex with
respect to which property
management services are
provided by an affiliate of
Boston Associates;
(2) the competitive fees for
those services in the area.
- --------------------------------------------------------------------------------------------------
Loan Interest from Boston Boston Capital or - not to exceed the interest or
Associates or Affiliates Operating Partnership similar charges or fees of
unrelated lending institutions
for similar loans.
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Reimbursement of operating Boston Associates or - equal to the actual costs of
expenses of Boston Capital its Affiliates goods and materials used for
and/or the Operating or by Boston Capital and/or
Partnerships the operating partnerships
and obtained from entities
unaffiliated with Boston
Associates.
- also may include
administrative services
necessary to the prudent
operation of Boston Capital.
- may not include rent or
depreciation, utilities,
capital equipment, other
ongoing administrative
expenses or salaries or
fringe benefits.
- --------------------------------------------------------------------------------------------------
Share of Profits, Losses Boston Associates - 1% of tax credits and losses;
and Credits and of Net - 1% of any net cash flow
Cash Flow Distribution distributions (subordinated to
the achievement of priority
return);
- 5% of net proceeds of the sale
of the apartment complexes.
</Table>
- -------------
* Reduced to the extent that any acquisition fees, development fees or
consulting fees are paid to the Boston Affiliates or its affiliates by operating
partnerships or operating general partners.
INVESTMENT OBJECTIVES AND ACQUISITION POLICIES
INVESTMENT OBJECTIVES
Each series' principal business is to invest, as a limited partner, in other
limited partnerships (the "operating partnerships"), each of which will develop,
own and operate an apartment complex that is expected to qualify for federal
housing tax credits and/or historic tax credits and/or state housing tax
credits. These apartment complexes may be newly constructed or substantially
renovated. In addition, most of such apartment complexes are expected to be the
recipients of further government assistance through government direct grant or
loan, loan guarantee, mortgage insurance and/or subsidy programs.
Some of the operating partnerships in which Boston Capital intends to invest
have been identified and are described in the supplement accompanying this
Prospectus. Boston Capital will again supplement this Prospectus if and when
negotiations with respect to acquisition of an operating partnership interest
have progressed to an extent that there is a reasonable probability that Boston
Capital will acquire that particular operating partnership interest. Boston
Capital will supply these supplement(s) to all investors in the series of
certificates then being offered and to all prospective investors.
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Boston Capital has four objectives for its investments in operating
partnerships, in order of importance:
(1) GENERATE TAX CREDITS DURING THE FIRST TEN TO TWELVE YEARS OF AN INVESTMENT
IN EACH OPERATING PARTNERSHIP WHICH INVESTORS CAN USE TO OFFSET FEDERAL INCOME
TAXES FROM ALL SOURCES. These tax credits include federal housing tax credits,
and in limited circumstances a small amount of historic tax credits. Each
apartment complex must meet continuing occupancy requirements for the initial
fifteen-year period beginning once tax credits are first taken.
(2) PRESERVE AND PROTECT BOSTON CAPITAL'S CAPITAL. Boston Capital requires the
general partners of the operating partnerships to:
- - guarantee completion of the apartment complex;
- - fund any construction cost overruns;
- - pay operating shortfalls for a limited period;
- - guarantee a specific minimum amount of tax credits.
While these safeguards provide additional protection, there can be no assurance
that these measures will adequately protect investments in the respective
partnerships.
(3) PROVIDE TAX BENEFITS IN THE FORM OF PASSIVE LOSSES. Individual investors
generally may deduct any tax losses allocated to them only to the extent of your
income derived from passive activities, namely, income other than wages,
salaries, dividends and interest. See "Risk Factors--Tax Risks Associated with
the Partnership Investments."
(4) DISTRIBUTE NET CASH, IF ANY, FROM THE SALE OR REFINANCING OF APARTMENT
COMPLEXES. Under certain favorable market and regulatory conditions, Boston
Capital will distribute to investors part or all of their original investment
when some or all of the properties are sold or refinanced. You can get money
back from the sale or refinancing of an apartment complex equal to your original
investment only if the net sales price is large enough to pay fees and expenses
paid in this offering, estimated to be 27% of your initial investment, plus all
costs of the sale.
Generally, the sale of Boston Capital's interest in an operating partnership or
the sale by an operating partnership of its apartment complex will be subject to
various restrictions including, but not limited to, the necessity of obtaining
the approval of any governmental agency(ies) providing government assistance to
the apartment complex, obtaining the consent of the operating general partner(s)
and the furnishing of various legal opinions. These restrictions could lead to a
longer holding period for certain apartment complexes or a sale of apartment
complexes or operating partnership interests, as applicable, to purchasers
subject to certain government restrictions and/or conditions.
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Boston Capital will undertake to hold operating partnership interests for the
initial fifteen-year federal housing tax credit compliance period. Boston
Capital currently anticipates selling operating partnership interests, or the
underlying apartment complexes, as soon as practicable after that time,
consistent with the terms of the applicable Operating Partnership Agreements,
the Fund Agreement, applicable governmental restrictions and the best interests
of the investors. However, after the expiration of the ten-year period, an
interest in an operating partnership may be sold, or Boston Capital may agree to
the sale of the underlying apartment complex, in the sole discretion of Boston
Associates when it deems such action to be in the best interest of investors.
However, the continuing restrictions and compliance requirements of the federal
housing tax credit program, as well as the uncertainty of a market for buildings
such as the apartment complexes, may make it impossible for Boston Capital to
liquidate some of its investments until well after the fifteenth year, even
though tax credits are available only for a ten-year period as to each apartment
complex.
To achieve these investment objectives, each series will invest in apartment
complexes with a goal of generating tax credits, upon completion and occupancy
of all the apartment complexes, averaging approximately $0.95 to $1.00 per
certificate annually--9.5%-10% annual tax credit as a percentage of capital
invested--for the ten-year credit period and passive tax losses averaging
approximately $0.50 to $0.60 per certificate annually for the ten-yer credit
period. If only the annual tax credit goal is met, it should result in a
tax-free internal rate of return of 1.8%-3.9% even assuming none of the
apartment complexes invested in has any value in excess of indebtedness plus
sale expenses at the end of the fifteen-year federal housing tax credit
compliance period, and investors use for tax purposes the assumed loss of the
investor's entire capital contributions. There is no assurance that any
particular tax-free internal rate of return will be achieved.
The internal rate of return is the rate at which the present value of your
future tax benefits will be equal to the cost of your investment. In essence, it
illustrates your future tax credit benefit as return of principal and interest
in today's dollars. The tax-free internal rate of return can exceed 1.8%-3.9% if
the value of the apartment complexes exceeds indebtedness plus sale expenses and
the investors receive distributions from those sale or refinancing transactions.
After consulting with the underwriter regarding tax-free returns currently
available to investors in other similar tax credit investments, Boston Capital
has selected as its investment objective a 9.5%-10% annual tax credit as a
percentage of capital invested. No additional tax credits will be
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available for the remaining terms of the fifteen-year federal housing tax credit
compliance period. This calculation assumes:
- - the applicability of current tax law;
- - each complex is occupied with qualifying individuals throughout the
fifteen-year federal housing tax credit compliance period;
- - investors cannot use any passive tax losses generated by the series.
The attainment of these investment objectives will depend on many factors,
including the ability of Boston Associates to select suitable investments on a
timely basis, the timely completion and successful management of such
investments and future economic conditions in the United States. Accordingly,
there can be no assurance that any series will meet its investment objectives.
Boston Capital selected the investment objectives after consulting with the
Dealer-Manager regarding tax-free investments currently available to investors
in other similar tax credit investments. Tax credits will not be available for
an apartment complex until it has been placed in service and, with respect to
tax credits, until its apartment units are occupied by qualified tenants. No tax
credits will be available with respect to an apartment complex after the
ten-year credit period applicable to each apartment complex. See "Tax Credit
Programs--Use of the Tax Credit."
ACQUISITION POLICIES
Boston Capital will make investments in operating partnerships which Boston
Associates believes to be consistent with Boston Capital's investment
objectives. In the event that the applicable provisions of the tax code are not
interpreted in the way Boston Associates has interpreted such provisions, and as
are set forth in this Prospectus, or tax law changes occur which would
materially adversely affect the ability of Boston Capital to attain its
investment objectives by pursuing the acquisition policies described below,
Boston Associates will have the right to modify appropriately such acquisition
policies so as to afford Boston Capital a better opportunity to achieve its
investment objectives. If Boston Capital's acquisition policies were to
materially change after the final investment date, a material amendment to the
Fund Agreement would generally require your consent.
Each operating partnership must use the straight line method of depreciation
over a recovery period of 27.5 years, or forty years in the event Boston Capital
elects to do so, with respect to the applicable apartment complex; provided,
however, that with respect to any non-profit operating partnership, an amount
equal to the tax-exempt entity's proportionate share of the ownership of the
applicable apartment complex will be depreciated over forty years using the
straight line method, unless certain allocations are made.
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Boston Capital and/or its affiliates may arrange for Boston Capital to borrow
funds from lending institutions in order to acquire previously specified
investments in operating partnerships after the minimum offering of 250,000
certificates with respect to a particular series has been sold and before
sufficient additional net offering proceeds have been raised in a particular
series to make such an investment. Any such loans shall be repaid, with
interest, by Boston Capital from the net offering proceeds of the applicable
series. Any such reimbursement of interest expense will be made (1) only from
net offering proceeds allocated to the category of acquisition expenses as set
forth in "Estimated Use of Proceeds", and (2) only in accordance with the
applicable limitations on Front End Fees as provided in this Prospectus.
If the minimum offering with respect to the particular series of certificates is
sold and a sufficient number of certificates to provide Boston Capital with
sufficient funds to repay the loan(s) has not been sold prior to the termination
of the offering of the series of certificates, then Boston Associates and/or its
affiliates will purchase a sufficient number of certificates to provide Boston
Capital with funds to repay such loan(s). These certificates will be purchased
on the same terms and conditions as other investors except Boston Associates
will not pay selling commissions, the Dealer-Manager Fee, or other organization
and offering expenses otherwise payable to the Dealer-Manager from Boston
Capital.
In no event will the investment in any operating partnership interest acquired
by Boston Capital exceed 20% of the gross offering proceeds of such series,
based upon the maximum amount of certificates offered with respect to such
series, unless investors are informed of such proposed investment by: (1)
supplement to this Prospectus during the offering of such series, or (2) a
report sent to investors within forty-five days of the close of the quarter in
which the investment is made, if a reasonable probability that such investment
will be made does not occur until after the offering of such series has
concluded. In addition, Boston Capital will not invest in any operating
partnership whose operating general partner is an affiliate of Boston
Associates. The apartment complexes which are owned by the operating
partnerships to be invested in by Boston Capital can be located anywhere in the
United States, its territories or possessions. Boston Associates intends to seek
as much diversity as reasonably possible in terms of the locations and sizes of
the apartment complexes.
Boston Capital uses the following criteria to select particular operating
partnerships for its investment:
- - capability of the development group, including the history and performance of
the sponsor, general contractor, architect, managing agent and others
associated with development and operation of the apartment complex and their
respective relationships with the operating general partner(s);
- - the financial strength of the operating general partner(s);
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- - analysis of all data supplied by the operating general partner(s) to the
conventional lenders and/or applicable government agencies to obtain mortgage
loan commitments, with special attention to the cost of construction,
including provisions for assuring completion of construction of the apartment
complex, geographic distribution, proposed rents, and costs of property
operations;
- - general rental market conditions in the area of the proposed apartment
complex, including vacancy rates;
- - the operating expenses of comparable apartment complexes;
- - in the case of existing apartment complexes, the history and performance of
the apartment complex.
If Boston Capital proposes to invest in an operating partnership that owns or
expects to acquire and substantially renovate an older--ten or more
years--apartment complex, Boston Associates will investigate the condition of
the apartment complex and, if it determines that it is in the best interest of
Boston Capital to do so, will obtain an engineering report and/or an appraisal
pursuant to section V.L. of the NASAA Guidelines. Any appraisal obtained is only
an estimate of value and should not be relied on as a measure of realized value.
The appraised value of prospective apartment complexes will not be provided in
supplements to this Prospectus.
The size of the tax credit base and the percentage interest to be acquired by
Boston Capital in each operating partnership will be important factors in
determining the acquisition price for each operating partnership interest.
Boston Capital will generally attempt to acquire the following interests in each
operating partnership:
- - a 90%-99% interest in the profits, credits and losses;
- - a 15%-99% interest in the distributable cash flow of each operating
partnership;
- - the balance remaining with the operating general partner(s).
In addition, Boston Associates anticipates that the interest of a series in
liquidation, sale or refinancing proceeds of each operating partnership will be
between 15% and 95%, with the balance remaining with the operating general
partner(s).
In order to preserve and protect each series' interest in the profits, credits
and losses allocated, and the net cash flow distributed by the operating
partnerships, the Operating Partnership Agreement will contain provisions that
are intended to assure compliance with Section 704(b) of the tax code and the
regulations thereunder, and Counsel will advise Boston Associates that it is
more probable than not that, assuming that the capital account balances of the
partners of the operating partnership are not significantly adjusted by
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reason of capital contributions other than those provided for in provisions of
the Operating Partnership Agreement corresponding to Article IV of the Fund
Agreement, the distributive share of each partner of the operating partnership
of income, gain, credit, loss or deduction will be determined and allocated
substantially in accordance with the initial intent of the partners of the
operating partnership.
If construction or renovation of any apartment complex has not been completed as
of the date a series invests in the applicable operating partnership, Boston
Capital will obtain from the operating general partners assurances and financial
guarantees intended to reduce the risks inherent during the construction period.
The Operating Partnership Agreements will provide for construction completion
assurances from the operating general partners or their affiliates, whereby
completion will be substantially in accordance with the approved plans and
specifications, and all requirements necessary to obtain the required
certificates of occupancy for dwelling units will be met within an agreed-upon
period from the date of commencement of construction.
These assurances are expected to be secured by one or more of the following
mechanisms for the benefit of Boston Capital and the construction and/or
permanent mortgage lender, and acceptable to Boston Associates, including but
not limited to:
- - payment and performance bonds;
- - a letter of credit for all or some portion of the guarantee or assurance;
- - the establishment of a reserve of funds held by an independent escrow agent or
other party acceptable to Boston Associates;
- - the right of Boston Capital to withhold funds payable by Boston Capital to the
operating partnership or by the operating partnership to the operating general
partner or its affiliates, and to apply such funds to the completion of the
apartment complex.
The specific types of security backing the construction guarantees will be
negotiated with the operating partnerships prior to the execution of definitive
acquisition agreements and will depend on Boston Associates' determination as to
the relative financial strength of individual operating general partners and the
status of construction at the time of the signing of definitive acquisition
agreements. These security arrangements may not be sufficient to provide
security for one hundred percent of the operating general partner's obligations.
Boston Associates also will attempt to negotiate guarantees from the operating
general partners to cover debt service and operating expenses arising from the
operation of the applicable apartment complex. The amount of these operating
deficit guarantees may be limited to a specified term and/or dollar amount.
Throughout the offering period, this Prospectus will be supplemented to set
forth descriptions of any operating partnerships in which the respective series
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has invested or in which Boston Associates reasonably believes such series will
invest. The material terms of any operating deficit guarantee will be disclosed
in that supplement. Each operating partnership will arrange for comprehensive
casualty insurance coverage which is customary for property similar to the
applicable apartment complex.
If a particular series invests in operating partnerships with the same or
affiliated operating general partners representing an excess of 20% of the gross
offering proceeds of a particular series, financial data for operating general
partners giving construction and/or operating deficit guarantees will be
provided to investors in a supplement to this Prospectus.
REPURCHASE EVENTS
We anticipate that the operating general partner(s) of each operating
partnership will be obligated to repurchase the operating partnership interest
if the operating partnership:
- - fails to qualify for tax credits in the year that the applicable apartment
complex is placed in service;
- - fails to cause the applicable apartment complex to be placed in service or to
achieve certain occupancy levels by a date certain;
- - fails to achieve permanent mortgage loan closing by a date certain;
- - fails to continue to qualify for tax credits during the period when capital
contributions of Boston Capital are due to the operating partnership.
Additionally, we anticipate that if any applicable government agency
disapproves, or fails to give any required approval of, the admission of Boston
Capital within 180 days of the admission of Boston Capital to an operating
partnership, then, unless Boston Associates waives this requirement, the
applicable operating general partner(s) will be obligated to repurchase the
operating partnership interest of Boston Capital and to refund to it the
installments of capital contribution which have been paid.
ADJUSTER PROVISIONS
Each Operating Partnership Agreement is expected to contain adjuster provisions
which will operate to reduce the amount of capital contributions that a series
is obligated to make to an operating partnership in the event that, during the
first several years of a series' investment but generally not less than sixty
months (the "adjustment period"), the actual credit achieved by the operating
partnership is less than 90%-100% of the projected credit with respect to the
operating partnership. Any such reduction in, or return of, capital
contributions to Boston Capital as described above will be available for
reinvestment within the time period(s) allowed for investment described under
"Unused or Returned Funds" below in this section; thereafter, any such funds
will be returned to investors on a pro rata basis as a return of money
originally invested.
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We anticipate that the Operating Partnership Agreements will provide that, in
the event that any such shortfall in the projected credit occurs after the
adjustment period, Boston Capital will be treated as having made a constructive
advance to the operating partnership with respect to that year (a "credit
recovery loan") as to a certain percentage of the shortfall, plus the amount of
any recapture, interest or penalty payable as a result of the shortfall for that
year which will be repaid from liquidation, sale or refinancing proceeds with
respect to that operating partnership. The credit recovery loan will bear
interest at a rate to be negotiated.
It is anticipated that the above-described repurchase provisions, which are
anticipated to apply with respect to tax credits expected to be generated by
each operating partnership, will not be applicable, or will be limited, with
respect to historic tax credits expected to be generated by an operating
partnership, if applicable. See "Federal Income Tax Matters--Historic Tax
Credit."
INTERIM THIRD PARTY LOANS
Boston Capital and a national bank have entered into an agreement to give Boston
Capital a revolving line of credit which it can use to purchase operating
partnership interests before a series has received sufficient capital
contributions to purchase the operating partnership interest(s). Boston Capital
has agreed that: (i) it will not use the line of credit to purchase any
operating partnership interest without the national bank's prior approval; and
(ii) it will place the capital contributions received from the Investors in a
separate interest bearing account of Boston Capital pending the use of such
funds in Boston Capital's business. Boston Capital has secured its obligations
under this revolving line of credit by giving the national bank a security
interest in the following assets of the series which is acquiring the operating
partnership interest(s): (i) the operating partnership interests which were
acquired utilizing the line of credit; (ii) the capital contributions of the
investors for the series; and (iii) the reserves of the respective series. In
the event that there is a default under the revolving line of credit, the
national bank may exercise its rights with respect to its security interest or
convert the outstanding debt into a capital contribution to Boston Capital and
become an investor therein in the series.
LOANS TO OPERATING PARTNERSHIPS
In determining whether or not to acquire an interest in a particular operating
partnership, Boston Capital and/or Boston Associates and/or its affiliates may
make, or arrange for the making of loans, or option or deposit payments to one
or more operating partnerships and/or the applicable operating general
partner(s) prior to Boston Capital's acquisition of an interest(s). Boston
Capital and/or Boston Associates and/or its affiliate may also enter into
purchase contracts providing for a deposit.
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The loan(s) may be repaid, with or without interest, by the applicable
operating partnership from capital contributions made by Boston Capital to
the operating partnership after the acquisition by Boston Capital of an
interest therein. In some cases, the interest expense incurred by Boston
Associates and/or its affiliates, in obtaining the funds with which to make
such loan(s), may be reimbursed to the applicable entity by Boston Capital.
In any such case, any reimbursement of interest expense by Boston Capital
will be made only in the following circumstances:
- - after the acquisition by Boston Capital of an interest in the applicable
operating partnership, or in the event Boston Capital is unable or chooses not
to invest in the operating partnership to which funds were loaned, only after
such determination not to invest is made;
- - from net offering proceeds allocated to the category of Acquisition Expenses;
- - only in accordance with the applicable limitations on Front End Fees as set
forth in "Estimated Use of Proceeds."
Any interest charged by, or paid or reimbursed to, Boston Associates and/or
its affiliate(s) in connection with any loan(s) will not exceed the interest
cost to such entity(ies) in obtaining the funds with which to make such
loan(s). The amount paid for such an option, or the amount of such a contract
deposit, usually would not be returned if the investment were not made, and
normally would be credited against Boston Capital's agreed-upon capital
contributions to the applicable operating partnership if the investment were
made. Boston Capital also may incur other costs, such as inspections, market
studies, and appraisals, which cannot be recouped if Boston Capital
determines not to invest in the particular operating partnership under
consideration.
Consistent with Boston Capital's investment objectives, Boston Associates has
discretion to select operating partnerships which have structured the
financing of the applicable apartment complexes in any manner and from any
source that the applicable operating general partner(s) believe(s) is
feasible for the property, and that Boston Associates believes is both (1)
feasible for the particular property, and (2) beneficial for investors. The
financing may include, but is not limited to, tax-exempt bond financing,
balloon mortgages, variable interest rates, renegotiable interest rates,
deferral or principal payments and wraparound loans.
CAPITAL CONTRIBUTIONS
We anticipate making our capital contributions to each operating partnership
in approximately four installments, although we may pay the entire capital
contribution to an operating partnership in full upon our admission as a
limited partner of such operating partnership. To the extent that capital
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contributions to an operating partnership are made in multiple installments,
such installments are expected to be conditioned upon the occurrence of
specific events pertaining to qualifying for tax credits and/or to the
construction or operation of the apartment complex. We anticipate such events
to include:
- - allocation of tax credits;
- - occupancy of dwelling units;
- - issuance of certificates of occupancy;
- - construction loan closing;
- - admission of a series to the operating partnership as a limited partner;
- - substantial completion of construction or rehabilitation of the apartment
complex;
- - final closing or funding of the permanent mortgage loan;
- - operation of the apartment complex at a specified occupancy and/or at a net
income level for a specified period of time. The shorter the installment
period, the less opportunity we will have to condition our capital
contributions to an operating partnership and/or to currently reduce our
capital contributions to an operating partnership pursuant to the
above-described reduction provisions.
As a condition to Boston Capital's payment of the initial installment of
capital contribution to an operating partnership, Boston Capital is expected
to receive an opinion from counsel to the operating partnership which is
anticipated to state, among other things, that:
- - the interest of Boston Capital in the operating partnership is the interest of
a limited partner with no personal liability for the obligations of the
operating partnership;
- - the operating partnership has good and marketable legal title to the apartment
complex;
- - the operating partnership is duly formed under the laws of its state of origin
as a limited partnership.
The operating general partners are expected to make certain representations
and warranties to Boston Capital regarding, among other matters:
- - compliance with requirements of obtaining and retaining tax credits;
- - the status of the operating partnership as a limited partnership in good
standing;
- - the fact that there are no defaults existing or anticipated under any material
provisions of the project documents;
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- - the net worth of the operating general partners;
- - adherence to certain standards with regard to the construction, or
rehabilitation, development and operation of the apartment complex.
Boston Capital will also require the delivery of the opinion of Counsel that,
assuming qualification for, and continuing compliance with the requirements
of, tax credits, it is more likely than not that an investor will be entitled
to his share of Boston Capital's share of tax credits generated by the
apartment complex.
BOSTON CAPITAL'S LIMITED LIABILITY
Unless it is deemed, under applicable state law, that Boston Capital is
taking part in the management or control of an operating partnership's
business, Boston Capital will not have any liability for obligations of an
operating partnership beyond its agreed-upon capital contributions to the
operating partnership. Therefore, with the objective of limiting the
liability of Boston Capital in each operating partnership to the amount of
its capital contributions to the operating partnership, we anticipate that
each Operating Partnership Agreement will state that: (1) Boston Capital will
have no right to take part in the management or control of the business of
the operating partnership, or to transact any business in the name of the
operating partnership, and (2) Boston Capital will have certain rights under
the terms of the Operating Partnership Agreements, which are expected to
include:
- - the right to approve or disapprove any sale or refinancing of the applicable
apartment complex;
- - the right to replace the applicable operating general partner(s) on the basis
of the performance and discharge of the operating general partner(s)'
obligations;
- - the right to approve or disapprove the dissolution of the applicable operating
partnership;
- - the right to approve or disapprove amendments to the Operating Partnership
Agreement materially and adversely affecting Boston Capital's investment in
the operating partnership;
- - the right to direct the operating general partners to convene meetings and to
submit matters to a vote.
In addition, Boston Capital and investors are expected to have access to the
books and records of the operating partnerships and to receive annual and
quarterly reports.
BCTC 94, Inc., a Delaware corporation, and an affiliate of Boston Associates,
may be a special limited partner in some operating partnerships, with the
right to become a general partner under limited circumstances relating to
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the operating partnership's or the applicable operating general partner's
failure to perform its obligations under the applicable Operating Partnership
Agreement.
THE OPERATING GENERAL PARTNERS
Under the terms of an Operating Partnership Agreement, we anticipate that the
operating general partner(s) will be required to assume responsibility for:
- - the achievement of permanent mortgage loan funding as to the applicable
apartment complex, including the provision of all funds in excess of the
construction loan, the permanent mortgage loan and net interim income
necessary to close, and obtain funding of, the applicable permanent mortgage
loan;
- - the completion of the construction and development of the apartment complex
owned by such operating partnership, including the provision of all funds in
excess of proceeds of the construction loan and the permanent mortgage loan,
and other funds available therefor, necessary to pay all costs of such
construction or renovation, and thereafter;
- - the management and operation of the operating partnership, including the
oversight of the rent-up and operational stages of the apartment complex.
The Operating Partnership Agreement also is expected to provide for the
withdrawal of an operating general partner from the operating partnership
upon the election of the operating general partner, subject to certain
conditions. Upon such withdrawal, a substitute general partner, which may or
may not be an affiliate of the operating general partner, may replace the
withdrawing operating general partner.
In consideration for the operating general partner(s) performance of various
services to the operating partnership, including the numerous obligations set
forth above, the operating general partner(s) or their affiliates should
receive certain Development Fees, incentive Operating Partnership Management
Fees and, in certain cases, other such fees for services. In addition, for
their services to an operating partnership, the operating general partners or
their affiliates will receive a certain percentage of the cash flow from the
operations of the operating partnership and/or available proceeds resulting
from the sale or refinancing of an apartment complex or the liquidation of
the operating partnership, after payment of certain priority items. Further,
the operating general partner(s) or their affiliates may receive a real
estate brokerage commission and/or a Sales Preparation Fee in connection with
the disposition of an apartment complex by the operating partnership, which
shall be limited to a competitive real estate commission, in an amount not to
exceed 6% of the contract price for the sale of the apartment complex.
Neither Boston Associates nor its affiliates will receive any such real
estate brokerage commission or Sales Preparation Fee.
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We also anticipate that, as the operating general partners will have no
direct participation in Boston Capital or its affairs, including the
offering, Boston Capital and/or Boston Associates and/or its affiliates may
indemnify the operating general partners against liabilities arising from the
offering and/or Boston Capital's investment in an operating partnership,
other than liabilities arising from the operating general partners'
negligence.
REGULATORY RESTRICTIONS
Each of the operating partnerships will be restricted in the manner in which
it can operate the applicable apartment complex under the terms of the
permanent mortgage loan documents and a Regulatory Agreement with the
applicable state agency allocating tax credits and/or any regulatory agency
providing government assistance. See "Tax Credit Programs--The Federal
Housing Tax Credit" and "Government Assistance Programs."
UNUSED OR RETURNED FUNDS
Any portion of the capital contributions received from investors with respect
to an applicable series of certificates available for the acquisition of
operating partnership interests which has not been so used, or committed for
use, within twenty-four months from the date of commencement of such series
offering(s), subject to Boston Capital's authority to substitute operating
partnership interests for previously identified operating partnership
interests, shall be promptly returned to investors in that series. If
subsequent series of certificates are offered, the funds will be returned
only to the investors in that series in which the funds were raised.
The return of funds that were otherwise available for investment in operating
partnership interests will include the return of funds used for any selling
commission, but will not include interest on those funds, as any interest
will be distributed as part of a series' net cash flow. Funds shall be deemed
committed for use if they are included in the Working Capital Reserve or if
written agreements in principle, commitment letters, letters of intent or
understanding, option agreements or any similar contracts or understandings
with respect to operating partnership interests have been executed,
regardless of whether these acquisitions are consummated.
If, for any reason, including legislative changes in the tax laws,
acquisition of operating partnership interests would no longer provide tax
credits to the investors, any funds which have not been used for investment
in operating partnership interests and which have not been deposited into the
Working Capital Reserve will be promptly returned pro rata to investors, less
expenses of Boston Capital.
Any return of capital contributions previously made by Boston Capital to
operating partnerships during the first twenty-four months after the making
of such capital contributions, and any other funds which have been earned
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or returned to Boston Capital with respect to operating partnership interests
and any liquidation, sale or refinancing proceeds otherwise received within
thirty-six months from Boston Capital's acquisition of operating partnership
interests shall, in the discretion of Boston Associates, be invested in
additional operating partnership interests, placed in the Working Capital
Reserve or returned to the investors in proportion to their respective
capital accounts as a return of the investors' money originally invested;
provided however, that in no event shall Boston Associates make any
reinvestments in operating partnership interests later than thirty-six months
from the final investment date. Any funds, which are not so invested or
placed in the Working Capital Reserve within six months of the completion of
the construction period of all of the apartment complexes owned by the
operating partnerships, shall be returned to investors in proportion to their
respective capital accounts, as a return of the investor's money originally
invested; provided however, that a sufficient portion of these funds shall be
distributed to investors to cover their estimated income tax liabilities, if
any, arising out of the receipt of the funds.
PRELIMINARY INVESTMENTS AND RESERVES
Until investor funds are released by the Escrow Agent to Boston Capital, they
will be invested in short-term certificates of deposit or time or demand
deposits in commercial banks and in short-term government securities
certificated by the full faith and credit of the United States Government.
Thereafter, uninvested funds, otherwise available for investment in operating
partnership interests, will be invested in permitted temporary investments.
Permitted temporary investments are short-term, highly liquid investments,
including without limitation, money market funds which invest in investment
grade debt securities. Boston Capital will establish the Working Capital
Reserve from the proceeds of this offering in an amount currently anticipated
to be 4% of the gross offering proceeds; in no event will the Working Capital
Reserve initially be established in an amount less than 4% of the gross
offering proceeds. The reserves may be used to cure any problems arising from
the apartment complexes; in addition, most apartment complexes will have
their own additional reserve requirements.
Boston Capital may also use funds held in the Working Capital Reserve for
options, loans and/or other payments and interest expense incurred which may
be necessary to secure the acquisition of operating partnership interests. To
the extent that the reserves are not needed for said purposes, they will be
utilized to pay Boston Capital's expenses, including the annual Fund
Management Fee, to the extent other Boston Capital monies are not available.
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BORROWING POLICIES
Boston Capital will finance its investments entirely out of the net offering
proceeds. However, Boston Capital can incur indebtedness for:
- - the acquisition of operating partnership interests before sufficient net
offering proceeds have been raised as long as those loan(s) are repaid in
their entirety by Boston Capital from net offering proceeds;
- - the making of loans, option, deposit or other payments to one or more
operating partnerships and/or the applicable operating general partner(s)
necessary to secure the acquisition of operating partnership interests;
- - working capital purposes;
- - the prevention of default with respect to liens against the apartment
complexes, if any;
- - the discharge of such liens entirely or otherwise to protect Boston Capital's
investment in operating partnership interests.
Boston Capital may, but does not presently intend to, borrow from Boston
Associates or its affiliates. Any borrowing would be subject to the
limitations set forth under "Compensation and Fees."
OTHER POLICIES
- - Boston Capital will not issue senior securities; invest in other issuers for
the purpose of exercising control unless such investments meet the criteria
set forth in "Risk Factors--Joint Investment" or underwrite the securities of
other issuers or offer certificates in exchange for property.
- - Boston Capital and/or Boston Associates and/or its affiliates may agree to
make and/or guarantee certain interim loans which may be made to operating
general partners and/or the operating partnerships and/or prospective
operating partnerships not yet identified for possible investment by Boston
Capital, and/or the applicable operating general partner(s) ("development
loans"), and these development loans may be secured by payments of fees or
installments of capital contribution to be made to the operating general
partners or operating partnerships to the extent Boston Capital acquires an
operating partnership interest.
- - Boston Capital will not invest in operating partnership interests jointly with
other programs, except as described in "The Offering--Issuance of Certificates
in Series."
- - Boston Capital may not repurchase or otherwise reacquire certificates.
- - Boston Capital will distribute annually to investors certain reports providing
information as to each series of certificates, including audited financial
statements.
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- - Boston Capital may not sell, lease or lend its property to Boston Associates
or any affiliate of Boston Associates, or purchase or lease property from
Boston Associates or its affiliates, or acquire property from a program in
which Boston Associates or its affiliates have an interest.
- - Boston Capital will not invest in real estate mortgages; however, the
operating partnerships in which Boston Capital intends to invest will own
apartment complexes that are subject to mortgage indebtedness.
INVESTMENT IN OPERATING PARTNERSHIPS
Boston Capital anticipates acquiring interests in operating partnerships that
will develop, or renovate or own an interest in apartment complexes
generating tax credits. The operating partnerships, the apartment complexes
owned by the operating partnerships, and the terms of the acquisitions,
financing and management are not presently known.
At such time during negotiations for any operating partnership interest with
respect to any series, when, in the opinion of Boston Associates, a
reasonable probability exists that the investment under negotiation will be
made, this Prospectus will be supplemented to describe the proposed
investment and the anticipated terms of the investment.
Upon the termination of any series offering period, we will make no further
supplements to this Prospectus to investors in that series. Investors will
not have any right to vote on or otherwise approve or disapprove any
particular investment to be made by Boston Capital. Investors should not rely
upon the initial disclosure of any proposed investment as an assurance that
Boston Capital will ultimately consummate that proposed investment, or that
any information provided concerning a proposed investment, including its
agreed-upon terms, will not change between the date of such information and
actual investment. Any supplement to this Prospectus relating to the offering
of subsequent series of certificates will set forth any standards that will
be applicable to substitution for operating partnership interests described
therein, if any.
TAX CREDIT PROGRAMS
This section describes the federal housing tax credit program contained in
Section 42 of the tax code, as originally authorized by the Tax Reform Act of
1986 (the "1986 Tax Act"), and as modified by certain provisions of the
Technical and Miscellaneous Revenue Act of 1988 (the "1988 Tax Act"), the
Omnibus Budget Reconciliation Act of 1989 (the "1989 Tax Act"), the Omnibus
Budget Reconciliation Act of 1990 (the "1990 Tax Act"), the Omnibus Budget
Reconciliation Act of 1993 (the "1993 Tax Act") and the Economic Growth and
Tax Relief Reconciliation Act of 2001 (the "2001 Tax Act"). The changes to
the program occasioned by the 1989 Tax Act and the 1990 Tax Act generally are
effective only with respect to apartment com-
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plexes which receive allocations of tax credits after 1989 or 1990,
respectively. Such apartment complexes are hereinafter referred to as "New
Projects." Except as noted below, operating partnerships may use the tax
credit in conjunction with other government assistance programs that are
described in the section entitled "Government Assistance Programs."
THE TAX CREDIT
The 1986 Tax Act created a major government-assisted housing program with
respect to low income housing that is constructed, rehabilitated or acquired
after December 31, 1986, by providing a tax credit to investors in certain
low income housing projects. The tax code provided that the tax credit be
allocated by states, or in some cases local agencies, with a volume cap of
$1.25 annually per resident of the state for each year, but only the credit
arising in the first year of an apartment complex's credit allocation is
counted against this limit. Congress recently raised the volume cap to $1.50
per resident of the state in 2001 and $1.75 per resident of the state in
2002; thereafter, the volume cap will be indexed for inflation. In addition,
smaller states will be entitled to $2,000,000 of tax credits regardless of
the state's population as a minimum amount allocated annually. Once the tax
credit is allocated to a particular building, the building owner does not
need to reapply for the credit in later years, nor does the aggregate amount
of the credit allocated to such building for later years reduce the amount of
credits available for allocation to other apartment complexes in later years.
Properties financed with the proceeds of tax-exempt bonds fall outside of
this allocation restriction if 50% or more of the costs of the property are
so financed.
Unlike other federal housing programs that are administered by USHUD or the
Rural Housing Service of the U.S. Department of Agriculture (formerly known
as the Farmers Home Administration) ("RHS"), this program is administered by
the U.S. Department of the Treasury (the "Treasury Department"). As of the
date of this Prospectus, the Treasury Department has issued regulations
pertaining to a portion of the program; proposed regulations covering other
important programmatic aspects have not been published and it cannot be
predicted when such proposed regulations will be promulgated or what specific
subjects will be covered. Accordingly, the program description set forth
below is general and is based on the partial program regulations and
statutory text, as amplified by the legislative history published in
conjunction with the 1986 Tax Act, the 1988 Tax Act, the 1989 Tax Act, the
1990 Tax Act and the 1993 Tax Act.
SUMMARY OF THE TAX CREDIT PROGRAM
For a ten-year period known as the credit period, investors in a partnership
that owns an apartment complex providing low income housing units are eligible
to receive a credit against federal tax liability, i.e., a dollar-for-dollar
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reduction in that liability. The annual amount of this tax credit is
determined by multiplying the annual credit percentage (the "applicable
percentage") by the basis of that portion of an apartment complex which is
occupied by low-income tenants (the "Qualified Basis," discussed below under
"Eligible Basis and Qualified Basis").
The applicable percentage varies essentially according to two major factors:
(a) whether an apartment complex is newly constructed, which includes certain
substantially rehabilitated apartment complexes, or is an existing apartment
complex, and (b) whether or not an apartment complex is federally subsidized.
There are three basic tax credit categories:
(1) Non-federally subsidized new construction or substantial rehabilitation
apartment complexes receive a tax credit in an amount up to a present value
over ten years of 70% of the Qualified Basis of the apartment complex (the
"70% Credit"). The 70% figure is the applicable percentage expressed in
present value terms, assuming the credit is received over ten years. The
Treasury Department is required on a monthly interval to re-determine the
appropriate yearly percentage that will yield a 70% present value over ten
years, utilizing a prescribed discounting methodology based on the
applicable federal rate of interest in effect in that month. Once
established in the month an apartment complex is placed in service, the
applicable percentage will apply to the entire credit period. For apartment
complexes placed in service in July 2001, for example, the applicable
percentage is equal to 8.28%.
Substantial rehabilitation is defined in the tax code as capital expenditures
in connection with rehabilitation of a building, excluding the acquisition
costs aggregated over a period of up to twenty-four months of at least $3,000
per low income unit or 10% of the owner's basis in the apartment complex,
whichever is higher. The 70% Credit for substantial rehabilitation may be
utilized by an owner of an existing apartment complex without any transfer of
ownership, or it may be utilized by a new owner after a change of ownership.
The 1988 Tax Act permits the taxpayer to elect to use, in lieu of the
applicable percentage for the placed-in-service date, the applicable
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
credit agency. In addition, if the building is financed by the proceeds of
tax-exempt bonds, the taxpayer may elect to utilize the applicable percentage
in effect for the month the bonds were issued.
(2) Federally subsidized new construction or substantial rehabilitation
apartment complexes receive a tax credit in an amount up to a present value
over ten years of 30% of the Qualified Basis of the apartment complex (the
"30% Credit"). As with the 70% Credit, the Treasury Department is directed
to determine the appropriate percentage for apartment complexes placed in
service in order to yield a tax credit with a 30% present
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value; for example, for apartment complexes placed in service in July 2001,
the applicable percentage is 3.55%.
For purposes of the federal housing tax credit program, federal subsidies
include only financing received from the proceeds of tax-exempt bonds and
financing from direct or indirect federal loans with below market interest
rates--such as the RHS Permanent Mortgage Loans anticipated to be obtained
with respect to some of the apartment complexes--proceeds of which are or
were used directly or indirectly with respect to the apartment complex. In
some respects, the use of the term "federally subsidized" in Section 42 of
the tax code is narrower than its customary definition. For example,
subsidies under the USHUD Section 8 Program and Community Development Block
Grant funds are not considered federal subsidies for purposes of the tax
credit. See "Government Assistance Programs" for a discussion as to whether a
particular program is considered federally subsidized within the meaning of
the Tax Reform Act of 1986.
An owner has the option of excluding federally subsidized loans from basis in
calculating the credit amount and then using the 70% Credit against the
remaining basis.
(3) Existing apartment complexes are eligible to receive the 30% Credit upon
acquisition by new owners; provided however, that an owner also must
accomplish substantial rehabilitation in order to receive the 30%
acquisition credit. Existing apartment complexes are not eligible for the
30% Credit if the apartment complex was transferred, or if it underwent
certain rehabilitation work, during the prior ten years, although the
Treasury Secretary may waive this rule with respect to certain federally
assisted or federally financed properties in order to avert certain mortgage
assignments or claims against federal mortgage insurance funds or in certain
other instances of financial distress. The 1989 Tax Act broadened this
waiver authority to include properties purchased from failed thrift
institutions, their receivers or conservators, or in order to preserve low
income occupancy for certain federally assisted properties, effective upon
enactment of the 1989 Tax Act. The owner of such an apartment complex may
also utilize the 70% Credit with respect to the expenditures incurred to
perform the required substantial rehabilitation, if such expenditures are
not federally subsidized.
In addition to the three basic credit percentages, an owner may elect to make
more of an apartment complex eligible for the tax credit after the ten-year
credit period has already begun. The so-called "addition to Qualified Basis"
provides an additional credit equal to two-thirds of the applicable
percentage noted above, applied to the amount of such addition to Qualified
Basis; any such additional credits are to be claimed and such credits are
received over the remainder of the fifteen-year compliance period. Such
additional credits, under certain circumstances, are subject to the state
credit
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allocation described in "Tax Credit Programs--Credits Subject to State
Allocation," but are not subject to recapture.
QUALIFIED APARTMENT COMPLEXES
The tax credit is available only with respect to buildings in qualified
low-income housing apartment complexes. Qualified low-income housing
apartment complexes are generally residential rental properties in which (1)
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 (2) 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"). In each case, the units are rent-restricted.
This requirement, referred to as the Minimum Set-Aside, must be met in order
for any portion of the apartment complex to qualify for tax credits. All low
income units must be suitable for occupancy, must be used on a non-transient
basis, and must be offered to the general public. Once the Minimum Set-Aside
has been satisfied, all other low income units meeting the Minimum Set-Aside
will be taken into account in determining the Qualified Basis and hence, the
amount of tax credits that are available. See "Tax Credit Programs--Eligible
Basis and Qualified Basis."
Additionally, the gross rent paid by tenants of qualified low-income units
cannot exceed 30% of the applicable qualifying income for a family of its
size (the "Rent Restriction Test"). The Rent Restriction Test is based on the
number of bedrooms in a unit, with an assumed number of occupants for each
type of unit. Thus, as an example, all two bedroom units in a given apartment
complex will have the same rent, based upon the assumption that three people
occupy the unit, regardless of the actual number of residents.
Gross rent for this purpose includes the cost of any utilities, other than
telephone. The Internal Revenue Service has issued a Notice (No. 89-6)
stating that owners must generally follow USHUD, RHS or local housing
authority utility allowances, depending on the type of building involved, and
whether the tenant directly pays the cost of any utilities except telephone.
Rental assistance payments such as those under the USHUD Section 8, Rent
Supplement or Rental Assistance Payments Programs, described below in this
section, and similar state or local rental subsidy programs, are not included
in gross rent and thus an owner may receive a rental subsidy payment under
such a program in addition to the amount paid by the tenant.
The Internal Revenue Service has issued a Notice (No. 89-6) stating that the
cost of any services, such as meals or social services, that are paid by the
tenant on a mandatory basis, must be included in the gross rent. However, the
1989 Tax Act allows certain fees paid to owners by governmental agencies or
non-profit organizations for support services to tenants--which services
allow residents to live independently--to be excluded from gross rent with
respect to new projects.
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Pursuant to Section 42(g)(3) of the tax code, an apartment complex must, in
general, meet the requirements with respect to the 20-50 Set-Aside Test or
40-60 Set-Aside Test, as well as the Rent Restriction Test, not later than at
the end of the first year of the credit period. Special rules are provided in
the case of apartment complexes that consist of multiple buildings.
The taxpayer may elect whether it will meet the 20-50 Set-Aside Test or the
40-60 Set-Aside Test; but once made, the election is irrevocable. The
apartment complex must remain in compliance with the rules governing the
federal housing tax credit program for a period of fifteen years, commencing
with the beginning of the credit period, which is the first year the credit
is taken with respect to a building. Boston Capital intends to require the
operating general partners of each operating partnership in which it invests
to represent that either the 20-50 Set-Aside Test or the 40-60 Set-Aside Test
will be met by the end of the first year of the credit period.
For projects substantially rehabilitated, there is a separate fifteen-year
compliance period that commences in the year that the substantial
rehabilitation is completed. Thus, with respect to a building undergoing
substantial rehabilitation, the effective compliance period will be increased
by the time differential between acquisition and the completion of the
substantial rehabilitation. With respect to new projects, the credit period
for the 30% Credit for acquisition may not commence until the tax credit for
substantial rehabilitation is allowed.
The 1989 Tax Act provides for an extension of the compliance period for new
projects. Under this provision, the credit agency and owner must enter into
an agreement establishing an extended compliance period of at least thirty
years. The owner of a property, however, may, one year prior to the end of
the fifteen-year compliance period, request that the credit agency present a
contract to purchase the apartment complex or the low-income portion of the
apartment complex. The purchase price would be equal to the sum of (1) the
outstanding mortgage debt on the property, (2) the cash invested with respect
to the apartment complex, increased by a cost of living adjustment, not to
exceed 5% in any year, plus (3) other capital contributions, minus (4) cash
distributions from or available for distribution from, the apartment complex.
In the event that the apartment complex is not initially occupied entirely by
low income tenants, this provision relates only to the low-income portion of
the apartment complex. If the credit agency does present such a contract to
the owner, the apartment complex can be sold for that price, but the
apartment complex would continue to be subject to the restrictions of the
federal housing tax credit program for at least a total of thirty years,
including the initial fifteen-year compliance period. If no contract is
presented, then the owner may sell the apartment complex at any price
obtainable and without use restrictions or convert it to market rate use,
with the qualification that
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existing low income tenants may not be evicted--except for good cause--or
have their rents raised beyond amounts allowed under the Rent Restriction
Test for a three-year period after the initial fifteen-year compliance
period. Furthermore, the low-income restrictions would terminate upon a
foreclosure or deed-in-lieu of foreclosure.
ELIGIBLE BASIS AND QUALIFIED BASIS
The Qualified Basis of a building within a qualified low-income housing
apartment complex is defined generally as the portion of the Eligible Basis
in a qualified building attributable to low-income rental units. This
proportion is the lesser of (1) the proportion of occupied low-income units
to all residential rental units, whether or not occupied, or (2) the
proportion of floor space in the occupied low income units to the total floor
space of the residential rental units, whether or not occupied, in the
building.
In general, the Eligible Basis of a building within a low income housing
apartment complex is its adjusted basis. With respect to new construction,
Eligible Basis will be the cost of new construction determined as of the end
of the first year of the credit period, under an amendment contained in the
1989 Tax Act, effective retroactively to 1987. For substantial
rehabilitation, Eligible Basis would be comprised of rehabilitation costs
aggregated over a period not exceeding twenty-four months, which expenditures
meet the threshold levels described under "Summary of the Federal Housing Tax
Credit Program." No acquisition credit is allowable in the absence of
substantial rehabilitation.
Land costs may not be included in Eligible Basis. Because only the adjusted
basis of a building may be included in Eligible Basis, adjustments to basis
described under Section 1016 of the tax code, except for depreciation, must
be taken into account. For example, the reduction in basis equal to any
historic tax credit allowed with respect to an apartment complex would be
taken into account when computing Eligible Basis. In contrast, the tax credit
does not reduce a building's basis.
Further, for purposes of determining Qualified Basis, the Eligible Basis
includes not only the adjusted basis of the residential rental units, but
also the adjusted basis of facilities and certain personal property, such as
major appliances, for use by the tenants, as well as other facilities
reasonably required by the apartment complex.
The IRS has recently released a series of technical advice memoranda ("TAMs")
regarding the inclusion Eligible Basis of certain soft costs, including but
not limited to, construction period costs, impact fees, financing costs, land
preparation costs, development fees and bond costs. In general, the TAMs
provide that: (1) land preparation costs are includable in Eligible Basis
only to the extent that they are so closely associated with a depreciable
asset that they would have to be retired, abandoned or replaced
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contemporaneously with that depreciable asset, otherwise they are treated as
part of the cost of land, (2) deferred development fees may be included in
Eligible Basis under appropriate circumstances, the most important of which
is that the deferred amount is reasonably certain to be paid, (3) development
fees must be allocated among different assets and may not necessarily be
entirely includable in Eligible Basis, (4) impact fees create a separate
non-depreciable asset not included in Eligible Basis and (5) construction
period interest must be capitalized and allocated among produced property
which includes land, building and site improvements, a portion of which may
be included in Eligible Basis, although no part of bond issuance costs may be
so included. Such TAMs are applicable only to the taxpayer involved, and do
not necessarily reflect the state of the law and cannot be cited as legal
precedent, although they are generally considered to evidence the view of the
IRS on the issues addressed. The IRS may contest the ability to include
deferred development fees, payable from future capital contributions to the
operating partnership or from cash flow of the operating partnership. In
Eligible Basis because payment of such amounts may depend on the operating
performance of the apartment complex and therefore may be too contingent to
accrue. Deferred development fees may also result in a deferral of the
utilization of tax credits with respect to costs funded by such fees under
the at-risk rules applicable to closely-held C Corporations.
Residential rental property may qualify for the tax credit even though a
portion of the building in which the residential rental units are located is
available for commercial use. However, no portion of the cost of such
non-residential property may be included in the Eligible Basis. The Statement
of Managers of the 1986 Tax Act states the intention of Congress that the
costs of such mixed use facilities would be allocated according to a
reasonable method that properly reflects proportionate benefit to be derived
directly or indirectly by the non-residential rental property and the
residential units. The portion of the cost of apartment complexes owned by
operating partnerships allocable to commercial space, if any, may be
determined on a pro rata basis using a ratio of the square footage of
commercial space to the total square footage of the apartment complex.
Eligible Basis may not include in any taxable year the amount of any federal
grant, regardless of whether such grant is includable in gross income. A
federal grant--as opposed to a loan or a rental subsidy--includes any grant
funded in whole or in part by the federal government, to the extent funded
with federal funds. Grants which may not be included in Eligible Basis
include any Urban Development Action Grants, Rental Historic Grants and
Housing Development Action Grants.
USE OF THE TAX CREDIT
Taxpayers who own an interest in a qualified low-income apartment complex over a
ten-year period can claim tax credits. In the first year the tax
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credit is claimed, the allowable tax credit amount is determined using an
averaging convention to reflect the number of months that units comprising
the Qualified Basis were occupied by low-income individuals during the year
and is reduced to reflect the period of time during the first year that the
operating partnership owned the building(s) in question.
For example, if half of the low-income units included in Qualified Basis were
first occupied in October and the remaining half were first occupied in
December, the allowable tax credit in the first year would reflect that these
units were occupied on average only two months or one-sixth of the year for a
calendar year owner. As another example, if an operating partnership
purchased a fully occupied building on July 1 and the building remained fully
occupied throughout that first year, the allowable tax credit to the
applicable operating partnership in that first year would be equal to
one-half of the total tax credit for which the building would be eligible for
that year.
To the extent that there is such a reduction of the tax credit amount in the
first year, an additional tax credit in the amount of that reduction is
available in the eleventh taxable year. Furthermore, a partner's allocable
share of tax credit in the year in which that partner is admitted or a year
in which the partner disposes of his interest will be determined under
general partnership allocation rules, according to the legislative history
accompanying the 1986 Tax Act. Thus, the amount of tax credit available to an
investor will be affected not only by the first year averaging convention
described in this paragraph, but also by the period of time an investor holds
an interest in Boston Capital during any particular year in the credit
period. See "Federal Income Tax Matters--Allocation of Profits, Credits and
Losses to Investor in Year of Purchase of Certificates" and "--Allocation of
Profits, Credits and Losses Upon Sale of Certificates."
In order to use the tax credit fully, a taxpayer who is an individual, an S
Corporation or a closely held corporation other than a leasing company must
be at risk with respect to his investment in such low-income housing.
Generally, the qualified basis of any low-income housing apartment complex is
reduced for at-risk purposes by the amount of any non-qualified nonrecourse
financing with respect to that property. Such a reduction would reduce a
partner's qualified investment in a low-income apartment complex and
therefore, directly reduce such partner's share of any tax credit.
Qualified commercial financing is not considered non-qualified nonrecourse
financing, and therefore a taxpayer will be considered to be at-risk for
purposes of the tax credit with respect to such financing. For purposes of
the tax credit, qualified commercial financing is defined as financing with
respect to any property if (1) the property is acquired by the taxpayer from
a person who is not a related person, and (2) the financing is borrowed from
a qualified person or represents a loan from any federal, state or local
government instrumentality.
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A qualified person for purposes of the tax credit is a person who is actively
and regularly engaged in the business of lending money and who is not (1) the
person from whom the taxpayer acquired the property, or (2) a person who
receives a fee with respect to the taxpayer's investment in the property.
CREDITS SUBJECT TO STATE ALLOCATION
All buildings, except those financed through proceeds of tax-exempt bonds
subject to the tax-exempt bond limitation included in the tax code, must be
allocated tax credit authority by the applicable state or local credit agency
in the jurisdiction in which the apartment complex is located. Boston Capital
will only acquire interests in operating partnerships owning apartment
complexes which have received a preliminary tax credit allocation by the
appropriate credit agency. Although an actual allocation of tax credit
authority may not be made until the year a building is placed in service,
credit agencies are permitted to enter into binding commitments to allocate
future credit authority. A provision contained in the 1988 Tax Act allows an
allocation to be made if an owner's basis in the apartment complex, including
the cost of land, at the close of the allocation year is more than 10% of the
reasonably anticipated basis in such apartment complex as of the close of the
second year after the allocation year, and the building is placed in service
by the close of the second year following the allocation.
Furthermore, the possibility exists that an existing building may receive an
allocation for a year but not meet the 10% requirement described in the
immediately preceding paragraph and not be placed in service until the
following year, in which case under present law, the allocation would be lost
and there is no assurance that the credit agency would make credit available
during the following year. We anticipate that each of the Operating
Partnership Agreements will provide that we may require the operating general
partner(s) to repurchase our interest in the operating partnership in the
event that the apartment complex is not placed in service in the year for
which the tax credit is allocated and does not meet the above-described 10%
test. In addition, the credit agency is required to reduce the applicable
percentage and/or the Qualified Basis from the amounts for which the
apartment complex would otherwise be eligible if the credit agency believes
that the full amounts are not necessary in light of other sources of
assistance which are available to the apartment complex.
QUALIFIED ALLOCATION PLANS
Credit agencies must publish, after public comment is received, qualified
allocation plans which set forth selection criteria to be used in determining
housing priorities of the credit agency. The 1989 Tax Act mandates that,
during the stage at which the credit agency is determining which apartment
complexes to select for an allocation, it give preference to apartment
complexes that serve the lowest income tenants for the longest periods of
time.
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The credit agencies also must take other criteria into account in selecting
apartment complexes for an allocation. Boston Associates is unable to predict
what impact, if any, this entire provision will have with respect to any
apartment complex or the availability of apartment complexes for investment.
Furthermore, the 1989 Tax Act requires that for new projects, credit agencies
evaluate certain financial information relating to apartment complexes and
allocate tax credits in an amount that does not exceed the amount determined
necessary for the financial feasibility and long-term viability of the apartment
complex. In making this determination, the credit agency must consider the
following:
- - source and use of funds;
- - total financing for the apartment complex;
- - proceeds expected to be generated as a result of tax benefits;
- - the percentage of tax credits used for project costs other than the cost of
intermediaries.
Boston Associates is unable to predict how this provision will affect any
apartment complex or the availability of apartment complexes for investment.
However, each state credit agency has adopted a qualified allocation plan and
has procedures in place for analyzing the amount of tax credits to be allocated,
which plans and procedures differ in many respects from each other. In addition,
pursuant to the 1989 Tax Act, credit agencies have procedures in place to
monitor compliance affirmatively and to report any noncompliance with the tax
credit program to the IRS.
STATE HOUSING TAX CREDIT PROGRAMS
Boston Capital may offer one or more series of certificates exclusively to
investors of a specific state and invest, through operating partnerships,
exclusively in apartment complexes that will generate both tax credits and
housing tax credits available under the laws of the state in which the apartment
complexes are located ("state housing tax credits"). Such series could also
invest in apartment complexes in such a state generating historic tax credits.
As of the date of this Prospectus: Arkansas, California, Colorado, Florida,
Georgia, Hawaii, Massachusetts, Missouri, New York, North Carolina, Utah and
Virginia are the only states which have adopted legislation authorizing state
housing tax credits. The supplement to this Prospectus which offers any such
series investing in apartment complexes generating state housing tax credits
will describe the applicable state program in detail. Because of the ability of
the California Housing Tax Credit program, and potentially other state housing
tax credit programs, to generate a proportionally greater amount of tax credits
in the earlier years of a series' investment than those which would be generated
under the federal housing tax credit program, Boston Associates anticipates that
any series that invests, through
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operating partnerships, in apartment complexes qualifying for both federal
and state housing tax credits could realize a greater proportion of tax
credits in the earlier years of the series' investments than a series that
does not invest in apartment complexes qualifying for state housing tax
credits.
Similarly, we anticipate that any series which invests, through operating
partnerships, in apartment complexes qualifying under state housing tax credit
programs could realize a different aggregate amount of tax credits from a series
which invests an equivalent amount of net proceeds in apartment complexes which
do not qualify for state housing tax credits. Accordingly, the supplement to
this Prospectus that offers any series anticipated to generate both types of tax
credits will discuss the achievement of Boston Capital's business objectives in
terms of generating both tax credits and state housing tax credits for the
benefit of the investors in that particular series.
HISTORIC TAX CREDIT
The tax code also provides for a separate tax credit equal to 20% of qualified
rehabilitation expenditures for certified historic structures and certain other
buildings originally placed in service before 1936 (the "historic tax credit").
Certain of the apartment complexes may qualify for this credit in addition to
the tax credit. A certified historic structure is defined as a building which
(1) is listed in the National Register of Historic Places, or (2) is located in
a registered historic district and is certified by the Secretary of the Interior
as being of historic significance to the district. Qualified rehabilitation
expenditures are defined as amounts properly chargeable to the capital account,
incurred for real property, and made in connection with a qualified
rehabilitated building. In general, a qualified rehabilitated building is one
that has been substantially rehabilitated. The rehabilitation also must be
certified rehabilitation, which is rehabilitation certified by the Secretary of
the Interior as consistent with the historic character of the property or the
district in which the property is located. Costs of acquiring a building or
enlarging it are not qualified rehabilitation expenditures.
The tax basis of a rehabilitated structure is reduced by 100% of the allowed
historic tax credit. Accordingly, the basis of an apartment complex receiving
historic tax credits could be reduced for purposes of computing the tax credit
for the year.
The use of the historic tax credit by individuals, including shareholders of S
Corporations or closely held corporations, is limited by the amount that the
taxpayer has at-risk with respect to the investment that generates the historic
tax credit. In general, the taxpayer must satisfy the same at-risk requirements
applicable to the tax credit. See "Federal Income Tax Matters--At-Risk
Limitations." In addition, to be considered at-risk with respect to an
investment which generates historic tax credits, it is also necessary that (1)
the amount of any nonrecourse financing with respect to the property not exceed
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80% of the credit base of the property, and (2) the financing not be provided by
a person who is related to the taxpayer.
Historic tax credits used by investors are subject to full or partial recapture
by an investor who transfers one-third or more of his certificates within five
years of the date which the applicable apartment complex was placed in service,
in proportion to the percentage of certificates so transferred. In addition, if
an apartment complex is sold or otherwise disposed of during this five-year
period, the historic tax credits will be recaptured in an amount that varies
depending on the date of sale or disposition. See "Federal Income Tax
Matters--Recapture of Tax Credits."
GOVERNMENT ASSISTANCE PROGRAMS
The tax credit can be used in conjunction with apartment complexes that are not
government assisted as well as those that receive assistance from federal, state
or local governments. Boston Capital intends to acquire interests in operating
partnerships owning apartment complexes that are assisted by federal, state or
local programs, although we may invest in non-assisted apartment complexes as
well. Following is a summary of various major government assistance programs now
in existence which can be used with the tax credit.
In order to qualify for tax credits, an operating partnership and its related
apartment complex must meet the basic rules for the federal housing tax credit
program set forth in the tax code in addition to the applicable administrative
rules for the housing assistance programs discussed in this section. There are
presently some inconsistencies between the federal housing tax credit program
requirements and certain other government assistance program rules which will
complicate or block the full use of some assistance programs.
Although the following discussion presents several examples of the
inconsistencies, it is not inclusive. At the present time, the procedures for
the resolution of inconsistencies and the likelihood of favorable clarification
are not clear. Furthermore, there can be no assurance that the terms of the
applicable programs, or the regulations governing them, will not change. Boston
Associates is unable to predict at this time which of the government assistance
programs described below will be utilized with respect to apartment complexes
owned by the operating partnerships in which Boston Capital may undertake to
acquire interests.
RURAL HOUSING SERVICE ("RHS") PROGRAMS
Section 515 of the Housing Act of 1949 authorizes the U.S. Department of
Agriculture to provide direct below-market-rate mortgage loans for rural rental
housing. As of May 1, 1995, the responsibility for administration of the Section
515 program has been reassigned to RHS. Such loans are extended
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to qualified sponsors, organized exclusively for the purpose of providing
housing, in amounts up to 97% of the total development cost of the applicable
apartment complex, as determined pursuant to RHS regulations, and for terms
up to fifty years. In addition, RHS may provide an owner with mortgage
interest subsidies, which effectively lower the interest rate on a permanent
mortgage loan made by RHS to 1% after the satisfactory completion of
construction of the apartment complex, the benefits of which the owner must
pass on to eligible tenants in the form of lower rents.
RHS regulations limit cash distributions to owners of apartment complexes which
it finances with both mortgage loans and interest subsidies to a maximum annual
return of 8% per annum, on a cumulative basis, on the required 3% to 5% equity
contribution. RHS also requires that monthly payments to a reserve account be
made until the maximum amount of 10% of the total construction cost of the
apartment complex has been set aside.
An owner wishing to sell the apartment complex must obtain RHS approval. For
apartment complexes funded after December 21, 1979, applicable law and
regulations also require the owner to utilize the assisted housing for tenants
eligible under the Section 515 Program for the twenty-year period following the
closing of the RHS mortgage. With respect to apartment complexes funded before
December 21, 1979, Congress, in the Housing and Community Development Act of
1987, adopted a measure to preserve the low income tenancy of the apartment
complex by requiring that the owner sell the apartment complex at its fair
market value to a non-profit organization rather than prepay the loan, or
otherwise accept incentives for the extension of low income use restrictions, to
the extent available. On November 21, 1989, Congress passed the Department of
Housing and Urban Development Reform Act of 1989 (the "1989 USHUD Act").
Pursuant to the 1989 USHUD Act, loans obligated after December 15, 1989, provide
that the owner cannot prepay during the fifty-year term of the mortgage.
Although a RHS mortgage may not be prepaid during its fifty-year term, an owner
may sell or otherwise transfer its apartment complex upon RHS approval, subject
to the mortgage. Furthermore, RHS approval is required before an owning
partnership may encumber title to its apartment complex, admit or remove a
general partner or permit a general partner to maintain a certain percentage
interest in that operating partnership.
Section 515 apartment complexes are eligible only for the 30% credit, because
they are the beneficiaries of a federal below-market-rate loan.
USHUD MORTGAGE LOAN INSURANCE PROGRAMS AND
INSURANCE SUBSIDY PROGRAMS
Boston Capital may invest, through operating partnerships, in apartment
complexes having mortgage loans which are insured by USHUD. Such mortgage
insurance by itself is not considered a federal subsidy for purposes of
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the federal housing tax credit program, and USHUD-insured apartment complexes
having no other federal subsidy would be eligible for the 70% credit.
However, Boston Capital currently anticipates that any USHUD-insured
apartment complexes it invests in would have additional federal, state or
local assistance, so that the applicable credit would be either the 30% or
the 70% credit, depending upon the particular form of assistance.
(1) SECTION 221(d)(4) MORTGAGE INSURANCE PROGRAM. Section 221(d)(4) of the
National Housing Act of 1934, as amended, provides for federal insurance of
private construction and permanent mortgage loans to finance new or
rehabilitated rental apartment complexes containing five or more units. This
program provides housing for families of moderate income, families eligible
for assistance under the USHUD Section 8 Program and families that have been
displaced as a result of urban renewal, government action or disaster.
Under USHUD regulations, the amount of any USHUD-insured mortgage loan cannot
exceed the lesser of the amount of the USHUD insurance commitment, as amended
from time to time, or 90% of the replacement cost of the apartment complex, as
determined by a certified public accountant following the accounting procedures
specified by USHUD. Under current regulations, the maximum interest rate that
may be charged on the mortgage loans insured by USHUD shall be at the rate
agreed to by the borrower and the lender. Further, USHUD must approve each
disbursement made from the construction loan, and determine when the apartment
complex is 100% complete.
A permanent mortgage loan insured under Section 221(d)(4) is to be repaid over a
term not to exceed forty years from the final closing date. Payments of
principal, interest and USHUD mortgage insurance premiums are to be made in
equal monthly installments. Under the terms of USHUD-approved loan documents
applicable to this mortgage insurance program, neither an owning partnership nor
any partner of such partnership will have personal liability to repay the
construction or permanent mortgage loans or to pay the interest on such loans.
Under current USHUD regulations, up to 15% of the original principal amount of
the permanent mortgage loan may be prepaid at any time, in any one calendar
year, without penalty. A mortgage loan insured under Section 221(d)(4) may be
prepaid without the consent of USHUD. This prepayment right may be prohibited
by, or subject to the approval of, USHUD and the lender, in the case of
apartment complexes financed with tax-exempt bonds. In those cases when the
Government National Mortgage Association ("GNMA") is the "take-out" lender and
purchases the permanent mortgage loan from a private mortgagee at final closing,
GNMA imposes a 3% penalty (which penalty declines at the rate of one-eighth of
1% per year) which is charged for any prepayment made in excess of the allowable
15% in any year prior to the twenty-fourth anniversary of the date of
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the mortgage note. In cases where the permanent mortgage loan is held by
other parties, a prepayment penalty also may apply.
At the initial closing of a USHUD-insured apartment complex mortgage loan, USHUD
and the apartment complex owner enter into a Regulatory Agreement. Operation and
sale, transfer or other disposition of the apartment complex, or change in the
ownership of the apartment complex, are governed by the terms of such Regulatory
Agreement.
Under current USHUD regulations, rental rates for an apartment complex are
initially determined by USHUD with the objectives of not exceeding apartment
complex rents for comparable units in the same market area at the estimated time
of occupancy and of providing some cash available for distribution after payment
of mortgage interest and principal, USHUD mortgage insurance premium, required
reserve fund deposits, and estimated operating expenses. All rent increases must
be approved by USHUD prior to their becoming effective unless, pursuant to USHUD
regulations effective in 1983, an owner has exercised its authority to establish
alternative rents and charges. Where an owner makes an election of deregulation
of USHUD rent procedures, local rent control may apply to the apartment complex.
In the event of a default by the mortgagor of a USHUD-insured mortgage loan,
which is not cured within thirty days or such extended time period to which
USHUD and the mortgage lender consent, the mortgage lender has the right to
elect either to foreclose upon the mortgage securing the loan, or to assign the
loan to USHUD in return for payment of its insurance benefits. If the loan is
assigned to USHUD, the owner retains legal title to the apartment complex.
However, if the default continues, USHUD may foreclose upon the mortgage and
become the legal owner.
(2) SECTION 220 MORTGAGE INSURANCE PROGRAM. Section 220 of the National Housing
Act, as amended, provides for federal insurance of private mortgages in a
similar manner to Section 221(d)(4), but is restricted to residential
property in certain urban areas that are in need of revitalization. The
requirements and conditions under Section 220 are otherwise substantially as
described above for the Section 221(d)(4) mortgage insurance program.
(3) SECTION 236 MORTGAGE INSURANCE AND SUBSIDY PROGRAM. Section 236 of the
National Housing Act, as amended, also provides for federal insurance of
private mortgages with terms of up to forty years for up to 90% of the
replacement cost of apartment complexes. Rentals for applicable apartment
complexes were required to be initially established so that, at 95%
occupancy, after payment of mortgage interest and principal payments,
reserves, and operating expenses, the cash available for distribution to the
owner would not exceed a 6% return on its USHUD-determined equity investment
in such apartment complex, although shortfalls in any year may be paid in
subsequent years.
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The Section 236 program also provides interest subsidies, which are interest
reduction payments from USHUD to the public or private lender, on behalf of the
apartment complex owner, in the amount of the difference between the payment
required for principal, interest and USHUD mortgage insurance premiums on the
permanent mortgage loan, and that which would be required if the permanent
mortgage loan carried an interest rate of 1% per year. The owner must pass on
the benefits of the interest rate subsidy to the eligible tenants in the form of
lower rents.
(4) SECTION 221(d)(3) MORTGAGE INSURANCE PROGRAM AND 221(d)(3) (BMIR) SUBSIDY
PROGRAM. Section 221(d)(3) of the National Housing Act, as amended, provides
for federal insurance of private mortgages in a manner similar to the
Section 221(d)(4) mortgage insurance program, but allows for insurance of
100% of the total development cost of apartment complexes for non-profit and
cooperative mortgagors. In addition, the statutory maximum mortgage amount
per dwelling unit is less for Section 221(d)(3) than for Section 221(d)(4).
Section 221(d)(3) mortgage loan insurance may be obtained by public
agencies, non-profit, limited dividend or cooperative organizations, and
private builders or investors who sell apartment complexes to those
organizations.
(5) SECTION 223(f) MORTGAGE INSURANCE-PURCHASE AND/OR REFINANCING OF EXISTING
APARTMENT COMPLEXES. Pursuant to Section 223(f) and Section 207 of the
National Housing Act, as amended, USHUD provides for federal insurance of
private mortgage loans in connection with the purchase and/or refinancing of
existing apartment complexes. This program is intended to provide for the
preservation of existing housing and neighborhoods through moderate
rehabilitation of the property and improved maintenance and management. If
an apartment complex were "substantially rehabilitated" under the tax code
definition using financing pursuant to the Section 223(f) program, the 70%
Credit would be applicable with respect to the rehabilitation expenditures.
Under USHUD regulations, the apartment complex must be at least three years old,
consist of five or more dwelling units, generally, have attained an occupancy
level which produces rental income sufficient to pay operating expenses and
annual debt service, and have established a reserve fund for replacement.
Generally, a Section 223(f) insured mortgage loan cannot exceed 85% of the
USHUD-estimated value of the apartment complex, or 70% if the apartment complex
is to be refinanced without a change in ownership. The term of the mortgage loan
cannot be less than ten years nor greater than thirty-five years.
A mortgage loan insured under either Section 223(f) program contains provisions
restricting prepayment, except after a specified period or with approval of
USHUD. The mortgage may contain provisions for a prepayment charge.
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USHUD RENTAL ASSISTANCE PROGRAMS
(1) SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAMS. Although the Section 8
Programs applicable to new construction and substantial rehabilitation have been
repealed, Boston Capital may invest in operating partnerships which own
apartment complexes that were originally assisted under these programs. It
should be noted that the definition of "federally assisted" contained in Section
42 of the tax code does not include the Section 8 Program. Accordingly, a newly
constructed or substantially rehabilitated apartment complex receiving Section 8
subsidy assistance may be entitled to the 70% credit with respect to the entire
Qualified Basis, if newly constructed, or with respect to the rehabilitation
expenditures, if substantially rehabilitated within the meaning of Section 42 of
the tax code, if it is placed in service after acquisition by Boston Capital of
an interest in the applicable operating partnership.
(a) THE SECTION 8 NEW CONSTRUCTION AND SUBSTANTIAL REHABILITATION PROGRAMS. The
Section 8 Programs provide for monthly payments to apartment complex owners on
behalf of qualified tenants who are occupying the number of dwelling units in
the apartment complex agreed to between USHUD and the apartment complex owner as
being eligible for Section 8 payments. The Section 8 Programs do not provide
construction or permanent financing and are not mortgage insurance programs,
although apartment complexes assisted by the Section 8 Programs can be financed
by a USHUD-insured mortgage loan. See "Government Assistance Programs--USHUD
Mortgage Insurance-221(d)(4) Program." Payments to the apartment complex owner
under the Section 8 new construction or substantial rehabilitation programs are
made pursuant to the terms of a Housing Assistance Payments Contract ("HAP
Contract") for periods generally not exceeding twenty years, commencing when the
eligible dwelling units are completed, are ready for occupancy and have been
inspected by USHUD.
Generally, only very low income families are eligible to rent units assisted
with Section 8 payments. Very low income families or elderly or handicapped
persons must have annual incomes, determined pursuant to USHUD regulations, that
do not exceed 50% of the median income of the community, adjusted to reflect
family size as determined by published USHUD figures.
Tenants must, in most instances, pay rent to the apartment complex owner, plus a
USHUD-approved allowance for utilities if utilities are separately charged to
the tenants, which together equals 30% of the tenant family's annual income and
does not exceed 50% of the median income of the community, adjusted to reflect
family size as determined by published USHUD figures.
USHUD establishes a contract rent for each unit in an apartment complex which is
equal to the total rental revenue that the apartment complex owner is to receive
for that unit. That part of the contract rent that is not covered
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by the tenant's rent obligation is paid to the apartment complex owner under
the HAP Contract. If a tenant's annual income subsequently increases, the
portion of the rent he pays will increase and the corresponding Section 8
payments to the owner will be reduced, assuming that the contract rent of the
unit does not increase. The 1988 Tax Act allows an owner to increase the rent
of a Section 8 tenant whose income had increased in order to compensate for
the decreased Section 8 subsidy payment notwithstanding the Rent Restriction
Test. See "Government Assistance Programs--The Federal Housing Tax
Credit-Qualified Apartment Complexes." Rent subsidies, for these or any
programs, may decrease or be interrupted for the period a unit is unrented.
USHUD may cause the Section 8 payments for an apartment complex to cease if,
after due notice to the apartment complex owner and an opportunity to remedy the
situation, USHUD determines that the apartment complex owner is not providing
decent, safe and sanitary housing or is in default under any of its contractual
undertakings to USHUD.
Initially established prior to construction, contract rents normally cannot be
changed when the HAP Contract is executed. Thereafter, however, the contract
rents will be adjusted in accordance with annual adjustment factors determined
yearly by USHUD. While application of these factors can either increase or
decrease the contract rents, provided that they cannot drop below the initially
established contract rents, it is anticipated that the contract rents will be
increased each year. In addition, USHUD may permit additional adjustments to the
contract rents to reflect increases in the actual and necessary expenses of
owning and maintaining the units resulting from substantial general increases in
real property taxes, assessments, utility rates or utilities not covered by
regulated rates, if the owner can demonstrate that such general increases have
caused increases in operating costs not adequately covered by the contract rent
increase calculated by applying the annual adjustment factors. Contract rent
adjustments generally, may not result in material differences between the
contract rents and the rents for comparable unassisted units in the apartment
complex or in the community. Pursuant to the Housing and Community Development
Act of 1987 and the Stewart B. McKinney Homeless Assistance Amendments Act of
1988, USHUD may not reduce contract rents in effect on April 15, 1987, unless
the apartment complex's mortgage loan has been refinanced.
One requirement imposed by USHUD regulations on apartment complexes with HAP
Contracts effective after November 1979 is to limit the amount of the owner's
annual cash distribution from operations to 10% of the owner's equity investment
in an apartment complex if the apartment complex is intended for occupancy by
families, and to 6% of the owner's equity investment in an apartment complex
intended for occupancy by elderly persons.
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The owner's equity investment in the apartment complex is 10% of the apartment
complex's replacement cost as determined by USHUD. If cash distributions in any
year are less than the established ceiling, the amount of the shortfall may be
paid out in a subsequent year without counting against that subsequent year's
established ceiling on cash distributions. The limitations on cash distributions
do not apply to non-elderly apartment complexes of fifty units or fewer, or to
apartment complexes where not more than 20% of the units are receiving Section 8
payments.
(b) THE SECTION 8 EXISTING HOUSING LEASING PROGRAM. Under the Section 8 existing
housing leasing program, operated through local housing authorities ("PHAs"),
tenants are given a housing certificate or voucher which is used to pay a
significant portion of the tenant's rent in the private market. After the tenant
obtains a certificate or voucher, the tenant is allowed to search for housing
available in the private market, subject to housing quality and suitability
standards. Although the certificate and voucher program differ in certain key
respects, they both are dependent on the availability of an adequate stock in
the existing rental market.
Pursuant to the Housing and Community Development Act of 1987 and the Stewart B.
McKinney Homeless Assistance Act of 1988, PHAs are provided authority to assign
up to 15% of the assistance which has been made available to that PHA to
particular structures for a period of five years, with options to renew for up
to an additional ten years, subject to the availability of funds for this
program.
(c) HAP CONTRACT RENEWALS. Many HAP Contracts are reaching expiration within the
next several years. No program has been established for the universal renewal of
such contracts. All project-based contracts expiring in fiscal year 1997 are
renewable for one year at current rents, up to 120% of fair market rents. USHUD
is also implementing plans for certain loans to be marked-to-market. This
entails reducing payments under a project-based HAP Contract as part of a
restructuring of the project's USHUD-insured mortgage loan.
RENT SUPPLEMENT PROGRAMS
Section 236(f)(2) of the National Housing Act, as amended, and Section 101 of
the Housing and Urban Development Act of 1965, as amended, each provide for the
making by USHUD of rent supplement payments to low income tenants in apartment
complexes which receive other forms of federal assistance, such as Section 236
interest reduction payments. The payments for each tenant, made directly to the
owner of the apartment complex, generally will be in such amounts as to enable
the tenant to pay rent equal to 30% of adjusted family income. Generally,
20%-40% of the units in an apartment complex receiving other subsidy assistance
are eligible for this additional assistance.
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USHUD has converted rent supplement assistance to assistance under the Section 8
program. Such Section 8 payments generally provide higher rents to owners than
rent supplement payments, but are paid only if a tenant is occupying the unit.
TRANSFER OF PHYSICAL ASSETS PROCEDURE
Federal regulations provide that certain types of transfers of ownership in
apartment complexes that receive USHUD mortgage insurance and/or subsidies must
be approved in advance by USHUD. This transfer of physical assets process must
be pursued when there is a transfer of the partnership interests of a
partnership which affects or changes the control of the partnership. RHS also
has instituted similar approval procedures for transfers of ownership interests
in RHS-assisted apartment complexes.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION/
FEDERAL NATIONAL MORTGAGE ASSOCIATION
Government National Mortgage Association ("GNMA"), a governmental corporation
within USHUD, was established to provide a secondary market for certain
federally assisted or subsidized mortgages.
Under the tandem programs, no longer in effect, GNMA purchased mortgages from
primary lenders at prices favorable to the lenders, and then resold those
mortgages to the Federal National Mortgage Association ("FNMA") and others at
market prices, absorbing the difference as a subsidy. Mortgage loans eligible
for purchase were insured under certain USHUD programs, including Sections 220,
221(d)(3), 221(d)(4) and 236.
STATE AND LOCAL FINANCING PROGRAMS
A number of states and some local governmental entities have established housing
finance agencies ("HFAs") to assist in the development and financing of low and
moderate income housing. While the majority of HFAs are independent public
authorities governed by an appointed board of directors or commissioners,
certain HFAs have been established as agencies or departments of the applicable
state or local government.
HFAs are empowered by their enabling legislation to issue their own
obligations--short-term notes and long-term revenue bonds--which, due to the
status of the HFAs as governmental entities, are under certain conditions exempt
from federal income taxation. These obligations are sold in the tax-exempt
municipal bond market at interest costs to the HFAs below conventional money
market rates. The HFAs then use the proceeds of the sale of their notes and/or
bonds to make or purchase mortgage loans for low and moderate-income multifamily
apartment complexes.
Several HFAs provide mortgage financing for multifamily housing developments
financed with USHUD-insured mortgage loans. Generally, in cases
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where the mortgage loans of HFAs also are USHUD-insured, the underwriting and
regulatory standards and procedures of USHUD pursuant to the applicable USHUD
mortgage insurance program are employed without any substantial additional
requirements.
Most HFAs provide direct construction and permanent mortgage loans for
multifamily housing without USHUD mortgage insurance by self-insuring the loans.
In cases where the mortgage loans of HFAs are not USHUD-insured, the HFAs
generally undertake the processing and evaluation of the mortgage loan
application itself, review the loan application for economic feasibility, and
review the market need and demand for, and the architectural and construction
characteristics of, the multifamily apartment complex. In such cases, the HFAs
generally also monitor the construction progress, marketing, rent-up and
management of the apartment complex.
Although HFAs' criteria and requirements for non-USHUD insured direct
construction and permanent mortgage loans vary, generally such loans are
available to limited partnership private owners in an amount up to 90% of an
HFA's estimate of the total development cost of the housing development, and are
for terms of up to forty years. The loans can finance newly constructed or
substantially rehabilitated multifamily rental housing intended for occupancy by
individuals and families, elderly individuals and handicapped individuals of low
and moderate income, and limit the amount of operating income from the apartment
complex which may be distributed to the owner annually. The HFAs' direct loan
programs frequently include requirements as to operating assurances, escrow,
working capital and other deposits which may be greater in amount and extend for
a longer period than similar requirements under USHUD mortgage insurance
programs. While certain of these operating assurances may be funded from
mortgage loan proceeds, most are to be provided by the developer/owner either in
cash, in the form of letters of credit or through the pledge of certain equity
syndication proceeds.
In addition to the limitation on cash flow distributions from apartment complex
operations noted above, HFAs' direct mortgage loan programs generally impose
limitations on the prepayment of the mortgage loan and on the sale, refinancing
or change in use of the apartment complex. They also may require that a
restrictive covenant be placed on record prohibiting the use of the apartment
complex for any purpose other than rental housing. Further, they may require
approval of the sale of certain interests in an owning limited partnership.
In order to maintain the tax-exempt nature of obligations issued by HFAs, owners
must comply with restrictions in the tax code. In this respect, the 1986 Tax Act
added certain restrictions on the use of tax-exempt financing by state and local
housing financing agencies under Section 103(b) of the tax code that make this
program more restrictive. Before passage of the
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1986 Tax Act, 20% of the units were required to be rented to households with
incomes at or below 80% of median income, and there was no adjustment for the
size of the family. Under the 1986 Tax Act, 20% of the units must be rented
to households at 50% of median income, or 40% of the units must be rented to
households at 60% of area median income--the same targeting as for the tax
credit--and adjustment for family size is required. In addition, the low income
occupancy requirements must be met for at least a fifteen-year period. The
amount of tax-exempt bond authority available to a state or local agency is
subject to a strict state bond cap.
The tax credit may be utilized with respect to apartment complexes financed by
tax-exempt bonds issued by state or local agencies. In such cases, the credit
allocation is not subject to the state credit cap, as the bonds are subject to
the state bond allocation cap. However, apartment complexes financed through
tax-exempt bond financing are considered federally assisted, and thus are only
eligible for the 30% Credit.
HOME PROGRAM
The HOME Investment Partnership Act ("HOME") is authorized under Title II of the
Cranston-Gonzalez National Affordable Housing Act, enacted into law in 1990.
HOME is a formula-based federal housing program intended to support a wide
variety of state and local affordable housing programs, with an emphasis on
rental housing.
HOME funds, which are allocated by USHUD on a formula basis to participating
state and local governments, can be used by such governments to expand the
supply of affordable housing and increase the number of households who can be
served by assisted housing programs. Funds can be used for acquisition,
construction, moderate or substantial rehabilitation activities or for
tenant-based rental assistance programs.
State and local jurisdictions are statutorily required to meet matching
requirements in order to qualify for HOME funding. This match requirement is
currently 25%.
Participating jurisdictions are allowed to use funds for equity investments,
interest-bearing or non-interest-bearing loans, advances, interest subsidies or
other forms of assistance that USHUD finds to be consistent with the purpose of
law. Any loan to a project with an interest rate below the applicable federal
borrowing rate, would be eligible only for the 30% Credit because the project
would be considered to be federally subsidized. However, apartment complexes
receiving below market interest rate loans pursuant to the HOME program which
are newly constructed or substantially rehabilitated could be eligible for the
70% Credit. In order to qualify for this treatment, the owner must agree that
not less than 40% of the dwelling units must be occupied by individuals whose
incomes are 50% or less of the area median gross income for the area in which
the property is located; in the case of
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properties in New York City, 40% is reduced to 25%. Moreover, the increase in
Eligible Basis allowed for projects situated in qualified census tracts and
difficult development areas does not apply to properties subject to this
provision. This amendment is effective for loans made after August 10, 1993.
The amount of funds which a participating jurisdiction may invest on a per-unit
basis in an apartment complex may not exceed the per-unit limits established by
USHUD under Section 221(d)(3) of the National Housing Act.
Generally, 90% of the families assisted under the HOME Program must have incomes
that do not exceed 60% area median income, with the remaining 10% having incomes
not exceeding 80% of area median income, adjusted for family size. It should be
noted that the rents allowed for such remaining units may exceed the amounts
permitted for units under the federal housing tax credit program.
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MANAGEMENT
THE GENERAL PARTNER
Boston Capital Associates IV L.P. ("Boston Associates"), the general partner of
the partnership, is a Delaware limited partnership, the general partner of which
is BCA Associates Limited Partnership, a Massachusetts limited partnership,
whose sole general partner is C&M Management, Inc., a Massachusetts corporation
and whose limited partners are Herbert F. Collins and John P. Manning. Mr.
Manning is the principal of Boston Capital Partners, Inc. The limited partner of
the general partner is a general partnership whose partners are certain officers
and employees of Boston Capital and its affiliates. The general partner has only
a nominal net worth but BCA Associates Limited Partnership, the general partner
of Boston Associates, has a net worth of not less than $1,000,000. BCA
Associates Limited Partnership has contingent liabilities with regard to prior
programs and investors are urged to review the audited Balance Sheet of BCA
Associates Limited Partnership and the notes thereto, which are incorporated
herein by reference.
The Investment Committee of Boston Capital Partners, Inc. will have exclusive
responsibility for selecting and approving investments for each series. The
Investment Committee will initially be comprised of the persons identified
below. In addition to selecting and approving investments, the Committee will
establish the terms and conditions pursuant to which such investments will be
made.
The members of the Investment Committee are:
Anthony Nickas, Chief Operating Officer of Boston Capital Partners, Inc., John
P. Manning, President, Boston Capital Partners, Inc.; Kevin P. Costello, Senior
Vice President of Boston Capital Partners, Inc.
BOSTON CAPITAL PARTNERS, INC. AND ITS AFFILIATES
Boston Capital is the successor in interest through merger of Greater Boston
Development, Inc., which was founded in 1974 by Herbert F. Collins and John P.
Manning.
Boston Capital Partners, Inc. is an investment banking firm specializing in the
equity syndication of affordable residential properties through the use of
public and private limited partnerships.
Boston Capital Services, Inc., the Dealer-Manager and an affiliate of Boston
Capital Partners, Inc. was founded in 1982 by Messrs. Herbert F. Collins and
John P. Manning, and Richard J. DeAgazio, who is the President of the
Dealer-Manager and an Executive Vice President of Boston Capital Partners, Inc.
The Dealer-Manager is an SEC-registered soliciting dealer and a member of the
National Association of Securities Dealers, Inc.
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Boston Capital Communications Limited Partnership ("Boston Capital
Communications") either manages directly or monitors the management of the
portfolio of real estate-based assets which Boston Capital has syndicated.
Boston Capital Communications' management responsibilities include the
collection, analysis and distribution of pertinent information to the investors
who have invested in the Boston Capital Partners, Inc. real estate portfolio.
JOHN P. MANNING, age 53, is co-founder, President and Chief Executive Officer of
Boston Capital Corporation, where he is primarily responsible for strategic
planning and business development. In addition to his responsibilities at Boston
Capital, Mr. Manning is a proactive leader in the industry. He served in 1990 as
a member of the Mitchell-Danforth Task Force, to review and reform the Low
Income Housing Tax Credit. He was the founding President of the Affordable
Housing Tax Credit Coalition, is a former member of the board of the National
Leased Housing Association and sits on the Advisory Board of the publication
HOUSING AND DEVELOPMENT REPORTER. During the 1980s he served as a member of the
Massachusetts Housing Policy Committee, as an appointee of the Governor of
Massachusetts. In addition, Mr. Manning has testified before the U.S. House Ways
and Means Committee and the U.S. Senate Finance Committee on the critical role
of the private sector in the success of the Low Income Housing Tax Credit
Program. In 1996, President Clinton appointed him to the President's Advisory
Committee on the Arts at the John F. Kennedy Center for the Performing Arts. In
1998, President Clinton also appointed Mr. Manning to the President's Export
Council, which is the premiere committee comprised of major corporate CEOs to
advise the President in matters of foreign trade. Mr. Manning is also a member
of the Board of Directors of the John F. Kennedy Presidential Library in Boston,
and is a member of the Advisory Board of the Woodrow Wilson Institute for
International Scholars in Washington, D.C. Mr. Manning is a graduate of Boston
College.
RICHARD J. DEAGAZIO, age 56, is Executive Vice President of Boston Capital
Corporation, Inc., and is President of Boston Capital Services, Inc., Boston
Capital's NASD registered broker/dealer. Mr. DeAgazio formerly served on the
national Board of Governors of the National Association of Securities Dealers
(NASD). He recently served as a member of the National Adjudicatory Council of
the NASD. He was the Vice Chairman of the NASD's District 11 Committee, and
served as Chairman of the NASD's Statutory Disqualification Subcommittee of the
National Business Conduct Committee. He also served on the NASD State Liaison
Committee and the Direct Participation Program Committee. He is a founder and
past President of the National Real Estate Investment Association, past
President of the Real Estate Securities and Syndication Institute (Massachusetts
Chapter) and the Real Estate Investment Association. Prior to joining Boston
Capital in 1981, Mr. DeAgazio was the Senior Vice President and Director of the
Brokerage Division of Dresdner
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Securities (USA), Inc., an international investment banking firm owned by
four major European banks, and was a Vice President of Burgess &
Leith/Advest. He has been a member of the Boston Stock Exchange since 1967.
He is on the Board of Directors of Cognistar Corporation. He is a leader in
the community and serves on the Business Leaders Council of the Boston
Symphony, Board of Trustees of Junior Achievement of Northern New England,
the Board of Advisors for the Ron Burton Training Village and is on the Board
of Corporators of Northeastern University. He graduated from Northeastern
University.
ANTHONY A. NICKAS, age 40, is Chief Operating Officer of Boston Capital
Partners, Inc. and serves as Chairman of the firm's Operating Committee. Mr.
Nickas is responsible for all the financial, accounting and operational
functions of Boston Capital and has spent the past thirteen years in the real
estate syndication and investment business. His prior responsibilities at Boston
Capital include management of finance and accounting for the project development
and property management affiliates. Prior to joining Boston Capital in 1987, he
was Assistant Director of Accounting and Financial Reporting for the Yankee
Companies, Inc., and was an Audit Supervisor for Wolf & Company of
Massachusetts, P.C., a regional certified public accounting firm based in
Boston. He graduated with honors from Norwich University.
KEVIN P. COSTELLO, age 55, is Senior Vice President in charge of corporate
investments for Boston Capital Partners, Inc. and serves on the firm's Operating
Committee. He is responsible for all corporate investment activity and has spent
twenty years in the real estate syndication and investment business. Mr.
Costello's prior responsibilities at Boston Capital have involved the management
of the Acquisitions Department and the structuring and distribution of
conventional and tax credit private placements. Prior to joining Boston Capital
in 1987, he held senior management executive positions in companies associated
with real estate syndication as well as in the medical electronics industry. Mr.
Costello graduated from Stonehill College and received his MBA with honors from
Rutgers' Graduate School of Business Administration.
JEFFREY H. GOLDSTEIN, age 40, is Senior Vice President of Real Estate for Boston
Capital Partners, Inc. Mr. Goldstein is a former member of the Board of
Directors of the Council for Affordable and Rural Housing and formerly served as
Chairman of the Finance Committee. Prior to joining Boston Capital in 1990, Mr.
Goldstein was Manager of Finance for A.J. Lane & Co., a real estate development
firm, served as Manager for Homeowner Financial Services, a financial consulting
firm, and was an analyst responsible for budgeting and forecasting for the New
York City Counsel-Finance Division. He graduated from the University of Colorado
and received his MBA from Northeastern University.
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MARC N. TEAL, age 37, is Vice President of Partnership Accounting of Boston
Capital Partners, Inc. He oversees the accounting and financial reporting,
coordinates the annual audits, and oversees the investment of all reserves and
cash on hand for all of Boston Capital's public, corporate, and private
partnerships. Prior to joining Boston Capital in 1990, Mr. Teal was a Senior
Development Accountant for Cabot, Cabot & Forbes, a multifaceted real estate
company and prior to that was a Senior Partnership Accountant for Liberty Real
Estate Corp. He graduated from Bentley College and received a Masters in Finance
from Suffolk University.
EILEEN P. O'ROURKE, age 45, is Vice President and Director of Asset Management
and Taxation for Boston Capital Asset Management, LP. Ms. O'Rourke is
responsible for the general operations of the department. Specific
responsibilities include but are not limited to: asset management, financial
reporting, tax compliance, investor reporting, property disposition, database
information systems and partnership issues. Ms. O'Rourke has more than eighteen
years experience in taxation and accounting. She initially joined Boston Capital
in 1995 as the Director of Tax. Prior to joining Boston Capital, Ms. O'Rourke
was the Partnership Tax Controller at First Data Investor Services Group, Inc.
where she directed the tax compliance of real estate public partnerships and the
issuance of 200,000 investors' K-1's annually. Before that she held positions as
a Senior Tax Accountant with Culp, Elliott and Carpenter, P.C. and as a Senior
Auditor with the Internal Revenue Service. Ms. O'Rourke graduated with honors
from Russell Sage College and is licensed as a Certified Public Accountant. She
is on the Housing Credit Certification Board of Governors and is a member of the
American Institute of Certified Public Accountants, the Massachusetts and North
Carolina Societies of Certified Public Accountants, as well as New England Women
in Real Estate.
THEODORE TRIVERS, age 46, is Vice President and Director of Due Diligence for
Boston Capital Partners, Inc. Mr. Trivers is responsible for the underwriting
and the timely coordination of due diligence, and feasibility assessment of
equity investment of Section 42 affordable multi-family properties.
Additionally, he oversees the information systems team, which provides research
on topics such as rental market trends, historical operating expenses,
construction costs, and Section 42 compliance procedures. He has nineteen years
experience in real estate development, construction, finance and property
management. Prior to joining Boston Capital in 1993, Mr. Trivers was Treasurer
of New England Communities, Inc., a regional real estate acquisition, asset
management and property management company located in Massachusetts. Mr. Trivers
received a Bachelor of Science degree in Business and a Master of Business
Administration from Babson College.
DANIEL P. PETRUCCI, age 36, is Vice President, Director of Structured Finance
and Portfolio Management of Boston Capital Partners, Inc., and is responsible
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for all corporate and retail fund portfolio management. Mr. Petrucci also acts
as liaison to corporate investors and their advisors. Prior to accepting his
current responsibilities, he performed duties in the areas of real estate
origination, underwriting and acquisitions. Mr. Petrucci has more than eleven
years of real estate, finance and syndication experience. Prior to joining
Boston Capital in 1990, he was responsible for conducting all aspects of due
diligence on commercial and multifamily acquisition candidates for the Krupp
Companies, a leading real estate syndication, development and lending
institution. He is a graduate of Marquette University, Milwaukee, Wisconsin.
FRANK L. CHANDLER, age 38, is Assistant Vice President and Director of Internal
Sales for Boston Capital Services, Inc. He is in charge of the firm's inside
sales force, key accounts and direct sales. Prior to joining Boston Capital in
1997, Mr. Chandler was the President and founder of a financial services video
marketing company. Prior to that, he was a financial executive and Vice
President at Bear Stearns & Company and a Registered Representative at Drexel
Burham Lambert Smith Barney. Mr. Chandler attended Syracuse University prior to
receiving a Bachelor of Arts from Skidmore College.
LISA A. MAINI, age 42, is Marketing Manager of Boston Capital Services, Inc. Ms.
Maini is responsible for public relations and the creation, production and
distribution of all marketing materials to a nationwide network of registered
broker/dealers and the management of the marketing budget. Prior to joining
Boston Capital, Ms. Maini was a Marketing Manager and Assistant Vice President
with The Boston Company, a company of Mellon Financial Corporation. Ms. Maini
has seventeen years of marketing experience in management consulting, high
technology, retail and institutional financial services. Ms. Maini attended St.
Lawrence University and American University prior to receiving a Bachelor of
Arts from McGill University in Montreal, PQ. Ms. Maini was awarded a Graduate
Assistantship from the University of Maryland, College Park where she received a
Master of Arts.
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PRIOR PERFORMANCE OF BOSTON ASSOCIATES AND ITS AFFILIATES
During the ten-year period from January 1, 1991 to December 31, 2000, affiliates
of Boston Associates and their respective predecessors in interest have served
as general partners of three public limited partnerships and twenty-eight
private limited partnerships including twenty-one corporate limited partnerships
and four direct placement corporate limited partnerships for a total of
thirty-one real estate programs. All of the twenty-eight private limited
partnerships are organized in a two-tier structure. In a two-tier structure,
investors acquire an interest in a limited partnership (the "upper tier") which
in turn acquires a limited partnership interest in a limited partnership which
owns the real estate (the "lower tier"). A two-tier structure allows an investor
to indirectly own interests in more than one lower-tier limited partnership
through their investment in a single upper-tier partnership.
Affiliates of Boston Associates and their respective predecessors in interest
raised $2,080,891,312 in subscriptions from 52,847 investors during this
ten-year period. A total of 1,254 properties(1), with a total development cost
of $3,907,208,169 were acquired for the public and private limited partnerships.
These properties are geographically located 11% in the Northeast, 12% in the
Mid-Atlantic, 31% in the Southeast, 24% in the Midwest, 13% in the Southwest,
and 9% in the West.
The foregoing information covering the period from January 1, 1991 to
December 31, 2000, can be summarized as follows:
<Table>
<Caption>
PROGRAMS PROPERTIES INVESTORS
- ----------------- ----------------------- ------------------------
TOTAL CAPITAL AVERAGE
DEVELOPMENT INVESTED
TYPE NUMBER NUMBER COST NUMBER CAPITAL PER PROPERTY
- ------ ------ ------ ---- ------ ------- ------------
Public 3 772 $1,963,209,700 52,511 $ 919,110,500 $1,190,558
Private 28 482 $1,943,998,469 336 $1,161,780,812 $2,410,334
-- ----- -------------- ------ -------------- ----------
Total 31 1,254 $3,907,208,169 52,847 $2,080,891,312 $1,659,403
</Table>
<Table>
<Caption>
REGIONS
NORTHEAST MID-ATLANTIC SOUTHEAST MIDWEST SOUTHWEST WEST
--------- ------------ --------- ------- --------- ----
Public 11% 12% 33% 24% 13% 7%
Private 11% 12% 28% 24% 14% 11%
-- -- -- -- -- --
Total 11% 12% 31% 24% 13% 9%
</Table>
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Of these 31 prior limited partnerships, all have invested in apartment complexes
(or operating partnerships which owned such complexes) financed and/or operated
with one or more forms of government subsidy, primarily RHS. The states in which
these apartment complexes are located and the number of properties in each state
are as follows:(2)
<Table>
Alabama 17
Arizona 11
Arkansas 24
California 70
Colorado 7
Connecticut 15
Delaware 4
Florida 35
Georgia 74
Illinois 13
Indiana 8
Iowa 16
Kansas 17
Kentucky 56
Louisiana 79
Maine 21
Maryland 23
Massachusetts 14
Michigan 53
Minnesota 14
Mississippi 60
Missouri 61
Montana 3
Nebraska 6
Nevada 4
New Hampshire 4
New Jersey 12
New Mexico 13
New York 62
North Carolina 38
North Dakota 18
Ohio 8
Oklahoma 41
Oregon 1
Pennsylvania 34
Puerto Rico 8
Rhode Island 3
South Carolina 28
South Dakota 4
Tennessee 19
Texas 74
Utah 4
Vermont 5
Virginia 62
Virgin Islands 10
Washington 1
West Virginia 5
Wisconsin 14
Wyoming 0
</Table>
- ----------------
(1) Includes seventy-three properties which are jointly owned by two or more
investment partnerships or series within an investment partnership which
represent a total of eighty-one shared investments.
(2) The total number of properties by state does not reflect the eighty-one
shared investments of seventy-three operating partnerships. The net number
of properties reflected is 1,173.
The thirty-one government-assisted partnerships which invested in residential
apartment complexes accounted for 100% of the total development cost of all
properties acquired by all limited partnerships sponsored over the ten-year
period.
Of the total offerings during the ten-year period, thirty-one invested in
government-assisted properties and had investment objectives which were similar
to the investment objectives of Boston Capital, to the extent that the limited
partnerships intended to provide, in order of priority; (1) certain tax benefits
in the form of tax losses or low-income housing and rehabilitation tax credits
which each such limited partnership's partners might use to offset income from
other sources; (2) long-term capital appreciation through increases in the value
of each apartment complex and (3) cash distributions through potential sale or
refinancing transactions. Distributions of current cash flow were not a primary
objective of these partnerships, in that the government agencies which provide
subsidies regulate both the amount of rent and the amount of cash distributions
which may be made to partners.
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Information concerning the public limited partnerships organized between
January 1, 1998 and December 31, 2000 is contained in Appendix I-Tabular
Information Concerning Prior Limited Partnerships.
PRIVATE PLACEMENTS
(WITH SIMILAR INVESTMENT OBJECTIVES)
During the ten-year period ending December 31, 2000, interests in twenty-eight
of the limited partnerships with similar investment objectives were sold to
approximately 336 investors in private offerings intended to be exempt from the
registration requirements of the Securities Act of 1933. A total of
$1,161,780,812 in subscriptions was raised. Interests were acquired in a total
of 482 properties, with a total development cost of $1,943,998,469.
The private limited partnerships involved new construction or renovation of
apartment complexes, financed with mortgage indebtedness aggregating
approximately $1,033,857,650 in addition to the equity investment of the prior
limited partnerships of $1,167,780,812. The purchased properties equalled 100%
of the total development cost of all non-commercial and non-conventional
properties invested in by private limited partnerships.
PUBLIC OFFERINGS
During the ten-year period ending December 31, 2000, interests in three limited
partnerships with investment objectives similar to those of Boston Capital, were
sold to approximately 52,511 investors in public offerings registered under the
Securities Act of 1933. A total of $919,110,500 in subscriptions was raised. A
total of 772 properties were purchased at a total development cost of
$1,963,209,700.
Information regarding the public offerings is summarized as follows as of
December 31, 2000:
<Table>
<Caption>
INVESTORS PROPERTIES TYPE OF PROPERTIES
------------------------------------------------------------------------------------------------
TOTAL
DEVELOP- RECENTLY UNDER HISTORIC
MENT COMP- CON- TAX
PROGRAM CLOSED NUMBER CAPITAL NUMBER COST LETED STRUCTION CREDIT
- --------------------------------------------------------------------------------------------------------------------
Boston
Capital Tax
Credit Fund II
Limited
Partnership
(Series 12
through 14) 1991 5,399 $85,439,000 154 $248,775,234 151 N/A 3
Boston
Capital Tax
Credit
Fund III L.P.
(Series 15
through 19) 1993 13,573 $219,960,000 241 $550,956,683 229 N/A 12
Boston
Capital Tax
Credit
Fund IV L.P.
(Series 20
through 38) 33,539 $613,711,500 377 $1,163,477,783 350 23 4
</Table>
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During the four-year period ending December 31, 2000, affiliates of Boston
Associates sponsored one public investment limited partnership with similar
investment objectives. This public limited partnership owns interests in 155
operating partnerships which include seventeen properties jointly owned by two
or more investment partnerships or series within an investment partnership,
representing a total of seventeen shared investments. The total number of
properties by state does not duplicate the seventeen shared investments. The net
number of properties reflected is 138 located in:
<Table>
Alabama 0
Arizona 2
Arkansas 3
California 2
Colorado 1
Connecticut 2
Florida 1
Georgia 8
Illinois 1
Indiana 2
Iowa 1
Kansas 3
Kentucky 11
Louisiana 12
Maine 4
Maryland 0
Massachusetts 0
Michigan 7
Minnesota 0
Mississippi 17
Missouri 5
Montana 0
Nebraska 0
Nevada 0
New Hampshire 1
New Jersey 1
New Mexico 2
New York 5
North Carolina 1
North Dakota 0
Ohio 0
Oklahoma 4
Oregon 1
Pennsylvania 2
Puerto Rico 0
Rhode Island 1
South Carolina 0
South Dakota 0
Tennessee 6
Texas 22
Utah 1
Vermont 0
Virginia 8
Virgin Islands 0
Wisconsin 1
</Table>
All of the operating partnership acquisitions of the public limited partnership
involved new construction or renovation of existing apartment complexes,
financed with government-assisted mortgage indebtedness aggregating
approximately $252,169,685 in addition to the equity investment of the investing
partnerships of $298,730,500. These properties equalled 100% of the total
development cost of properties acquired by public limited partnerships in the
four-year period ended December 31, 2000.
Upon request, the most recent Form 10-K and Form 10-Q filed with the Securities
and Exchange Commission relative to the public offerings will be provided to
investors at no charge and the exhibits to each such Form 10-K and Form 10-Q
will be provided for a reasonable fee. Table VI, included as an exhibit to the
Registration Statement of which this Prospectus forms a part, presents a more
detailed description of certain of these properties. Boston Associates will
provide Table VI to any prospective investor without fee upon request. Any
investor or prospective investor may obtain a copy of the most recent Form 10-K,
Form 10-Q or Table VI upon written request to Boston Capital Tax Credit Fund IV
L.P. c/o Boston Capital Partners, Inc., One Boston Place, Suite 2100, Boston, MA
02108-4406, Attn: Richard J. DeAgazio.
* * * * *
Since the inception of Boston Capital's predecessor in interest, affiliates of
Boston Associates and their respective predecessors in interest have raised
approximately $2.5 billion in real estate equity from approximately 74,500
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investors to acquire interests in approximately 2,200 properties containing
approximately 110,000 apartment units and 90 commercial buildings in 48 states,
Puerto Rico, the Virgin Islands and Washington, D.C., representing more than
$7.88 billion in total development and acquisition costs.
SEE "TABULAR INFORMATION CONCERNING CERTAIN PRIOR LIMITED PARTNERSHIPS,"
APPENDIX I, FOR DETAILED INFORMATION CONCERNING THE ABOVE LIMITED PARTNERSHIPS.
THE INFORMATION SUMMARIZED IN THESE TABLES IS NOT NECESSARILY INDICATIVE OF THE
RESULTS THAT BOSTON CAPITAL MAY EXPERIENCE. IT SHOULD NOT BE ASSUMED THAT
INVESTORS WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY
INVESTORS IN PRIOR PARTNERSHIPS. THE OPERATING HISTORY OF MANY OF THESE PRIOR
PARTNERSHIPS IS BRIEF, AND TAX RETURNS AND FINANCIAL STATEMENTS FROM ONLY THE
INITIAL YEARS OF SOME OF THESE LIMITED PARTNERSHIPS HAVE BEEN FILED.
DESCRIPTION OF CERTIFICATES
THE CERTIFICATES
Investors will invest in certificates, representing assignments of units of the
beneficial interest of Boston Capital issued to BCTC IV Assignor Corp., a
Delaware corporation that is owned by Boston Capital Companion Limited
Partnership, a Massacusetts limited partnership (the "Assignor Limited
Partner"). The Assignor Limited Partner was formed for the purpose of serving in
that capacity for Boston Capital and will not engage in any other business.
Investors will be entitled to all the rights and economic benefits of a limited
partner of Boston Capital, including the rights to a percentage of Boston
Capital's income, gain, credits, losses, deductions and distributions. No
investor will be personally liable for the debts, liabilities, contracts or
other obligations of Boston Capital. See "Summary of the Voting Rights
Provisions of the Fund Agreement-Liability of Partners and Investors to Third
Parties." Investors will be bound by the terms of the Fund Agreement of Limited
Partnership. The Assignor Limited Partner agrees that on any matter calling for
a vote of the limited partners, it will vote the assigned limited partnership
interests only if and as directed by the investors.
Under the Fund Agreement, all of the ownership attributes of limited partnership
interests held by the Assignor Limited Partner are assigned to investors,
including the right to receive a percentage of Boston Capital's income, gain,
credits, losses, deductions, and distributions, as well as the right to take
certain actions without the approval of Boston Associates and the right to
inspect Boston Capital's books and records. All rights accorded limited partners
under the laws of the State of Delaware extend to the investors under the terms
of the Fund Agreement subject to the limitations set forth under "Fiduciary
Responsibility of Boston Associates." Investors of different series will
participate in different pools of operating partnership interests. The rights
and ownership attributes of investors in all series will be
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identical in all other respects, except with respect to voting rights and
accounting matters applicable to any particular series.
TRANSFERS
We anticipate the certificates of each series to be transferable, subject to
some restrictions, thirty days after the issuance of the final certificates with
respect to the applicable series. To the extent that transfers are permitted,
transferees of certificates will be recognized as investors on the last business
day of the calendar month during which Boston Capital or its agent receives all
necessary documentation with respect to the transfer--unless such documentation
is received fewer than five business days prior to the last business day of a
calendar month, in which case the transferee will be recognized as the investor,
on the last business day of the next calendar month following such receipt.
Although we anticipate certificates to be issued in a form facilitating trading,
there are currently limitations on the transferability of certificates
necessitated by the tax credit recapture provisions in the tax code. See
"Federal Income Tax Matters--Federal Housing Tax Credit." The certificates of
all series may be listed on a national securities exchange or included for
quotation on NASDAQ only if deemed by Boston Associates to be in the best
interest of Boston Capital and the investors, which is not currently
anticipated.
If, however, prior to permitting the free transferability of certificates, our
interpretations of the tax code would indicate that free transferability would
cause Boston Capital to be treated as a corporation for federal income tax
purposes, transferability of certificates will be restricted. Even if
certificates are made freely transferable, in order to avoid recapture of tax
credits upon the transfer of certificates, no more than 50% of the certificates
will be permitted to be transferred in any twelve-month period.
No certificates will be listed for trading until Counsel renders its opinion
that it is substantially more likely than not that such listing will not cause
Boston Capital to be treated as a corporation for federal income tax purposes.
Should listing occur, Boston Associates has the authority to make cash and
property distributions and adjust capital accounts in order to permit
certificates to be economically equal for purposes of public trading.
Furthermore, there is no assurance that exchange listing or inclusion on NASDAQ
will be accomplished or will be deemed by Boston Associates to be in the best
interest of Boston Capital or the investors. Accordingly, there is no assurance
that the certificates will be freely transferable. Furthermore, even if trading
is not restricted, there is no assurance that a public trading market will
develop. See "Risk Factors--Transferability" and "--Certain Federal Income Tax
Risks--Tax Treatment of Publicly Traded Partnerships."
To the extent that transfers of certificates are otherwise permitted, neither a
transfer nor an assignment of certificates will be permitted if such transfer or
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assignment would be in violation of any applicable federal or state securities
laws, including investor suitability requirements. We do not anticipate that the
suitability requirements will be applicable in the event that the certificates
are listed on a national securities exchange. Boston Associates will be required
to determine that transferees meet the then-applicable investor suitability
standards prior to permitting a transfer of certificates.
Boston Associates will stop or defer a transfer or assignment of certificates if
it could result in the transfer of 50% or more of all limited partnership
interests in Boston Capital within a twelve-month period, and Boston Associates
believes that the resulting termination of Boston Capital for tax purposes would
result in recapture of tax credits by some investors or would otherwise
adversely affect the economic interests of the investors. In the event of a
suspension, Boston Associates will notify the transferring or assigning investor
and any deferred transfers or assignments will be effected, in chronological
order to the extent practicable, as of the first day of the next succeeding
period in which such transfers or assignments can be effected without either
premature termination of Boston Capital for tax purposes or any adverse effects
from such premature termination, as the case may be. In the event transfers or
assignments are suspended for the foregoing reasons, Boston Associates will give
notice of the suspension to investors as soon as practicable.
In its sole discretion, Boston Associates may at any time:
(1) halt trading in certificates;
(2) fail to list and/or cause the delisting of certificates from public trading
markets;
(3) cause each purchaser of certificates to be admitted to Boston Capital as a
beneficiary;
(4) require the investors to become limited partners;
(5) restrict the circumstances under which certificates may be transferred;
(6) take such other action as it may deem necessary or appropriate, including
making any amendments to the Fund Agreement, in order to preserve the tax
status of Boston Capital as a partnership, prevent Boston Capital's
termination for federal income tax purposes, prevent the recapture of tax
credits, prevent federal income tax treatment of Boston Capital as an
association taxable as a corporation, insure that investors will be treated
as limited partners of Boston Capital for federal income tax purposes or
qualify Boston Capital as a pass-through entity.
Investors who wish to exchange their certificates for limited partnership
interests may do so after the termination of the applicable series offering
period by (1) delivering such documents as may be required by Boston
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Associates; and (2) paying Boston Capital's expenses in accomplishing such
exchange, currently estimated to be $500. Such exchange will not be effective
until Boston Associates consents, which consent cannot be unreasonably withheld
or delayed. A holder of limited partnership interests may not reconvert his
limited partnership interests into certificates. Limited partnership interests
will not be transferable except by operation of law or with the consent of
Boston Associates, which may be withheld in its sole discretion. The limited
partnership interests are not liquid and will not be listed on any national
securities exchange and it is not anticipated that any trading market will exist
for such limited partnership interests. Conversions of certificates into limited
partnership interests shall be accomplished at such times as Boston Associates
shall determine, but not less frequently than semiannually.
SHARING ARRANGEMENTS: PROFITS, CREDITS, LOSSES, NET CASH
FLOW AND RESIDUALS
Profits and losses are not the same as cash distributions. Profits and losses
are determined for federal income tax purposes and include certain non-cash
deductions allowable for federal income tax purposes such as depreciation.
Accordingly, the Fund Agreement provides separately for allocations of profits
and losses, net cash flow from operations, and sale or refinancing proceeds.
Allocations of profits, credits and losses and distributions of cash will be
made on two separate levels. First, operating partnership allocations and
distributions will be made between the applicable operating general partners and
Boston Capital. Second, these allocations and distributions to Boston Capital
will be further allocated and distributed by Boston Capital between Boston
Associates and the investors.
The following discussion summarizes the provisions in the Fund Agreement and the
expected provisions of the Operating Partnership Agreements for the allocations
of profits, credits and losses and for the distribution of net cash flow, and
liquidation, sale and refinancing proceeds. Investors' capital accounts will be
reduced by all distributions made to them by Boston Capital. Accordingly, in
order to assure proper treatment of the capital accounts, the capital account of
each investor will be increased by the amount of all profits of Boston Capital,
and will be reduced by the amount of all losses and certain credits of Boston
Capital, in each case to the extent allocated to such investor.
Boston Capital will make the following allocations and distributions separately
for each series of certificates:
FROM BOSTON CAPITAL TO THE INVESTORS
1. ANNUAL CASH PAYMENTS AND DISTRIBUTIONS FROM NORMAL OPERATIONS. Boston Capital
will allocate or distribute to investors 99% of its net cash flow after it pays
expenses, if any, to Boston Associates and its affiliates.
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These expenses include preparing tax returns, acquiring the property and paying
the Fund Management Fee. Boston Associates will receive 1% of net cash flow
after expenses are paid; provided, however, that investors have already received
enough to meet the priority return. Before investors do receive the priority
return, Boston Associates will receive some fees and compensation for services.
We do not anticipate that any significant amount of net cash flow will be
distributed to the investors on an annual basis.
2. PROFITS, CREDITS AND LOSSES. Boston Capital will allocate or distribute to
investors 99% of its profits, credits and losses from normal operations.
Gains and losses recognized by Boston Capital upon the sale, exchange or other
disposition of all or substantially all of the property owned by an operating
partnership or Boston Capital's interest in an operating partnership shall be
allocated in the order as follows:
(1) gain will be allocated to the partners and investors and Boston Associates
in the amount of their negative capital accounts;
(2) gain will be allocated to the investors in amounts equal to any unreturned
capital contributions;
(3) gain will be allocated 99% to the investors and 1% to Boston Associates.
Any losses will be allocated first to reduce any partners' or investors'
positive capital accounts in proportion to their interest in Boston Capital;
second in the amount of any unreturned capital contributions; and third, either
to any partners who bear(s) the economic risk of any remaining losses, if any,
or all in accordance with Boston Capital interests.
3. DISTRIBUTIONS OF LIQUIDATION, SALE OR REFINANCING PROCEEDS. If there is a
sale or refinancing of an apartment complex or the sale of Boston Capital's
interest in an operating partnership, Boston Capital will use the proceeds in
the following order:
(1) pay all of its third party debts and liabilities;
(2) establish any necessary reserves;
(3) repay any loans to Boston Associates or its affiliates;
(4) distribute any unreturned capital contributions to the partners and
investors;
(5) distribute 95% of the proceeds to investors and 5% to Boston Associates;
provided that Boston Associates' distribution will be subordinated to the
achievement of the priority return to investors.
Before investors do receive the priority return, Boston Associates will receive
some fees and compensation for services.
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FROM THE OPERATING PARTNERSHIPS TO BOSTON CAPITAL
1. ANNUAL CASH PAYMENTS AND DISTRIBUTIONS FROM OPERATIONS. We anticipate to make
payments and distributions annually from the net cash flow of each operating
partnership as follows, if and to the extent available and subject to the
restrictions which may be imposed by the permanent mortgage loan documents and
by a Regulatory Agreement. After the payment of the reporting fee, repayment of
any subordinated loans and payment of any operating partnership management fees,
the balance will be distributed to the partners in accordance with their
interests in the operating partnership, anticipated to be from 10% to 99% to
Boston Capital.
We do not anticipate that any significant amount of cash distributions will be
made to us on an annual basis.
2. PROFITS, CREDITS AND LOSSES. The profits, credits and losses from normal
operations are anticipated to be allocated 90%-99% to Boston Capital and 1%-10%
to the operating general partner(s).
Gains and losses recognized by the operating partnership upon the sale, exchange
or other disposition of all or substantially all of its property are anticipated
to be allocated in the order as follows:
(1) gain will be allocated to the partners in the amount of their negative
capital accounts;
(2) gain will be allocated to the partners in amounts equal to their unreturned
capital contributions;
(3) gain will be allocated in accordance with the provisions of each Operating
Partnership Agreement, which is anticipated to result in an allocation to
Boston Capital of between 50% and 95%.
Any losses will be allocated first to reduce any partners' positive capital
accounts in proportion to their interests in the operating partnership, second
in the amount of any unreturned capital contributions, and third, either to any
partners who bear the economic risk of such losses, if any, or all in accordance
with the partners' interests in the operating partnership.
3. DISTRIBUTIONS OF LIQUIDATION, SALE OR REFINANCING PROCEEDS.
Liquidation, sale or refinancing proceeds realized by any operating partnership
on the sale of the applicable apartment complex or the refinancing of the
applicable permanent mortgage loan are anticipated to be applied and/or
distributed in the order as follows:
(1) payment of all third-party debts and liabilities of the operating
partnership will be paid;
(2) establishment of any necessary reserves;
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(3) payment of any unpaid debts and liabilities owed to the partners of the
operating partnership of any affiliates, including payment of any Sales
Preparation Fee and repayment of any loans, excluding any working capital
loans attributable to operating partnerships with RHS financing;
(4) in some circumstances, distribution of any unreturned capital contributions
to the partners, with a minimum of 5% of any proceeds going to the operating
general partner(s) in operating partnerships receiving RHS financing;
(5) distribution of the remainder, if any, in accordance with the terms of the
Operating Partnership Agreement, between 20% and 95% anticipated to go to
Boston Capital.
There can be no assurance that there will be any liquidation, sale or
refinancing proceeds with respect to any apartment complex available for
distribution to the partnership.
AUTHORITY OF THE BOSTON ASSOCIATES TO VARY ALLOCATIONS TO PRESERVE AND PROTECT
PARTNERS' AND INVESTORS' INTENT
In order to preserve and protect the determinations and allocations provided for
in the Fund Agreement, Boston Associates is authorized and directed to allocate
income, gain, loss, deduction, or credit arising in any year differently from
otherwise provided for in the Fund Agreement to the extent that allocating
income, such items in the manner provided for in the Fund Agreement, in the
judgment of the tax advisors to Boston Capital, would cause the determinations
and allocations of each partner's and investors' distributive share of such
items not to be permitted by Section 704(b) of the tax code and its Treasury
Regulations. No amendment of the Fund Agreement or approval of any partner or
investor shall be required in connection with any such new allocation. See
"Federal Income Tax Matters--Fund Allocations and Distributions."
An operating general partner of each operating partnership will have authority
identical to that described above.
ALLOCATIONS OF PROFITS, CREDITS AND LOSSES AND CASH DISTRIBUTIONS PENDING FINAL
ISSUANCE OF CERTIFICATES
In the event that there is more than one date of issuance of certificates (an
"investment date"), any cash available for distribution, and all profits,
credits and losses allocable to the investors as a class for the period
commencing with the first day following the previous investment date and ending
on the last day preceding the next succeeding investment date shall be
distributed or allocated solely to those persons who held certificates as of or
prior to the investment date occurring within such period, on the basis of an
interim closing of Boston Capital's books on such dates.
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Profits, credits and losses will be allocated each month to the holder of record
of a certificate as of the last day of such month. Allocation of profits,
credits and losses among investors will be made in proportion to the number of
certificates held by each investor.
Any distributions of net cash flow or liquidation, sale or refinancing proceeds
will be made within 180 days of the end of the annual period to which they
relate. Distributions will be made to the holders of record of a certificate as
of the last day of each month in the ratio which the certificates held by such
person on the last day of the calendar month bears to the aggregate number of
certificates outstanding on the last day of the month.
FEDERAL INCOME TAX MATTERS
GENERAL CONSIDERATIONS
The following discussion is solely a discussion of the material federal tax
aspects of an investment in certificates by an investor, and is not a
comprehensive treatment of all tax considerations affecting an investment in
Boston Capital. In addition, although this discussion addresses issues with
respect to which Boston Capital has obtained, and expects to obtain in
connection with each investment date, an opinion of Counsel, it also discusses
certain matters for information purposes only and other matters with respect to
which Counsel does not or cannot opine. Boston Capital does not anticipate
requesting a ruling from the IRS confirming any opinion of Counsel or with
respect to any aspect of this offering, and Counsel's opinion is not binding on
the IRS or on any court.
The following statements, together with the opinions of Counsel referred to
below, are based upon the provisions of the tax code, existing and proposed
regulations thereunder, current administrative rulings, and court decisions.
However, no assurance can be given that legislative or administrative changes or
future court decisions may not significantly modify the statements or opinions
expressed here. Any changes may or may not be retroactive with respect to
transactions prior to the effective date of the changes. In particular, as a
result of the 1986 Tax Act, which significantly revised federal income tax law,
the Treasury Department has been given broad authority to promulgate regulations
implementing the provisions of the tax code and subsequent amendments thereof.
Although Boston Capital will be guided by competent tax advisors, uncertainty
exists concerning certain tax aspects of the transactions being undertaken by
Boston Capital. The IRS has announced, and is implementing, policies and
procedures for the audit of tax shelter programs pursuant to which there is a
significant possibility that partnerships such as Boston Capital and/or the
operating partnerships, will be audited. Some of the tax positions being taken
by Boston Capital and/or the operating partnerships may be challenged by the
IRS, and there is no assurance that any challenge will
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not be successful. Thus, there can be no assurance that all of the anticipated
tax benefits of a purchase of certificates will be realized.
Counsel's overall evaluation regarding the availability to an investor of the
material tax benefits from an investment in Boston Capital, in the aggregate,
appears on page 149.
The tax consequences of an investment in certificates will depend upon an
investor's own personal tax and financial situation; therefore, each investor is
urged to consult his own tax advisor with respect to the federal and state tax
consequences arising from the purchase of certificates.
BRIEF OVERVIEW OF FEDERAL INCOME TAX CONSIDERATIONS
This section briefly summarizes certain of the federal income tax considerations
associated with an investment in Boston Capital. Investors should read the
sections that follow this "Brief Overview of Federal Income Tax Considerations"
for a more detailed discussion of these federal income tax considerations.
OPINIONS OF COUNSEL. Many tax issues involve rapidly evolving areas of the law
and are not free from doubt. In addition, many tax issues involve factual issues
that will depend on the individual circumstances present at the time an event
occurs and therefore cannot be opined upon at this time. See "Opinions of
Counsel" below for a more complete discussion of these issues.
CLASSIFICATION AS A PARTNERSHIP. The ability of Boston Capital and the operating
partnerships to pass through all income, credits, losses and deductions to the
investors is dependent upon their classification as partnerships for tax
purposes. Boston Capital does not plan to apply for a ruling from the IRS as to
its status or the status of the operating partnerships as partnerships for
federal income tax purposes, although Boston Capital will receive an opinion
from Counsel that Boston Capital will be treated as a partnership and not as an
association taxable as a corporation for federal income tax purposes. Prior to
investing in any operating partnership, Boston Capital will obtain an opinion of
Counsel that the operating partnership will be classified as a partnership for
tax purposes. However, these opinions are based on various assumptions and
representations and will not be binding on the IRS or the courts. If Boston
Capital were determined to be a corporation for tax purposes, Boston Capital
would be taxed on its earnings at corporate rates and any distributions to the
investors would be treated as corporate distributions, which would be taxable as
dividends to the extent of the earnings and profits of Boston Capital, and most
importantly, the tax credits could not be passed through at that level. If the
operating partnerships are treated as corporations for federal income tax
purposes, similar consequences would follow on the operating partnership level.
See "Classification as a Partnership" below for a more complete discussion of
these items.
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INVESTMENTS IN OPERATING PARTNERSHIPS. The availability to prospective investors
of the tax benefits that are anticipated to be derived from a purchase of
certificates is dependent, in the first instance, on the following general
principles of partnership taxation:
1. Each of the operating partnerships must be classified as a partnership for
federal income tax purposes.
2. The allocation of the items of income, gain, tax credits, loss and deduction
to Boston Capital by each operating partnership must have substantial
economic effect or otherwise be in accordance with Boston Capital's interest
in such operating partnership.
3. Boston Capital's tax basis in each of the operating partnerships must exceed
the amount of losses allocated and cash distributed to Boston Capital from
that operating partnership.
4. Boston Capital's amount at-risk in each of the operating partnerships must
exceed the amount of losses allocated and cash distributed to Boston Capital
from that operating partnership.
5. Boston Capital's amount at-risk with respect to expenditures of each
operating partnership that qualify for tax credits must equal or exceed the
amount of those expenditures allocated to Boston Capital. See "Classification
as a Partnership," "Calculation of Investor's Basis in the Certificates,"
"Allocation of Profits, Credits, Losses and Other Items in Accordance with
the Fund Agreements," and "At-Risk Limitation on Credits and Losses" below
for a more complete discussion of these issues.
TAX TREATMENT OF ELECTING LARGE PARTNERSHIPS. The 1997 Taxpayer Relief Act made
certain changes in the reporting requirements of partnerships with more than 100
partners which elect to be "large partnerships."
For example, limitations have been placed on miscellaneous itemized deductions
which may be taken. The 1997 Taxpayer Relief Act provides that 70% of
miscellaneous itemized deductions are disallowed at the partnership level,
thereby reducing the benefit of those deductions. Boston Capital does not
presently intend to elect to be a "large partnership" subject to these new
requirements.
LIMITATIONS ON USE OF CREDITS AND LOSSES. Several rules exist that may limit the
ability of an investor to deduct his or her share of Boston Capital's deductions
and losses and use Boston Capital's tax credits. These limitations are:
(a) Passive Activity Loss and Credit Limitation. The tax code divides income and
losses into three categories-active, passive, and portfolio, and divides tax
credits into two categories--active and passive. Except to the extent of the
exception described below, passive losses and credits can be applied to
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offset a taxpayer's tax liability attributed to passive income, but cannot be
used to offset other types of income. These 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 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.
There is an exception to these passive activity rules which 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, subject to
certain specific additional limitations, relating to the alternative minimum tax
and the rules governing general business credits. For example, this $25,000
allowance permits the use of $8,750, $8,250, or $7,000 of tax credits per year
for individuals with at least $25,000 of income in the 35%, 33% or 28% year 2006
marginal tax bracket, respectively. Taxpayers with income subject to tax at
lower rates can use lesser amounts of tax credits in each case subject to the
specific additional limitations referred to above. For example, an individual
taxpayer with a full $25,000 of income in the 25% year 2006 marginal tax bracket
could use $6,250 of tax credits per year, and an individual taxpayer with
$25,000 of income taxable at the minimum 15% rate would be able to use $3,750 of
tax credits to offset that tax liability assuming he meets the other suitability
requirements. Marginal federal tax rates are scheduled to decline in 2004 and
again in 2006 under recent tax reduction legislation. See "Federal Income Tax
Matters--Tax Rates."
Boston Capital is expected to be treated as a passive activity and therefore,
the profits and losses (other than the portfolio income) and tax credits will be
treated as derived from a passive activity. Counsel has rendered no opinion
regarding the manner in which the limitations on losses and credits from passive
activities will apply to any particular investor, because these limitations are
applied to the particular investor rather than at the Boston Capital level and
will depend on the particular circumstances of each investor. Each investor is
strongly advised to consult his or her own tax advisor regarding the effect on
such investor of the limitation on the allowance of passive losses and credits.
See "Passive Loss and Tax Credit Limitations" below for a more complete
discussion of these issues.
(b) Basis Limitation. For each year, an investor may only take deductions and
losses from his or her taxable income to the extent those deductions and losses
do not exceed that investor's basis in his or her certificates at the end of the
year. An investor's tax basis for his or her certificates generally will be
equal to the capital contribution made plus his or her share of
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Boston Capital's nonrecourse liabilities to the extent that they do not exceed
the fair market value of the assets subject thereto. Each year, such tax basis
will be increased by the amount of profits allocated, and decreased by the
amount of losses allocated, to the investor, and decreased by the amount of cash
distributed to him or her. In addition, increases or decreases in an investor's
share of nonrecourse debt will result in corresponding increases or decreases in
the investor's tax basis. An investor may carry forward any disallowed
deductions and losses and deduct them in later years when the investor's basis
has increased (subject to application of the other limitations). It is
anticipated that each investor will have sufficient basis to claim all of Boston
Capital's deductions and losses. See "Calculation of Investor's Basis in
Certificates" below for a more complete discussion of these issues.
(c) At-Risk Limitation. For each year, an investor who is an individual or a
closely held corporation may not deduct from taxable income his or her share of
Boston Capital's deductions and losses to the extent they exceed the investor's
at-risk amount at the end of the year. An investor will generally have an
initial at-risk amount equal to the purchase price of the certificates. This
initial at-risk amount will increase by (1) such investor's share of Boston
Capital's income and gains and (2) increases in such investor's share of
qualified nonrecourse debt and will decrease by (1) such investor's share of
Boston Capital's deductions and losses, (2) the amount of cash and other
distributions made to such investor and (3) decreases in such investor's share
of qualified nonrecourse debt. The utilization of tax credits by an investor who
is an individual or a closely held corporation will also be subject to at-risk
limitations which provide that, in order to fully utilize the tax credits, the
investor must be at-risk with respect to the tax credit property.
Based upon Boston Capital's anticipated investments, the at-risk rules should
not limit the deductions or federal housing tax credit available to investors.
See "At-Risk Limitation on Credits and Losses" below for a more complete
discussion of these issues.
ALLOCATION OF FUND INCOME, GAIN, CREDITS AND LOSS. Allocations of a
partnership's income, gain, credits, loss or deduction under a partnership
agreement will be given effect for federal income tax purposes if the
allocations have "substantial economic effect" or are otherwise in accordance
with the partner's interest in the partnership, taking into account all facts
and circumstances. It is the opinion of Counsel that substantially all of Boston
Capital's allocations will be respected for tax purposes. Boston Capital will
not invest in an operating partnership without obtaining an opinion of Counsel
that substantially all of the allocations under such Operating Partnership
Agreement will be respected for tax purposes. There can be no assurance,
however, that the IRS will not successfully challenge the allocations of profits
and losses or tax credits under the Fund Agreement or any Operating Partnership
Agreement.
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DEPRECIATION. In determining profits and losses for tax purposes, a
partnership's income for any year is reduced by deductions representing
depreciation of the partnership's assets. While deductions will be made on a
property-by-property basis, Boston Capital generally expects to claim straight
line depreciation over 27.5 or 40 years with regard to all depreciable real
property owned by the operating partnerships.
HISTORIC TAX CREDIT AND ITS RECAPTURE. In addition to the federal housing tax
credit, the historic tax credit generally is available for certain
rehabilitation expenditures incurred in improving certified historic structures
and certain other buildings originally placed in service before 1936. If an
expenditure is a qualified rehabilitation expenditure on a certified historic
structure, the taxpayer is entitled to a credit equal to 20% of the expenditure
against his or her income tax liability for that year.
Boston Capital may invest in operating partnerships that incur rehabilitation
expenditures that will qualify for such historic tax credit, which would then be
available to investors to reduce their federal income taxes, but the ability of
an investor to utilize such credits may be restricted by the passive loss and
credit limitation rules.
Any historic tax credit taken for qualified rehabilitation expenditures is
subject to recapture in the event of early disposition of the property within
five years from the date it is placed in service. See "Historic Tax Credit" and
"Recapture of Tax Credits" below for a more complete discussion of these issues.
TAX TREATMENT OF CERTAIN PARTNERSHIP EXPENSES. Boston Capital and each operating
partnership may incur costs for which there is a conflict of authority regarding
deductibility or the timing of deductibility and there is no assurance that the
IRS will not challenge certain claimed deductions. The tax treatment of these
items depends, to a significant extent, upon factual issues as the exact type
and description of the services to be provided, whether in fact the payments are
made as compensation for such services or whether such payments are actually
cash distributions or syndication fees, whether the services provided are
ordinary and necessary to the business of the partnership in question, and
whether the amounts of the payments are reasonable. Since these issues vary on a
case by case basis, Counsel cannot render an opinion on these issues. See
"Certain Fees and Expenses" below for a more complete discussion of these
issues.
SALES OR DISPOSITION OF OPERATING PARTNERSHIP PROPERTY. Each operating
partnership's gain on a sale of property will be measured by the difference
between the sale proceeds (including the amount of any indebtedness to which the
property is subject) and the adjusted basis of the property. Consequently, the
amount of tax payable by an investor on his or her share of Boston Capital's
allocable share of such gain may in some cases exceed his or her share of the
cash proceeds therefrom.
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Where a taxpayer disposes of his or her entire interest in a passive activity in
a transaction in which all of the gain or loss realized on such disposition is
recognized, any loss from that activity that was disallowed by the passive loss
rules will cease to be treated as a passive loss and any loss on such
disposition will not be treated as arising from a passive activity. Depending
upon the circumstances, the disposition of a property by an operating
partnership may be subject to these rules. See "Sales or Other Disposition of an
Apartment Complex and Interest in Operating Partnerships" below for a more
detailed discussion of these issues.
SALES OR DISPOSITION OF CERTIFICATES. Any gain realized on a sale of
certificates by an investor who is not a "dealer" in the certificates or other
similar securities generally will be a capital gain. In determining the amount
received upon the sale or exchange of a certificate, an investor must include,
among other things, his or her allocable share of Boston Capital's allocable
share of each operating partnership's nonrecourse indebtedness.
Where a taxpayer disposes of his or her entire interest in a passive activity in
a transaction in which all of the gain or loss realized on such disposition is
recognized, any loss from that activity that was disallowed by the passive loss
rules will cease to be treated as a passive loss and any loss on such
disposition will not be treated as arising from a passive activity. Depending
upon the circumstances, the disposition by an investor of his or her
certificates may result in the application of this rule. See "Sale or
Disposition of Certificates" for a more complete discussion of these issues.
TRANSFERABILITY--TERMINATION OF BOSTON CAPITAL. The tax code provides that if
50% or more of the capital and profit interests in a partnership are sold or
exchanged within a single twelve-month period, such partnership generally will
terminate for federal income tax purposes. Consequently, under the Fund
Agreement, 50% or more of the certificates may not be sold or exchanged within a
single twelve-month period.
TAX RATES AND CAPITAL GAINS. The maximum individual tax rate is now 38.6% for
ordinary income and is scheduled to be reduced to 35% in 2006. The 1997 Taxpayer
Relief Act provides that capital gains income is generally subject to a maximum
marginal tax rate of 20% for individuals. However, with regard to the sale or
exchange of real property, capital gains which represents the recapture of
depreciation taken on such property will be taxed at a maximum rate of 25%.
The maximum corporate tax rate is 35%, which commences at a taxable income of
over $10 million, income up to $10 million is taxed at 34%; income up to $50,000
is taxed at 15% and income between $50,000 and $75,000 is taxed at 25%, with the
benefits of these graduated rates phased out beginning at $100,000.
ALTERNATIVE MINIMUM TAX. Noncorporate and corporate taxpayers, except for
certain qualifying small corporations, are subject to an alternative mini-
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mum tax. Tax credits cannot be used to offset alternative minimum tax liability.
Tax credits which cannot be used because of the alternative minimum tax
restrictions, may be carried back one year or forward twenty years, with certain
restrictions. See "Certain Other Tax Considerations--Alternative Minimum Tax"
below for a more complete discussion.
TAX RETURNS AND TAX INFORMATION. Although partnerships are not subject to
federal income taxation, they must file annual partnership income tax returns.
For each taxable year, each investor must report on his or her federal income
tax return his or her share of Boston Capital's income, gains, losses,
deductions and credits, regardless of whether he or she has received any cash
distributions from Boston Capital. The IRS is paying increased attention to the
proper application of the tax laws to limited partnerships whose interests are
sold to a large number of investors. As a consequence, IRS audits of Boston
Capital's tax information returns are likely. Investors should note that a
federal income tax audit of Boston Capital's tax information returns may result
in an audit of the returns of some or all of the investors.
TAX SHELTER REGISTRATION. The tax code includes two special provisions with
respect to tax shelters. First, it requires the promoters of tax shelters to
maintain lists of investors and to make such lists available to the IRS. Second,
it requires that the tax shelter register with and furnish certain information
to the IRS. Boston Capital will be treated as a tax shelter for purposes of
these requirements.
CHANGES IN TAX LAW. There may be changes to the tax code in future years
(including amendments having a retroactive effect) which could adversely affect
an investment in Boston Capital.
OPINIONS OF COUNSEL
Counsel is of the opinion that, to the extent that the summary of federal income
tax consequences to the investors set forth in this "Federal Income Tax Matters"
section and under the headings "Risk Factors--Federal Income Tax Risks" and
"Government Assistance Programs--Low Income Housing Tax Credit" involves matters
of law, such statements are accurate in all material respects under the tax
code, regulations and existing interpretations thereof and address fairly the
principal aspects of each material federal income tax issue relating to an
investment in Boston Capital. Based on the assumptions and representations
described herein, Counsel is of the opinion that for federal income tax
purposes: (1) Boston Capital will be classified as a partnership and not as an
association taxable as a corporation; (2) Boston Capital will not be treated as
a publicly traded partnership for purposes of Section 7704 or Section 469(k) of
the tax code; (3) each investor will be permitted to include in his or her tax
basis his or her share of the non-recourse liabilities of Boston Capital,
including Boston Capital's share of such liabilities of each operating
partnership; (4) it is more likely than not that profits
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and losses and tax credits will be allocated among the investors substantially
in accordance with the Fund Agreement; and (5) the profits and losses (other
than the portion thereof classified as portfolio income) and tax credits of
Boston Capital will be treated as derived from a passive activity.
Boston Capital has not yet identified any particular investment in an operating
partnership, however, and the tax benefits available to investors necessarily
will depend in large part upon the characteristics of the particular investments
acquired. Prior to investing in any operating partnership, Boston Capital will
obtain an opinion of Counsel, which may be based on assumptions and on
representations from Boston Associates and the general partners of that
operating partnership, and on certain opinions of counsel to that operating
partnership, substantially to the effect that for federal income tax purposes
(1) the operating partnership will be classified as a partnership and not as an
association taxable as a corporation; (2) the operating partnership will be the
owner of the relevant apartment complex; (3) it is more likely than not that
profits and losses and tax credits of the operating partnership will be
allocated to the Partnership substantially in accordance with the Operating
Partnership Agreements; (4) for purposes of determining its tax basis and amount
at-risk for the operating partnership, Boston Capital will be permitted to take
into account its properly allocable share of such operating partnership's
nonrecourse liabilities; and (5) assuming (a) that the apartment complex owned
by the operating partnership satisfies the income and rent restrictions
applicable to apartment complexes generating federal housing tax credits, (b)
that the apartment complex receives its State Designation and (c) that the
apartment complex continues to comply with the income and rent restrictions, it
is more likely than not that an investor will be entitled to his or her share
(based on his or her interest in the losses of Boston Capital) of Boston
Capital's share (based on Boston Capital's interest in losses of the operating
partnership) of federal housing tax credits generated by an apartment complex.
No investment in any operating partnership will be made unless the opinion of
Counsel referred to in this paragraph is obtained. See "Investment Objectives
and Acquisition Policies--Acquisition Policies."
However, no legal opinion has been obtained, and it is not anticipated that an
opinion will be obtained in connection with an investment in an operating
partnership, regarding determinations, the correctness of which depends in
significant part on future factual circumstances, as to matters peculiar to
certain investors or as to matters on which opinions are not customarily
obtained. Such determinations may include (1) the allocation of basis among
various components of a property, particularly as between buildings, the cost of
which is depreciable, and the underlying land, the cost of which is not
depreciable; (2) the characterization of various expenses and payments made to
or by Boston Capital or an operating partnership (for example, the extent to
which such payments represent deductible fees or interest); (3) the
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portion of the cost of any apartment complex that qualifies for the tax credits,
including the federal housing tax credit or the historic tax credit; and (4) the
application to any specific investor of the limitation on the availability of
passive activity losses and credits. There can be no assurance, therefore, that
some of the deductions to be claimed by Boston Capital or the allocation of
items of income, gain, credits, loss and deduction among the investors, will not
be challenged by the IRS and that such challenge will not be sustained by the
courts. Such challenge, if successful, could have a detrimental effect on the
ability of Boston Capital to realize its investment objectives. See also "Risk
Factors--Tax Risks Associated with Boston Capital's Investments."
TAX RATES
The 2001 Tax Act established a new 10% marginal tax bracket for individual
taxpayers. This rate applies to the first $12,000 of taxable income for a joint
return and the first $6,000 in taxable income for a single person's return. In
addition, the 2001 Tax Act reduces the other marginal tax rates in three steps.
The 2001 Tax Act continued the 15% tax rate under prior law for taxable income
between $12,000 and $57,850 for a joint return and taxable income between $6,000
and $30,950 for a single person's return. The 2001 Tax Act created four
additional tax rates for the year 2001 through 2003 of 27%, 30%, 35%, and 38.6%,
indexed for inflation. These tax rates are scheduled to be reduced to 26%, 29%,
34% and 37.6% for 2004 and 2005 and to 25%, 28%, 33% and 35% for 2006. The
current 27% rate applies to taxable income between $59,250 and $128,000 for a
joint return and taxable income between $31,700 and $76,800 for a single return.
From that point taxable income is taxed at the current 30% rate up to $195,050
and $160, 250 for joint and single returns. Then the current 35% rate applies
until $348,350 in both joint and single returns. Any taxable income over
$348,350 is currently taxed at the 38.6% rate. The 1997 Taxpayer Relief Act
provides that capital gains income is generally subject to a maximum marginal
tax rate of 20% for individuals. However, with regard to the sale or exchange of
real property, capital gains which represents the recapture of depreciation
taken on such property will be taxed at a maximum rate of 25%.
The tax code provides for a graduated corporate tax rate. For corporations,
taxable income up to $50,000 will be taxed at 15%, taxable income over $50,000
but not over $75,000 will be taxed at 25%, taxable income over $75,000 will be
taxed at 34%, and taxable income over $10 million will be taxed at 35%. The
benefit of the graduated rates is gradually phased out for corporations with
more than $100,000 of taxable income. If for any year a corporation is subject
to tax at rates in excess of 35%, any net capital gain recognized by the
corporation in that year is taxed at 35%, and the remainder of the income is
taxed at the higher rate.
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CLASSIFICATION AS A PARTNERSHIP
The availability of any tax benefits to an investor is dependent upon the
classification of Boston Capital and the operating partnerships as
partnerships, rather than as associations taxable as corporations, for
federal income tax purposes.
Boston Capital does not intend to request a ruling from the IRS that it will
be classified as a partnership for federal income tax purposes. Counsel has
rendered, and in connection with each investment date, will render its
opinion that Boston Capital will be classified as a partnership for federal
income tax purposes. In addition, Boston Capital will require, in connection
with its acquisition of interests in any operating partnership, that Counsel
render an opinion to the effect that the operating partnership will be
classified as a partnership for federal income tax purposes. Boston
Associates and Counsel are aware that the IRS would not issue an advance
ruling to Boston Capital or the operating partnerships with respect to their
classification as partnerships for federal income tax purposes because,
pursuant to its published procedures, the IRS will not issue such an advance
ruling where the general partners of a partnership are not obligated to
restore deficits in their capital accounts to the extent of 1% of the capital
contributions to such partnership of all limited partners.
The IRS has recently published new regulations that remove some of the
uncertainty regarding whether an entity will be classified as a partnership.
These new regulations provide that entities that are not required to be
treated as corporations may now elect their tax classification. For domestic
entities, a newly created entity with at least two members will automatically
be treated as a partnership, unless it elects to be treated otherwise.
Neither Boston Capital nor the operating partnerships will make such an
election.
If the IRS were to challenge the classification of Boston Capital or any of
the operating partnerships as partnerships, Counsel is of the opinion that
such challenge would be unsuccessful. If, however, an IRS challenge were
successful, or if there is a material change in the law or the circumstances
surrounding Boston Capital or any of the operating partnerships, Boston
Capital or any of the affected operating partnership(s), might be treated as
associations taxable as corporations. In such event, the income of each such
entity would be taxable directly to such entity and any distributions to its
partners would be treated as dividends to the extent of current and
accumulated earnings and profits of the partnership. Moreover, tax credits
and partnership losses (which include depreciation) would then be reflected
only on the partnership's tax return, rather than being passed through to
investors. This would eliminate substantially all of the tax benefits of a
purchase of certificates. Furthermore, such change in the tax status of
Boston Capital and/or any of the operating partnerships could create tax
liability for an investor.
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The 1987 Tax Act enacted new tax code Section 7704, which provides that
publicly traded partnerships will be treated as corporations for federal
income tax purposes. A publicly traded partnership is a partnership in which
interests are traded on a securities exchange or on a secondary market or the
substantial equivalent thereof. The Report of the Senate-House Conference
Committee accompanying the 1987 Tax Act indicates that if interests in a
partnership are readily tradable, then even in the absence of any established
market, if trading in such interests occurs, interests in the partnership may
be treated as publicly traded. IRS regulations and a notice from the IRS
(Advance Notice 88-75) provide guidance on the types of transfers that will
result in a partnership being deemed to be publicly traded. A partnership
which is publicly traded will not be treated as a corporation if at least 90%
of its gross income consists of qualifying "passive-type" income. This income
includes interest, dividends, rents from real property and gain from the sale
of real property. Boston Associates has represented that at least 90% of
Boston Capital's gross income will consist of qualifying "passive-type"
income.
It is the opinion of Counsel that, if the foregoing representation is
correct, Boston Capital will not be treated as a corporation pursuant to
Section 7704 of the tax code for federal income tax purposes. There is
limited guidance available for interpreting this provision of the 1987 Tax
Act, however, and no assurance can be given that the IRS will concur with
this view. In the event this passive income exception were not to apply to
Boston Capital, Boston Capital could be taxable as a corporation if it did
not meet one of the "safe harbors" in the above-referenced IRS regulations
and notice. If in the future Boston Capital becomes taxable as a corporation,
under the Fund Agreement, Boston Associates may take any and all such actions
it may deem necessary or appropriate to qualify Boston Capital (or a
successor entity) for taxation as a pass-through entity. Such action may
include, but shall not be limited to, amending the Fund Agreement,
reorganizing Boston Capital into some other form of pass-through entity, or
imposing restrictions on the transferability of certificates. Some forms of
reorganization may cause Boston Capital (and therefore investors) to
recognize the appreciation in Boston Capital's assets as taxable income.
Boston Associates is required to effectuate any such qualification, amendment
or reorganization so that, to the extent possible and legally permissible
under the circumstances, the respective interests of the investors and Boston
Associates in the assets and income of Boston Capital (or successor entity),
immediately following such qualification, amendment or reorganization, are
substantially equivalent to such interests immediately prior thereto.
CLASSIFICATION OF INVESTORS AS PARTNERS FOR TAX PURPOSES
The availability of any tax benefits to an investor is also dependent on the
investor being treated as a limited partner of Boston Capital for federal
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income tax purposes. Under Delaware law, investors will not be partners of
Boston Capital. Rather, investors will hold an assignment from the Assignor
Limited Partner of an interest in the Assignor Limited Partner's limited
partnership interest in Boston Capital. Counsel is of the opinion, however,
that investors will be treated as partners of Boston Capital for federal
income tax purposes, and that their payments for certificates will be treated
as direct capital contributions to Boston Capital in exchange for such
certificates. If investors were not considered to be partners of Boston
Capital for federal income tax purposes, ownership of certificates might be
treated as the ownership of an equity interest in the Assignor Limited
Partner or the ownership of some other contractual right against the Assignor
Limited Partner, in which case none of the profits, credits and losses of
Boston Capital would be passed through to them directly from Boston Capital.
Such treatment might cause Boston Capital's distributions to be included in
the gross income of investors for federal income tax purposes.
FUND ALLOCATIONS AND DISTRIBUTIONS
(1) GENERAL. No federal income tax is paid by a partnership. Boston Capital
will file an information return with the IRS, however, and each investor is
required to report on his own federal income tax return his allocable share
of the income, gains, credits, losses and deductions of Boston Capital,
whether or not any cash distribution was made to such investor during such
taxable year.
A partner is permitted to offset his allocable share of partnership losses in
any taxable year against his income from other sources, but only to the
extent of his adjusted basis for his interest in Boston Capital at the end of
the partnership year in which such losses occur. Any excess of such losses
over such adjusted basis may be deducted by a partner in subsequent tax years
to the extent that such partner's adjusted tax basis at the end of any such
year exceeds zero before reduction by such loss in such year.
The Operating Partnerships are expected to incur certain tax credits and
losses. Counsel has advised Boston Capital that an investor may report on his
federal income tax return his allocable share, as finally determined for
federal income tax purposes, of Boston Capital's share of such credits and
losses incurred by each of the operating partnerships. However, an opinion of
counsel is not binding on the IRS, and Boston Capital has not requested and
will not receive an advance ruling concerning whether such "pass-through" of
profits, credits and losses will be recognized for tax purposes. Were such
"pass-through" to be denied, the tax benefits of a purchase of certificates
would be very substantially reduced.
In general, each investor must treat Boston Capital items on his return
consistently with the treatment of those items on Boston Capital's return.
The tax code imposes restrictions on the ability of individual taxpayers,
personal
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service corporations, estates and trusts to use credits and losses from
interests in activities in which the taxpayer does not materially participate
("passive activities"), such as limited partnership interests; such
restrictions will apply to certificates. With exceptions for special
provisions applicable to tax credits, such taxpayers can only use such
credits and losses from such passive activities to offset income or tax
liability from passive activities, and may not use such losses to offset
active income or portfolio income (e.g. interest, dividends, royalties).
These rules do not apply to most C Corporations. Such corporations may use
losses from passive activities to offset any form of income. C Corporations
that are closely held are subject to limited passive loss restrictions. Such
corporations may use passive losses to offset active income or tax liability,
but not portfolio income or tax liability. See "Passive Loss and Credit
Limitations" below in this section.
(2) CALCULATION OF INVESTOR'S BASIS IN HIS CERTIFICATES. Subject to the
at-risk rules discussed below, a partner's tax basis for his interest in a
limited partnership includes principally the amount of money he contributes
to such partnership, his allocable share of the partnership's recourse
liabilities to the extent that he bears the economic risk of loss for such
liability, and his allocable share of liabilities as to which neither the
partnership nor any partner nor any person related to any partner is
personally liable ("nonrecourse liabilities"), to the extent such liabilities
(including interest that accrues with respect thereto and effectively is
added to principal) do not exceed the fair market value of the property
securing such liabilities. A partner's tax basis is increased by his
allocable share of any partnership income, and it is decreased (but not below
zero) by: (1) distributions received by him from the partnership (including
for this purpose his allocable share of a decrease in nonrecourse
liabilities), (2) his allocable share of partnership losses and (3) his
allocable share of the partnership's share of any reduction in the basis of
an apartment complex attributable to historic tax credits. However, no
reduction in a partner's tax basis is required as a result of the allocation
of federal housing tax credits.
Boston Capital will not itself directly own the apartment complexes but is to
be a limited partner in the operating partnerships which own the apartment
complexes. Counsel will render its opinion to Boston Capital that the tax
basis of each investor will include his allocable share of Boston Capital's
share of any mortgage and other indebtedness incurred by the operating
partnerships, provided that neither the operating partnerships nor any
partner therein has personal liability with respect to such indebtedness. In
giving its opinion, Counsel will be relying, in part, on a published Revenue
Ruling of the IRS. However, Boston Capital does not intend to request an IRS
advance ruling with respect to this issue, and such opinion of Counsel is not
binding on the IRS.
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In certain circumstances, all or a portion of the debt incurred by an
operating partnership may be guaranteed by an operating general partner or a
person related to an operating general partner. This would result in all or
portion of such debt being treated as recourse debt. Boston Capital, and thus
the investors, would not be able to include any such guaranteed portion of
such debt in basis. See "Allocation of Profits, Credits, Losses and Other
Items in Accordance with the Fund Agreements."
Boston Capital will require, in connection with its acquisition of an
interest in any operating partnership, that Counsel render an opinion to the
effect that any mortgage indebtedness incurred by the operating partnership
constitutes a nonrecourse liability (except to the extent of any guaranteed
portion in the circumstances described above) for federal income tax
purposes. Such opinion of Counsel will be based, and rely, upon an opinion of
counsel to the operating partnership that, under local law, no partner of the
operating partnership has or will have personal liability with respect to
such mortgage indebtedness.
A partner's pro rata share of the nonrecourse liabilities includable in
basis is calculated in accordance with (1) such partner's share of the
minimum gain of the partnership and (2) such partner's proportionate share of
the profits of the partnership. If an investor's share of the profits of
Boston Capital were to be challenged and successfully reallocated by the IRS,
it could result in a reduction of such investor's basis in Boston Capital.
Since an investor cannot deduct losses in an amount greater than his adjusted
tax basis at the end of Boston Capital's tax year, any reduction in basis
could have the effect of limiting the ability of an investor to deduct losses
currently and could consequently trigger gain. Unused losses may be carried
forward and may be deductible in subsequent years to the extent that such
investor has available tax basis in such years. See "Allocation of Profits,
Credits, Losses and Other Items in Accordance with the Fund Agreements,"
below.
(3) ALLOCATION OF PROFITS, CREDITS, LOSSES AND OTHER ITEMS IN ACCORDANCE WITH
THE FUND AGREEMENT. Section 704(b) of the tax code provides that tax credits
be allocated in accordance with the respective partners' shares of losses or
deductions attributable to the expenditures that give rise to such credits.
Accordingly, tax credits will be allocated to Boston Capital by each
operating partnership, and to the investors by Boston Capital, respectively,
in accordance with their respective shares of the losses of each operating
partnership, and of Boston Capital, respectively.
Regulations under Section 704(b) of the tax code governing allocations of
losses attributable to guarantees of nonrecourse debt by affiliates of
partners treat any nonrecourse indebtedness of a partnership which is
guaranteed or held in whole or in part by a partner or "a person related to a
partner" (as that term is defined in the tax code), as recourse indebtedness
for purposes of allocating profit and loss. This means that losses
attributable to the
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deemed recourse indebtedness, and associated credits, would be allocated to
those partners who bore the economic risks associated with the guarantee.
It is possible that, in certain circumstances, all or a portion of the debt
incurred by an operating partner ship will be guaranteed by an operating
general partner or a person related to an operating general partner. This
would result in the guaranteed portion of the debt being treated as recourse
debt. Accordingly (except as described in the next sentence), losses
attributable to such debt would be allocated to such operating general
partner, and federal housing tax credits attributable to such losses would
also be allocated to such operating general partner, rather than to Boston
Capital and the investors. However, the allocation of such credits and losses
to any such operating general partner would be required only to the extent
that capital contributions of Boston Capital to the applicable operating
partnership were insufficient to offset fully the losses allocable to it
pursuant to the applicable Operating Partnership Agreement. Boston Associates
anticipates that Boston Capital will only make acquisitions of interests in
operating partnerships which will permit the substantially full allocation
(to the extent of the share of credits allocable pursuant to the applicable
Operating Partnership Agreement) of federal housing tax credits to Boston
Capital and, through it, to the investors.
Section 704(b) of the tax code provides that each partner's distributive
share of the profits, losses and other items of a partnership is determined
in accordance with the partnership agreement unless (a) the partnership
agreement does not provide for the allocation of each partner's distributive
share of profits or loss (or other item) or (b) the allocation to the
partners under the partnership agreement does not have "substantial economic
effect," in which case allocations will be made in accordance with such
partners' interest in the partnership (taking into account all facts and
circumstances). Substantial economic effect is generally recognized to exist
where the allocation of taxable profits and losses actually affects the
partners' shares of economic income or loss independent of tax consequences.
Regulations with respect to the determination of partners' distributive
shares of partnership items provide clarification of the two part test for
substantial economic effect: (1) that all allocations have economic effect
and (2) that such effect must be substantial. With respect to the requirement
of economic effect, the Regulations provide, in general, that allocations
have economic effect if: (a) the partners' capital accounts are maintained
properly and allocations of items are reflected in adjustments to capital
accounts, (b) liquidation proceeds are required to be distributed in
accordance with the partners' capital account balances, and (c) following the
distribution of such proceeds, partners are required to restore any deficits
in their capital accounts to the partnership. The determination of whether an
allocation has economic effect is made as of the end of the partnership's
taxable year to
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which the allocation relates. An allocation that does not satisfy requirement
(c) may nevertheless be deemed to have substantial economic effect if the
partnership agreement contains a "qualified income offset."
The Regulations state that a partnership agreement contains a "qualified
income offset" if and only if it provides that a partner who unexpectedly
receives certain types of adjustments, allocations, or distributions in
connection with transfers of partnership interests and distributions of
partnership property which cause or increase a deficit balance in his capital
account will be allocated items of income and gain in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible.
If an agreement satisfies the first two requirements above and has a
"qualified income offset" provision, then an allocation to a partner will
have economic effect to the extent such allocation (other than an allocation
attributable to nonrecourse debt) does not cause or increase a deficit in
such partner's capital account which is greater than such partner's
obligation to contribute additional capital to the partnership. In making
this determination, the partner's capital account must first be reduced to
take into account certain allocations of loss or deduction and/or
distributions which have not yet occurred but which are reasonably expected
to occur in the future.
With respect to the substantiality requirement, the Regulations generally
state that an allocation must have a reasonable possibility of affecting the
dollar amounts to be received by the partners independent of tax consequences
in order to be substantial. An allocation is insubstantial if, as a result of
the allocation, the after-tax economic consequences of at least one partner
may be enhanced while there is a strong likelihood that the after-tax
economic consequences of no partner will be diminished. Furthermore, the
Regulations provide that allocations are insubstantial if they merely shift
tax consequences within a partnership taxable year or are likely to be offset
by other allocations in subsequent taxable years.
Regulations with respect to allocations of loss and deductions attributable
to nonrecourse debt provide that allocations cannot have economic effect
because it is the creditor (rather than any partner) who bears the economic
risk of loss with respect to such indebtedness, but the Regulations provide
that allocations of loss and deductions attributable to such debt will be
deemed to be made in accordance with the partners' interests in the
partnership if the following four requirements are met: (a) partnership
capital accounts are properly maintained and liquidation distributions are
made in accordance with capital account balances, (b) the allocations of loss
and deduction attributable to nonrecourse debt are made in a manner that is
reasonably consistent with some other significant partnership item
attributable to partnership property securing the nonrecourse debt that has
substantial economic effect, (c) the partnership agreement must contain an
obligation to restore deficit capital account balances upon liquidation or a
minimum
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gain chargeback and (d) all other material partnership allocations and
capital account adjustments must have substantial economic effect.
A minimum gain chargeback is a provision in a partnership agreement which
requires that, if there is a net decrease in partnership minimum gain during
a partnership taxable year, all partners with deficit capital account
balances at the end of such year (in excess of any amount which such partner
is obligated to restore upon liquidation and such partner's share of
partnership minimum gain) will be allocated, before any other allocations for
such taxable year, items of income and gain for such year (and, if necessary,
for subsequent years) in the amount and in the proportions needed to
eliminate such deficits as quickly as possible.
The amount of partnership minimum gain is computed with respect to each
nonrecourse liability of the partnership by determining the amount of gain
which would be realized by the partnership if it disposed of the partnership
property subject to such liability in full satisfaction thereof, and by then
aggregating the amounts so computed. Special rules are provided for cases
where property is subject to more than one liability, and where property is
subject to a debt that is partially recourse and partially nonrecourse.
Regulations under Section 704(b) of the tax code also utilize a concept of
partner nonrecourse debt which includes indebtedness which is nonrecourse to
the partnership but with respect to which a partner or a related person is
deemed to bear the economic risk of loss. Such indebtedness is includable
solely in the tax basis of the partner or partners who bear the economic risk
of loss, and any allocations attributable to such indebtedness must be made
to those partner(s) who bear the economic risk of loss.
The Regulations under Section 704(b) also require that to the extent the
minimum gain attributable to partnership nonrecourse debt or partner
nonrecourse debt is reduced, there must be a minimum gain chargeback (of
income) to those partners that had previously received allocations of losses
or deductions attributable to the minimum gain with respect to such debt.
In the case of Boston Capital, all allocations will result in adjustments in
Capital Accounts which will be maintained in accordance with the requirements
of the Regulations. Additionally, the Fund Agreement will contain a qualified
income offset provision, minimum gain chargeback provisions, and a provision
stating that liquidation proceeds will be distributed in accordance with each
partner's capital account. Consequently, it is anticipated that the
allocations provisions of the Fund Agreement will meet the requirements of
the Regulations.
Regulations issued under Section 704 of the tax code provide that tax credits,
other than tax credits specifically subject to the Regulations under Section 46
of the tax code, are to be allocated in accordance with the allocation of the
deductions attributable to the expenditures relating to such credits. In
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the case of the federal housing tax credits, the allocation would follow the
allocation of depreciation deductions of the apartment complex. Since
expenditures relating to the federal housing tax credits are expected to be
funded with investor capital contributions and nonrecourse indebtedness, the
allocation of federal housing tax credits to investors should be permitted in
the same ratio as the deductions for depreciation, which should permit
substantially all federal housing tax credits to be allocated to the
investors of Boston Capital. However, if Boston Capital's (as the limited
partner of the operating partnership) capital account has been reduced to
zero at any time during which the operating general partner has a positive
capital account or has personal liability with respect to operating
partnership debt, then deductions (and hence federal housing tax credits if
during the credit period) would be allocated to the operating general
partner. It is possible that the IRS may contend that an operating general
partner's obligation to fund operating deficits results in such operating
general partner having personal liability on an otherwise nonrecourse loan.
With respect to the allocation of historic tax credits, Regulation Section
1.46-3(f) provides that, in the case of a partnership, each partner takes
into account his share of the credit basis as if he were the direct purchaser
of that share of the property. A partner's share of the credit basis is
determined in accordance with his share of partnership profits on the date on
which the property involved is placed in service by the partnership.
Finally, because of certain fees payable to the operating general partners or
their affiliates by the operating partnerships, it is unlikely that Boston
Capital will receive any cash flow distributions from the operating
partnerships for a substantial period of time. On this basis, the IRS could
contend that Boston Capital has no economic interest in the operating
partnerships and therefore should not be treated as a partner of such
operating partnerships, and thus is not entitled to allocations of profits,
losses or tax credits of the operating partnerships. However, Boston Capital
is legally entitled to cash earnings of the operating partnerships if cash
earnings are available in excess of amounts required to pay fees, and to cash
benefits if an apartment complex is sold or refinanced, and the IRS has
recognized the limited value of cash distributions in low income housing
investments in Revenue Ruling 79-300. Accordingly, even though no cash flow
is expected for a substantial period of time, Boston Capital should still be
treated as a partner in each of the operating partnerships.
Upon review of the Fund Agreement and assuming the Fund Agreement will be
executed in substantially this form, it is the opinion of Nixon Peabody LLP that
the allocations set forth in the Fund Agreement have "substantial economic
effect" and/or are in accordance with the interests of the partners (and
investors) in Boston Capital and that, while the outcome of litigation cannot be
predicted with certainty, it is more likely than not that, if the
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issue were litigated, a court would so hold. Boston Capital will obtain an
opinion of Nixon Peabody LLP prior to making any investment in any operating
partnership to the effect that the allocations set forth in the Operating
Partnership Agreement have "substantial economic effect" and/or are in
accordance with the interests of the partners in the operating partnership
and that, while the outcome of litigation cannot be predicted with certainty,
it is more likely than not that, if the issue were litigated, a court would
so hold.
It is possible that in certain circumstances all or a portion of the debt
incurred by an operating partnership will be guaranteed by an operating
general partner or a person related to an operating general partner. This
would result in the guaranteed portion of the debt being treated as recourse
debt. Accordingly, losses attributable to such debt would be allocated to the
operating general partner and federal housing tax credits attributable to
such losses would also be allocated to the operating general partner, rather
than to Boston Capital and investors. However, the allocation of such losses
and credits to the operating general partner would be required only to the
extent that capital contributions of Boston Capital to the operating
partnership were insufficient to offset fully the losses allocable to it
pursuant to the Operating Partnership Agreement. Boston Associates
anticipates that Boston Capital will only make acquisitions of interests in
operating partnerships which will permit the substantially full allocation of
federal housing tax credits to Boston Capital and the investors.
Counsel's opinion assumes that the capital account balances (as that term is
defined in the Fund Agreement and the Operating Partnership Agreements) of
the partners of Boston Capital, or the partners of an affected operating
partnership, as applicable, are not significantly adjusted by reason of a
termination of Boston Capital or an operating partnership, or by reason of
capital contributions (such as, for example, unanticipated advances of
capital from general partners which may be deemed for federal income tax
purposes to be capital contributions), other than the capital contributions
provided for in the Fund Agreement and the Operating Partnership Agreements.
Counsel's opinion also assumes, in those instances where there are guarantees
of operating partnership debt by an operating general partner or a person
related to an operating general partner, that the capital account balances of
Boston Capital in such operating partnerships are sufficient to permit the
allocation of credits and losses to Boston Capital. If such capital accounts
are insufficient, Counsel would be unable to render such opinion.
Because unanticipated circumstances may occur with respect to Boston Capital
which would affect the allocations of profits, credits and losses, the Fund
Agreement provides, and the Operating Partnership Agreements will provide,
authority to the appropriate general partner, upon the advice of the tax
advisors to the applicable partnership, to vary the allocations of profits,
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losses and credits, or any item thereof, from that contained in the
partnership agreements in any year in order to preserve and protect the
allocations of profits and losses to all partners (and investors) of Boston
Capital and all partners (including Boston Capital) of the operating
partnerships. See "Sharing Arrangements: Profits, Credits, Losses, Net Cash
Flow and Residuals--Authority of Boston Associates to Vary Allocations to
Preserve and Protect Partners' and Investors' Intent."
If a court were to conclude that any of such allocations lack substantial
economic effect and are not in accordance with the partners' (and investors')
interests in Boston Capital or the applicable partners' interests in an
operating partnership, partnership income, gain, credit, loss or deduction
(or items thereof) could be reallocated to Boston Capital and/or its partners
and investors in a manner substantially less favorable than that set forth in
the applicable Operating Partnership Agreement and/or the Fund Agreement.
(4) ADVANCES TREATED AS DEBT FOR FEDERAL INCOME TAX PURPOSES. If a
partnership borrows funds and the terms of the loan, as well as other facts
and circumstances surrounding the loan, indicate that the funds may be in the
nature of an equity contribution rather than a loan, the IRS could contend
that the advance should not be treated as debt for federal income tax
purposes. Advances by partners or affiliates in the form of nonrecourse loans
are particularly susceptible to such a challenge. If such a challenge were
successful, (a) no interest deductions would be permitted with respect to the
advance, (b) the "lender" may be treated as a partner in the partnership
entitled to a distributive share of partnership items of income, gain,
credit, loss or deduction, and (c) the other partners would not be permitted
to include the loan as a partnership liability for purposes of computing
their tax basis in their partnership interests. If the lender is already a
partner, and the funds were to be treated as an additional equity
contribution, the IRS might contend that such partner is entitled to a
greater share of the losses and credits of the partnership than those
allocated to the partner in the partnership agreement.
It is uncertain how the law in this area may be applied to particular facts.
Because of such uncertainty and because the terms and conditions of future
advances, if any, by either the applicable general partner(s) of an operating
partnership or of Boston Capital cannot be foreseen, Counsel is unable to
predict at this time the outcome of any challenge by the IRS to Boston
Capital's or an operating partnership's treatment of any such loans.
(5) ALLOCATION OF PROFITS, CREDITS AND LOSSES TO INVESTORS IN YEAR OF
PURCHASE OF CERTIFICATES. Subject to the rules governing basis limitations
and passive losses, an investor will be entitled to deduct his pro rata share
of Boston Capital's losses in the year he purchases certificates, based upon
the length of time that he is an investor during the year. Although the tax
code does not specifically provide for any method other than a daily
allocation
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method, the legislative history of the 1984 Tax Act indicates that until
regulations are issued by the Treasury Department providing for the
appropriate method, a partner admitted to a partnership may be permitted to
receive his share of the partnership's profits and losses for the entire
month he is admitted to Boston Capital, regardless of what day in the month
the admission occurs. The Treasury Department has the authority to issue
regulations which are more restrictive than this monthly convention.
The legislative history of the 1986 Tax Act indicates that allocations of
federal housing tax credits to partners of partnerships should be determined
in accordance with the same rules as the general partnership profit and loss
allocation rules. Boston Capital intends to allocate such tax credits on the
basis of the interest in losses of an investor, or of Boston Capital in an
operating partnership, as applicable, beginning with the month in which such
investor purchases certificates, or Boston Capital acquires an interest in an
operating partnership, as applicable.
The rules for allocating historic tax credits are different from those rules
for federal housing tax credits discussed above, however, and provide that
only investors who are admitted to Boston Capital on or prior to the date the
building as to which such tax credits are claimed is placed in service will
be allocated their share of the historic tax credits; correspondingly, Boston
Capital must have acquired its interest in the applicable operating
partnership on or prior to the date the applicable building is placed in
service in order to receive any allocation of the historic tax credits.
With respect to federal housing tax credits, special rules for determining
the amount of credit that is available apply for the first year that a
building is occupied by low-income tenants. See "Tax Credit Programs--The
Federal Housing Tax Credit-Utilization of the Federal Housing Tax Credit."
(6) ALLOCATION OF PROFITS, CREDITS AND LOSSES UPON SALE OF CERTIFICATES. The
Fund Agreement provides that on the sale of certificates, Boston Capital's
profits, credits and losses and cash distributions during the year of the
sale will be allocated and distributed to the purchaser from and after the
first day of the month following the transfer, or by any other agreed upon
method approved by Boston Capital's tax advisors. There can be no assurance
that the IRS would not challenge the use of any such allocation other than a
daily allocation method. See "Sale or Disposition of Certificates" below in
this section.
FEDERAL HOUSING TAX CREDIT
The tax code provides for a tax credit for investments in low income housing
constructed, acquired or rehabilitated after 1986, as described under "Tax
Credit Programs--The Federal Housing Tax Credit."
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Boston Capital will not acquire interests in an operating partnership unless
it receives an opinion from Counsel that, assuming (a) that the apartment
complex owned by the operating partnership satisfies the income and rent
restrictions applicable to apartment complexes generating federal housing tax
credits, (b) that the apartment complex receives its State Designation and
(c) continuing compliance with the income and rent restrictions, it is more
likely than not that an investor will be entitled to his share (based on his
interest in the losses of Boston Capital) of Boston Capital's share (based on
Boston Capital's interest in losses of the operating partnership) of federal
housing tax credits generated by an apartment complex. However, because of
the many factual issues, no opinion will be rendered as to whether any
particular apartment complex qualifies for the federal housing tax credit.
See "Tax Credit Programs--The Federal Housing Tax Credit."
STATE DESIGNATION OF APARTMENT COMPLEXES
All apartment complexes, except those financed through the proceeds of
tax-exempt bonds subject to the tax-exempt bond limitation included in the
tax code, must be allocated federal housing tax credit authority by the
applicable state or local credit agency. Failure of an apartment complex to
receive State Designation or to meet initially the applicable income and rent
restrictions would result in the denial of all federal housing tax credits
with respect to an apartment complex. This would materially reduce the tax
benefits to an investor of a purchase of certificates. At the time Boston
Capital is admitted to an operating partnership, it is possible that the
operating partnership will not yet have received its State Designation, or
will not have rented a sufficient number of units in the apartment complex to
know whether the income level and the rent restriction tests can be met. The
Operating Partnership Agreements are anticipated to provide for a repurchase
of Boston Capital's interest by the operating general partners if, among
other things, an apartment complex does not receive its State Designation in
the year in which the apartment complex is placed in service or has not met
both the income level and rent restriction tests within twelve months after
an apartment complex is placed in service. See "Investment Objectives and
Acquisition Policies--Acquisition Policies." Although Boston Associates will
use its best efforts to reinvest promptly any funds received on such a
repurchase in operating partnerships owning apartment complexes eligible for
federal housing tax credits (subject to the limitations set forth in
"Investment Objectives and Acquisition Policies--Acquisition Policies"), there
is no assurance that Boston Associates will be able to reinvest the proceeds
of such a repurchase in new operating partnerships. Any reinvestment is
likely to cause a delay in obtaining tax credits. In addition, it is possible
that the proceeds may be reinvested in operating partnerships that have
already begun the ten-year federal housing tax credit period, which would
result in a reduced amount of federal housing tax credits. See "Investment
Objectives and Acquisition Policies--Unused or Returned Funds."
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HISTORIC TAX CREDIT
As described in "Tax Credit Programs--Historic Tax Credit," the tax code
provides for a separate tax credit equal to 20% of qualified rehabilitation
expenditures for certified historic structures. It is anticipated that a
portion of the net proceeds of the offering may be used to invest in
operating partnerships owning apartment complexes eligible for historic tax
credits.
With respect to any non-profit operating partnership, an amount of otherwise
qualified rehabilitation expenditures equal to the tax-exempt entity's
highest proportionate share of any interest in an apartment complex will not
be eligible for historic tax credits.
The entire historic tax credit can be claimed only in the year in which the
property generating the credit is placed in service. Each investor would be
entitled to take into account separately his allocable share of the historic
tax credit attributable to any qualified investment on the date the property
is placed in service. Investors acquiring certificates after such date will
not be entitled to any portion of the historic tax credit.
The use of the historic tax credit is limited by the amount that the taxpayer
has at-risk with respect to the investment that generates the historic tax
credit. In addition to the at-risk requirements described in "Federal Income
Tax Matters--At Risk Limitations," a taxpayer must be at-risk for a minimum
of 20% of the credit base of the property. To the extent that a taxpayer is
protected against loss through guarantees, stop-loss agreements, or other
similar arrangement, a taxpayer may not be considered at-risk with respect to
his investment. Capital contributions made by Boston Capital to an operating
partnership may be subject to an adjuster, repurchase or other "stop-loss"
provision. It is possible that the IRS will argue that investors will not be
deemed to be at-risk with respect to their capital contributions until such
provision terminates, thus deferring their ability to utilize tax credits for
expenditures funded with their capital contributions. Based on the Proposed
Regulations under Section 465 of the tax code, the determination of this
issue would likely depend upon whether any adjuster or repurchase provision
would effectively protect investors against loss in all likely situations. It
is possible that the IRS will argue that an obligation given to Boston
Capital by an operating partnership to repurchase its operating partnership
interest or to return its capital contributions will be treated as a
guarantee or stop-loss agreement. Given the lack of direct authority on this
issue, Counsel is unable to predict the outcome of any such challenge. If a
court were to conclude that a repurchase obligation provides protection
against loss in a similar manner as a guarantee or stop-loss agreement, then
the credit base for purposes of determining historic tax credits may be
reduced in an amount equal to Boston Capital's equity investment in the
applicable operating partnership, resulting in a denial of historic tax
credits.
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Certain Operating Partnership Agreements could, but are not currently
anticipated to, provide for a repurchase of Boston Capital's operating
partnership interest (or in certain circumstances a reduction in the capital
contributions of Boston Capital to the applicable operating partnership) in
the event the apartment complex does not receive certification from the
United States Secretary of the Interior within certain time limits, but only
if Boston Capital receives an opinion of Counsel that it is more likely than
not that such repurchase and reduction obligations would not be treated as a
guarantee or stop-loss agreement. As of the date of this Prospectus and based
on current law, Counsel anticipates that it will be unable to render a
favorable opinion in such a situation. In the event that such repurchase and
reduction obligations are included in an Operating Partnership Agreement and
either of such events occurs, there is no assurance that Boston Associates
will be able to reinvest the proceeds in operating partnership interests
meeting the investment objectives of Boston Capital, and any reinvestment
would probably cause a delay in obtaining any tax credits, and any such tax
credits might or might not include historic tax credits. See "Investment
Objectives and Acquisition Policies."
Boston Capital will not acquire interests in an operating partnership owning
an apartment complex eligible for historic tax credits unless it receives an
opinion of Counsel that assuming that: (a) an apartment complex meets the
requirements for the historic tax credit and (b) Boston Capital has acquired
its interest in the operating partnership at or prior to the time the
apartment complex owned by the operating partnership is placed in service,
each investor who acquired his certificates at or prior to the time the
apartment complex is placed in service will be entitled to his share (based
on his interest in the profits of Boston Capital) of Boston Capital's share
(based on Boston Capital's share of profits in the applicable operating
partnership) of historic tax credits generated by such apartment complex.
However, because of the many factual issues, no opinion will be rendered as
to whether any particular apartment complex qualifies for the historic tax
credit.
PASSIVE LOSS AND TAX CREDIT LIMITATIONS
Tax code Section 469 imposes limits on the ability of certain taxpayers as
described below to use losses and credits from so-called "passive activities"
to offset taxable income and tax liability arising from non-passive sources.
A passive activity includes (a) one which involves the conduct of a trade or
business in which the taxpayer does not materially participate, or (b) any
rental activity. With certain limited exceptions, a limited partner will not
be treated as materially participating in a limited partnership's activities.
With the exception of the portion of the partnership's income that is
portfolio income, based on the anticipated activities of Boston Capital,
Counsel is of the opinion that the profits, credits and losses of Boston
Capital will be treated as derived from a passive activity.
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Portfolio income generally includes net income from the activity that is
derived from interest, dividends, annuities or royalties, unless such income
is derived in the ordinary course of a trade or business, and any gain or
loss from the disposition of property that produces portfolio income or that
is held for investment. Any income, gain or loss that is attributable to an
investment of working capital also will be treated as portfolio income.
Although the matter is not free from doubt due to the factual nature of the
issue, it is anticipated that the activities of Boston Capital will
constitute the conduct of a trade or business. Consequently the portfolio
income of Boston Capital will primarily consist of interest earned on its
invested reserves, which could amount to a substantial allocation of
portfolio income. Prospective investors should be aware that the Department
of Treasury has reserved the right to recharacterize other types of income
from passive activities as portfolio income, and that proposed regulations
have been issued which would recharacterize certain types of "self-charged"
interest income as passive activity income. Foreign tax credits are not
subject to the passive loss rules.
INDIVIDUALS. Individual taxpayers may use tax credits from passive activities
to offset certain amounts of tax liability from non-passive sources.
Individuals can utilize tax credits to offset taxes on up to $25,000 of
active or portfolio income. Thus, an individual taxed at the year 2006 and
beyond 28% tax rate could use tax credits to offset $7,000 (28% x $25,000) in
taxes on such income, and an individual taxed at the year 2006 and beyond 33%
or 35% tax rate could use tax credits to offset $8,250 and $8,750,
respectively, in taxes on such income. Married individuals filing separately
may each use tax credits to offset taxes on up to $12,500 of non-passive
income, but only if they have lived apart for the entire year. Otherwise,
married individuals filing separately may not utilize tax credits to offset
taxes on non-passive income.
Tax credits in excess of the $25,000 limit are subject to the general rules
governing passive activities. Under these general rules in tax code Section
469, individual taxpayers generally are allowed to use credits or deduct
losses generated by passive activities only to the extent of income or tax
liability generated by passive activities. If an individual investor has no
passive income for a taxable year against which losses can be offset, or no
passive income tax liability against which passive credits may be used, any
losses and credits allocated to him will be carried forward to the succeeding
taxable year. Thus, tax credits in excess of the $25,000 limit can be used by
such taxpayers only against tax liability arising from passive activities or
carried forward pursuant to the passive activity loss limitation rules.
Losses of limited partners from limited partnerships owning apartment
complexes are not eligible for the $25,000 allowance. Thus, they are subject
to the general rules under Section 469 and can only be used against passive
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income or be carried forward. Upon disposition of an interest, any unused
passive losses that were carried forward by an investor may be used without
limitation, first to offset any capital gain realized upon disposition and
any remaining losses may be used to offset any active income as directed by
Section 469. Notwithstanding the foregoing, investors subject to the
alternative minimum tax would still have to take into account the alternative
minimum tax passive loss limitations.
For taxpayers with adjusted gross income of less than $150,000, and who
actively manage rental real estate properties, there is an exception to the
general rule which allows their losses from these properties to be eligible
for up to a $25,000 allowance each year. For taxpayers with adjusted gross
income of between $100,000 and $150,000 there is a gradual phaseout of the
$25,000 yearly allowance. However, the $25,000 amount each year is an
aggregate allowance for both credits and losses of the same taxpayer.
Accordingly, if a taxpayer has both eligible credits and losses, the losses
from the active rental activities must be used before the credits. In
addition, credits other than federal housing tax credits (such as historic
tax credits) must be used before federal housing tax credits.
With respect to historic tax credits only (and not with respect to federal
housing tax credits), individual taxpayers will have this special $25,000
exception phased out if their adjusted gross income is in excess of $200,000.
With respect to federal housing tax credits, pursuant to the Omnibus Budget
Reconciliation Act of 1989, the previously existing $200,000-$250,000
adjusted gross income limitation was repealed with respect to federal housing
tax credits generated by apartment complexes which are placed in service
after 1989 and as to which an interest is acquired after 1989.
Under the 1987 Tax Act, income, credits and losses of a partnership
classified as a publicly traded partnership are also characterized as passive
income, credits and losses from a separate activity. Credits and losses from
an investment in a publicly traded partnership can only be used as an offset
against income subsequently generated by the publicly traded partnership, and
income from a publicly traded partnership cannot be sheltered by losses from
other passive activities. Federal housing tax credits or historic tax credits
generated by a publicly traded partnership must first be used to reduce the
income of the publicly traded partnership before it may reduce income from
other sources. However, it is not anticipated that Boston Capital will be
classified as a publicly traded partnership. See "Classification as a
Partnership" above in this section.
CORPORATIONS. Except as described below, corporations are generally not
subject to limitations on their use of passive credits and losses and can
utilize such credits and losses against any type of income or the tax
liability attributable to any type of income, except as provided below. Two
types of
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corporations, however, are subject to limitations: closely held C
Corporations and personal service corporations. Closely held C Corporations
are those C Corporations that at any time during the last half of the taxable
year were more than 50% owned, by value, directly or indirectly by five or
fewer individuals. For the purposes of such a determination, stock held by
related parties is taken into account pursuant to special stock attribution
rules. Members of a family who are a spouse, a brother or sister, or an
ancestor or lineal descendant of a shareholder are counted together with that
shareholder as a single shareholder. Unlike regular C Corporations, closely
held C Corporations may not use passive losses and credits to offset tax
liability attributable to portfolio income. Closely held corporations which
are not personal service corporations are allowed to utilize their passive
activity losses and their passive activity credits to offset their tax
liabilities arising from net active income. Generally this special exemption
would allow such closely held corporations to shelter their taxable income
from other sources, other than portfolio income, with credits and losses from
passive activities; however, because of the at-risk limitations discussed
below, closely held C Corporations could receive a lower yield on their
investment than other investors if an apartment complex receives financing
which is not qualified nonrecourse financing for purposes of the at-risk
rules in sections 465 and 49 of the tax code.
Personal service corporations are only allowed to use passive credits and
losses, including tax credits, to shelter passive income or tax liability
attributable to passive income. For this purpose, the term "personal service
corporation" is defined to mean a corporation the principal purpose of which
is the performance of personal services in the fields of health, law,
engineering, architecture, accounting, actuarial science, performing arts, or
consulting, and such services are substantially performed by any employee who
owns, on any day during the year, any of the outstanding shares of such
corporation. For this purpose, stock held by related parties is taken into
account pursuant to special stock attribution rules generally similar to
those described in the previous paragraph for closely held corporations. In
general, if the compensation paid in any manner to the shareholders of the
corporation who perform such services is more than 20% of the total
compensation paid to all employees, the corporation will be classified as a
personal service corporation. Corporations, the principal purpose of which is
the performance of personal services, are strongly advised to consult their
professional advisors regarding their classification as personal service
corporations for this purpose.
Since a corporation subject to Subchapter S of the tax code is treated as a
pass-through entity for federal tax purposes, each shareholder is generally
subject to the limitations on the use of tax credits and passive losses which
apply to individuals.
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ALL TAXPAYERS. Notwithstanding the exemption from the passive activity
limitations for most C Corporations, two other restrictions may prevent current
use of tax credits by all taxpayers. First, tax credits cannot be used to offset
tax attributable to the alternative minimum tax. Second, tax credits are subject
to the rules governing general business credits which limit the amount of tax
liability which may be offset by business credits in any one year. Under this
rule, the amount of tax credits which may be used is equal to $25,000 of regular
tax liability plus 75% of any remaining regular tax liability, subject to the
limits of the tentative minimum tax. Once tax credits have been made available
under the $25,000 limitation, those tax credits are treated as credits arising
from an active, rather than a passive, activity. Tax credits which cannot be
used because of the foregoing restrictions of the alternative minimum tax and
general business credit rules may be carried back one year or forward twenty
years. For taxpayers subject to the passive loss rules, those taxpayers with tax
liabilities attributable to net passive income may use tax credits to offset
that tax, subject to the limitation on business credits described above and the
alternative minimum tax. Any excess passive tax credits may be carried forward
and used indefinitely, but not back, against tax liability attributable to net
passive income in future years, subject to the above limitations in those years.
AT-RISK LIMITATION ON CREDITS AND LOSSES
Sections 465 and 49 of the tax code place limits on the amount of credits, and
of losses, that may be used by individuals and closely-held corporations, which
limits relate to the amount which any such taxpayer has at-risk. Generally,
partners will be deemed to be at risk for purposes of calculating credit base,
and of deducting losses, with respect to nonrecourse financing if it is
qualified nonrecourse financing.
Under Section 465 of the tax code, the deduction of losses from an activity,
including real estate activities, is limited to the amount such a taxpayer has
at-risk with respect to the activity. However, the tax code provides an
exemption from the at risk rule for real property, if it is financed with
certain third-party nonrecourse debt.
Under Section 49 of the tax code, the credit base for purposes of determining
the amount of available tax credits is limited to the basis of the property
less any nonqualified nonrecourse financing. In addition, with respect to
historic tax credits, no more than 80% of the credit base for purposes of
computing the historic tax credit may consist of nonrecourse financing, nor
may the financing be obtained from a related party. See "Historic Tax Credit"
above in this section.
It is anticipated that, in most instances, the permanent mortgage loan obtained
by an operating partnership will be nonrecourse financing from third parties
unaffiliated with Boston Capital, the operating partnership or
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any partners, and that such financing will qualify as qualified nonrecourse
financing for purposes of Section 465 and Section 49 of the tax code.
In certain instances, however, all or a portion of otherwise nonrecourse debt
may be guaranteed by an operating general partner or a person related to an
operating general partner. This would result in Boston Capital and the investors
being unable to include such financing in the basis for purposes of the at-risk
rules, and could delay or prevent the allocation of losses, and credits
attributable to depreciation losses, to Boston Capital and the investors, but
would not adversely affect the at-risk basis for purposes of generating credits.
Nonetheless, Boston Associates anticipates making acquisitions only in those
operating partnerships which will not limit the availability of credits.
Assuming that the permanent mortgage loans are qualified nonrecourse financing,
in the opinion of Counsel it is more probable than not that the at-risk rule
will not limit the availability to an investor of credits, nor limit the
deduction by an investor of losses, resulting from inclusion in basis of such
permanent mortgage loans.
It is anticipated that the operating partnerships will pay Development Fees to
the operating general partner or its affiliates and, in certain cases, to Boston
Capital Partners, Inc. It is likely that such Development Fees will accrue in
one taxable year but be paid over a two to three-year period. The operating
partnerships intend to include the full amount of such accrued Development Fees
in Eligible Basis for purposes of federal housing tax credits, and, where
applicable, in basis for purposes of computing historic tax credits. The IRS may
contend that any portion of the Development Fee which will not be paid currently
is not properly includable in basis. If the IRS were successful, the amount of
the tax credits would be delayed or reduced. Because of the lack of judicial or
regulatory guidance with respect to this issue, Counsel is unable to predict the
outcome of such a challenge.
PURCHASE OF EXISTING APARTMENT COMPLEXES FROM TAX-EXEMPT OR
GOVERNMENTAL ENTITIES
For purposes of the at-risk rules, qualified nonrecourse financing includes any
loan from a federal, state or local government and certain financing from a
"qualified person." The definition of qualified person generally excludes the
person from whom the taxpayer acquired the property. Therefore, purchase money
indebtedness is generally excluded from the at-risk basis for purposes of the
federal housing tax credits. However, Section 42 of the tax code provides an
exception to this rule for purchase money indebtedness from a qualified
nonprofit organization, which is generally defined to include tax-exempt
organizations, including governmental entities, engaged in fostering low-income
housing. If (a) no more than 60% of the tax credit basis represents such
purchase money indebtedness, (b) the interest rate on the indebtedness is not
lower than 1% less than the applicable federal rate, (c) the financing is
secured by the qualified low-income building (which in
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certain instances would require prior approval of any government agency
providing government assistance) and (d) the financing will be repaid on or
before the earlier of maturity or the end of the initial fifteen-year compliance
period, then the full amount of such financing may be included in the federal
housing tax credit basis.
Boston Capital may acquire interests in operating partnerships which will use
the above described form of financing to purchase existing apartment complexes
from tax-exempt entities. It is anticipated that the sale by a tax-exempt entity
of an apartment complex to an operating partnership would be for a combination
of cash, assumption of any mortgage indebtedness and a purchase money note. It
is likely that in any such transaction, the tax-exempt entity will have recently
acquired the apartment complex from an unrelated taxable entity. Under such
circumstances, it is likely that the taxable entity sold the apartment complex
to the tax-exempt entity for a price below its fair market value, with the
difference between the sale price and fair market value being treated as a
charitable contribution. Such a transaction is known as a bargain sale.
If an operating partnership acquires an apartment complex from a tax-exempt
entity under such circumstances, the IRS may attempt to recharacterize the
transaction. The IRS may argue that the bargain sale to the tax-exempt entity by
the taxable entity and the subsequent resale to an operating partnership should
be ignored for tax purposes, and may seek to treat the transaction as a direct
purchase by the operating partnership from the taxable entity. If the IRS were
successful, any purchase money indebtedness would be excluded from the tax
credit basis for the apartment complex, thus materially reducing the tax
benefits to investors. Counsel is unable to predict the outcome of any such
challenge.
As a separate matter, even if the IRS were to respect the form of the
transaction, the IRS could challenge the value of an apartment complex acquired
with purchase money indebtedness notwithstanding the proper inclusion of such
indebtedness for at-risk purposes. An owner of property may not include in basis
indebtedness deemed not to be bona fide indebtedness for federal income tax
purposes. Cases and rulings by the IRS have held that a nonrecourse purchase
money note may not be included in basis for federal income tax purposes unless
the fair market value of the property at least approximately equals the sum of
all indebtedness incurred in connection with the property.
If an operating partnership were to acquire an apartment complex using purchase
money indebtedness, an appraisal will be obtained from an independent qualified
appraiser supporting the purchase price of the apartment complex (and any
anticipated accrued but unpaid interest on indebtedness in connection with the
financing thereof). However, because the issue of fair market value is
essentially factual, and because such value is not presently
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ascertainable, Counsel cannot predict the outcome if the value of such an
apartment complex were challenged by the IRS.
In any event, not more than 20% of Boston Capital's investment in operating
partnership interests with respect to any series of certificates will be
comprised of acquisitions of interests in operating partnerships using the form
of acquisition financing described above.
INVESTMENT BY TAX-EXEMPT ENTITIES
Investments in the certificates may be offered to tax-exempt entities which have
and expect to continue to have income subject to federal income taxation
sufficient to use the tax credits expected to be derived from an investment in
Boston Capital.
Tax-exempt entities, such as pension funds and non-profit corporations,
generally are exempt from taxation except to the extent that "unrelated business
taxable income" ("UBTI") (determined in accordance with Sections 511-514 of the
tax code) exceeds $1,000 during any fiscal year. A tax-exempt entity may have
UBTI from other businesses in which it owns an interest. In addition, it will
have UBTI if a partnership in which it has an interest either (1) is determined
to be a publicly traded partnership (see discussion under "Classification as a
Partnership" above in this section), or (2) owns "debt-financed property," that
is, property in which there is "acquisition indebtedness" (in accordance with
Section 514(d) of the tax code), and the partnership earns interest income from
the debt-financed property or realizes gains or losses from the sale, exchange
or other disposition of the debt-financed property.
The tax code does not impose restrictions on the acquisition of interests in
partnerships such as Boston Capital by pension plans and non-profit
corporations. However, the application of the rules governing federal housing
tax credits as applied to tax-exempt entities is unclear. This is a complicated
area and those entities should consult their own tax advisors with regard to the
tax aspects of such investments.
Persons maintaining pension plans should bear in mind that the tax attributes of
an investment in Boston Capital by such plans do not flow through to the
individual maintaining the accounts. Thus, for example, an individual
beneficiary of a pension plan that purchases certificates will not receive the
tax benefit of credits or deductions from Boston Capital because he cannot claim
such credits or deductions on his own individual income tax return and they are
of no benefit to the tax-exempt entity as long as it is exempt from tax.
The trustee or custodian of a pension plan which purchases certificates may be
required to file Form 990-T (Exempt Organization Business Income Tax Return)
with the IRS to report UBTI, if any, and to pay from the employee pension
benefit plan the tax on any such income in excess of $1,000.
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RECAPTURE OF TAX CREDITS
An investor who has received federal housing tax credits will be subject to the
recapture of a portion of such credits taken in prior years, plus interest, if
either: (1) an apartment complex fails to remain in compliance with the income
and rent restrictions, (2) Boston Capital disposes of its interest in an
operating partnership or (3) an operating partnership sells an apartment
complex.
Generally, any change in ownership of a building during the federal housing tax
credit compliance period is an event of recapture, unless a bond is posted, or
treasury securities are pledged, by the seller with the Secretary of the
Treasury in an amount satisfactory to the Treasury, and it can be reasonably
expected that the building will continue to be operated as a qualified low
income building for the remainder of such compliance period. Similarly, a
disposition by Boston Capital of its interest in an operating partnership will
result in recapture of the accelerated portion of the federal housing tax
credits taken with respect to the applicable apartment complex unless Boston
Capital posts a bond as described above. In either event--the disposition of a
building or the disposition of Boston Capital's interest in an operating
partnership--the posting of the bond or the pledging of treasury securities
allows Boston Capital to avoid recapture of any federal housing tax credits
previously taken with respect to the applicable operating partnership.
An apartment complex eligible initially to receive federal housing tax credits
must remain in compliance with the income and rent restrictions for a period of
fifteen years beginning with the first day of the first taxable year in which
the credit is claimed. Failure of an apartment complex to meet the income and
rent restrictions will result in a recapture of a portion of all of such credits
taken in prior years, plus interest, and will result in a disallowance of the
credit for the year of the recapture event. During the first eleven years of the
compliance period, if requirements are not met, one-third of the credits earned
up to that point are recaptured, plus interest; between years eleven and
fifteen, the recapture is phased out ratably so that in year fifteen only 1/15
of previously taken credits attributable to the non-complying dwelling units in
the applicable apartment complex would be recaptured, plus interest.
If there is a decrease in the Qualified Basis of an apartment complex, but the
Minimum Set-Aside Test and Rent Restriction Test are still being met with
respect to other units in the apartment complex, there would be a recapture with
respect to the decrease in Qualified Basis under the same formula as described
in the immediately preceding sentence. See "Tax Credit Programs--The Federal
Housing Tax Credit-Eligible Basis and Qualified Basis."
In addition to the recapture of previously taken federal housing tax credits,
failure to maintain the income and rent restrictions throughout the compliance
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period would also result in loss of credits for future years. However,
correction of the noncompliance within a "reasonable" time period would prevent
the occurrence of a recapture event.
Recapture of prior years' credits and loss of future years' credits would
materially reduce the tax benefits to an investor and the recapture could have
significantly adverse tax consequences to an investor.
Pursuant to Section 42(j)(5) of the tax code, certain partnerships are deemed to
be "treated as the taxpayer" for purposes of the recapture, which means that
partners in such partnerships may transfer their interests without recapture and
without posting a bond or pledging securities. Such partnerships are those which
have at least thirty-five partners. Because Boston Capital has at least that
many investors, Boston Capital intends to elect to be treated as the taxpayer
under Section 42(j)(5). Thus, no recapture will result to the transferor
investor on the disposition of certificates (as long as within a twelve-month
period at least 50% (in value) of the ownership is unchanged). However, if a
recapture event occurs during the period the transferee investor owns
certificates, the transferee investor will be required to recapture a portion of
the federal housing tax credits previously taken by the transferor investor. See
"Tax Credit Programs--The Federal Housing Tax Credit."
With respect to any historic tax credits claimed, such credits will be
recaptured if a qualifying apartment complex is disposed of by an operating
partnership, or Boston Capital disposes of its interest in an operating
partnership, prior to the expiration of five years from the date the
rehabilitated apartment complex was placed in service. For purposes of
determining the recapture of historic tax credits, a disposition is deemed to
occur upon any sale, exchange, transfer, distribution, involuntary conversion,
gift or lease of the property, or the occurrence of any other event which causes
the property to cease to qualify for the historic tax credit. The recapture
amount would be equal to 100% of the historic tax credit if disposition occurs
within the first year, phasing down ratably to 20% of the credit in year five.
In addition, even if the apartment complex is not sold, or Boston Capital does
not dispose of its interest in the operating partnership, recapture will be
triggered if a partner's or investor's interest in profits is reduced to
two-thirds or less of the interest in profits that such partner held when the
apartment complex was placed in service. Once this threshold is met, the
recapture amount is equal to the extent of the reduction of the partner's or
investor's interest in profits. There is no recapture after the apartment
complex has been in service for five years.
If a taxpayer is subject to recapture, and is liable for any additional tax, no
unused credits may be used to offset that liability.
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DEPRECIATION
(1) GENERAL. The tax code permits owners of depreciable real and personal
property to take an annual deduction for depreciation based on the entire cost
of such property (without regard to salvage value) over a statutorily determined
recovery period. Deductions for depreciation commence when depreciable property
is placed in service.
(2) DEPRECIATION OF REAL AND PERSONAL PROPERTY. The recovery period over which
depreciation deductions will be taken with respect to the real property of the
apartment complexes is 27.5 years using the straight line method, pursuant to
the provisions of the tax code. However, with respect to any non-profit
operating partnership, an amount equal to the tax-exempt entity's highest
proportionate share of any interest in an apartment complex will be depreciated
over forty years using the straight line method.
The operating partnerships also will use shorter recovery periods and the
accelerated depreciation methods prescribed by the tax code for personal
property used in the apartment complexes. As a result of such election, most
personal property used in the apartment complexes, such as appliances, will be
depreciated over a seven-year period based on the 200% declining balance method,
switching to the straight line method at a time that will maximize the allowable
deductions.
Although the tax code prescribes the recovery period that a taxpayer may use for
its depreciable assets, there are, however, still some issues relating to the
computation of depreciation with respect to which there may be uncertainty.
These include, for example, the allocation of costs among depreciable and
nondepreciable property and among different classes of depreciable property, the
inclusion of certain capitalized fees in the depreciable basis of the property,
and the proper time for commencing depreciation, that is, when the improvements
are first placed in service. Such issues are factual, and, for that reason,
Counsel cannot predict the outcome of a challenge with regard to them.
CONSTRUCTION PERIOD EXPENDITURES
(1) CONSTRUCTION PERIOD INTEREST AND TAXES. Pursuant to the tax code,
construction period interest and taxes must be capitalized. Accordingly, all
construction period interest and taxes attributable to the apartment complexes
will be added to the depreciable basis of the apartment complexes.
In addition, in the case of partnerships, except to the extent provided in yet
to be released regulations, this provision applies at the partner level to the
extent that any partnership debt is less than the total capitalized cost of
constructing an apartment complex. Although it is not yet entirely clear, to the
extent that a partner has interest expense attributable to a trade or business
unrelated to his interest in a partnership, it is possible that such interest
expense may be required to be capitalized.
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For purposes of the tax code, the relevant "construction period" is determined
on a building-by-building basis for each of the buildings in an apartment
complex. The construction period begins when the construction of each building
commences and ends when the building is ready to be placed in service.
"Construction period interest" includes interest accrued during the construction
period on any construction loan and interest on any deferred development fees
payable to general partners during this period.
(2) OTHER EXPENSES INCURRED DURING THE CONSTRUCTION PERIOD. Section 195 of the
tax code classifies certain expenditures as start-up expenditures that must then
be permanently capitalized or, at the election of the taxpayer, amortized over a
period of sixty months beginning with the month in which the active trade or
business begins. A start-up expenditure is defined to include an amount paid or
incurred in connection with "any activity engaged in for profit and for the
production of income before the day on which the active trade or business begins
in anticipation of such activity becoming an active trade or business," and
which would be otherwise allowable as a deduction if paid or incurred in
connection with an existing active trade or business. Under tax code Section
195, the Treasury Department is authorized to prescribe regulations which will
determine when an active trade or business begins. In light of its position in
certain litigation before the enactment of tax code Section 195 in its current
form, the IRS is expected to take the position that a real estate partnership
has not begun carrying on an "active trade or business" until the dwelling units
it is constructing are ready for occupancy. Accordingly, each operating
partnership will treat that portion of the operating partnership's management
fees, if any, and other ordinary and necessary expenses incurred before its
first dwelling units are ready for occupancy as start-up expenses, to be
amortized over a period of sixty months.
FEES PAID FROM CAPITAL CONTRIBUTIONS OR BOSTON CAPITAL OR OPERATING
PARTNERSHIP CASH FLOW
Boston Capital intends to pay various fees to Boston Associates and/or its
affiliates, and the operating partnerships intend to pay the operating general
partner(s) and/or their affiliates certain fees. Boston Capital will pay an
Acquisition Fee to Boston Capital Partners, Inc., and certain other offering and
syndication fees to affiliates of Boston Associates, from the capital
contributions of the investors, for services rendered to Boston Capital in
acquiring and managing the business and assets of Boston Capital. It is
anticipated that the operating partnerships will pay Development Fees to the
operating general partners or their affiliates, from the capital contributions
of Boston Capital to the applicable operating partnership, for services rendered
to the applicable operating partnership in the development of the applicable
apartment complex; in certain circumstances an operating partnership may pay an
Acquisition Fee and/or a Development Fee (or a portion thereof) to
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Boston Capital. In addition, Boston Capital will pay an annual Fund Management
Fee to Boston Associates or its affiliates from the cash flow of Boston Capital,
and it is anticipated that the operating partnerships will pay annual Reporting
Fees to an affiliate of Boston Associates, and annual partnership management
fees and property management fees to the operating general partners or
affiliates thereof, in each case from cash flow of the applicable operating
partnership.
Boston Capital and the operating partnerships will not deduct or amortize any
amounts relating to the above fees which are deferred until such amounts are
paid, unless specifically provided by the tax code. Further, any portion of such
fees related to services performed in the acquisition of property used in an
apartment complex owned by an operating partnership will be amortized over 27.5
years. The Acquisition Fee will be amortized over a period roughly corresponding
to the depreciable life of the apartment complex (and a portion over forty years
with respect to a non-profit operating partnership).
Offering expenses will be capitalized by Boston Capital and not deducted or
amortized. Organization expenses will be amortized over sixty months.
Under Section 267 of the tax code, a partnership may not deduct unpaid amounts
of deductible business expenses accrued and owing to a cash basis partner (or
any person related to that partner) until those amounts are paid or taken into
income. Boston Capital and the operating partnerships intend to deduct all
expenses in accordance with these provisions.
All fees attributable to the construction of the apartment complexes will be
capitalized in accordance with Section 263A of the tax code.
All expenditures of Boston Capital and the operating partnerships must
constitute ordinary and necessary business expenses in order to be deducted when
incurred, unless the deduction of any such item is otherwise expressly permitted
by the tax code (e.g., interest and certain taxes). In addition, the
expenditures must be reasonable in amount and be for services which do not
represent an expense required to be capitalized and which are performed during
the taxable years in which paid or accrued, rather than for future years. Any
compensation paid to a partner for services must be for services rendered other
than in his capacity as a partner or must be determined without regard to
partnership income.
The payment of the various fees for services from capital contributions is not
determined by arm's-length negotiations. Instead, the amounts of the payments
are determined on the basis of the experience of Boston Associates and its
affiliates in this area and on the basis of their (and in connection with the
operating partnerships, the operating general partners') judgment of the value
of the services provided. Boston Associates believes that the fees described
above represent compensation for services rendered,
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and that such fees are reasonable and comparable to the compensation that would
be paid to unrelated parties for similar services.
It is possible, however, that the IRS will challenge one or more of these
payments and contend that the amount paid for the services exceeds the
reasonable value of those services, in which case the IRS would seek to disallow
as a deduction that portion of the amount paid which is determined to be in
excess of the reasonable value of the services. It is probable that an amount
disallowed as a deduction would be capitalized and amortized over some period of
years. In addition, the IRS might accept the reasonableness of a fee, but
contend that the fee should be deducted in a later year, or be capitalized
rather than deducted, or be amortized over a period longer than the period
chosen by Boston Capital or an operating partnership. Because the issues of the
reasonableness of such fees, or the period to which such fees relate, are
factual, Counsel cannot predict the outcome in the courts of a challenge by the
IRS with respect to such issues. However, if in fact the payments are made as
compensation for services, if the services provided are ordinary and necessary
to the business of Boston Capital or an operating partnership, and if the amount
of any fee is determined to be reasonable, Counsel believes that it is more
probable than not that, if litigated, the treatment of such fee described above
would be upheld.
SALE OR DISPOSITION OF CERTIFICATES
Pursuant to the 1997 Taxpayer Relief Tax Act, gain or loss recognized by an
investor on the sale of certificates will generally be taxed at the same rate as
the investor's other ordinary income, except that for capital gains a ceiling on
the tax for individuals is set at 20% (except with regard to the sale or
exchange of real property, in which case the capital gains which represent the
recapture of depreciation taken on such property are taxed at a maximum rate of
25%) and for corporations at 35%. In computing such gain or loss, the selling
investor's allocable share of Boston Capital's share of any existing nonrecourse
liabilities of the apartment complexes is included in the amount realized, and
an investor may offset against any gain by the amount of any suspended passive
losses. An investor who does not have suspended passive credits or losses to
offset any gain may realize taxable gain and the sale may not result in cash
proceeds sufficient to pay the tax obligations arising from such sale. Investors
may also be subject to recapture of a portion of prior tax credits claimed if
they sell or dispose of all or a portion of their certificates, if such
disposition, in connection with other dispositions of their interests by other
investors, results in 50% or more of all interests in Boston Capital being
disposed of within a twelve-month period. See "Calculation of Investor's Basis
in His Certificates," "Passive Loss and Tax Credit Limitations" and "Recapture
of Tax Credits" above.
A gift of certificates may also have federal income and/or gift tax
consequences. See "Certain Other Tax Considerations--Consequences of Gift or
Death" below in this section.
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Although it is unlikely that a market will develop, and therefore investors may
not be able to dispose of their certificates, Boston Capital anticipates issuing
certificates in a form permitting trading. See "Description of
Certificates--Transfers." If 50% or more of the total interests in Boston
Capital profits and capital (including certificates) are sold or exchanged
within a twelve-month period, Boston Capital will terminate for federal income
tax purposes. If a termination occurs, the assets of Boston Capital will be
deemed to be constructively contributed to a new partnership, and then the
interests in this new partnership are deemed to be distributed to the partners.
Boston Associates has the authority under the Fund Agreement to (1) halt trading
of the certificates, (2) fail to list and/or cause the delisting of certificates
from public trading markets, (3) cause each purchaser of certificates to be
admitted to Boston Capital as a limited partner, (4) require investors to become
limited partners or (5) take such other action as may be necessary or
appropriate in order to preserve the status of Boston Capital as a partnership
or to prevent certain other adverse federal income tax consequences, however, no
assurance can be given that such action(s) could be taken prior to a deemed
termination. An investor would not realize gain upon the deemed distribution of
Boston Capital's assets unless the portion of Boston Capital's cash
constructively distributed to an investor exceeds his adjusted basis in his
certificates. Boston Associates does not anticipate that available cash would
exceed the aggregate basis of the investors' interests; therefore, it is
anticipated that no gain will be realized upon a termination.
Section 754 of the tax code permits a partnership to elect to adjust the
transferee's share of basis of partnership property upon the transfer of an
interest in the partnership by the partner; this provision is equally applicable
to a transfer of certificates. Boston Capital does not currently intend to make
such an election.
SALE OR OTHER DISPOSITION OF AN APARTMENT COMPLEX AND INTERESTS IN
OPERATING PARTNERSHIPS
In determining the amount received upon the sale, exchange or other disposition
of an apartment complex, an operating partnership must include, among other
things, the amount of any liability to which such apartment complex is subject
if the purchaser assumes, or takes the apartment complex subject to, such
liability. For these purposes, a foreclosure of a mortgage on an apartment
complex is deemed to be a disposition of the property. The amount of any
outstanding nonrecourse mortgage indebtedness to which transferred property is
subject 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. Accordingly, the unpaid
principal balance of any mortgage loan indebtedness discharged by foreclosure
will reduce any loss which might otherwise result upon foreclosure or could
produce a taxable
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gain even though the operating partnership receives no cash from the
foreclosure.
To the extent that Boston Capital's assets sold constitute Section 1231 property
(i.e., real property used in a trade or business and held for more than one year
and depreciable personal property used in a trade or business and held for more
than one year), an investor's share of the gains and losses would be combined
with any other Section 1231 gains or losses incurred by the investor in that
year and the net Section 1231 gain or loss would be treated as long-term capital
gain (subject to depreciation recapture, if any) or ordinary loss, as the case
may be. See "Tax Rates" for a discussion of tax rates applicable to capital
gains.
In the event that Boston Capital or an operating partnership sells any personal
property at a gain, 100% of all cost recovery allowances previously deducted are
subject to recapture as ordinary income.
An apartment complex may be sold under an installment plan. Gain from
installment sales by non-dealers of real property used in a taxpayer's trade or
business or held for the production of rental income can be reported in the year
payments are received from the purchaser in the profit ratio represented by each
payment. However, interest is required to be paid with respect to the deferred
tax liability attributable to an installment obligation that arises out of such
a sale during a year and is outstanding as of the close of the year if the face
amount of all such obligations that arise during a year and which are
outstanding at the close of the year for such taxpayer and certain related
taxpayers exceed $5 million. If interest is required to be paid with respect to
an obligation during the year in which the obligation arises, interest must be
paid for any remaining deferred tax liability in any subsequent taxable year if
any portion of the obligation is outstanding at the end of that year.
Section 42 of the tax code permits, but does not require, the owner of an
apartment complex to grant to the tenants, a qualified nonprofit organization or
a governmental agency a right of first refusal to purchase the apartment complex
for an amount equal, at least, to the amount of the indebtedness secured by the
building and all taxes attributable to the sale. It is possible that some of the
operating partnerships may enter into such agreements. The investors would be
taxed on the purchase price, including the amount attributable to the taxes on
the sale.
EXCESS INVESTMENT INTEREST LIMITATION
The deductibility of investment interest by a non-corporate taxpayer is subject
to substantial limitation by Section 163(d) of the tax code. In the case of
Boston Capital, such limitation would be applied to each investor individually
rather than to Boston Capital. Investment interest is interest incurred on funds
borrowed to acquire or carry property held for investment. Pursuant
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to the 1986 Tax Act and subject to certain phase-in rules, excess investment
interest is investment interest incurred in a year in excess of net investment
income. The excess is not deductible in the current year but the amount not
deductible in the current year may be deductible in subsequent years, subject to
the same limitation.
The 1986 Tax Act expanded the definition of investment interest to include all
interest expense of a limited partnership allocable to a limited partner.
However, interest incurred in connection with a "passive activity" that is
subject to the passive activity loss restriction is not subject to the
investment interest limitation. Since Boston Capital will be subject to the
passive activity loss restriction, most interest expense incurred by Boston
Capital will not be subject to the investment interest limitation. Interest
expense, if any, attributable to the production of portfolio income would be
subject to the investment interest limitation.
CERTAIN TAX ELECTIONS
Boston Capital may make various elections for federal income tax reporting
purposes which could result in various items of Boston Capital's income, gain,
credit, loss and deduction being treated differently for tax and partnership
purposes than for accounting purposes. The tax code provides for optional
adjustments to the basis of Boston Capital's property for measuring both
depreciation and gain upon distributions of Boston Capital's property (Section
734) and transfers of Boston Capital's interests (including certificates)
(Section 743), provided that a Boston Capital election has been made pursuant to
Section 754. The general effect of such an election is that transferees of
Boston Capital's interests (including certificates) are treated, for purposes of
computing depreciation and gain, as though they had acquired a direct interest
in Boston Capital's assets, and Boston Capital is treated for such purposes,
upon certain distributions to partners (including investors), as though it had
newly acquired an interest in Boston Capital's assets and therefore acquired a
new cost basis for such assets. A Section 754 election will not affect the
amount of tax credits available to any partner (or investor) or his transferee.
Any such election, once made, is irrevocable without the consent of the IRS. If
Boston Associates does not agree to make such an election, any benefits which
might be available to the investors by reason of such an adjustment to basis
will be foreclosed. In addition, if the election is not made, an investor may
have greater difficulty in selling his certificates, since a purchaser will
obtain no current tax benefits from his investment to the extent that such
investment exceeds his allocable share of Boston Capital's basis in its assets
and since, upon a subsequent disposition of the property by Boston Capital, such
purchaser may be required to recognize taxable income to the extent of such
excess even though he does not realize any economic profit.
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IRS AUDIT CONSIDERATIONS
(1) BOSTON CAPITAL TAX RETURNS AND AUDITS. The IRS may audit the information
returns filed by Boston Capital. Such an audit could result, among other things,
in the disallowance of certain deductions. In addition, it could possibly lead
to an audit of an investor's tax return with respect to non-Boston Capital
items.
The IRS has audited 31 limited partnerships with which affiliates of Boston
Associates are associated. Twenty-five of these audits have now been settled
with the IRS without material change and six are still pending.
(2) AUDIT PROCEDURES FOR BOSTON CAPITAL AND OPERATING PARTNERSHIP TAX RETURNS.
The IRS is paying increased attention to the proper application of the tax laws
to limited partnerships. As a consequence, audits by the IRS of Boston Capital's
or operating partnerships' information returns have become more likely.
Investors should note that a federal income tax audit of Boston Capital's or an
operating partnership's tax information return may result in an audit of the
return of the investor, and that such an examination could result in adjustments
both to items that are related to Boston Capital and unrelated items. An audit
of Boston Capital's return will be a single proceeding at the Boston Capital
level. Boston Associates, as to Boston Capital, and an operating general
partner, as to each operating partnership, will be designated as the "tax
matters partner" and will have considerable authority to make decisions both
during the audit and in subsequent administrative and judicial proceedings that
could affect all investors. Moreover, Boston Associates, or the operating
general partner, as applicable, has the right to extend the statute of
limitations for all partners with respect to the assessment of tax involving
Boston Capital or operating partnership items, as applicable.
(3) PENALTIES DUE TO SUBSTANTIAL UNDERSTATEMENT OF TAX LIABILITY. Section
6662 of the tax code imposes a penalty on a taxpayer when there is a
"substantial understatement of income tax" liability on the income tax return
of such taxpayer. For this purpose, an understatement is the excess of the
amount of tax required to be shown in the return over the amount of tax in
fact reported on the return. There is "substantial understatement of income
tax" if the amount of the total understatement on the income tax return for
the taxable year attributable to income, gain, loss, deduction or credit from
all sources exceeds the greater of (a) $5,000 ($10,000 for corporations) or
(b) 10% of the tax liability required to be shown on the return. The penalty
does not apply to the extent that the understatement is attributable to (a)
an item if there is or was "substantial authority" for the tax treatment of
such item or (b) an item with respect to which the relevant facts concerning
the treatment of the item are disclosed on the taxpayer's return.
Special rules apply, however, to items on the taxpayer's return that are
attributable to an investment in a "tax shelter" as that term is defined in
Section 6662 of the tax code ("Section 6662 Tax Shelter"). Section 6662 of the
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tax code defines a tax shelter to mean a partnership or other entity (such as a
corporation or trust), an investment plan or arrangement, or any other plan or
arrangement if the principal purpose of the entity, plan, or arrangement, based
on objective evidence, is the avoidance or evasion of federal income tax. The
Regulations under Section 6662 state that the principal purpose of an entity,
plan, or arrangement is not the avoidance or evasion of federal income tax if
the entity, plan, or arrangement has as its purpose the claiming of exclusions
from income, accelerated deductions, or other tax benefits in a manner
consistent with congressional purpose. Because it is anticipated that the
principal items of tax benefit resulting from an investment in Boston Capital
will include tax credits, depreciation deductions and interest on the mortgage
indebtedness of the apartment complexes, which are specifically provided for by
Congress, it is reasonable to anticipate that Boston Capital will not be
considered to be a Section 6662 Tax Shelter. However, because such Regulations
are relatively recent and because the definition of a Section 6662 Tax Shelter
ultimately must be determined by judicial decisions, there still remains
considerable uncertainty concerning the meaning of the term. Thus, Counsel is
unable to predict the outcome if the question of whether Boston Capital is a
Section 6662 Tax Shelter were to be litigated.
If Boston Capital is determined to be a Section 6662 Tax Shelter, the penalty
under Section 6662 for a substantial understatement will not apply to the extent
that the understatement is attributable to an item if (a) there is or was
"substantial authority" for the treatment of the item, and (b) the taxpayer
reasonably believed that the tax treatment of such item was more likely than not
the proper treatment.
The Secretary of the Treasury has promulgated regulations under Section 6662
that set forth his interpretation of the phrase "substantial authority," but
both because such regulations are relatively recent and because "substantial
authority" ultimately must be determined by judicial decisions, there still
remains considerable uncertainty concerning the meaning of that phrase. Thus,
as stated above, Counsel is unable to predict the outcome if the question of
whether there were substantial authority for certain material tax issues were
to be litigated, if Boston Capital or an operating partnership were
determined to be a Section 6662 Tax Shelter.
The penalty imposed by Section 6662 is equal to 20% of the amount of any
underpayment attributable to the understatement of tax (as reduced for items
described above), and it applies without regard to whether the taxpayer was
negligent or otherwise improperly prepared his return. The penalty is in
addition to any other penalties and any interest payable with respect to the
underpayment.
The IRS has the authority to waive all or any part of the penalty if there was
reasonable cause for the understatement and the taxpayer acted in good faith.
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(4) PENALTIES DUE TO OVERSTATEMENT OF VALUE. Under Section 6662 of the tax code,
a penalty is imposed where the value of property, or the adjusted basis of
property, claimed on a return exceeds 200% of the amount determined to be the
correct value or adjusted basis, or if the price for services or property in
connection with transactions between certain affiliated entities is 200% or more
of the correct price. Boston Associates does not anticipate that the
determination of the value or adjusted basis of apartment complexes, or payment
for services, would give rise to such a penalty. However, there can be no
assurance that, for example, in the case of uncertainty in the allocation of
basis among personal property, depreciable real property improvements and
nondepreciable land, the IRS would not challenge the determination of the value
or adjusted basis of apartment complexes.
(5) INTEREST ON UNDERPAYMENT OF TAX. If it is finally determined that a taxpayer
has underpaid tax for any taxable year, the taxpayer must pay the amount of
underpayment, plus interest on the underpayment from the date the tax was
originally due. The interest rate is the federal short-term rate plus three
percentage points in the case of underpayments of tax, and the federal
short-term rate plus two percentage points in the case of overpayments.
LIMITATIONS FOR DEDUCTIONS ATTRIBUTABLE TO ACTIVITIES NOT ENGAGED IN
FOR PROFIT
Section 183 of the tax code provides limitations for deductions by individuals
and S Corporations attributable to "activities not engaged in for profit." The
term "activities not engaged in for profit" means any activity other than one
that (a) constitutes a trade or business or (b) is engaged in for the production
or collection of income, or for the management, conservation, or maintenance of
property held for the production of income. The determination of whether an
activity is engaged in for profit is based on all the facts and circumstances.
Where income for an activity exceeds the deductions from the activity for at
least three out of five consecutive years, there is a presumption that the
activity is engaged in for profit.
The test for whether an activity is engaged in for profit is normally determined
at the partnership level. However, it is possible that each investor may have to
independently meet this test as well. Generally, an activity is engaged in for
profit if there is a bona fide objective of obtaining economic profit from the
activity. In determining whether this profit objective exists, the Regulations
under Section 183 list certain factors which, along with others, should normally
be taken into account, although the Regulations state that no one factor is
determinative. These factors include:
- - the manner in which the taxpayer carries on the activity;
- - the expertise of the taxpayer or his advisors;
- - the time and effort expended by the taxpayer in carrying on the activity;
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- - the expectation that assets used in the activity may appreciate in value;
- - success of the taxpayer in carrying on other similar or dissimilar activities;
- - the taxpayer's history of income or losses with respect to the activity;
- - the amount of profits, if any, which are earned;
- - the financial status of the taxpayer;
- - any elements of personal pleasure or recreation.
The IRS has published a Revenue Ruling holding that the construction and
operation of an apartment complex for low- and moderate-income housing under
Section 236 of the National Housing Act is not an activity to which Section 183
of the tax code applies. Consequently, the IRS has announced that it will not
assert the "not for profit" argument to any otherwise appropriate deductions.
Although few, if any, of the apartment complexes may be constructed or operated
under Section 236 of the National Housing Act, all of the apartment complexes
will constitute low or moderate income housing and will possess certain of the
other attributes which the Revenue Ruling recites as factors in the IRS's
decisions. To the extent that the IRS relied in its Revenue Ruling on Congress's
intention that availability of tax benefits be allowed to encourage investment
in apartment complexes providing decent housing for low or moderate income
families, similar considerations are involved here. The federal housing tax
credits were specifically enacted in the 1986 Tax Act. In addition, the IRS has
recently issued regulations which state that Section 183 will not be applied to
Section 42. Accordingly, Counsel is of the opinion that it is more probable than
not that Section 183 would not be applied to disallow deductions arising from
the ownership of the apartment complexes.
OVERALL EVALUATION OF TAX BENEFITS
Assuming that the investment objectives and acquisition policies of Boston
Capital are substantially realized as set forth in this Prospectus, including,
but not limited to the qualification for, and continuing compliance of the
apartment complexes with the requirements for, tax credits, Counsel is of the
opinion that it is more likely than not that the material tax benefits in the
aggregate (a significant majority) of a purchase of certificates will be
realized by qualified investors (i.e., individual investors whose adjusted gross
income does not exceed the limits for historic tax credits or who are not
subject to the alternative minimum tax).
Counsel's opinion with respect to the aggregate of the tax benefits to be
realized by a qualified investor is based upon, and assumes the continuing
applicability to an investment in Boston Capital of, existing federal income tax
law. Counsel's opinion assumes that the capital account balances (as that term
is defined in the Fund Agreement and the Operating Partnership Agreements) of
the partners are not significantly adjusted by reason of a
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termination of Boston Capital or the operating partnerships or by reason of
capital contributions (such as, for example, unanticipated advances of capital
from Boston Associates, or working capital loans or operating deficit loans from
the applicable operating general partner(s), which may be deemed for federal
income tax purposes to be capital contributions), other than the capital
contributions provided for in Article V of the Fund Agreement and the
corresponding section of the Operating Partnership Agreements, and that in those
instances where a portion of the debt incurred by an operating partnership is
recourse, that the capital accounts are sufficient to allocate the losses to
Boston Capital as provided for in the applicable Operating Partnership
Agreement. See "Federal Income Tax Matters--Fund Allocations and Distributions,"
"--Federal Housing Tax Credit" and "--Certain Other Tax
Considerations-Alternative Minimum Tax."
CERTAIN OTHER TAX CONSIDERATIONS
Certain other provisions of the tax code should be considered by investors in
determining whether to purchase certificates.
(1) ALTERNATIVE MINIMUM TAX. Individuals and corporations, except for certain
qualifying small corporations, are subject to an alternative minimum tax
("AMT"). The AMT tax base is (a) regular taxable income, (b) increased by
certain preference items, including the amount by which a corporate taxpayer's
income for financial reporting purposes exceeds its AMT income, (c) adjusted for
items requiring a substitute AMT method, such as depreciation on real and
personal property, and (d) reduced by an exemption amount of $49,000 for the
married filing jointly category, $35,750 for a single return and $24,500 for the
married filing separately category (phased out at the rate of $0.25 cents for
each $1.00 that AMT income exceeds $150,000, $112,500 and $75,000,
respectively). Once AMT income is computed, a flat tax rate of 20% for
corporations and 26% for individuals with AMT income up to $175,000 and 28% on
amounts in excess of $175,000 is imposed that is payable to the extent it
exceeds the taxpayer's regular income tax liability.
Neither federal housing tax credits nor historic tax credits can be used to
offset alternative minimum tax. Taxpayers subject to the alternative minimum tax
may be limited in the amount of tax credits that can be used in a tax year. In
addition, taxpayers not otherwise subject to the alternative minimum tax
nonetheless may be limited as to the amount of tax credits which can be used in
a tax year. The maximum amount of tax credits that an investor can use in a tax
year may not exceed the difference between regular income tax liability and
tentative minimum tax. Tax credits that could not be utilized for the applicable
year may be carried back one year or forward twenty years (subject to
limitations on carry-backs for certain taxpayers).
For taxpayers subject to the alternative minimum tax, the primary adjustments
and preferences applicable to an investor are likely to be (1) the adjustment to
taxable income for depreciation on real property, using a
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forty-year life and the straight-line method, and personal property, using the
150% declining balance method, and (2) for corporations, the addition to taxable
income of 75% of the amount by which adjusted current earnings exceeds
alternative minimum taxable income.
(2) INTEREST ON DEBT RELATED TO PURCHASING OR CARRYING TAX EXEMPT OBLIGATIONS.
Section 265(a)(2) of the tax code disallows any deduction for interest paid by a
taxpayer on indebtedness incurred or continued for the purpose of purchasing or
carrying tax-exempt obligations. Boston Capital will not purchase or carry any
such obligations. However, such provision could apply to any investor who might
own or acquire tax-exempt obligations. The IRS has announced in a published
Revenue Procedure that the proscribed purpose will be deemed to exist with
respect to indebtedness incurred to finance a "portfolio investment." The
Revenue Procedure further states that, although a partnership's purpose in
incurring indebtedness will be attributed to its general partners, a limited
partnership interest will be regarded as a "portfolio investment." Therefore, in
the case of an investor owning tax-exempt obligations, the IRS might take the
position that his allocable portion of the interest paid by Boston Capital on
its borrowings or any interest paid by an investor in connection with the
purchase of certificates should be viewed as incurred to enable him to continue
carrying tax-exempt obligations, and that such investor should not be allowed to
deduct his full allocable share of such interest. The outcome of these issues
would depend upon facts concerning each investor, and Counsel will not render an
opinion on this issue. An investor who owns, or anticipates acquiring,
tax-exempt obligations should consult with his tax advisor as to the possible
impact of Section 265(a)(2) of the tax code.
(3) CONSEQUENCES OF GIFT OR DEATH. Generally, no gain or loss is recognized for
income tax purposes as a result of a gift of property. Gifts of certificates may
be subject to a federal gift tax imposed pursuant to the rules generally
applicable to all gifts of property. A gift of certificates does not trigger
suspended passive losses or credits, and does not result in any recapture of
credits previously taken.
A gift of certificates may be treated as a sale of the certificates. For
purposes of computing gain or loss realized upon the gift, the amount realized
would include the donating investor's share of the nonrecourse liabilities from
which the investor is relieved. Consequently, an investor could recognize
taxable income as a result of making a gift of his interest.
In the event of the death of the owner of certificates, the fair market value of
the certificates as of the date of death (or as of the alternative valuation
date provided for in the federal estate tax law) will be included in the estate
of the owner for federal estate tax purposes. Generally, the owner's heirs will,
for federal income tax purposes, then take as their basis for the certificates
the same fair market values determined for federal estate tax purposes.
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If the certificates have appreciated in value during the lifetime of the owner,
his heirs will have the benefit of this "stepped-up" basis when they sell or
otherwise dispose of the certificates.
(4) SUITABILITY OF AN INVESTMENT IN CERTIFICATES BY TAX-EXEMPT ENTITIES. It is
not likely that a tax-exempt entity would be able to utilize tax credits,
therefore an investment in certificates is not likely to be suitable for a
tax-exempt entity. However, if a tax-exempt entity has, and expects to continue
to have, unrelated business taxable income, tax credits could be used to offset
the federal tax on such income. See "Federal Income Tax Matters--Investment by
Tax-Exempt Entities."
(5) MINOR CHILDREN. Under the tax code, unearned income of a child under
fourteen 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 tax code Section 469 is determined with regard to the child's adjusted
gross income rather than the parent's adjusted gross income. Thus, if the
child's adjusted gross income does not exceed $200,000 (with respect to historic
tax credits only), tax credits generated by the ownership of certificates 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. However, the child will be subject to an
alternative minimum tax on his unearned income equal to the amount of
alternative minimum tax that would have been imposed on his parents had the
child's unearned income been included in the parent's alternative minimum
taxable income.
(6) FOREIGN INVESTORS. The tax consequences of the purchase of certificates by a
foreign citizen or resident might differ significantly from those described in
this Prospectus. See "Suitability of an Investment in Certificates--Availability
and Applicability to Investors of Federal Income Tax Credits."
"TAX SHELTER" REGISTRATION
Section 6111 of the tax code requires persons who organize offerings classified
as "tax shelters" (a "Registration Tax Shelter") (as defined therein for
purposes of this requirement) to register them with the IRS. When Boston Capital
registered as a Registration Tax Shelter with the IRS, it was given Registration
Tax Shelter identification number 93355000022, which investors must include on
their tax returns for the period of time in which they are investors. In
addition, Boston Capital will be required to keep a list of investors' names and
addresses and must furnish such list to the IRS upon request. The IRS Temporary
and Proposed Regulations provide that the following disclosure should be made:
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS.
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Upon the sale or transfer of certificates, selling investors must provide the
purchaser with the tax shelter registration number (as well as the name, address
and taxpayer identification number) of Boston Capital, and inform the purchaser
that he must attach a Form 8271 to his tax return.
In addition, investors who transfer their certificates are required to maintain
a list of specific data concerning the purchaser (regarding his name, address,
date of purchase and taxpayer identification number) and inform the purchaser of
his similar obligation.
FUTURE FEDERAL INCOME TAX LEGISLATION AND REGULATIONS
Congress enacted comprehensive tax reform legislation in the 1986 Tax Act. No
assurance can be given that the current Congress or any future Congress will not
enact other federal income tax legislation that could adversely affect the tax
consequences of ownership of certificates, or that the Treasury Department will
not promulgate new regulations with similar adverse effects.
ANY SUCH FUTURE LEGISLATION OR REGULATIONS ENACTED OR PROMULGATED AFTER THE
ISSUANCE OF THE LEGAL OPINIONS ANTICIPATED TO BE RENDERED IN CONNECTION WITH THE
ASSIGNMENT OF CERTIFICATES TO INVESTORS MAY AFFECT THE ABILITY OF COUNSEL TO
RENDER SUCH OPINIONS.
STATE AND LOCAL TAXES
In addition to the federal income tax consequences described above, investors
should also consider other potential state and local tax consequences of the
purchase of certificates, and should consult their tax advisor regarding state
and local tax consequences. Depending upon such factors as the state and local
residence or domicile of the investor and applicable state and local laws, tax
benefits that are available for federal income tax purposes may not be available
to investors for state or local income tax purposes and additional state and
local tax liabilities may be incurred. It is the responsibility of each investor
to satisfy himself as to the consequences of any state or local income tax or
other tax to which he is subject by reason of his participation in Boston
Capital.
Depending upon the state in which an investor resides and the location and
eligibility therefor of one or more apartment complexes, a state housing tax
credit may be available against the income tax payable in that state.
THE OFFERING
Boston Capital anticipates offering 7,000,000 certificates in two series, namely
Series 41 and 42. Series 41 will consist of at least 250,000 certificates and
may consist of all certificates not already purchased by investors. The minimum
purchase for each investor is 500 certificates ($5,000), except that employees
of Boston Associates or its affiliates, and/or previous investors in public
limited partnerships sponsored by Boston Capital Partners,
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Inc., may purchase a minimum of 200 certificates ($2,000). Additional
investments must be made in multiples of 100 certificates ($1,000).
Series 41 will be offered first and Series 42 will begin after Series 41 is
finished. Series 41 will begin in August 2001 and is expected to continue
through January 2002, but Series 41 could be concluded earlier or extended by
Boston Associates for an indefinite period of time, and is subject to the
condition that subscriptions for at least 250,000 certificates be accepted by
Boston Associates no later than twelve months from the commencement of each
series.
Subscription proceeds will be placed in an interest-bearing escrow account with
the escrow agent, and released to Boston Capital only on a closing date. Within
seventy-five days after the end of the fiscal quarter following a closing date,
subscribers who were admitted as investors will be paid interest accrued on
their escrowed funds until the applicable closing date, less any escrow fees and
expenses. Subscriptions for certificates will be accepted or rejected by Boston
Associates, in its sole discretion, within thirty days of receipt, but the
issuance of certificates to an investor shall be subject to acceptance of
subscriptions for a sufficient number of certificates to effectuate a closing.
If not accepted or rejected within thirty days of receipt by Boston Capital, any
subscriptions shall be deemed to be accepted. Boston Capital will refund all
monies paid on rejected subscriptions within ten days of such rejection without
interest. Until subscriptions for at least 250,000 certificates in any series
are received, no subscriber will be recognized as an investor and funds paid by
the subscribers will be deposited with the escrow agent.
No certificates in any series will be sold unless Boston Associates receives and
accepts subscriptions for at least 250,000 certificates prior to the expiration
or termination of the applicable series offering period. If subscriptions for
fewer than 250,000 certificates have been received and accepted from qualified
investors by the expiration or termination of the applicable series offering
period, no certificates of such series will be sold and all funds received from
subscribers will be refunded promptly, together with accrued interest thereon in
the case of subscribers whose subscriptions have been accepted. If, prior to the
expiration or termination of the applicable series offering period, Boston
Associates has received and accepted subscriptions for at least 250,000
certificates in its sole discretion, Boston Associates may release the
subscription proceeds from escrow and the subscribers will be admitted as
investors (the "initial closing").
The date on which the initial closing takes place with respect to any series
pursuant to the foregoing provisions is referred to as an initial closing date.
After the initial closing and prior to the expiration or termination of the
applicable series offering period, Boston Associates may, but is not required
to, accept additional subscriptions for such series in excess of 250,000
certificates--up to the total of authorized certificates not already purchased
by
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investors and admit such subscribers as investors with subscription proceeds
being released from escrow and subscribers admitted as investors not later than
the last day of the calendar month following the date upon which their
subscriptions were accepted by the Boston Associates.
Boston Associates and its affiliates and employees of its affiliates may
purchase certificates aggregating not more than 15% of the certificates
authorized for sale in any series, excluding certificates which comprise any
part of the minimum offering of 250,000 certificates with respect to a
particular series; provided, however, that the affiliated persons must hold the
certificates for investment purposes only, and not for immediate resale. These
persons will acquire certificates on the same terms and conditions as other
investors, except they will not pay selling commissions, the Dealer-Manager Fee,
the non-accountable expense allowance, nor the accountable due diligence expense
reimbursement otherwise payable to the Dealer-Manager from Boston Capital. In
addition, investors will not have to pay selling commissions equal to 7% ($0.70)
per certificate, if they use the services of a NASD-registered investment
advisor that charges the investor a fee for its services. The net offering
proceeds to Boston Capital with respect to both kinds of purchases will be the
same as for certificates sold to other investors.
The offering amount of each series may be increased, in the sole discretion of
Boston Associates, up to the total amount of authorized but unissued
certificates at any time prior to the expiration or termination of the
applicable series offering period.
Boston Capital will account for, and issue information with respect to, each
series of certificates separately. Organization and offering expenses, Boston
Capital's working capital reserve and other general expenses of Boston Capital
may be allocated pro rata among the series based on the number of certificates
in each series.
To the extent that additional certificates are sold in additional series, each
such series may be required to reimburse prior series for its pro rata portion
of organization and offering expenses. All of Boston Capital's operating
expenses attributable to operating partnership interests allocated to a
particular series of certificates will be charged to that series. Boston
Associates will apportion operating expenses and other costs which are not
specifically allocable to a particular series among the appropriate series upon
the advice of its accountants. The allocations and distributions of profits,
credits and losses, net cash flow and sale, refinancing and liquidation
proceeds, and all other priorities and allocations set forth under "Sharing
Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals" will be
separately determined for each series of certificates. Voting rights with
respect to matters that are only applicable to a particular series of
certificates will be exercisable only by investors as to such series.
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All series of certificates will:
- - have substantially identical investment objectives in generating tax credits,
and possibly state housing tax credits;
- - provide for no duplication of property management or other fees;
- - provide for substantially identical compensation to Boston Associates and its
affiliates;
- - provide for investment in operating partnership interests under substantially
the same terms and conditions.
Additionally, operating partnership interests may be invested in jointly by
series of certificates, or may be invested in jointly by a series of
certificates with another similar offering, provided that (1) the two programs
have similar investment objectives, (2) there are no duplicate property
management or other fees, (3) the compensation to the sponsors of each program
is substantially similar, (4) each program will have a right of first refusal if
the other program wishes to sell its operating partnership interest and (5) the
investment of each program is on substantially the same terms and conditions.
There is a potential risk that investors in a series of certificates may not
acquire a controlling interest in a joint investment or, that if an equal
interest is acquired by each program, there may be a potential risk of impasse
on decisions.
THE CERTIFICATES OF DIFFERENT SERIES WILL SHARE IN DIFFERENT POOLS OF OPERATING
PARTNERSHIP INTERESTS AND, THEREFORE, INVESTORS IN DIFFERENT SERIES MIGHT
RECEIVE DIFFERENT RETURNS ON THEIR INVESTMENTS.
Because each series of Boston Capital will be treated as though it were a
separate partnership sharing in a separate and distinct pool of operating
partnership interests and because the purchase of certificates in any one series
will not entitle an investor to any interest in any other series of Boston
Capital, historical financial information regarding Boston Capital, which is
comprised of prior series, is not provided in this Prospectus. However,
information regarding the prior performance of each series within Boston Capital
and their affiliates is provided under the section of this Prospectus entitled
"Prior Performance of Boston Associates and its Affiliates" and
"Appendix I--Tabular Information Concerning Prior Limited Partnerships." In
addition, audited financial information regarding Boston Associates and the
Assignor Limited Partner is provided in Appendix I. Any investor may obtain a
copy of Boston Capital's most recent Form 10-K and/or Form 10-Q at no charge
upon written request to Boston Capital Tax Credit Fund IV L.P., One Boston
Place, Suite 2100, Boston, Massachusetts 02108, Attention: Anthony Nickas.
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SELLING ARRANGEMENTS
The certificates are offered on a best efforts basis through Boston Capital
Services, Inc., the Dealer-Manager. The Dealer-Manager is an affiliate of Boston
Associates. The Dealer-Manager will receive as compensation selling commissions
of 7% of the public offering price of the certificates sold hereby ($0.70 per
certificate) except that for purchases of more than 10,000 certificates
($100,000), the selling commissions will be reduced as set forth in the table
below. The incremental reduction in selling commissions on purchases of more
than 10,000 certificates will not change Boston Capital's net proceeds, but will
be reflected by a reduction in the price per certificate on such purchases as
set forth in the table below.
<Table>
<Caption>
NUMBER OF CERTIFICATES SELLING PRICE
PURCHASED COMMISSION PER CERTIFICATE
--------- ---------- ---------------
First 10,000 certificates 7.0% ($0.70 per certificate) $10.00
Next 10,000 certificates 6.5% ($0.65 per certificate) $9.95
Next 10,000 certificates 5.5% ($0.55 per certificate) $9.85
Next 10,000 certificates 4.5% ($0.45 per certificate) $9.75
Next 10,000 certificates 3.5% ($0.35 per certificate) $9.65
Next 10,000 certificates
and over 2.5% ($0.25 per certificate) $9.55
</Table>
Reductions apply in a graduated manner, i.e., for purchases above 10,000
certificates, selling commissions of $0.70 per certificate will nonetheless be
payable on the first 10,000 certificates purchased and, thereafter, $0.65 per
certificate will be payable on each certificate purchased from 10,100 to 20,000
certificates, $0.55 per certificate will be payable on each certificate
purchased from 20,100 to 30,000, $0.45 per certificate will be payable on each
certificate purchased from 30,100 to 40,000, $0.35 per certificate will be
payable on each certificate purchased from 40,100 to 50,000 and $0.25 per
certificate will be payable on each certificate purchased in excess of 50,100.
In order to purchase certificates, the subscriber must complete and properly
execute, or, to the extent permitted by applicable state law, have completed and
executed on his behalf by the Dealer-Manager or Soliciting Dealer, the Investor
Form attached hereto. Each subscription for certificates must be accompanied by
tender of the sum of $10 (less any applicable quantity discount) per certificate
($8.95 in the case of Boston Associates, its affiliates and employees of its
affiliates). By executing the Investor Form, or agreeing to have the Investor
Form executed on his behalf, the subscriber agrees to be bound by all the terms
of the Fund Agreement, which is set forth in full as Exhibit A. Provisions of
the Fund Agreement are summarized under the caption "Summary of Provisions of
the Fund Agreement."
The Dealer-Manager also will receive (1) an accountable due diligence expense
reimbursement in an amount up to 0.5% of the public offering price of the
certificates sold, (2) a non-accountable expense allowance in an amount up to 1%
of the public offering price of the certificates sold and
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(3) a Dealer-Manager Fee in an amount equal to 2% of the public offering price
of the certificates sold, the aggregate of which will be utilized for
wholesaling expenses including reallowances.
Subject to the satisfactory completion of any regulatory reviews and
examinations which may be required, the rules of the NASD and approval by the
Dealer-Manager, the Dealer-Manager may establish sales incentive programs for
registered representatives of Soliciting Dealers or may reimburse the Soliciting
Dealers for sales incentive programs established by them. Sales incentives will
be deemed to be additional underwriting compensation. The aggregate value of
incentives paid directly to individual registered representatives will not
exceed $100.00. The Soliciting Dealers will have sole discretion as to how they
will distribute sales incentives to their respective registered representatives.
The value of any sales incentives will be included in total underwriting
compensation subject to the limitations set forth herein. The Dealer-Manager may
also pay cash compensation directly to the Soliciting Dealers with such payments
to be reflected on the books of those Soliciting Dealers as compensation in
connection with the offering.
Investors who have engaged the services of a registered investment advisor may
agree with the participating Soliciting Dealer selling the certificates and the
Dealer-Manager to reduce the amount of selling commissions payable with respect
to such sale to as low as zero. The net offering proceeds to Boston Capital will
not be affected by such reduction and all such sales must still be made through
Soliciting Dealers. Neither Boston Associates, the Dealer-Manager or its
affiliates will directly or indirectly compensate any person engaged as an
investment advisor by a potential investor as an inducement for such investment
advisor to recommend an investment in Boston Capital.
At the sole discretion of each Soliciting Dealer, the Soliciting Dealers and
their employees may purchase certificates aggregating not more than 10% of the
certificates authorized for sale in any series on the same terms and conditions
as other investors, except they will not pay that portion of any Selling
Commissions which may otherwise be re-allowed to the Soliciting Dealer by the
Dealer-Manager. The net offering proceeds to Boston Capital of each such sale,
however, will be the same as for the certificates sold to the public. Any
purchases of certificates by Soliciting Dealers and their employees will not be
considered in order to meet the minimum offering of a particular series.
The Dealer-Manager may re-allow all or any portion of the 7% Selling
Commissions, 2% Dealer-Manager Fee, 1% non-accountable expense allowance, and
0.5% accountable due diligence expense reimbursement to Soliciting Dealers in
respect of any certificates sold through such Soliciting Dealer's efforts.
Soliciting Dealers may elect to pay their registered representatives any
re-allowed selling commissions over a period of up to seven years. The
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aggregate compensation to be paid to the Dealer-Manager and Soliciting Dealers
from whatever source and at all levels of sales will not exceed 10% of the
offering proceeds plus a maximum of one-half of one per cent for bona fide due
diligence expenses.
The agreement entered into by Boston Capital and Boston Associates with the
Dealer-Manager and the selling agreements between the Dealer-Manager and
Soliciting Dealers will contain cross-indemnity clauses for the benefit of the
Soliciting Dealers with respect to certain liabilities, including liabilities
under the Securities Act of 1933, as amended. The Dealer-Manager and the
Soliciting Dealers may be deemed underwriters as that term is defined in the
Securities Act of 1933, as amended.
ESCROW ARRANGEMENTS
All proceeds of the offering will be deposited and held in trust for the benefit
of the purchasers of certificates in an escrow account or accounts with the
Escrow Agent to be used only for the specific purposes set forth under
"Estimated Use of Proceeds." These proceeds may be temporarily invested in bank
time deposits, certificates of deposit, bank money market accounts and
government securities. Subscription proceeds deposited may not be withdrawn by
subscribers. An investor should make the subscription check payable to
"Wainwright Bank & Trust/BCTC IV Escrow Account."
Upon recognition as an investor, a subscriber for certificates will be entitled
to receive an amount equal to the amount of the interest earned on his
subscription proceeds held in the escrow account from the day after such
proceeds were received in the escrow account until but not including the closing
date. Such distribution will be made within seventy-five days of the end of the
fiscal quarter following the closing date, and will be made prior to, and
without regard to, any distributions from Boston Capital to which the investors
are entitled as described under "Sharing Arrangements: Profits, Credits, Losses,
Net Cash Flow and Residuals."
SUMMARY OF PROVISIONS OF THE FUND AGREEMENT
By tendering payment for certificates and by acceptance of the confirmation of
purchase or delivery of the certificate, an investor shall be deemed to have
assented to be bound by all the terms and conditions of the Fund Agreement, the
form of which is set out in its entirety at the end of this Prospectus as
Exhibit A. The investors will become Assignees of the Assignor Limited Partner
of Boston Capital and as such, their rights will also be governed by the terms
of the Fund Agreement. An investor executing an Investor Form shall have
assented to be bound by all the terms and conditions of the Fund Agreement.
Prospective investors should study the form of Fund Agreement carefully before
subscribing for certificates. The following statements and the statements in
this Prospectus concerning the Fund Agreement and related matters
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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 Fund Agreement.
WITHDRAWAL OF BOSTON ASSOCIATES
Subject to the consent of a majority in interest of the limited partners
including the Assignor Limited Partner, voting as instructed by a majority in
interest of the investors, Boston Associates may withdraw or sell, transfer or
assign its interest upon giving sixty days notice to the limited partners of its
intention to withdraw upon admission of a substitute general partner, who has
satisfied certain conditions, including, among other things, that:
(1) such person agrees to and executes the Fund Agreement;
(2) Counsel or counsel for the investors renders an opinion that such person's
selection and admission is in accordance with the Delaware Revised Uniform
Limited Partnership Act;
(3) that such person has sufficient net worth and meets all other requirements
of the IRS necessary for Boston Capital to continue to be classified as a
partnership for federal income tax purposes; provided that the interests of
the investors are not adversely affected.
Subject to Section 6.02 of the Fund Agreement, Boston Associates may designate
additional persons to be general partners, whose interests shall be such as
shall be agreed upon by Boston Associates and such additional general partners,
provided that the interests of the investors shall not be adversely affected.
REMOVAL OF BOSTON ASSOCIATES
A majority in interest of the limited partners, including the Assignor Limited
Partner, voting as instructed by the investors, is entitled to remove Boston
Associates from Boston Capital and elect a new general partner.
Upon the removal of Boston Associates, any rights--including, but not limited
to, rights to its Fund Interest and fees--or liabilities of Boston Associates
which matured prior to such removal will not be affected. See "Voting Rights and
Meetings."
LIABILITY OF PARTNERS AND INVESTORS TO THIRD PARTIES
Boston Associates will be liable for all general obligations of Boston Capital
to the extent not paid by Boston Capital. Boston Associates will not be liable
for any nonrecourse obligations of Boston Capital contracted for with third
parties.
No limited partner or investor is personally liable for the debts, liabilities,
contracts or any other obligations of Boston Capital; a limited partner and
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investor shall only be liable to pay his capital contribution as and when due,
unless, in addition to the exercise of his rights and powers as a limited
partner or investor, he takes part in the control of the business of Boston
Capital. However, the Delaware Revised Uniform Partnership Act provides that if
a limited partner receives a distribution from Boston Capital at the time that
such distribution was in violation of Section 17-607(a) of the Act or the Fund
Agreement, then that limited partner shall be liable to Boston Capital for the
amount of such distribution for a period of three years from the date of such
distribution. A distribution in violation of Section 17-607(a) of the Act is a
distribution where, after giving effect to the distribution, all liabilities of
Boston Capital other than liabilities to limited partners on account of their
interests, and nonrecourse liabilities, exceed the fair value of Boston
Capital's assets, excluding that portion of the fair value subject to
nonrecourse liability. It is expected that similar liabilities would be
applicable to investors.
WITHDRAWAL OF CAPITAL AND REDEMPTION OF INVESTORS' INTEREST
Each investor may look solely to the assets of Boston Capital or the assets of
Boston Capital attributable to his series of certificates, as the case may be,
for any distributions, and will have no recourse against any other investor or
any limited partner of Boston Capital. No limited partner or investor has the
right to request withdrawal of his capital from Boston Capital, and as set forth
in Section 3.04(b) of the Fund Agreement, Boston Associates has no personal
liability for the repayment of such capital. No partner or investor is entitled
to demand or receive any return of his capital contribution other than from
liquidation, sale or refinancing proceeds, to the extent available, as provided
in the Fund Agreement; nor is any limited partner or investor entitled to
receive property other than cash upon dissolution and termination of Boston
Capital. Boston Capital does not intend to purchase or redeem the interests of
limited partners or investors. Nothing described above alters the limitation on
liability of Boston Associates or its affiliates pursuant to Section 5.08(a) of
the Fund Agreement.
MANAGEMENT OF BOSTON CAPITAL
Boston Associates has the sole right to manage the business of Boston Capital.
MERGERS AND ROLLUPS
Section 10.02(h) of the Fund Agreement prohibits the merger or combination of
Boston Capital with any other entity.
VOTING RIGHTS AND MEETINGS
Investors have no right to participate in the management or control of Boston
Capital's business. The Fund Agreement provides, however, that the Assignor
Limited Partner will vote its limited partnership interest as directed by the
investors. Accordingly, the limited partners, including the Assignor
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Limited Partner voting on behalf of and as instructed by the investors, owning a
majority in interest of the total interests of Boston Capital will have the
right to vote to:
- - approve or disapprove the sale of all or substantially all of the assets of
Boston Capital at any one time; provided, however, only investors in a
particular series will have the right to vote on the sale of operating
partnership interests attributable to that series;
- - amend the Fund Agreement, except that, without the approval of any limited
partner affected thereby, no such amendment may (1) alter the rights and
obligations of such limited partner under the Fund Agreement, (2) modify the
order of distributions of cash or allocations of profits, credits and losses
to such limited partner, (3) or modify the method of determining distributions
of cash and allocations of profits, credits and losses to such limited partner
and (4) without the consent of all limited partners and investors, no such
amendment may allow the investors to take part in the management or control of
Boston Capital's business or otherwise modify their limited liability;
- - remove a general partner and elect a replacement;
- - dissolve Boston Capital.
Notwithstanding the foregoing, Boston Associates may amend the Fund Agreement
without the consent of the limited partners with respect to certain matters
which are not adverse to the interests of the investors. Boston Associates may
at any time call a meeting of investors or call for a vote without a meeting of
the investors. See Section 12.02 of the Fund Agreement.
Under the Delaware Revised Uniform Limited Partnership Act, limited partners may
not take part in the control of the business of a partnership. Under Delaware
law presently applicable, a limited partner will not be deemed to be taking part
in the control of the business by voting on one or more of the following
matters: (1) sale of all or substantially all of the assets of Boston Capital,
(2) amendment to the partnership agreement, (3) change in the nature of its
business, (4) removal of a general partner, (5) dissolution of the partnership
and (6) admission of a general or a limited partner.
There will be no annual or other periodic meetings of the investors. However,
Boston Associates must call meetings of the investors for any purpose upon
written request of limited partners, including the Assignor Limited Partner
voting on behalf of and as instructed by the investors, owning in the aggregate
10% or more in interests. In addition, Boston Associates shall, upon written
request of limited partners owning in the aggregate 10% or more in interests,
submit any matter upon which they are entitled to vote to the limited partners
and investors for a vote without a meeting. The Assignor Limited Partner will
call for a meeting or a vote if so instructed by
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the investors holding the requisite percentage of interests. With respect to
matters applicable to any particular series of certificates, the above-described
provisions will be applicable only to investors in such series.
Unlike shareholders of a corporation, limited partners, including the Assignor
Limited Partner acting on behalf of the investors, will not have any appraisal
or dissenters' rights in the event that the Fund Agreement is amended against
their wishes.
AMENDMENTS TO THE FUND AGREEMENT
In addition to amendments to the Fund Agreement approved by a majority in
interest of the limited partners, including the Assignor Limited Partner acting
on behalf of the investors described above, Boston Associates may amend the Fund
Agreement without the consent of the limited partners or investors to:
- - add or substitute general partners and limited partners if such addition or
substitution is in compliance with the provisions of the Fund Agreement;
- - add to the general partners' representations, duties or obligations or to
surrender any right or power granted to them;
- - cure any ambiguity in or correct or supplement any provision that may be
inconsistent with the manifest intent of the Fund Agreement or the
administrative efficiency of Boston Capital;
- - comply with the requirements of the staff of the Securities and Exchange
Commission, any state securities commission, any national securities exchange
or NASDAQ.
None of the foregoing amendments may be adverse to the interests of the limited
partners or investors.
DISSOLUTION AND LIQUIDATION
Boston Capital shall continue in full force and effect until December 31, 2043,
or until dissolution or adjudication of incompetence of a sole general partner,
the passing of ninety days after the sale of all of the apartment complexes or
operating partnership interests, as applicable, or until such time as is
reasonably needed to wind up Boston Capital's affairs, the election by a
majority in interest of the limited partners, including the Assignor Limited
Partner voting on behalf of and as instructed by the investors to dissolve
Boston Capital or the occurrence of any other event causing dissolution of
Boston Capital under the laws of the State of Delaware. Boston Capital would
also be dissolved upon the removal or withdrawal of Boston Associates, unless
Boston Associates has been or is to be replaced by a substitute general partner
designated by a vote of the beneficiaries including the Assignor Limited Partner
voting as instructed by the investors.
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In the event of the occurrence of the bankruptcy, death, dissolution,
withdrawal, removal or adjudication of incompetence of Boston Associates, and
unless it is decided by vote of a majority in interest of the limited partners,
including the Assignor Limited Partner voting as instructed by the investors, to
continue Boston Capital and designate a successor general partner, the
liquidator shall liquidate Boston Capital's assets and distribute its proceeds
in accordance with the priorities set forth in the Fund Agreement.
TAX ELECTION
Upon a transfer of one or more certificates or limited partnership interests by
the investors, Boston Capital is authorized, but does not intend, to make the
election provided for under Section 754 of the tax code to adjust the basis of
Boston Capital's property.
TAX MATTERS PARTNER DESIGNATION
Pursuant to Section 6231 of the tax code and its regulations and Section 9.06 of
the Fund Agreement, Boston Associates shall designate itself as the tax matters
partner for purposes of federal income tax audits of Boston Capital income,
gain, loss, deduction or credit.
BOOKS AND RECORDS
Boston Capital's fiscal year begins April 1 of each year.
Boston Capital will use the accrual method of accounting.
Boston Capital's books and records shall include information relating to the
status of each apartment complex, information with respect to any sales of goods
or services by Boston Associates or its affiliates to Boston Capital, and a list
of the names and addresses of all limited partners and investors.
Boston Capital's books and records shall be maintained at the office located at
One Boston Place, Suite 2100, Boston, Massachusetts 02108. Such books and
records shall be available there for examination by any limited partner or
investor, or his duly authorized representative, at any and all reasonable
times. Any limited partner or investor, or his duly authorized representative,
shall, upon paying the costs of duplication and mailing, be entitled to a copy
of audited financial statements of operating partnership(s) as soon as
practicable after receipt thereof from the operating partnership(s) and of the
most recently available list of the names and addresses of the limited partners
and investors.
SUCCESSOR IN INTEREST
The provisions of the Fund Agreement are binding upon the limited partners and
investors, and are binding upon and inure to the benefit of their heirs,
executors, administrators, successors and assigns.
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<Page>
POWER OF ATTORNEY
Each investor, by acquiring certificates, irrevocably appoints and empowers
Boston Associates as its attorney-in-fact to execute, acknowledge and swear to
all instruments and file all documents requisite to carrying out the intention
and purpose of the Fund Agreement.
APPLICABLE LAW
The Fund Agreement shall be construed and enforced in accordance with the laws
of the State of Delaware; provided, however, that causes of action for
violations of federal or state securities laws shall be governed by federal
securities laws or the laws of the appropriate state, as applicable.
SALES LITERATURE
In connection with this offering made hereby, the Dealer-Manager and Soliciting
Dealers may make use of a brochure entitled "Boston Capital Tax Credit Fund IV"
and prepared by Boston Capital, which describes certain aspects of Boston
Capital, Boston Associates and its affiliates. In certain jurisdictions such
supplemental material may not be available. The offering of certificates will be
made only by means of this Prospectus. Although the information contained in the
sales material will be consistent with the information contained in this
Prospectus, such information will not purport to be complete. Any such sales
material will not be part of this Prospectus and it should be read only in
conjunction with this Prospectus.
EXPERTS
The financial statements of the Assignor Limited Partner and Boston Associates
included in this Prospectus have been included in reliance on the reports of
Reznick Fedder & Silverman, independent certified public accountants, given on
the authority of the firm as experts in auditing and accounting.
The balance sheet of BCA Associates Limited Partnership included in this
Prospectus has been included in reliance on the report of Kevin P. Martin &
Associates, P.C., independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.
The statements under the heading "Federal Income Tax Matters" have been reviewed
by Nixon Peabody LLP in Washington, D.C., and have been included herein, to the
extent such statements constitute matters of law, in reliance upon the authority
of the firm as an expert thereon.
INVESTOR REPORTS
Financial information contained in all reports to investors will be prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles and will include, where applicable, a reconciliation to information
furnished to investors for income tax purposes--such income tax
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<Page>
information will be on the cash basis. The balance sheet, income statement and
certain other financial information in the annual report of Boston Capital will
contain an opinion of independent certified public accountants and will be
furnished to investors within 120 days following the close of each fiscal year.
The annual report will contain a complete statement of compensation and fees
paid by Boston Capital to Boston Associates and its affiliates, together with a
description of any new agreements with affiliates. The annual report will also
summarize Boston Capital's activities during the year.
Boston Capital's fiscal year will end on March 31 each year. Tax information
will be provided to the investors within seventy-five days following the close
of each calendar year. Boston Capital will distribute to the investors, (1)
within forty-five days after the end of each of the first three fiscal quarters
of each year, unaudited quarterly financial information with respect to Boston
Capital, together with a summary report of its quarterly operations and (2)
within 120 days after the end of the fourth fiscal quarter of each year, audited
financial information with respect to Boston Capital and a statement of the
services rendered to Boston Capital by Boston Associates and its affiliates and
the payments by Boston Capital to them of fees and other compensation,
reimbursed expenses and other cash distributions during such fiscal period, and
until all operating partnership interests have been acquired, a description of
any new operating partnership interests and the related apartment complexes,
other than those, if any, described in this Prospectus acquired during the
fiscal period.
All reports will set forth required information for each series separately to
the extent applicable.
LEGAL MATTERS
Legal matters in connection with the offering of the certificates will be passed
upon by Nixon Peabody LLP, 401 9th Street, N.W., Suite 900, Washington, D.C
20004, as counsel to Boston Capital. In addition, Nixon Peabody LLP in
Washington, D.C. prepared the description of federal income tax consequences
under the caption "Federal Income Tax Matters."
REGISTRATION STATEMENT
A Registration Statement under the Securities Act of 1933 has been filed with
the Securities and Exchange Commission, Washington, D.C. with respect to these
securities offered. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part thereof.
This Prospectus contains a fair summary of the material terms of all of the
exhibits to the Registration Statement and the documents referred to herein.
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<Page>
Boston Capital has not knowingly made any untrue statement of a material fact or
omitted to state any fact required to be stated in the Registration Statement,
including this Prospectus, or necessary to make the statements therein not
misleading.
GLOSSARY
Additional definitions of terms can be found in Article II of the Fund
Agreement.
"ACQUISITION FEE" means the total of all fees and commissions paid by any party
in connection with Boston Capital's acquisition of operating partnership
interests, including the Asset Acquisition Fee, and in connection with the
operating partnerships' acquisition of apartment complexes, but excluding a
development fee paid to a person who is not an affiliate of Boston Associates in
connection with the actual development of an apartment complex by an operating
partnership. Included in the computation of such fees or commissions shall be
any real estate fee, selection fee, development fee, nonrecurring management fee
or any fee of a similar nature, however designated. For the purposes of this
definition, development fee shall mean a fee for packaging of an apartment
complex, including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for a specific
apartment complex, either initially or at a later date.
"AFFILIATE" means, when used with respect to a specified person, (1) any person
that directly or indirectly controls or is controlled by or is under common
control with the specified person, (2) any person that is an officer of,
director of, partner in or trustee of, or serves in a similar capacity with
respect to, the specified person or of which the specified person is an officer,
director, partner or trustee, or with respect to which the specified person
serves in a similar capacity, (3) any person that, directly or indirectly, is
the beneficial owner of 10% or more of any class of equity securities of the
specified person or of which the specified person is directly or indirectly the
owner of 10% or more of any class of equity securities, (4) any person who is an
officer, director, general partner, trustee or holder of 10% or more of the
voting securities or beneficial interests of any of the foregoing or (5) any
person treated as a controlling person for purposes of Section V.E.1(a) of the
NASAA Guidelines. For purposes of this definition, the term "Affiliate" shall
not be deemed to include any law firm (or member or associate thereof) providing
legal services to Boston Capital, Boston Associates or any affiliate of any of
them.
"BOSTON ASSOCIATES" means Boston Capital Associates IV L.P., a Delaware limited
partnership, in its capacity as the general partner of Boston Capital.
"BOSTON CAPITAL" means the limited partnership formed as of October 5, 1993,
under the Delaware Revised Uniform Limited Partnership Act and known as Boston
Capital Tax Credit Fund IV L.P.
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<Page>
"CAPITAL ACCOUNT" means a separate account maintained and adjusted (1) for each
Limited Partner and the separate subaccount of the capital account of the
Assignor Limited Partner maintained and adjusted for each investor in accordance
with the terms of the Fund Agreement, and (2) for each partner of an operating
partnership in accordance with the terms of the applicable Operating Partnership
Agreement.
"CAPITAL TRANSACTION" means: (1) the sale by Boston Capital of all or part of
its interest in an operating partnership, or any other transaction affecting
Boston Capital, including its receipt of its share of the proceeds of a capital
transaction as to an operating partnership, which is not in the ordinary course
of its business, and (2) with respect to an operating partnership, any
transaction the proceeds of which are not includable in determining net cash
flow of the operating partnership, including, without limitation, the sale or
other disposition of all or substantially all the assets of such operating
partnership and any refinancing of the applicable permanent mortgage loan, but
excluding the payment to the operating partnership of capital contributions.
"DEALER-MANAGER" means Boston Capital Services, Inc. ("BCS"), a Massachusetts
corporation which is an affiliate of Boston Associates.
"ESCROW AGENT" means Wainwright Bank & Trust Company, Boston, Massachusetts, in
its capacity as such.
"FRONT END FEES" means fees and expenses paid by any party for any services
rendered during and in connection with Boston Capital's organizational or
acquisition phase, including other Acquisition Fees, Organization and Offering
Expenses, plus Selling Commissions and any other similar fees, although none are
anticipated, however, designated by Boston Associates. For purposes of this
definition "Acquisition Fees" means the total of all fees and commissions paid
by any party in connection with Boston Capital's acquisition of operating
partnership interests (including the Asset Acquisition Fee, payable by Boston
Capital from Gross Proceeds to Boston Associates or its affiliate(s) pursuant to
Section 5.15 of the Fund Agreement) and in connection with the operating
partnerships' acquisition of apartment complexes, but excluding development fees
paid to persons who are not affiliates of Boston Associates in connection with
the actual development of apartment complexes by operating partnerships.
Included in the computation of such fees or commissions shall be any real estate
fee, selection fee, nonrecurring management fee or any fee of a similar nature,
however designated. For purposes of this definition, "Acquisition Expenses"
means the total of all legal fees and expenses, travel and communication
expenses in connection with the negotiations, costs of real estate consultants
and appraisals, engineering and market studies, accountants' fees, title and
recording fees and miscellaneous expenses associated with Boston Capital's
acquisition of operating partnership interests and the operating partnerships'
acquisition of apartment complexes, whether or not acquired, including any
expenses that may have been paid by an operating general
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<Page>
partner that will be reimbursed by Boston Capital or included in the purchase
price of the apartment complexes or operating partnership interests, to the
extent such expenses are not includable in Boston Capital's tax credit basis
with respect to that apartment complex.
"INTEREST" or "FUND INTEREST" means the entire ownership interest of a limited
partner in Boston Capital at any particular time, including the right of such
limited partner to any and all benefits to which a limited partner may be
entitled under the Fund Agreement and the Act, together with the obligations of
such limited partner to comply with all the terms and provisions of the Fund
Agreement. Reference to a majority, or specified percentage, in interest of the
limited partners means (subject to the provisions of Section 12.11 of the Fund
Agreement with respect to matters applicable to any particular series of
certificates) limited partners whose combined capital contributions represent
over 50%, or such specified percentage, respectively, of the capital
contributions of all limited partners (the Assignor Limited Partner will vote
Fund Interests on behalf of and in accordance with the written directions of the
investors). The term "Interest" may also mean the beneficial interest of an
investor in the Fund Interest of the Assignor Limited Partner, if the context so
requires. As the context may require, the term "Interest" may also mean the
limited partnership interest of Boston Capital in an operating partnership.
"LIQUIDATION, SALE OR REFINANCING PROCEEDS" means (a) as to an operating
partnership: (i) the gross proceeds resulting from (A) the liquidation of
operating partnership assets, (B) the gross proceeds resulting from any sale of
the applicable apartment complex or refinancing of the applicable permanent
mortgage loan, and/or (C) any other capital transaction, less (ii) the expenses
of the operating partnership incident to such capital transaction (including in
the case of a refinancing the cost of retiring any existing mortgage or other
secured indebtedness), before any application or distribution of such proceeds
pursuant to the Operating Partnership Agreement and (b) as to Boston Capital:
(i) the gross proceeds (A) resulting from the liquidation of Boston Capital's
assets, (B) received by Boston Capital from an operating partnership as a result
of the occurrence of a capital transaction as to such Operating Partnership, (C)
resulting from any sale of the interest of the Boston Capital in any Operating
Partnership, and/or (D) resulting from any other capital transaction, less (ii),
in the case of (A), (C) and (D) immediately above, the expenses of Boston
Capital incident to such capital transaction, before any application or
distribution of such proceeds pursuant to the Fund Agreement.
"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 of the Prospectus.
"NET CASH FLOW" means, with respect to any year or other applicable period, (a)
all revenues received by Boston Capital during such period, plus (b) any
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<Page>
amounts which Boston Associates releases from the Working Capital Reserve (other
than amounts placed in the Working Capital Reserve from Net Offering Proceeds)
as being no longer necessary to hold as part of the Working Capital Reserve,
less: (i) operating expenses of Boston Capital paid from revenues during the
period, including any expenses paid to Boston Associates, but not including such
amounts paid from the Working Capital Reserve, (ii) all cash payments made from
revenues of Boston Capital during such period to discharge Fund indebtedness,
and (iii) all amounts from revenues, if any, added to the Working Capital
Reserve during such period.
"NET OFFERING PROCEEDS" means the total amount of funds received by Boston
Capital. on behalf of the Assignor Limited Partner from the investors in
connection with the offering, exclusive of Selling Commissions, as described in
"The Offering-Selling Arrangements."
"ORGANIZATION AND OFFERING EXPENSES" means (a) an accountable due diligence
expense reimbursement to the Dealer-Manager in an amount up to $.05 per
certificate sold, (b) the Dealer-Manager Fee to the Dealer-Manager, (c) a non
accountable expense allowance to the Dealer-Manager in an amount up to $.10 per
certificate sold, (d) an accountable expense reimbursement to Boston Associates
and its affiliates, and (e) accountable expenses paid by Boston Capital directly
or by Boston Associates and affiliates in connection with the organization of
Boston Capital, the structuring of Boston Capital's investments and the offering
of certificates, as more specifically described under the caption "Compensation
and Fees--Organization, Offering and Acquisition Phase."
"REGULATORY AGREEMENT" means an agreement entered into between an operating
partnership and a federal, state or local agency or unit of general local
government, which agreement sets forth certain terms under which the applicable
apartment complex is to be developed and/or operated.
"SALES PREPARATION FEE" means the fee payable by an operating partnership to an
operating general partner for its services in preparing an apartment complex for
sale, in an amount anticipated to be 3% of the gross sales price of the
apartment complex.
"WORKING CAPITAL RESERVE" means funds of Boston Capital held in reserve,
anticipated to be initially established in an amount of 4% of gross offering
proceeds, to be available for contingencies relating to the operation,
management and administration of the apartment complexes, the operating
partnerships, and Boston Capital, including the payment of the annual Fund
Management Fee. In addition, funds held in the Working Capital Reserve will also
be available for option and/or other payments which may be necessary to secure
the acquisition of operating partnership interests. Amounts held in the Working
Capital Reserve may at any time, in the discretion of Boston Associates, be
added to net cash flow or liquidation, sale or refinancing proceeds.
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<Page>
REZNICK FEDDER & SILVERMAN
CERTIFIED PUBLIC ACCOUNTS - A PROFESSIONAL CORPORATION
4520 EAST WEST HIGHWAY, SUITE 300, BETHESDA, MARYLAND 20814-3319
PHONE (301) 652-9100, FAX (301) 652-1848
BOSTON CAPITAL ASSOCIATES IV L.P.
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2000
To the Partners of
Boston Capital Associates IV L.P.
We have audited the accompanying balance sheet of Boston Capital Associates IV
L.P. as of December 31, 2000. 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
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 Boston Capital Associates IV L.P.
as of December 31, 2000, in conformity with generally accepted accounting
principles.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 20, 2001
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<Page>
BOSTON CAPITAL ASSOCIATES IV L.P.
BALANCE SHEET
DECEMBER 31, 2000
<Table>
<Caption>
LIABILITIES
Investment in limited partnership (note C) $ 897,758
=========
Partner's deficit (note B)
General partner (8,978)
Limited partner (888,780)
---------
(897,758)
=========
$ -0-
=========
</Table>
The accompanying notes are an integral part of this balance sheet.
NOTE A--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Boston Capital Associates IV L.P. (the "Partnership") was organized under the
laws of the State of Delaware as of October 5, 1993, to act as the general
partner of, and to acquire and hold a general partnership interest in, Boston
Capital Tax Credit Fund IV L.P.
INVESTMENT IN LIMITED PARTNERSHIP
The Partnership accounts for its investment in Boston Capital Tax Credit Fund IV
L.P. (the "Limited Partnership") using the equity method, whereby the
partnership adjusts the investment cost for its share of the Operating
Partnership's results of operations and for any distributions received or
accrued.
The Limited Partnership maintains its financial statements based on a March 31
year end and the Partnership utilizes a calendar year end.
NOTE B--PARTNERS' CAPITAL CONTRIBUTIONS
The Partnership has one general partner--C&M Associates d/b/a Boston Capital
Associates and one limited partner--Capital Investment Holdings IV. As of
October 5, 1993, the general partner and the limited partner are obligated to
make capital contributions of $100 and $1,400, respectively. Under the terms of
the Partnership Agreement, the general partner has no obligation to make
additional capital contributions to the Partnership, except possibly upon
liquidation. There are no additional capital contributions due from the limited
partner.
NOTE C--INVESTMENT IN LIMITED PARTNERSHIP
On October 5, 1993, the Partnership was admitted as the general partner in
Boston Capital Tax Credit Fund IV L.P. The Limited Partnership was formed to
invest in real estate by acquiring, holding, and disposing of limited
partnership interests in operating partnerships which will acquire, develop,
rehabilitate, operate and own newly-constructed, existing or rehabilitated
low-income apartment complexes. The negative investment balance of $897,758
represents losses from the Limited Partnership in excess of capital contributed
as of March 31, 2000.
I-2
<Page>
BOSTON CAPITAL ASSOCIATES IV L.P.
BALANCE SHEET
DECEMBER 31, 2000
NOTE C--INVESTMENT IN LIMITED PARTNERSHIP (CONTINUED)
The summarized combined balance sheet of the Limited Partnership at March 31,
2000 and the summarized combined statement of operations for the year then ended
are as follows:
BALANCE SHEET
<Table>
ASSETS
INVESTMENT IN OPERATING LIMITED PARTNERSHIP $387,774,608
OTHER ASSETS
Cash 15,484,389
Investments available-for-sale 33,246,886
Notes receivable 14,280,633
Acquisition costs 13,304,610
Other assets 14,057,243
------------
$478,148,369
============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Capital contributions payable $ 53,534,052
Line of credit 976,349
Accounts payable--affiliates 7,121,923
Accounts payable and accrued expenses 427,847
------------
62,060,171
PARTNERS' EQUITY 416,088,198
------------
$478,148,369
STATEMENT OF OPERATIONS
INCOME
Interest income $ 3,089,965
------------
Share of losses from operating limited partnerships (22,255,032)
------------
EXPENSES
Fund management fee 4,169,227
Amortization 505,485
General and administrative expenses 1,316,628
Professional fees 658,192
Organization 218,756
------------
6,868,288
------------
Cumulative effect of a change in accounting principle (623,193)
------------
NET LOSS $(26,656,548)
============
</Table>
I-3
<Page>
BCTC IV ASSIGNOR CORP.
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2000
To the Stockholder
BCTC IV Assignor Corp.
We have audited the accompanying balance sheet of BCTC IV Assignor Corp. as of
December 31, 2000. This balance sheet is the responsibility of the corporation'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
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 BCTC IV Assignor Corp. as of
December 31, 2000, in conformity with generally accepted accounting principles.
REZNICK, FEDDER & SILVERMAN
Bethesda, Maryland
March 20, 2001
I-4
<Page>
BCTC IV ASSIGNOR CORP.
BALANCE SHEET
DECEMBER 31, 2000
<Table>
ASSETS
Investment in limited partnership (note B) $ 100
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Subscription payable $ 100
Stockholder's equity
Common stock--1,000 shares authorized, issued and outstanding,
$1 par value per share 1,000
Less: subscription receivable (1,000)
-------
$ 100
=======
</Table>
The accompanying Notes are an integral part of this balance sheet.
NOTE A--ORGANIZATION
BCTC IV Assignor Corp. (the "Corporation") was organized on October 12, 1993,
under the laws of Delaware to act as the assignor limited partner of, and to
acquire and hold a limited partnership interest in, Boston Capital Tax Credit
Fund IV L.P. (the "Limited Partnership"). The Corporation will assign units of
beneficial interest in its limited partnership interest to persons who purchase
Beneficial Assignee Certificates (BACs), on the basis of one unit of beneficial
interest for each BAC. The Corporation will not have any interest in profits,
losses or distributions on its own behalf.
NOTE B--INVESTMENT IN PARTNERSHIP
On October 12, 1993, the Corporation was admitted as the assignor limited
partner in Boston Capital Tax Credit Fund IV L.P. The Limited Partnership was
formed to invest in real estate by acquiring, holding, and disposing of limited
partnership interests in operating partnerships which will acquire, develop,
rehabilitate, operate and own newly-constructed, existing or rehabilitated
low-income apartment complexes.
I-5
<Page>
KEVIN P. MARTIN & ASSOCIATES, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS CONSULTANTS
KEVIN P. MARTIN, CPA SOUTH SHORE EXECUTIVE PARK
KEVIN P. MARTIN, JR, CPA, MST TEN FORBES WEST
- ------------------ BRAINTREE, MA 02184-2696
KENNETH J. DAVIN, CPA ------------------
GARRETT H. DALTON, III, CPA, MB TELEPHONE (617) 380-3520
LISA A. MARTIN, CPA, MST FACSIMILE (617) 380-7836
EMAIL INFO@KPMONLINE.COM
To The Partners
BCA Associates Limited Partnership
f/k/a C & M Associates
One Boston Place
Boston, MA 02108-4406
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of BCA Associates Limited
Partnership, f/k/a C & M Associates (a Massachusetts General Partnership) as of
June 1, 2001. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with U.S. 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 BCA Associates Limited Partnership,
f/k/a C & M Associates as of June 1, 2001 in conformity with U.S. generally
accepted accounting principles.
KEVIN P. MARTIN & ASSOCIATES, P.C.
Braintree, Massachusetts
June 14, 2001
I-6
<Page>
BCA ASSOCIATES LIMITED PARTNERSHIP
f/k/a C & M ASSOCIATES
(A MASSACHUSETTS GENERAL PARTNERSHIP)
BALANCE SHEET
JUNE 1, 2001
<Table>
ASSETS
CURRENT ASSETS:
Cash $ 509,225
Service fees receivable 9,224
----------
Total current assets 518,449
----------
OTHER ASSETS:
Note receivable--affiliates 500,000
Investments 56,116
----------
556,116
----------
$1,074,565
==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--affiliates $ 436
Total current liabilities 436
----------
PARTNERS' EQUITY 1.074,129
----------
$1,074,565
==========
</Table>
See accompanying Notes.
I-7
<Page>
BCA ASSOCIATES LIMITED PARTNERSHIP
f/k/a C & M ASSOCIATES
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEET
JUNE 1, 2001
The accompanying balance sheet has been prepared in accordance with U.S.
generally accepted accounting principles. The following is a summary of
significant accounting policies:
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS--C & M Associates was formed as a Massachusetts general
partnership pursuant to an agreement dated July 1, 1982 to derive acquisition,
consulting and management fees from various investment limited partnerships.
Effective June 1, 2001, pursuant to an Amended and Restated Agreement of Limited
Partnership, the partnership was reconstituted as a Massachusetts Limited
Partnership and named "BCA Associates Limited Partnership". John P. Manning and
Herbert F. Collins, previously the two general partners of C & M Associates,
became limited partners of BCA Associates Limited Partnership and a new general
partner was admitted, C & M Management Inc., for a capital contribution of
$500,000.
BCA Associates Limited Partnership owns partnership interests in entities which
own multiple apartment complexes located in various states. The partnerships are
subject to long-term subsidy contracts, mortgage restrictions as to prepayments
and priority distributions to limited partners.
The Partnership derives various acquisition and consulting fees from investment
limited partnerships in connection with the negotiating and acquiring of
operating partnership interests, substantially all of which are in the real
estate sector and located throughout the United States. All accounts receivable
are due from such partnership interests.
METHOD OF ACCOUNTING--The balance sheet of the Partnership is prepared on the
accrual basis of accounting, and includes only those assets, liabilities and
results of operations of the Partnership which relate to the business of BCA
Associates Limited Partnership.
REVENUE RECOGNITION--The Partnership recognizes service fee income based upon
the specific performance method at the time of syndication and closing of
limited partnership investments. These fees are usually payable over a period of
more than one year. The Partnership has no policies requiring collateral or
other security to secure accounts receivable.
BCA Associates Limited Partnership does not currently syndicate individual
private limited partnerships. However, BCA Associates Limited Partnership
continues to act as general partner in various public individual and corporate
private limited partnerships which are syndicated through an affiliate.
INCOME TAXES--No provision for income taxes is made in the balance sheet of the
Partnership since the individual partners, not the entity, are allocated the tax
effect of items of income, deduction and credits to be reported.
BAD DEBTS--No allowance for doubtful accounts has been provided as management
believes all accounts receivable as of June 1, 2001 are fully collectible.
I-8
<Page>
CASH AND CASH EQUIVALENTS--The Partnership considers all highly liquid
investments with a maturity of three months or less, when purchased, to be "cash
equivalents." The Partnership maintains its cash balances in one financial
institution located in Boston, Massachusetts.
USE OF ESTIMATES--The preparation of the balance sheet in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statement and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2--INVESTMENTS--Investments consist of interests in limited partnerships
and are recorded at fair market value, which approximates cost.
BCA Associates Limited Partnership holds a general partner interest in each
limited partnership. As a general partner, BCA Associates Limited Partnership is
responsible to meet all limited partnership liabilities and obligations. These
interests involve credit risk in excess of the amount recognized on the balance
sheet. Unless noted otherwise, BCA Associates Limited Partnership does not
require collateral or other security to support financial instruments with
credit risk.
NOTE 3--NOTE RECEIVABLE-AFFILIATE--The note is in consideration of a capital
contribution from C & M Management, Inc., the general partner. The note is dated
June 1, 2001 for a principal amount of $500,000 with interest accruing at the
lesser of 6% above the prime rate or the maximum rate permitted by law. The note
is payable in full upon demand.
NOTE 4--LINE OF CREDIT--The Partnership is a guarantor on a $40 million
revolving bank line of credit of another partnership, in which BCA Associates
Limited Partnership is affiliated as sponsor and through common control. Under
the terms of the loan agreement dated June 1, 2001, the loan bears interest at
the prime rate plus .25% or Libor plus 250 basis points which ever is in effect
from time to time. The Partnership has guaranteed 25% of the principal and 100%
of the interest outstanding. As of June 1, 2001, there is no outstanding
liability of BCA Associates Limited Partnership under the line of credit. There
is, however, $19,596,966 outstanding to the affiliate, of which BCA Associates
Limited Partnership has guaranteed $3,622,330.
NOTE 5--TRANSACTIONS WITH RELATED PARTIES--Substantially all revenues are earned
from the providing of financial consulting advice regarding development and
syndication of partnership interests to partnerships in which BCA Associates
Limited Partnership is the general partner.
$436 of accounts payable at June 1, 2001 is payable to these related parties.
I-9
<Page>
TABULAR INFORMATION CONCERNING
PRIOR LIMITED PARTNERSHIPS
The information contained in the following Tables I, II, III, and III-A is
presented in conjunction with and as a supplement to the narrative summary
appearing elsewhere in this Prospectus under "Prior Performance of Boston
Associates and Its Affiliates" and is qualified in its entirety by the
information contained in such narrative summary.
These Tables include information for the three-year period beginning January 1,
1998, and ending December 31, 2000 (five-year period ending March 31, 2001 for
Table III) relating to public programs in the aggregate sponsored by Boston
Associates and its affiliates which had similar investment objectives to those
of Boston Capital. Programs deemed to have "similar investment objectives" are
programs receiving Government Assistance and originally intended to provide,
generally (1) tax benefits in the form of tax losses and low-income housing and
rehabilitation tax credits which could be used by limited partners to offset
income from other sources, (2) long-term capital appreciation through increases
in the value of the programs' investments, (3) cash distributions from the sale
or refinancing of the apartment complexes owned by the operating partnerships,
and (4) in some instances, limited cash distributions from operations.
Additionally, the programs which had similar investment objectives to those of
Boston Capital also involve material risks similar to those inherent in an
investment in Boston Capital. See the section of this Prospectus entitled "Risk
Factors."
The programs listed in these Tables were organized by Boston Associates and its
affiliates generally in a two-tier structure. These two-tier programs consist of
one investment limited partnership (the "investment partnership") which invested
in a number of limited partnerships (the "operating partnerships"), each of
which owns an apartment complex for low- and moderate-income persons, which
receives Government Assistance. In the three-year period ending December 31,
2000, Boston Associates and its affiliates sponsored one public partnership. The
following table identifies the number of operating partnership interests
acquired in programs sponsored by Boston Associates and its affiliates as of
December 31, 2000, and emphasizes Boston Capital's philosophy of broad
diversification:
<Table>
% EQUITY # OF OPERATING AVERAGE EQUITY
COMMITTED PARTNERSHIPS PER OPERATING
PROGRAM 12/31/00 ACQUIRED # OF STATES PARTNERSHIP
- -------------------------------------------------------------------------------
Boston Capital Tax
Credit Fund IV L.P.:
Series 32 99.8% 16 12 $2,852,543
Series 33 100.0% 10 10 $2,369,468
Series 34 100.0% 14 8 $2,517,913
Series 35 99.9% 11 7 $2,985,287
Series 36 100.0% 11 9 $1,902,011
Series 37 100.0% 7 6 $3,563,959
Series 38 99.6% 9 7 $2,739,722
Series 39 100.0% 8 6 $3,247,067
</Table>
I-10
<Page>
In 1993, Affiliates of the General Partner formed Boston Capital Tax Credit Fund
IV L.P., which was registered under the Securities Act of 1933.
The primary investment objectives of these limited partnerships are the
preservation of the partnership's capital and the provision of current tax
benefits to investors in the form of tax credits and passive losses. Cash flow
distributions from the operating partnerships to the investment partnerships
were not an investment objective in these programs. The regulations of RHS and
other government subsidy programs limit the amount of rent which may be charged
to tenants and also limit the amount of cash flow which may be distributed, even
if greater amounts of cash flow are available.
Investors in Boston Capital will not have any interest in any of the prior
limited partnerships incorporated in the tables or in any of the apartment
complexes owned by these limited partnerships.
It should not be assumed that Investors in Boston Capital will experience
results comparable to those experienced by investors in the programs
incorporated in the following Tables.
The Tabular Information Concerning Prior Limited Partnerships and accompanying
Notes are not covered by reports of independent certified public accountants.
Additional information regarding prior public programs can be obtained upon
written request to:
Boston Capital Tax Credit Fund IV L.P.
c/o Boston Capital Partners, Inc.
One Boston Place, Suite 2100
Boston, Massachusetts 02108-4406
Attn: Richard DeAgazio.
I-11
<Page>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
Table I includes information concerning the experience of the Boston Associates
and its affiliates in raising and investing funds for public limited
partnerships having similar investment objectives to Boston Capital. Information
is included for the sole public offering organized between January 1, 1998 and
December 31, 2000, which invested in 86 operating partnerships. Table I presents
the dollar amount offered and raised, the percentage of the amount raised which
was used to pay offering costs and acquire investments, the percentage of
leverage used and the time frame for raising and investing funds.
Table I is presented as if all capital contributions were received and all
expenses and payments of capital were paid in the year in which the offering
closed, although such transactions occur over several years.
The Table should be read in conjunction with the introduction and accompanying
Notes.
I-12
<Page>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
JANUARY 1, 1998 THROUGH DECEMBER 31, 2000
<Table>
<Caption>
PUBLIC OFFERINGS
----------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(SERIES 32) (SERIES 33) (SERIES 34)
1998 1998 1998
----------- ----------- ----------
Dollar amount offered (1) $47,431,000 $26,362,000 $35,273,000
Dollar amount raised (100%) 100% 100% 100%
Less: Offering expenses
Selling commissions and reimbursements
retained by affiliates 2.00% 2.00% 2.00%
Other selling commissions 8.00% 8.00% 8.00%
Legal and organizational 2.50% 2.50% 2.50%
----------- ----------- -----------
Total offering expenses 12.50% 12.50% 12.50%
=========== =========== ===========
Amount available for investment from
limited partners 87.50% 87.50% 87.50%
Acquisition fees (2) 8.50% 8.50% 8.50%
Acquisition expenses (3) 2.00% 2.00% 2.00%
Working capital reserves 4.00% 4.00% 4.00%
Cash payments to operating
partnerships (4) 73.00% 73.00% 73.00%
----------- ----------- -----------
Total acquisition costs 87.50% 87.50% 87.50%
=========== =========== ===========
Mortgage financing $31,676,300 $15,351,608 $33,192,864
Additional capital (5) $ 151,209 $ 623 $ 38,577
----------- ----------- -----------
Total other sources $31,827,509 $15,352,231 $33,231,441
Amount available for investment from
offering proceeds $41,502,125 $23,066,750 $30,863,875
----------- ----------- -----------
Total development costs $73,329,639 $38,418,981 $64,095,316
=========== =========== ===========
Percentage leverage (6) 43.20% 39.96% 51.79%
Average length of offering (days) 156 91 143
Months to invest 90% of amount available 9 3 8
</Table>
I-13
<Page>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
JANUARY 1, 1998 THROUGH DECEMBER 31, 2000
<Table>
<Caption>
PUBLIC OFFERINGS
----------------------------------------------
BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P.
(SERIES 35) (SERIES 36) (SERIES 37)
1999 1999 1999
----------- ----------- -----------
Dollar amount offered (1) $33,004,625 $21,068,375 $25,125,000
Dollar amount raised (100%) 100% 100% 100%
Less: Offering expenses
Selling commissions and reimbursements
retained by affiliates 2.00% 2.00% 2.00%
Other selling commissions 8.00% 8.00% 8.00%
Legal and organizational 2.50% 2.50% 2.50%
----------- ----------- -----------
Total offering expenses 12.50% 12.50% 12.50%
=========== =========== ===========
Amount available for investment from
limited partners 87.50% 87.50% 87.50%
Acquisition fees (2) 8.50% 8.50% 8.50%
Acquisition expenses (3) 2.00% 2.00% 2.00%
Working capital reserves 4.00% 4.00% 4.00%
Cash payments to operating
partnerships (4) 73.00% 73.00% 73.00%
----------- ----------- -----------
Total acquisition costs 87.50% 87.50% 87.50%
=========== =========== ===========
Mortgage financing $21,685,287 $16,978,730 $22,552,114
Additional capital (5) $ 200,973 $ 34,247 $ 120,318
----------- ----------- -----------
Total other sources $21,886,280 $17,012,977 $22,672,432
Amount available for investment from
offering proceeds $28,879,047 $18,434,828 $21,984,375
----------- ----------- -----------
Total development costs $50,765,327 $35,447,805 $44,656,807
=========== =========== ===========
Percentage leverage (6) 42.72% 47.90% 50.50%
Average length of offering (days) 127 90 86
Months to invest 90% of amount available 2 5 1
</Table>
I-14
<Page>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
JANUARY 1, 1998 THROUGH DECEMBER 31, 2000
<Table>
<Caption>
PUBLIC OFFERINGS
------------------------------
BCTC IV BCTC IV
L.P. L.P.
(SERIES 38) (SERIES 39)
1999 2000
----------- -----------
Dollar amount offered (1) $25,431,000 $16,436,000
Dollar amount raised (100%) 100% 100%
Less: Offering expenses
Selling commissions and reimbursements retained by affiliates 2.00% 2.00%
Other selling commissions 8.00% 8.00%
Legal and organizational 2.50% 2.50%
----------- -----------
Total offering expenses 12.50% 12.50%
=========== ===========
Amount available for investment from limited partners 87.50% 87.50%
Acquisition fees (2) 8.50% 8.50%
Acquisition expenses (3) 2.00% 2.00%
Working capital reserves 4.00% 4.00%
Cash payments to operating partnerships (4) 73.00% 73.00%
----------- -----------
Total acquisition costs 87.50% 87.50%
=========== ===========
Mortgage financing $13,447,457 $ 8,650,681
Additional capital (5) $ 620,402 $489
----------- -----------
Total other sources $14,067,859 $ 8,651,170
Amount available for investment from offering proceeds $22,252,125 $14,381,500
----------- -----------
Total development costs $36,319,984 $23,032,670
=========== ===========
Percentage leverage (6) 37.02% 37.56%
Average length of offering (days)
Months to invest 90% of amount available 2 2
</Table>
NOTES TO TABLE I
Note 1: The dollar amount offered and raised includes the entire amount of
investors' contributions paid.
Note 2: Acquisition fees are amounts paid to the general partners and affiliates
for selecting, evaluating, negotiating and closing the investment partnerships'
acquisition of operating partnership interests.
Note 3: Acquisition expenses consist of legal and accounting fees, travel,
market studies and other expenses to be paid to third parties.
Note 4: Cash payments to non-affiliated operating partnerships include capital
contributions. The amount shown for 2000 includes 0.12% of public partnerships'
funds not yet committed.
Note 5: Additional capital represents funds contributed by the operating general
partners. Properties financed by RHS after 1987 require the operating general
partners to provide a minimum of 3% of the total development cost in equity.
Note 6: The leverage percentage equals the total amount of mortgage indebtedness
on the acquisition date or completion date divided by total development costs.
I-15
<Page>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
Table II sets forth the aggregate amount of all compensation earned by or paid
to the General Partner and its Affiliates between January 1, 1998 and
December 31, 2000 for the programs included in Table I. None of the programs
included in this Table have been liquidated.
The Table should be read in conjunction with the introduction and accompanying
Notes.
<Table>
<Caption>
PUBLIC OFFERINGS
----------------------------------------------------
BCTC IV BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P. L.P.
(SERIES 32) (SERIES 33) (SERIES 34) (SERIES 35)
1998 1998 1998 1998
----------- ----------- ----------- -----------
Dollar amount raised (1) $47,431,000 $26,362,000 $35,273,000 $33,004,625
Amounts paid and/or payable
to sponsor and affiliates from
proceeds (1):
Underwriting fees (2) 1,660,085 922,670 1,234,555 1,155,162
Acquisition fees 4,031,635 2,240,770 2,998,205 2,805,393
Acquisition expense
reimbursement 948,620 527,240 705,460 660,093
Asset management fee 848,457 404,154 536,377 366,444
Dollar amount of cash
generated from operating
partnerships before payments
to sponsors (3) 16,000 0 0 0
Amounts paid to sponsors from
operations (4) 0 0 0 0
</Table>
I-16
<Page>
TABLE II
COMPENSATION TO SPONSOR AND AFFILIATES
JANUARY 1, 1998 THROUGH DECEMBER 31, 2000
Table II sets forth the aggregate amount of all compensation earned by or paid
to the General Partner and its Affiliates between January 1, 1998 and
December 31, 2000 for the programs included in Table I. None of the programs
included in this Table have been liquidated.
The Table should be read in conjunction with the introduction and accompanying
Notes.
<Table>
<Caption>
PUBLIC OFFERINGS
----------------------------------------------------
BCTC IV BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P. L.P.
(SERIES 36) (SERIES 37) (SERIES 38) (SERIES 39)
1999 1999 2000 2000
----------- ----------- ----------- -----------
Dollar amount raised (1) $21,068,375 $25,125,000 $25,431,000 $16,436,000
Amounts paid and/or payable
to sponsor and affiliates from
proceeds (1):
Underwriting fees (2) 737,393 879,375 890,085 575,260
Acquisition fees 1,790,812 2,135,625 2,161,635 1,397,060
Acquisition expense
reimbursement 421,368 502,500 508,620 328,720
Asset management fee 202,803 120,311 77,566 0
Dollar amount of cash
generated from operating
partnerships before payments
to sponsors (3) 0 0 0 0
Amounts paid to sponsors from
operations (4) 0 0 0 0
</Table>
NOTES TO TABLE II
Note 1: Table II is presented as if all capital contributions were received and
all fees payable from offering proceeds to the General Partner, its Affiliates,
and their predecessors in interest were paid in the year in which the offerings
were completed; such transactions actually occur over several years.
Note 2: Underwriting fees include non-accountable expense allowances, research
report fees, due diligence fees, selling commissions, purchaser representative
fees, and capital commitment fees. These amounts do not include commissions paid
to an affiliated dealer-manager which were subsequently paid to non-affiliated
brokers. These fees are paid over one to three years.
Note 3: The dollar amount of cash generated from operating partnerships is the
total amount of cash distributions received by the investment partnerships
during the three-year period. For example: 2000 would include 1998-2000 cash
distributions for the partnership organized in 1998. Historically, cash flow
from government-subsidized apartment complexes is generated by the second full
year of operations, yet cash flow is not disbursed until financial statement
analyses are complete.
Note 4: If cash flow is unavailable to pay investment partnership operating
expenses, then expenses are either accrued until cash flow is available in
future years to repay such expenses or the sponsor pays these operating expenses
as they become due and subsequently receives reimbursement when cash flow is
available.
I-17
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
Table III summarizes the operating results of prior partnerships having similar
investment objectives to the Fund which were closed between January 1, 1996 and
December 31, 2001. The public investment partnerships own interests in 242
operating partnerships.
The information is presented in accordance with generally accepted accounting
principles ("GAAP") except with respect to the information presented in the
tables labeled "Tax & Distribution Data Per $1000 invested on a Tax Basis",
which is presented on the tax basis method of accounting.
Significant differences can occur in operating results accounted for on a tax
versus GAAP basis. Some differences, but not all, are due to depreciation
methods and depreciable lives, and treatment of capitalized construction period
interest and expenses. The usual effect of these differences is that taxable
losses under GAAP would have been less than the taxable losses. Both GAAP and
tax losses are reported in the table.
The Table should be read in conjunction with the introduction and accompanying
Notes.
I-18
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 26)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
Gross Revenues 962,666 534,030 284,747 55,149 69,114
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating
partnerships (1) (493,405) (869,148) (1,448,218) (1,312,467) (2,038,026)
Operating Expenses (3) (665,060) (662,078) (536,966) (509,586) (433,435)
Interest Expense 0 0 0 0 0
Depreciation (2) (14,198) (18,931) (18,931) (17,362) (17,650)
Net Income--GAAP Basis (209,997) (1,016,127) (1,719,368) (1,784,266) (2,419,997)
Taxable Income from
operations (4) (760,605) (1,551,349) (1,680,968) (2,145,091) (2,374,878)
gain on sale 0 0 0 0 0
Cash generated from operations (6) 63,427 (99,875) 47,051 238,454 95,920
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations,
sales and refinancing 63,427 (99,875) 47,051 238,454 95,920
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 0 0
Cash generated (deficiency)
after cash distributions 63,427 (99,875) 47,051 238,454 95,920
Less: Special items (not including
sales and refinancing) (identify
and quantify) 0 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items 63,427 (99,875) 47,051 238,454 95,920
<Caption>
TAX DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1000 INVESTED (7) 1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 21 59 100 113 118
State Credit 0 0 0 0 0
Ordinary Income (loss) (19) (39) (42) (53) (59)
from operations (19) (39) (42) (53) (59)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in
program properties 99.16%
</Table>
I-19
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 27)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Gross Revenues 269,562 323,118 103,948 33,758 76,968
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating
partnerships (1) (9,016) (689,756) (1,421,601) (971,679) (595,643)
Operating Expenses (3) (277,112) (404,945) (382,976) (391,152) (330,448)
Interest Expense 0 0 0 0 0
Depreciation (2) (7,761) (15,522) (15,522) (14,946) (15,655)
Net Income--GAAP Basis (24,327) (787,105) (1,716,151) (1,344,019) (864,778)
Taxable Income
from operations (4) (177,866) (783,283) (1,215,031) (1,478,369) (1,349,686)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (118,251) 32,425 74,982 (1,156) 215,580
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales
and refinancing (118,251) 32,425 74,982 (1,156) 215,580
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 (275,000) 0 0
Cash generated (deficiency) after cash
distributions (118,251) 32,425 (200,018) (1,156) 215,580
Less: Special items (not includin
sales and refinancing) (identify
and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (118,251) 32,425 (200,018) (276,156) 215,580
<Caption>
TAX DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1000 INVESTED (7) 1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 8 20 68 98 113
State Credit 0 0 0 0 0
Ordinary Income (loss) (7) (32) (49) (60) (54)
from operations (7) (32) (49) (60) (54)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0 0
Return of capital 0 0 0 11 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 11 0
Amount remaining invested in
program properties 96.05%
</Table>
I-20
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1996
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 28)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Gross Revenues 254,197 1,280,997 683,347 237,326 164,915
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating
partnerships (1) (1,567) (351,007) (793,965) (1,993,839) (1,714,275)
Operating Expenses (3) (155,959) (645,593) (593,265) (490,040) (398,107)
Interest Expense 0 0 0 0 0
Depreciation (2) (5,081) (20,326) (20,326) (3,300) (3,300)
Net Income--GAAP Basis 91,590 264,071 (724,209) (2,249,853) (1,950,767)
Taxable Income
from operations (4) (15,956) (488,790) (1,205,879) (2,381,621) (2,638,827)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (142,303) 619,169 422,423 (432,810) (233,709)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales
and refinancing (142,303) 619,169 422,423 (432,810) (233,709)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 0 0
Cash generated (deficiency) after cash
distributions (142,303) 619,169 422,423 (432,810) (233,709)
Less: Special items (not including
sales and refinancing) (identify
and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (142,303) 619,169 422,423 (432,810) (233,709)
<Caption>
TAX DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1000 INVESTED (7) 1997 1998 1999 2000
-------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 7 12 88 104
State Credit 0 0 0 0
Ordinary Income (loss) (12) (94) (59) (65)
from operations (12) (94) (59) (65)
from recapture 0 0 0 0
Capital gain (loss) 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0
Return of capital 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0
Refinancing 0 0 0 0
Operations 0 0 0 0
Other 0 0 0 0
Amount remaining invested in program
properties 97.56%
</Table>
I-21
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1997
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 29)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Gross Revenues 1,992 800,608 560,635 194,496 95,276
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating
partnerships (1) 0 (626,915) (1,418,793) (2,192,069) (2,074,428)
Operating Expenses (3) (1,058) (441,805) (540,871) (496,163) (387,553)
Interest Expense 0 0 0 0 0
Depreciation (2) 0 (8,633) (15,215) (3,206) (3,277)
Net Income--GAAP Basis 934 (276,745) (1,414,244) (2,496,942) (2,369,982)
Taxable Income
from operations (4) 0 (397,786) (1,794,720) (2,641,876) (3,009,645)
gain on sale 0 0 0 0 0
Cash generated from operations (6) 96,625 3,645,201 50,360 (243,517) (274,040)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales
and refinancing 96,625 3,645,201 50,360 (243,517) (274,040)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 (238,041) 0
Cash generated (deficiency) after cash
distributions 96,625 3,645,201 50,360 (481,558) (274,040)
Less: Special items (not including
sales and refinancing) (identify
and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 96,625 3,645,201 50,360 (481,558) (274,040)
<Caption>
TAX DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1000 INVESTED (7) 1997 1998 1999 2000
-------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 2 49 84 108
State Credit 0 0 0 0
Ordinary Income (loss) (10) (44) (66) (75)
from operations (10) (44) (66) (75)
from recapture 0 0 0 0
Capital gain (loss) 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0
Return of capital 0 0 0 6
Source (on cash basis):
Sales 0 0 0 0
Refinancing 0 0 0 0
Operations 0 0 0 0
Other 0 0 0 6
Amount remaining invested in program
properties 98.79%
</Table>
I-22
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1997
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 30 AND 31)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
----------------------------------------------------------------------------------------------
SERIES 30 SERIES 31
-------------------------------------------- ----------------------------------------------
1998 1999 2000 2001 1998 1999 2000 2001
-------- -------- ---------- ---------- -------- ---------- ---------- ----------
Gross Revenues 459,716 476,758 204,382 184,266 200,996 1,115,174 248,452 141,679
Profit on sale of properties 0 0 0 0 0 0 0 0
Less:
Losses from operating
partnerships (1) 100,573 (432,433) (1,074,429) (1,177,274) (43,087) (1,020,163) (2,795,630) (2,698,823)
Operating Expenses (3) (223,345) (335,339) (382,110) (269,616) (224,172) (544,122) (584,385) (422,126)
Interest Expense 0 0 0 0 0 0 0 0
Depreciation (2) (5,613) (13,857) (21,139) (21,209) (3,426) (13,702) 0 0
Net Income--GAAP Basis 331,331 (304,871) (1,273,296) (1,283,833) (69,689) (462,813) (3,131,563) (2,979,270)
Taxable Income
from operations (4) (42,975) (666,406) (1,762,799) (1,872,611) (141,712) (706,718) (3,691,755) (3,908,586)
gain on sale 0 0 0 0 0 0 0 0
Cash generated from
operations (6) (1,821) 267,031 (73,068) (79,338) 194,462 (73,719) (180,327) (164,103)
Cash generated from sales 0 0 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0 0 0
Cash generated from operations,
sales and refinancing (1,821) 267,031 (73,068) (79,338) 194,462 (73,719) (180,327) (164,103)
Less: Cash distributions to
investors from operating
cash flow 0 0 0 0 0 0 0 0
from sales and refinancing 0 0 0 0 0 0 0 0
from other 0 0 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions (1,821) 267,031 (73,068) (79,338) 194,462 (73,719) (180,327) (164,103)
Less: Special items (not
including sales and
refinancing) (identify and
quantify) 0 0 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions
and special items (1,821) 267,031 (73,068) (79,338) 194,462 (73,719) (180,327) (164,103)
<Caption>
FOR THE TAX PERIOD ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
SERIES 30 SERIES 31
----------------------------------------- -----------------------------------------
TAX DISTRIBUTION DATA 1997 1998 1999 2000 1997 1998 1999 2000
PER $1000 INVESTED (7) -------- -------- -------- -------- -------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 0 19 75 103 0 28 81 103
State Credit 0 0 0 0 0 0 0 0
Ordinary Income (loss) (2) (21) (16) (70) (3) (16) (38) (88)
from operations (2) (21) (16) (70) (3) (16) (38) (88)
Capital gain (loss) 0 0 0 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0 0 0 0 0
Return of capital 0 0 0 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0 0 0 0
Refinancing 0 0 0 0 0 0 0 0
Operations 0 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0 0
Amount remaining invested in
program properties 99.33% 98.21%
</Table>
I-23
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1998
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 32 THROUGH SERIES 33)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
---------------------------------------------------------------------------------------
SERIES 32 SERIES 33
-------------------------------------------------- ----------------------------------
1998 1999 2000 2001 1999 2000 2001
---------- ---------- ---------- ---------- --------- --------- ----------
Gross Revenues 2,782 727,112 342,051 316,656 256,081 312,853 197,659
Profit on sale of properties 0 0 0 0 0 0 0
Less:
Losses from operating
partnerships (1) 0 56,660 (1,245,350) (2,669,373) 187,290 (595,041) (1,294,005)
Operating Expenses (3) (23,978) (505,039) (554,745) (432,918) (239,965) (396,338) (260,722)
Interest Expense 0 0 0 0 0 0 0
Depreciation (2) 0 (8,897) (29,738) (36,303) (9,308) (26,578) (27,066)
Net Income--GAAP Basis (21,196) 269,836 (1,487,782) (2,821,938) 194,098 (705,104) (1,384,134)
Taxable Income
from operations (4) 0 (451,885) (1,514,735) (2,903,227) (147,561) (661,228) (1,692,569)
gain on sale 0 0 0 0 0 0 0
Cash generated from operations (6) (1,033,617) 1,149,015 261,990 (291,574) (85,106) 75,787 (108,662)
Cash generated from sales 0 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0 0
Cash generated from operations,
sales and refinancing (1,033,617) 1,149,015 261,990 (291,574) (85,106) 75,787 (108,662)
Less: Cash distributions to
investors from operating
cash flow 0 0 0 0 0 0 0
from sales and refinancing 0 0 0 0 0 0 0
from other 0 0 0 0 0 0 0
Cash generated (deficiency) after
cash distributions (1,033,617) 1,149,015 261,990 (291,574) (85,106) 75,787 (108,662)
Less: Special items (not including
sales and refinancing)
(identify and quantify) 0 0 0 0 0 0 0
Cash generated (deficiency) after
cash distributions and
special items (1,033,617) 1,149,015 261,990 (291,574) (85,106) 75,787 (108,662)
<Caption>
FOR THE TAX PERIOD ENDED DECEMBER 31,
--------------------------------------------------------------------
SERIES 32 SERIES 33
TAX DISTRIBUTION DATA -------------------------------- --------------------------------
PER $1000 INVESTED (7) 1998 1999 2000 1998 1999 2000
-------- -------- -------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 21 41 89 19 37 94
State Credit 0 0 0 0 0 0
Ordinary Income (loss) (10) (31) (61) (2) (25) (56)
from operations (10) (31) (61) (2) (25) (56)
from recapture 0 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0 0 0
Return of capital 0 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0 0
Refinancing 0 0 0 0 0 0
Operations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Amount remaining invested in program
properties 98.83% 98.88%
</Table>
I-24
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1999
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 34 THROUGH SERIES 35)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
------------------------------------------------------------------------------------
SERIES 34 SERIES 35
---------------------------------------- ----------------------------------------
1999 2000 2001 1999 2000 2001
---------- ---------- ---------- ---------- --------- ---------
Gross Revenues 156,247 385,293 125.489 1,803 567,711 236,430
Profit on sale of properties 0 0 0 0 0 0
Less:
Losses from operating partnerships (1) (218) (468,712) (2,140,987) 0 (194,048) (1,875,497)
Operating Expenses (3) (116,080) (573,910) (364,760) (8,570) (410,088) (338,492)
Interest Expense 0 0 0 0 0 0
Depreciation (2) 0 (41,853) (44,236) 0 (225,179) (128,479)
Net Income--GAAP Basis 39,949 (699,182) (2,424,494) (6,767) (261,604) (2,106,038)
Taxable Income
from operations (4) 1,650 (787,448) (2,964,741) 0 (309,302) (2,632,426)
gain on sale 0 0 0 0 0 0
Cash generated from operations (6) (114,918) (33,256) (236,495) (2,095,601) 1,894,591 (188,620)
Cash generated from sales 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0
Cash generated from operations, sales
and refinancing (114,918) (33,256) (236,495) (2,095,601) 1,894,591 (188,620)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0 0
from sales and refinancing 0 0 0 0 0 0
from other 0 0 0 0 0 0
Cash generated (deficiency) after
cash distributions (114,918) (33,256) (236,495) (2,095,601) 1,894,591 (188,620)
Less: Special items (not including sales
and refinancing) (identify and quantify) 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (114,918) (33,256) (236,495) (2,095,601) 1,894,591 (188,620)
<Caption>
FOR THE TAX PERIOD ENDED DECEMBER 31,
------------------------------------------------------------------
SERIES 34 SERIES 35
------------------------------------------------------------------
TAX DISTRIBUTION DATA 1998 1999 2000 1999 2000
PER $1000 INVESTED (7) -------- -------- -------- -------- --------
Federal Income Tax Results
Federal Credit (5) 0 16 79 4 39
State Credit 0 0 0 0 0
Ordinary Income (loss) 15 (19) (83) (9) (75)
from operations 15 (19) (83) (9) (75)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in
program properties 99.62% 99.86%
</Table>
I-25
<Page>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2001
PUBLIC OFFERINGS CLOSED DURING 1999 AND 2000
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 36 THROUGH SERIES 38)
<Table>
<Caption>
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
----------------------------------------------------------------------------------------------
SERIES 36 SERIES 37 SERIES 38 SERIES 39 SERIES 40
-------------------- --------------------- -------------------- --------- ----------
2000 2001 2000 2001 2000 2001 2001 2001
-------- ---------- --------- ---------- -------- --------- --------- ----------
Gross Revenues 175,394 83,521 145,974 331,766 1,437 207,525 49,735 2,317
Profit on sale of properties 0 0 0 0 0 0 0 0
Less:
Losses from operating
partnerships (1) (160,352) (457,746) (44,958) (318,507) 0 (133,908) 3,760 0
Operating Expenses (3) (240,981) (231,839) (154,532) (237,477) (83,131) (219,590) (196,332) (113,781)
Interest Expense 0 0 0 0 0 0 0 0
Depreciation (2) (78,850) (86,996) 0 (91,645) 0 0 0 0
Net Income--GAAP Basis (304,789) (693,060) (53,516) (315,863) (81,694) (145,973) (142,837) (111,464)
Taxable Income
from operations (4) (149,757) (1,901,563) (9,645) (390,505) 0 (151,741) 69,342 0
gain on sale 0 0 0 0 0 0 0 0
Cash generated from
operations (6) (119,222) 38,217 (4,554) 96,442 361,642 156,853 (147,183) (1,922,962)
Cash generated from sales 0 0 0 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0 0 0 0
Cash generated from operations,
sales and refinancing (119,222) 38,217 (4,554) 96,442 361,642 156,853 (147,183) (1,922,962)
Less: Cash distributions to
investors from operating
cash flow 0 0 0 0 0 0 0 0
from sales and refinancing 0 0 0 0 0 0 0 0
from other 0 0 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions (119,222) 38,217 (4,554) 96,442 361,642 156,853 (147,183) (1,922,962)
Less: Special items (not
including sales and
refinancing) (identify and
quantify) 0 0 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions
and special items (119,222) 38,217 (4,554) 96,442 361,642 156,853 (147,183) (1,922,962)
<Caption>
FOR THE TAX PERIOD ENDED DECEMBER 31,
--------------------------------------------------------------------
SERIES 36 SERIES 37 SERIES 38 SERIES 39
-------------------- -------------------- --------- ---------
TAX DISTRIBUTION DATA 1999 2000 1999 2000 2000 2000
PER $1000 INVESTED (7) -------- -------- -------- -------- --------- ---------
Federal Income Tax Results
Federal Credit (5) 2 64 0 14 11 0
State Credit 0 0 0 0 0 0
Ordinary Income (loss) (8) (85) (1) (9) (30) 11
from operations (8) (85) (1) (9) (30) 11
from recapture 0 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0 0 0 0
Return of capital 0 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0 0
Refinancing 0 0 0 0 0 0
Operations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Amount remaining invested in
program properties 99.99% 99.80% 100.00% 100.00%
</Table>
I-26
<Page>
NOTES TO TABLE III
Note 1: This figure represents the GAAP income (loss) allocable to the public
investment partnerships from their investment in operating partnerships. The
GAAP income (loss) is gross rental income less ordinary operating expenses,
interest expense, depreciation and certain non-recurring fees, such as loan
guarantee fees, lease-up fees and partnership management fees paid by the
operating partnerships.
Note 2: This figure represents the amortization by the investment partnerships
of its organization expense over a 60-month period commencing in the month
initial investor admission occurs.
Note 3: Operating expenses consist of investor service costs and legal and
accounting fees of the investment partnerships and expenses paid from equity
which includes partnership management fees, initial investor service fees and
capital commitment fees reported on an accrual basis.
Note 4: The taxable income (losses) for the investment partnerships represent
losses from Operating Partnerships which in turn consist substantially of
depreciation and mortgage interest.
Note 5: Federal credits include low-income housing tax credits and historic tax
credits.
Note 6: Cash generated from operations is the net income (loss), net of non-cash
expenses, adjusted for changes in accounts receivable and payable and
distributions received from the operating partnerships.
Note 7: Federal low-income housing tax credits and historic tax credits and
taxable income (loss), per $1,000 invested represents the limited partners'
allocable share of such items divided by the capital contributed by the limited
partners divided by $1,000. This information is presented on a Tax basis and not
a GAAP basis.
Note 8: The information provided in the tables labeled "Tax & Distribution Data
per $1,000 invested on a Tax Basis" is through the period December 31, 2000.
I-27
<Page>
TABLE III-A
Table III-A summarizes the actual tax credit results during the period
January 1, 1988 through December 31, 2000, of the four public partnerships
sponsored by affiliates of Boston Associates.
<Table>
<Caption>
FINAL ACTUAL TAX CREDITS (%)(3&4)
CLOSING -------------------------------------------------------------------------
PROGRAM EQUITY RAISED DATE 1988 1989 1990(1) 1991 1992 1993 1994 1995 1996
- --------------------- --------------- ----------- ---- ---- ------- ---- ---- ---- ---- ---- ----
BCTC 1 12,999,000 Dec. 1988 1.0 11.0 22.0 14.2 14.2 14.2 14.2 14.2 14.2
BCTC 2 (CA)(2) 8,303,000 Apr. 1989 4.2 24.8 29.5 27.0 17.1 11.1 10.5 10.2
BCTC 3 28,822,000 May 1989 12.0 18.5 12.9 12.9 12.9 12.9 12.9 12.9
BCTC 4 29,788,160 Jun. 1989 7.8 17.4 13.9 12.6 12.6 12.4 12.4 12.4
BCTC 5 (CA)(2) 4,899,000 Jul. 1989 7.0 24.1 25.2 21.5 15.2 11.1 10.7 10.4
BCTC 6 12,935,780 Sept. 1989 2.9 15.3 14.9 13.5 13.1 13.0 13.0 13.0
BCTC II 7 10,361,000 Dec. 1989 6.2 11.9 17.1 11.9 12.1 12.2 12.2 12.2
BCTC II 9 41,574,018 May 1990 9.3 11.6 11.9 12.5 13.5 13.7 13.8
BCTC II 10 24,288,998 Aug. 1990 3.1 10.4 12.0 14.1 14.6 14.8 14.7
BCTC II 11 24,735,003 Dec. 1990 4.5 7.9 12.3 12.8 13.3 13.3 13.3
BCTC II 12 29,710,003 May 1991 4.7 11.0 12.1 14.3 14.8 14.7
BCTC II 14 55,728,996 Dec. 1991 3.8 9.1 12.5 14.0 14.4 14.5
BCTC III 15 38,705,000 Jun. 1992 3.1 9.2 13.4 14.4 14.8
BCTC III 16 54,293,000 Dec. 1992 1.4 4.4 8.6 13.9 14.2
BCTC III 17 50,000,000 May 1993 3.2 8.3 13.6 14.1
BCTC III 18 36,162,000 Oct. 1993 .1 7.3 12.8 13.4
BCTC III 19 40,800,000 Dec. 1993 1.8 10.2 12.6
BCTC IV 20 38,667,000 Jun. 1994 2.3 8.4 13.4
BCTC IV 21 18,927,000 Sept. 1994 3.5 9.2
BCTC IV 22 25,644,000 Dec. 1994 4.6 10.4
BCTC IV 23 33,366,000 Jun. 1995 3.1 9.1
BCTC IV 24 21,697,000 Sept. 1995 1.7 5.1
BCTC IV 25 30,248,000 Dec. 1995 1.4
BCTC IV 26 39,959,000 Jun. 1996 2.6
BCTC IV 27 24,607,000 Sept. 1996 0.9
BCTC IV 28 39,999,000 Jan. 1997
<Caption>
ACTUAL TAX CREDITS (%)(3&4) CUMULATIVE TIME OVERALL TAX
----------------------------- INVESTED THRU CREDIT
PROGRAM 1997 1998 1999 2000 CUMULATIVE 2000 OBJECTIVE
- --------------------- ---- ---- ---- ---- ------------ --------------- -----------
BCTC 1 14.2 12.1 1.1 -1.5 145.1 12 yrs. 130-150
BCTC 2 (CA)(2) 10.2 10.2 9.7 3.6 168.1 11 yrs. 8 mos. 170
BCTC 3 12.9 12.5 6.0 0.5 139.8 11 yrs. 7 mos. 130-150
BCTC 4 12.4 12.4 9.6 0.5 136.4 11 yrs. 6 mos. 130-150
BCTC 5 (CA)(2) 10.4 10.1 9.6 1.9 157.2 11 yrs. 5 mos. 150-170
BCTC 6 12.8 12.8 11.4 2.9 138.6 11 yrs. 3 mos. 130-150
BCTC II 7 12.2 12.2 7.2 5.1 132.5 11 yrs. 130-140
BCTC II 9 13.8 13.7 12.8 8.2 134.8 10 yrs. 7 mos. 130-150
BCTC II 10 14.7 14.6 13.2 11.5 137.7 10 yrs. 4 mos. 130-150
BCTC II 11 13.3 13.3 13.2 12.5 129.7 10 yrs. 130-150
BCTC II 12 14.8 14.7 14.7 14.7 130.5 9 yrs. 7 mos. 140-160
BCTC II 14 14.5 14.3 14.3 14.1 125.5 9 yrs. 140-160
BCTC III 15 14.8 14.8 14.7 14.7 113.9 8 yrs. 6 mos. 140-160
BCTC III 16 14.2 14.3 14.1 14.2 99.3 8 yrs. 140-160
BCTC III 17 14.1 14.1 14.1 13.8 95.3 7 yrs. 7 mos. 140-160
BCTC III 18 13.4 13.5 13.5 13.5 87.5 7 yrs. 2 mos. 140-160
BCTC III 19 13.4 13.5 13.5 13.5 78.5 7 yrs. 140-160
BCTC IV 20 13.4 13.5 13.5 13.5 78.0 6 yrs. 6 mos. 130-150
BCTC IV 21 11.5 12.0 12.2 12.2 60.6 6 yrs. 3 mos. 130-150
BCTC IV 22 12.1 12.7 12.8 12.8 65.4 6 yrs. 130-150
BCTC IV 23 13.0 13.2 13.2 13.2 64.8 5 yrs. 6 mos. 130-150
BCTC IV 24 11.3 12.9 12.9 12.9 56.8 5 yrs. 3 mos. 130-150
BCTC IV 25 10.9 12.6 12.4 12.7 50.0 5 yrs. 130-150
BCTC IV 26 6.0 10.1 11.5 12.0 42.2 4 yrs. 6 mos. 120-140
BCTC IV 27 2.0 6.9 9.9 11.4 31.1 4 yrs. 3 mos. 120-140
BCTC IV 28 .7 4.9 8.9 10.6 25.1 3 yrs. 11 mos. 120-140
</Table>
I-28
<Page>
<Table>
<Caption>
FINAL ACTUAL TAX CREDITS (%)(3&4)
CLOSING -------------------------------------------------------------------------
PROGRAM EQUITY RAISED DATE 1988 1989 1990(1) 1991 1992 1993 1994 1995 1996
- --------------------- --------------- ----------- ---- ---- ------- ---- ---- ---- ---- ---- ----
BCTC IV 29 39,918,000 Jun. 1997
BCTV IV 30 26,490,750 Sept. 1997
BCTC IV 31 44,057,750 Jan. 1998
BCTC IV 32 47,431,000 Jun. 1998
BCTC IV 33 26,362,000 Sept. 1998
BCTC IV 34 35,273,000 Feb. 1999
BCTC IV 35 33,004,625 Jun. 1999
BCTC IV 36 21,068,375 Sept. 1999
BCTC IV 37(5) 25,125,000 Jan. 2000
BCTC IV 38(5) 25,431,000 Jul. 2000
==============
Total $1,101,380,458
<Caption>
ACTUAL TAX CREDITS (%)(3&4) CUMULATIVE TIME OVERALL TAX
----------------------------- INVESTED THRU CREDIT
PROGRAM 1997 1998 1999 2000 CUMULATIVE 2000 OBJECTIVE
- --------------------- ---- ---- ---- ---- ------------ -------------- -----------
BCTC IV 29 1.9 5.0 8.5 10.9 26.3 3 yrs. 6 mos. 110-130
BCTV IV 30 .1 1.9 7.6 10.4 20.0 3 yrs. 3 mos. 110-130
BCTC IV 31 2.9 8.1 10.4 21.4 2 yrs. 11 mos. 110-130
BCTC IV 32 2.6 4.2 9.0 15.8 2 yrs. 6 mos. 110-120
BCTC IV 33 2.3 3.7 9.5 15.5 2 yrs. 3 mos. 110-120
BCTC IV 34 1.6 8.0 9.6 1 yr. 10 mos. 100-120
BCTC IV 35 0.5 4.0 4.5 1 yr. 6 mos. 100-110
BCTC IV 36 0.2 6.5 6.7 1 yr. 3 mos. 100-110
BCTC IV 37(5) 1.4 1.4 11 mos. 100-110
BCTC IV 38(5) 1.4 1.4 5 mos. 95-100
</Table>
I-29
<Page>
NOTES TO TABLE III-A
(1) The 1990 results reflect, where applicable, the election available to
partnerships owning interests in properties qualifying for federal housing
tax credits pursuant to the 1990 Omnibus Budget Reconciliation Act which
enables individual investors who held an interest in those partnerships
prior to October 31, 1990, to utilize only in 1990 up to 150% of the annual
federal housing tax credit, otherwise allowable for 1990. Where this
election was made, the annual federal housing tax credit has been reduced by
the 50% bonus ratably and will continue to be reduced over the remaining
years of the credit period.
(2) These programs offered both California and federal housing tax credits.
(3) Each investor's first year yield may vary slightly based upon actual date
of investor admission.
(4) The only material benefit from these programs may be tax credits which may
mean that a material portion of each tax credit may represent a return of
the money originally invested if there is not enough money from the sale or
refinancing of the respective apartment complexes to return each investor's
capital contribution.
(5) As with all programs less than one year old, these returns are for a partial
year.
BCTC is Boston Capital Tax Credit Fund.
BCTC II is Boston Capital Tax Credit Fund II.
BCTC III is Boston Capital Tax Credit Fund III.
BCTC IV is Boston Capital Tax Credit Fund IV.
I-30
<Page>
================================================================================
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
AGREEMENT OF LIMITED PARTNERSHIP
================================================================================
As of December 16, 1993
<Page>
TABLE OF CONTENTS
AGREEMENT OF LIMITED PARTNERSHIP
PAGE
----
ARTICLE I
CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE
AND TERM A-1
1.01 Continuation of Partnership A-1
1.02 Name, Place of Business and Name and Address of Resident Agent A-1
1.03 Purpose A-2
1.04 Term A-2
ARTICLE II
DEFINED TERMS A-2
2.01 Defined Terms A-2
ARTICLE III
PARTNERS AND CAPITAL A-14
3.01 General Partner A-14
3.02 Limited Partner A-15
3.03 Assignees A-15
3.04 Partnership Capital A-18
3.05 Liability of Partners and Assignees A-19
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS,
CREDITS AND LOSSES A-20
4.01 Allocations of Profits, Credits and Losses and
Distributions of Cash Available for Distribution A-20
4.02 Distributions of Liquidation, Sale or Refinancing Proceeds A-21
4.03 Allocation of Gains and Losses A-22
4.04 Determination of Allocations and Distributions
Among Partners and Assignees A-23
4.05 Capital Accounts A-25
4.06 Authority of General Partners to Vary Allocations to
Preserve and Protect Partners' Intent A-25
4.07 Allocations Between and Among Series A-26
4.08 Special Allocations A-26
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL
PARTNER A-28
5.01 Management of the Partnership A-28
5.02 Authority of the Managing General Partner A-30
5.03 Authority of General Partner and Its Affiliates to
Deal with Partnership and Operating Partnerships A-33
5.04 General Restrictions on Authority of General Partner A-36
5.05 Management Obligations A-38
5.06 Delegation of Authority A-40
5.07 Other Activities A-40
5.08 Limitation on Liability of General Partner and
Assignor Limited Partner; Indemnification A-41
5.09 Tax Status of Partnership A-42
5.10 Fiduciary Duty; Derivative Action A-43
5.11 Agency Agreement A-43
5.12 Restrictions on Authority to Deal with General Partner and
Affiliates A-43
5.13 Additional Restrictions on the General Partner A-43
5.14 Accounting Fee Advances A-44
5.15 Asset Acquisition Fee A-45
5.16 Partnership Management Fee A-45
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ARTICLE VI
CHANGES IN GENERAL PARTNERS A-45
6.01 Withdrawal of the General Partner A-45
6.02 Admission of a Successor or Additional General Partner A-46
6.03 Consent of Assignees and Limited Partners to
Admission of Successor or Additional General Partner A-47
6.04 Removal of a General Partner A-47
6.05 Effect of Removal, Bankruptcy, Death, Withdrawal,
Dissolution or Incompetency of a General Partner A-47
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNERS' INTERESTS AND
TRANSFERABILITY OF BACS A-48
7.01 Assignments of the Interest of the Assignor Limited Partner A-48
7.02 Conversion of BACs A-49
7.03 Assignees of Limited Partners; Substitute Limited Partners A-49
7.04 Joint Ownership of Interests A-50
7.05 Assignability of BACs A-50
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP A-51
8.01 Events Causing Dissolution A-51
8.02 Liquidation A-52
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING REPORTS, TAX MATTERS A-54
9.01 Books and Records A-54
9.02 Accounting Basis and Fiscal Year A-55
9.03 Bank Accounts A-55
9.04 Reports A-55
9.05 Section 754 Elections A-56
9.06 Designation of Tax Matters Partner A-56
9.07 Duties of Tax Matters Partner A-57
9.08 Authority of Tax Matters Partner A-57
9.09 Expenses of Tax Matters Partner A-58
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS AND ASSIGNEES A-58
10.01 Meetings A-58
10.02 Voting Rights of Limited Partners and Assignees A-60
10.03 Voting by the Assignor Limited Partner on Behalf of BAC Holders A-62
10.04 Management of the Partnership A-63
10.05 Other Activities A-63
ARTICLE XI
ASSIGNMENT OF BENEFICIAL INTERESTS TO ASSIGNEES
AND RIGHTS OF ASSIGNEES A-63
11.01 Assignment of Beneficial Interests to Assignees A-63
11.02 Rights of Assignees of the Assignor Limited Partner A-64
11.03 Fiduciary Duty of Assignor A-64
11.04 Preservation of Tax Status and Preservation of Partnership
Status A-64
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ARTICLE XII
MISCELLANEOUS PROVISIONS A-65
12.01 Appointment of Managing General Partner as Attorney-in-Fact A-65
12.02 Signatures; Amendments A-66
12.03 Ownership by Limited Partners or Assignees of
General Partners or Its Affiliates A-67
12.04 Binding Provisions A-68
12.05 Applicable Law A-68
12.06 Counterparts A-68
12.07 Separability of Provisions A-68
12.08 Captions A-68
12.09 Disallowance of Expenses A-68
12.10 Entire Agreement A-68
12.11 Series Treated as Separate Partnerships; Exceptions A-69
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BOSTON CAPITAL TAX
CREDIT FUND IV L.P.
AGREEMENT OF LIMITED PARTNERSHIP
RECITALS
Whereas, as of October 1, 1993, Boston Capital Associates IV L.P., a Delaware
limited partnership (the "General Partner"), as the General Partner, executed a
Certificate of Limited Partnership (the "Certificate") forming a limited
partnership under the Delaware Revised Uniform Limited Partnership Act known as
Boston Capital Tax Credit Fund IV L.P. (the "Partnership"), which Certificate
was filed with the Delaware Secretary of State on October 5, 1993.
Whereas, the Partners of Boston Capital Tax Credit Fund IV L.P. desire to (i)
set forth additional terms and conditions with respect to the Partnership, (ii)
set forth in full the terms and conditions of their agreements and
understandings in a single instrument, and (iii) continue the Partnership.
Now, Therefore, in consideration of the mutual promises made herein, the
parties, intending to be legally bound, agree to continue Boston Capital Tax
Credit Fund IV L.P. as follows:
ARTICLE I
CONTINUATION, NAME, PLACE OF BUSINESS,
PURPOSE AND TERM
1.01. CONTINUATION OF PARTNERSHIP.
The undersigned hereby continue Boston Capital Tax Credit Fund IV L.P. as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
(6 Del. C. (S) 17-101 ct seq.). To the extent that the laws of other
jurisdictions shall be applicable to the operations of the Partnership, the
Partnership is intended to be qualified as a foreign limited partnership or a
partnership in commendam under such laws.
1.02. NAME, PLACE OF BUSINESS AND NAME AND ADDRESS OF RESIDENT AGENT.
The name of the Partnership is Boston Capital Tax Credit Fund IV L.P. The
address of the principal place of business and office of the Partnership is c/o
Boston Capital Partners, Inc., One Boston Place, Suite 2100, Boston,
Massachusetts 02108. Notification of any change in the Partnership's place of
business and principal office shall be given to the Limited Partners and
Assignees.
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The address of the registered office and the name and address of the registered
agent for service of process is The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware.
1.03. PURPOSE.
The purpose of the Partnership is to invest in real estate by acquiring,
holding, and disposing of limited partnership interests in Operating
Partnerships which will acquire, develop, rehabilitate, operate and own newly-
constructed, existing or rehabilitated Apartment Complexes and to engage in
other activities necessary or appropriate to the foregoing in order to:
(1) provide tax benefits in the form of Federal Housing Tax Credits and
Rehabilitation Tax Credits which may be applied, subject to certain strict
limitations, against federal income tax liability from active, portfolio
and/or passive income; provided, however, that with respect to any series
of certificates which will invest in Operating Partnerships generating
State Housing Tax Credits, the Partnership's objective will be to provide
current tax benefits in the form of Federal Housing Tax Credits,
Rehabilitation Tax Credits and State Housing Tax Credits;
(2) provide tax benefits in the form of passive losses which may be
applied to offset passive income (if any);
(3) preserve and protect the Partnership's capital and provide capital
appreciation and cash distributions from a Capital Transaction as to the
Partnership.
1.04. TERM.
The Partnership began as of October 5, 1993, and shall continue in full force
and effect until December 31, 2043, or until dissolution prior thereto pursuant
to the provisions hereof, and upon the filing of a Certificate of Cancellation
with the Delaware Secretary of State in accordance with Article VIII.
ARTICLE II
DEFINED TERMS
2.01. DEFINED TERMS.
The defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article II. 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 Reznick Fedder & Silverman, of Bethesda, Maryland, or such
other nationally recognized firm of independent certified public accountants
as shall be engaged from time to time by the Managing General Partner on
behalf of the Partnership.
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"ACCOUNTING FEE" means the fee paid to the Accountants for the preparation of
the Partnership tax returns and the annual financial reports to the Partners.
"ACCOUNTING FEE ADVANCES" means any advances made by the General Partner to the
Partnership for payment of all or part of any Accounting Fee, as set forth in
Section 5.14.
"ACQUISITION EXPENSES" means including but not limited to, the total of all
legal fees and expenses, travel and communication expenses in connection with
negotiations, costs of real estate consultants and appraisals, engineering and
market studies, accountants' fees, title and recording fees, and miscellaneous
expenses, associated with the Partnership's acquisition of Operating Partnership
Interests and the Operating Partnerships' acquisition of Apartment Complexes,
whether or not acquired, including any expenses that may have been paid by an
Operating General Partner that will be reimbursed by the Partnership or included
in the acquisition price of the Apartment Complexes or Operating Partnership
Interests.
"ACQUISITION FEES" means the total of all fees and commissions paid by any party
in connection with the Partnership's acquisition of Operating Partnership
Interests (including the Asset Acquisition Fee) and in connection with the
Operating Partnerships' acquisition of Apartment Complexes, but excluding a
development fee paid to a Person who is not an Affiliate of the General Partner
in connection with the actual development of an Apartment Complex by an
Operating Partnership on or after acquisition of the Apartment Complex by the
Operating Partnership. Included in the computation of such fees or commissions
shall be any real estate fee, selection fee, development fee, nonrecurring
management fee or any fee of a similar nature, however designated. For the
purposes of this definition, development fee shall mean a fee for packaging of
an Apartment Complex, including negotiating and approving plans, and undertaking
to assist in obtaining zoning and necessary variances and necessary financing
for a specific Apartment Complex, either initially or at a later date.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as amended
from time to time during the term of the Partnership.
"ADJUSTED CAPITAL CONTRIBUTION" means the Capital Contribution of a Partner or
Assignee, as the context may require, which for purposes of this definition
shall be deemed to be $10 per certificate or Limited Partnership Interest
reduced (but not below zero) by any return of such Capital Contributions under
Section 3.04(c) and Section 3.04(d) and by any distribution of Liquidation, Sale
or Refinancing Proceeds which represent a return of such Capital Contribution.
"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
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of, director of, partner in or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director, partner or trustee, or with respect to which the specified Person
serves in a similar capacity, (iii) any Person that, directly or indirectly, is
the beneficial owner of 10% or more of any class of equity securities of the
specified Person or of which the specified Person is directly or indirectly the
owner of 10% or more of any class of equity securities, (iv) any Person who is
an officer, director, general partner, trustee or holder of 10% or more of the
voting securities or beneficial interests of any of the foregoing or (v) any
Person treated as a Controlling Person. An Affiliate of the Partnership or of a
General Partner does not include a Person who is a partner in a partnership or
joint venture with the Partnership or any other Affiliate of the Partnership if
such Person is not otherwise an Affiliate of the Partnership or a General
Partner. For purposes of this definition, the term "Affiliate" shall not be
deemed to include any law firm (or member or associate thereof) providing legal
services to the Partnership, the Managing General Partner or any Affiliate of
any of them.
"AGGREGATE COST" means the sum(s) of (i) any capital contributions anticipated
to be made by the Partnership to the Operating Partnerships, plus (ii) the
proportionate amount of the mortgage loans on, and other debts related to, the
Apartment Complexes, which proportionate amount is equal to the Partnership's
initial, pro rata interest in the profits, losses and credits of the Operating
Partnerships. The amount of the "Aggregate Cost" will be determined after the
completion of investment of Net Proceeds in the Operating Partnerships in
accordance with Section 5.04(q).
"AGREEMENT" means this Agreement of Limited Partnership, as originally executed
and as amended from time to time.
"APARTMENT COMPLEX" means the land and buildings comprising each of the
multifamily housing developments owned by the Operating Partnerships.
"ASSET ACQUISITION FEE" means the fee payable by the Partnership from Gross
Proceeds to the General Partner or its Affiliate(s) pursuant to Section 5.15,
for analyzing and evaluating potential investments in Operating Partnerships,
negotiating the terms of such investments and any miscellaneous activities
related to the selection of and investment in Operating Partnership Interests.
"ASSIGNEE" means any Person who has been assigned one or more units of
beneficial interest in the Limited Partnership Interest of the Assignor Limited
Partner, which assignment is represented by a certificate, but which Person is
not a Limited Partner.
"ASSIGNMENT AGREEMENT" means an agreement pursuant to which the Assignor Limited
Partner assigns units of beneficial interest in its Limited Partnership Interest
to Assignees.
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"ASSIGNOR LIMITED PARTNER" means BCTC IV Assignor Corp., a Delaware corporation
which is an Affiliate of the General Partner.
"BAC" means the beneficial interest of an Assignee in the Limited Partnership
Interest of the Assignor Limited Partner, attributable to an original Capital
Contribution of $10.00 ($8.95 in the case of the General Partner, its Affiliates
and employees of its Affiliates).
"BAC HOLDER" means any Person who has been assigned one or more units of
beneficial interest in the Limited Partnership Interest of the Assignor Limited
Partner, which assignment is represented by a BAC, but which Person is not a
Limited Partner.
"BANKRUPTCY" or "Bankrupt" as to any Person means the filing of a petition for
relief as to any such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or like provision of law (except if such petition is contested by such
Person and has been dismissed within 60 days); insolvency of such Person as
finally determined by a court proceeding; filing by such Person of a petition or
application to accomplish the same or for the appointment of a receiver or a
trustee for such Person or a substantial part of his assets; or commencement of
any proceedings relating to such Person under any other reorganization,
arrangement, insolvency, adjustment of debt or liquidation law of any
jurisdiction, whether now in existence or hereinafter in effect, either by such
Person or by another, provided that if such proceeding is commenced by another,
such Person indicates his approval of such proceeding, consents thereby or
acquiesces therein, or such proceeding is contested by such Person and has not
been finally dismissed within 60 days.
"BCS" means Boston Capital Services, Inc., a Massachusetts corporation which
is the Dealer-Manager and an Affiliate of the General Partner.
"BCSG" means BCS Group, Inc., a Massachusetts corporation and an Affiliate of
the General Partner.
"BOSTON CAPITAL" means Boston Capital Partners, Inc., a Massachusetts
corporation and an Affiliate of the General Partner.
"CAPITAL ACCOUNT" means the separate capital account maintained and adjusted for
each Partner and the separate subaccount of the Capital Account of the Assignor
Limited Partner maintained and adjusted for each Assignee in accordance with the
terms of Section 4.05.
"CAPITAL CONTRIBUTION" means the total amount of money contributed to the
Partnership (prior to the deduction of any selling commissions or expenses) by
all the Partners or any class of Partners, or by any one Partner, as the context
may require (or the predecessor holders of the Interests of such Persons or
Person), and with respect to the Assignees, the Capital Contribution of the
Assignor Limited Partner made on behalf of the Assignees.
"CAPITAL TRANSACTION" means the sale by the Partnership of all or part of its
Interest in an Operating Partnership, or any other transaction affecting the
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Partnership, including the receipt by the Partnership of its share of the
proceeds of a Capital Transaction as to an Operating Partnership, which is not
in the ordinary course of the Partnership's business. As the context may
require, the term "Capital Transaction" shall, as to an Operating Partnership,
mean any transaction the proceeds of which are not includable in determining net
cash flow of the Operating Partnership, including, without limitation, the sale
or other disposition of all or substantially all the assets of such Operating
Partnership and any refinancing of the applicable Permanent Mortgage Loan, but
excluding the payment to such Operating Partnership of capital contributions of
the Partnership.
"CASH AVAILABLE FOR DISTRIBUTION" means, with respect to any period, Net Cash
Flow less any amounts set aside from Net Cash Flow for deposit into the Working
Capital Reserve.
"CASH FLOW" means Net Cash Flow plus amounts available each year for payment of
Accounting Fees, Accounting Fee Advances, reimbursement for Acquisition Expenses
and payment of the Partnership Management Fee, as set forth in Section 4.01(a).
"CAUSE" means, with respect to Section 5.08 and Section 5.13 hereof only,
conduct which constitutes fraud, bad faith, negligence, misconduct or breach of
fiduciary duty.
"CODE" means the Internal Revenue Code of 1986, as amended, or any corresponding
provision or provisions of succeeding law.
"CONSENT" means either the consent given by vote at a meeting called and held in
accordance with the provisions of Section 10.01 hereof or the prior written
consent, as the case may be, of a Person to do the act or thing for which the
consent is solicited, or the act of granting such consent, as the context may
require, subject to the provisions of Section 12.11.
"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 with respect
to an Apartment Complex.
"CONTROLLING PERSON" means any Person, whatever his title, who performs
functions for a General Partner or any Affiliate of a General Partner similar to
those of the Chairman or member of the Board of Directors, or executive officer
such as the President, Executive Vice President or Senior Vice President,
Corporate Secretary, or Treasurer, or any Person holding a 5% or more equity
interest in any General Partner, or any Person having the power to direct or
cause the direction of a General Partner, whether through the ownership of
voting securities, by contract or otherwise.
"DEALER-MANAGER" means Boston Capital Services, Inc. ("BCS"), a Massachusetts
corporation which is an Affiliate of the General Partner.
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"DEALER-MANAGER FEE" means the fee payable by the Partnership to the
Dealer-Manager for its services with respect to the Offering.
"DEVELOPMENT FEE" means a fee for packaging of an Apartment Complex, including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and necessary financing for a specific Apartment
Complex, either initially or at a later date.
"ESCROW AGENT" means Wainwright Bank & Trust Co., Boston, Massachusetts, in its
capacity as such.
"FEDERAL HOUSING TAX CREDIT" means the low income housing tax credit allowed for
low income housing developments pursuant to Section 42 of the Code.
"FRONT END FEES" means fees and expenses paid by any party for any services
rendered during and in connection with the Partnership's organizational or
acquisition phase, including Acquisition Fees, Acquisition Expenses,
Organization and Offering Expenses, plus Selling Commissions and any other
similar fees, although none are anticipated, however designated by the General
Partner. For purposes of this definition, "Acquisition Fees" means the total of
all fees and commissions paid by any party in connection with the Partnership's
acquisition of Operating Partnership Interests (including the Asset Acquisition
Fee, payable by the Partnership from Gross Proceeds to the General Partner or
its Affiliate(s) pursuant to Section 5.15 hereof) and in connection with the
Operating Partnerships' acquisition of Apartment Complexes, but excluding
development fees paid to Persons who are not Affiliates of the Sponsor in
connection with the actual development of Apartment Complexes by Operating
Partnerships. Included in the computation of such fees or commissions shall be
any real estate fee, selection fee, nonrecurring management fee or any fee of a
similar nature, however designated. For purposes of this definition,
"Acquisition Expenses" means including but not limited to, the total of all
legal fees and expenses, travel and communication expenses in connection with
the negotiations, costs of real estate consultants and appraisals, engineering
and market studies, accountants' fees, title and recording fees and
miscellaneous expenses, associated with the Partnership's acquisition of
Operating Partnership Interests and the Operating Partnerships' acquisition of
Apartment Complexes, whether or not acquired, including any expenses that may
have been paid by an Operating General Partner that will be reimbursed by the
Partnership or included in the purchase price of the Apartment Complexes or
Operating Partnership Interests.
"GENERAL PARTNER(S)" means Boston Capital Associates IV L.P., or, as applicable,
any Person(s) who, at the time of reference thereto, has been admitted as a
successor to its Partnership Interest or as an additional General Partner, in
each such Person's capacity as a General Partner. During such time as Boston
Capital Associates IV L.P., or any successor to the Interest of Boston
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Capital Associates IV L.P., shall be the sole general partner of the
Partnership, the terms "General Partner(s)" and "Managing General Partner" shall
be deemed to be identical in meaning and may be employed interchangeably in this
Agreement.
"GOVERNMENT ASSISTANCE" means any form of local, state or federal assistance,
including, without limitation, mortgage insurance, rental assistance payments,
permanent mortgage financing, interest reduction payments, bond financing, Tax
Credits, State Housing Tax Credits or any other form of loan, grant, insurance
or guarantee.
"GROSS PROCEEDS" means the total amount of money contributed to the Partnership
by the Assignor Limited Partner, which amount will be equal to (i) $10 times the
aggregate number of BACs sold to BAC Holders other than (to the extent
applicable) the General Partner, its Affiliates and employees of its Affiliates
pursuant to the Offering, plus (ii) $8.95 times the aggregate number of BACs
sold to the General Partner, its Affiliates and employees of its Affiliates
pursuant to the Offering.
"INTEREST" or "Partnership Interest" means the entire ownership interest of a
Partner in the Partnership at any particular time, including the right of such
Partner to any and all benefits to which a Partner may be entitled under this
Agreement and the Delaware Revised Uniform Limited Partnership Act, together
with the obligations of such Partner to comply with all the terms and provisions
of this Agreement. Reference to a majority, or specified percentage, in interest
of the Limited Partners means, subject to the provisions of Section 12.11 with
respect to matters applicable to any particular series of certificates, the
Limited Partners (including the Assignor Limited Partner) whose combined Capital
Contribution represents over 50%, or such specified percentage, respectively, of
the Capital Contribution of all Limited Partners. The ownership interests of the
Limited Partner(s) in the Partnership are sometimes referred to herein as
"Limited Partnership Interest(s)."
"INVESTMENT IN PROPERTIES" means the amount of Capital Contributions actually
paid or allocated to Operating Partnership Interests acquired by the Partnership
(including the purchase of such properties, 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).
"INVESTMENT DATE" means the date or dates, from time to time, when the proceeds
of the Offering are released from the Escrow Agent to the Partnership through
the Assignor Limited Partner (on behalf of the Assignees) and upon the
satisfaction of the conditions described in Sections 3.02 and 3.03.
"LIMITED PARTNER" means any Person who is a Limited Partner, whether the
Assignor Limited Partner, a Substitute Limited Partner, or a former Assignee or
General Partner whose Partnership Interest has been converted into a
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Limited Partnership Interest, at the time of reference thereto, in such Person's
capacity as a Limited Partner of the Partnership.
"LIMITED PARTNERSHIP INTEREST" means the Interest held by a Limited Partner,
including the Interest held by the Assignor Limited Partner the beneficial
interest of which is assigned to the Assignees.
"LIQUIDATOR" means the General Partner, or, if there is none at the time in
question, such other Person who may be appointed in accordance with applicable
law who shall be responsible to take all action related to the winding up and
distribution of assets of the Partnership.
"LIQUIDATION, SALE OR REFINANCING PROCEEDS" means (a) the gross proceeds (i)
resulting from the liquidation of Partnership assets, (ii) received by the
Partnership from an Operating Partnership as a result of the occurrence of a
Capital Transaction as to such Operating Partnership, (iii) resulting from any
sale of the Interest of the Partnership in any Operating Partnership, and/or
(iv) resulting from any other Capital Transaction, less (b) in the case of (i),
(ii) and (iii) immediately above, the expenses of the Partnership incident to
such Capital Transaction, before any application or distribution of such
proceeds pursuant to this Agreement.
"MANAGING GENERAL PARTNER" means Boston Capital Associates IV L.P., in its
capacity as a General Partner, so long as it shall be a General Partner, or any
successor to the Interest of Boston Capital Associates IV L.P., or a General
Partner who becomes Managing General Partner pursuant to Section 8.01(a) upon
the removal of the former Managing General Partner. During such time as Boston
Capital Associates IV L.P., or any successor to the Interest of Boston Capital
Associates IV L.P., shall be the sole general partner of the Partnership, the
terms "Managing General Partner" and "General Partner(s)" shall be deemed to be
identical in meaning and may be employed interchangeably in this Agreement.
"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 of the Prospectus.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"NET CASH FLOW" means, with respect to any year or applicable period, (a) all
Revenues received by the Partnership during such period (not including
depreciation), plus (b) any amounts which the Managing General Partner releases
from the Working Capital Reserve (other than amounts placed in the Working
Capital Reserve from Net Offering Proceeds) as being no longer necessary to hold
as part of the Working Capital Reserve, less (i) cash funds used to pay
operating expenses of the Partnership paid from Revenues during the period,
including any expenses paid to the Managing General Partner, but not including
such amounts paid from the Working Capital Reserve,
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(ii) all cash payments made from Revenues during such period to discharge
Partnership indebtedness, and (iii) all amounts from Revenues, if any, added to
the Working Capital Reserve during such period.
"NET PROCEEDS" means the Gross Proceeds less expenses incurred by the
Partnership in connection with its organization and the offering and sale of
BACs, including Selling Commissions.
"NON-PROFIT OPERATING PARTNERSHIP" means an Operating Partnership which has a
non-profit sponsor as its Operating General Partner, and as to which certain
limitations or restrictions on the distribution of Cash Flow and/or Liquidation,
Sale or Refinancing Proceeds may apply.
"NOTICE" means a writing, containing the information required by this Agreement
to be communicated to any Person, personally delivered to such Person or sent by
registered, certified or regular 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
Notice.
"OFFERING" means the offering of BACs by the Partnership pursuant to the terms
and conditions described in the Prospectus.
"OPERATING EXPENSES" means, with respect to any period, except to the extent
paid with cash withdrawn from the Working Capital Reserve therefor, the amount
of expenses incurred by the Partnership in such period in the ordinary course of
the Partnership's business for all expenses, including, but not by way of
limitation, computer costs, advertising, promotion, management, salaries,
insurance, brokerage fees, taxes, accounting, bookkeeping, legal, travel and
telephone. Operating Expenses may include reimbursement to the General Partner
and its Affiliates for the administrative services necessary to the prudent
operation of the Partnership and the management of its investments, provided
that any such reimbursement shall be at the lower of the General Partner's
actual cost or the amount the Partnership would be required to pay to
independent parties for comparable administrative services in the same
geographic location; provided, however, that the General Partner or its
Affiliates may not be reimbursed for rent or depreciation, utilities, capital
equipment, other administrative expenses or salaries or fringe benefits incurred
by or allocated to any of their controlling persons (as defined in Section
V.E.1. of the NASAA Guidelines).
"OPERATING GENERAL PARTNER" means with respect to an Operating Partnership, the
general partner(s) under its Operating Partnership Agreement.
"OPERATING PARTNERSHIP" means each of the limited partnerships or limited
liability companies owning an Apartment Complex in which the Partnership invests
as a limited partner or member, as applicable, which Apartment Complexes are
expected to be qualified pursuant to Section 42(g) of the Code.
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"OPERATING PARTNERSHIP AGREEMENT" means the limited partnership agreement or
operating agreement, as applicable, of each of the Operating Partnerships, as
amended from time to time.
"OPERATING PARTNERSHIP INTEREST" means the ownership interest of the Partnership
in an Operating Partnership at any particular time, including the right of the
Partnership to any and all benefits to which the Partnership may be entitled as
provided in the applicable Operating Partnership Agreement.
"OPERATING PARTNERSHIP MANAGEMENT FEE" means the fee paid to a Person providing
partnership management services to an Operating Partnership.
"ORGANIZATIONAL AND OFFERING EXPENSES" means those expenses incurred in
connection with or related to the formation and qualification of the
Partnership, the structuring of the Partnership's investments, the registration
and qualification of the BACs under applicable federal and state laws and the
marketing, advertising, distribution, sale and processing of the certificates
including without limitation: (a) the costs of preparing, printing, filing and
delivering a registration statement with respect to the BACs, the Prospectus
(including any amendments thereof or supplements thereto), a "Blue Sky Survey"
and all underwriting and sales agreements, including the cost of all copies
thereof supplied to the Dealer-Manager and the Soliciting Dealers, (b) the cost
of preparing and printing this Agreement, other solicitation material and
related documents and the cost of filing and recording such BACs or other
documents as are necessary to comply with the laws of the State of Delaware for
the formation of a limited partnership and thereafter for the continued good
standing of a limited partnership, (c) the cost of any escrow arrangements,
including any compensation to the Escrow Agent, (d) filing fees payable to the
Securities and Exchange Commission, to state securities commissions and to the
National Association of Securities Dealers, Inc., (e) fees of the Partnership's
counsel and Accountants, and (f) the Dealer-Manager Fee, a non-accountable
expense allowance of up to $0.10 per BAC and an accountable due diligence
expense reimbursement of up to $0.05 per BAC, payable to the Dealer-Manager.
"PARTNER" means any General Partner or any Limited Partner.
"PARTNERSHIP" means the limited partnership formed as of October 5, 1993, under
the Act and known as Boston Capital Tax Credit Fund IV L.P., as said limited
partnership may from time to time be constituted.
"PARTNERSHIP MANAGEMENT FEE" means the annual fee for Partnership management
services payable pursuant to Section 5.16 to the General Partner or its
Affiliate; the Partnership Management Fee is defined in the Prospectus as the
"Fund Management Fee".
"PERMANENT MORTGAGE LOAN" means with respect to an Operating Partnership, the
permanent mortgage loan to be made to the Operating Partnership by a permanent
mortgage lender, and which will be secured by a mortgage or deed of trust and
other related security documents and financing statements.
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"PERMITTED TEMPORARY INVESTMENTS" means investments in short-term, highly liquid
investments, including, without limitation, debt securities or money market
funds which invest in debt securities.
"PERSON" means any individual, partnership, corporation, joint venture, trust or
other legal entity.
"PURCHASE PRICE" means the price paid upon the purchase or sale of a particular
property, including the amount of Acquisition Fees and all liens and mortgages
on the property, but excluding points and prepaid interest.
"PRIORITY RETURN" means an amount equal to the amount, if any, by which (i) the
Priority Return Base as to a particular series, exceeds (ii) the aggregate
amount of cash, Tax Credits and State Housing Tax Credits, where applicable,
actually distributed or allocated by the Partnership to the Assignees and
Limited Partners as to such series, for each BAC as signed to the Assignees and
Limited Partners as to such series, in each case on a cumulative basis to the
date of a Capital Transaction as to such series of the Partnership.
"PRIORITY RETURN BASE" means an aggregate amount of cash, Tax Credits and State
Housing Tax Credits, where applicable, to be distributed and allocated by the
Partnership to the Assignees and Limited Partners as to a particular series, per
year during the holding period(s) of the investments of such series, for each
BAC assigned to the Assignees and Limited Partners as to such series, expressed
as a percentage of the Capital Contributions of such BAC Holders and Limited
Partners, as set forth in a supplement to the Prospectus at the time of the
commencement of the applicable Series Offering Period. The Priority Return Base
shall never be less than 6%, the calculation of which shall commence no later
than the end of the calendar quarter in which a Capital Contribution is made.
"PROFITS, CREDITS AND LOSSES" means the income or loss of the Partnership for
federal income tax purposes, as computed in accordance with the requirements of
Section 704(b) of the Code, including related tax items such as tax credits,
capital gains and losses, tax preferences and recapture, but excluding any gains
or losses arising from a Capital Transaction as to an Operating Partnership or
the Partnership.
"PROSPECTUS" means the prospectus contained in the registration statement File
No. 33-99602, filed with the Securities and Exchange Commission for the
registration of BACs and/or Limited Partnership Interests under the Securities
Act of 1933, in the final form in which said prospectus is filed with said
Commission and as thereafter supplemented pursuant to Rule 424 under said Act.
"REGULATIONS" means the regulations promulgated by the U.S. Department of the
Treasury pursuant to the Code.
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"REHABILITATION TAX CREDIT" means the historic rehabilitation tax credit allowed
for the rehabilitation of certified historic structures pursuant to Section 47
of the Code.
"REPORTING FEE" means the fee to be paid to an Affiliate of the General Partner
by the Operating Partnerships for services in connection with preparing reports
regarding the Operating Partnerships.
"REPURCHASE EVENT" means an event pursuant to which an Operating General Partner
will be required, at the direction of the General Partner on behalf of the
Partnership, to repurchase the Interest of the Partnership in the applicable
Operating Partnership.
"REVENUES" means all cash receipts of the Partnership during any period except
for Capital Contributions, Liquidation Sale or Refinancing Proceeds or the
proceeds of any loan to the Partnership.
"ROLL-UP" means (i) a transaction involving the acquisition, merger, conversion,
consolidation, or reorganization of the Fund and the issuance of securities of a
Roll-Up Entity; or (ii) any change in the rights, preferences or privileges of
Partners or BAC Holders in the Fund; or any change that would have the effect
of:
A) materially changing the amount, terms or conditions of promoter or General
Partner compensation;
B) amending the voting rights of the BAC Holders;
C) listing the Fund on a national securities exchange, or on the Automated
Quotation System of the National Association of Securities Dealers;
D) changing the fundamental investment objectives of the Fund;
E) materially altering the duration of the Fund.
"ROLL-UP ENTITY" means a limited partnership, real estate investment trust,
corporation, business trust, or other entity that would be created or would
survive after the successful completion of a proposed Roll-Up transaction.
"SCHEDULE A" means the schedule(s), as may be amended from time to time, of
Partners' names, addresses, Capital Contributions and Interest (expressed as a
percentage of all Partners' Interests), which schedule, in its initial form, is
attached hereto and made a part hereof.
"SELLING COMMISSIONS" means the selling commissions payable to the
Dealer-Manager, in connection with the Offering, all or a portion of which may
be reallowed to the Soliciting Dealers.
"SOLICITING DEALER" means any of the participating soliciting dealers assisting
the Dealer-Manager in the sale of the BACs.
"SPONSOR" means any Person directly or indirectly instrumental in organizing,
wholly or in part, the Partnership, and any Affiliate of such Person, but does
not include (a) any Person whose only relationship with the Partnership or
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the General Partner is that of an independent property manager whose only
compensation from the Partnership is in the form of fees for the performance of
property management services, or (b) wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation from the
Partnership is for professional services rendered in connection with the
Offering or the operations of the Partnership. A Person may also be a Sponsor
by: (i) taking the initiative, directly or indirectly, in founding or organizing
the business or enterprise of the Partnership, either alone or in conjunction
with one or more Persons, (ii) receiving a material participation in the
Partnership in connection with the founding or organizing of the business 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 the Partnership's
properties or (v) receiving fees for providing services to the Partnership which
are paid on a basis that is not customary in the industry.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership as a
Limited Partner pursuant to the provisions of Section 7.03.
"STATE HOUSING TAX CREDIT" means a low-income housing tax credit allowed against
state income tax liability pursuant to the applicable laws of a state.
"TAX CREDIT" means the Federal Housing Tax Credit and, as applicable, the
Rehabilitation Tax Credit.
"TAX MATTERS PARTNER" means the Partner designated as the Tax Matters Partner of
the Partnership by the Managing General Partner pursuant to the provisions of
Section 9.06.
"WORKING CAPITAL RESERVES" means funds held in reserve, anticipated to be
initially established in an amount of 4% of Gross Offering Proceeds, to be
available for contingencies relating to the operation, management and
administration of the Apartment Complexes, the Operating Partnerships, and the
Partnership, including payment of the annual Partnership Management Fee. In
addition, funds held in the Working Capital Reserve will also be available for
option and/or other payments which may be necessary to secure the acquisition of
Operating Partnership Interests. Amounts held in the Working Capital Reserve may
at any time, in the discretion of the General Partner, be added to Net Cash Flow
or Liquidation, Sale or Refinancing Proceeds.
ARTICLE III
PARTNERS AND CAPITAL
3.01. GENERAL PARTNER.
The General Partner is Boston Capital Associates IV L.P. The name, address and
Capital Contribution of the General Partner is as set forth in Schedule A.
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The General Partner shall not be required to make any additional Capital
Contributions to the Partnership. The Interest of the General Partner is 1%.
3.02. LIMITED PARTNER.
The Assignor Limited Partner is BCTC IV Assignor Corp. The name, address and
Capital Contribution of the Assignor Limited Partner is as set forth in Schedule
A. The Interest of the Assignor Limited Partner is 99%.
On the first Investment Date of the first series of BACs, the Partnership
shall redeem the initial Capital Contribution of the Assignor Limited Partner
and the Assignor Limited Partner shall make a Capital Contribution to the
Partnership equal to the proceeds from the issuance of the BACs closed and
released on such Investment Date.
The Managing General Partner and the Assignor Limited Partner shall authorize
and cause the Escrow Agent to transfer to the Partnership all proceeds (less a
Dealer-Manager Fee in the amount of 2% of Gross Proceeds, an accountable due
diligence expense reimbursement to the Dealer-Manager in the amount of up to
0.5% of Gross Proceeds, a non-accountable expense allowance to the
Dealer-Manager in the amount of up to 1% of Gross Proceeds and Selling
Commissions to the Dealer-Manager and/or other selected broker-dealers in the
amount of 7% of Gross Proceeds (less any applicable quantity discount with
respect to the Selling Commissions), which Dealer-Manager Fee, due diligence
reimbursement, expense allowance and Selling Commissions shall not be payable by
the General Partner or its Affiliates or employees of its Affiliates with
respect to BACs purchased by them) received from Persons who purchased BACs
pursuant to the Offering, and all such proceeds transferred by the Assignor
Limited Partner shall be treated as Capital Contributions to the Partnership
made by the Assignor Limited Partner on behalf of, and as nominee for, the
Assignees. The Assignor Limited Partner shall make additional Capital
Contributions on each Investment Date thereafter (if any) equal to the
additional proceeds from the issuance of BACs released on each applicable
Investment Date. The Assignor Limited Partner shall not be required to make any
additional Capital Contribution to the Partnership. Other than to serve as
Assignor Limited Partner, the Assignor Limited Partner has no other business
purpose and will not engage in any other activity or incur any debts. The
Assignor Limited Partner may not withdraw from the Partnership without the
Consent of all Persons who are then Assignees.
3.03. ASSIGNEES.
(a) On each Investment Date, the Assignor Limited Partner is authorized and
directed to issue BACs to the Assignees representing the assignment of
beneficial interests in the Limited Partnership Interest of the Assignor Limited
Partner to the Assignees, provided, however, that not fewer than 250,000 BACs
and not more than 50,000,000 BACs (including all BACs previously
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sold in any series as of such Investment Date) may be issued and sold. Any
BACs sold to the General Partner and/or its Affiliates shall not be included
in the calculation of the minimum amount of BACs in any series. It is hereby
understood and agreed that the Assignor Limited Partner shall assign such BACs
to other Persons, as may be provided in an Assignment Agreement executed among
the Partnership, the Managing General Partner, and the Assignor Limited
Partner on its own behalf and on behalf of the Assignees, in connection with
the Offering. A Person shall be eligible to become an Assignee at such time as
he has (1) agreed to purchase a minimum investment of 500 or more BACs, (2)
paid the sum of $10.00 in cash (less any applicable quantity discount with
respect to the Selling Commission) for each BAC purchased ($8.95 in the case
of the General Partner, its Affiliates and employees of its Affiliates), and
(3) obtained the consent of the Managing General Partner or its designee to
such purchase and assignment, the granting or denial of which shall be within
the absolute discretion of the Managing General Partner. Each BAC shall
represent one Unit of beneficial interest in the Limited Partnership Interest
of the Assignor Limited Partner. Purchasers of certain numbers of BACs may
receive quantity discounts with respect to Selling Commissions. The offering
of BACs in each series will not exceed 12 months, or such lesser period as may
be determined by the General Partner, in its sole discretion.
(b) Payment for all orders for BACs shall be received by the Partnership in
trust and deposited in an escrow account with the Escrow Agent. Upon acceptance
by the Managing General Partner of orders for at least 250,000 BACs, the Escrow
Agent shall release Gross Proceeds (less Selling Commissions and other
compensation payable to the Dealer-Manager), to the Partnership, and the Persons
whose payments have been so closed and released shall become Assignees no later
than the next business day after the date of such release. Such funds as shall
be received by the Partnership shall be contributed to the capital of the
Partnership and the Capital Account of the Assignor Limited Partner (and
therefore, the subdivided Capital Accounts of the Assignees). Thereupon, the
Assignees shall be credited on the books and records of the Partnership with
such Capital Contributions. The Persons holding such BACs shall be recognized as
Assignees with all the rights attendant thereto under this Agreement no later
than the next business day after the date of release of funds from the escrow
account.
After the initial Investment Date, prospective Assignees whose orders or
subscriptions are approved by the Managing General Partner shall, to the extent
feasible, be treated as Assignees as of the close of business on the business
day following the day the Partnership receives such Person's Capital
Contribution. All monies paid by Persons whose orders are rejected by the
Managing General Partner shall be returned by the Escrow Agent to such
subscribers, without interest, within 10 days after such rejection. In any
event, prospective Assignees shall be treated as Assignees not later than the
last day of the calendar month following the date upon which their
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subscriptions were accepted by the General Partner. The Managing General
Partner shall have thirty (30) days to accept the subscription of any Person.
The aggregate interest of the Assignees (through the Assignor Limited Partner)
shall be 99% of the Partnership Interests. The aggregate interest of each
Assignee in the Partnership shall be determined in accordance with a ratio which
shall be multiplied by 99%. That ratio shall be determined as follows: the
numerator shall be the number of BACs owned by each Assignee; the denominator
shall be the total number of BACs owned by all Assignees.
(c) The Managing General Partner is hereby authorized to do all things necessary
to accomplish the purpose of this Section 3.03, including, but not limited to,
registering the BACs 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, perfecting
exemptions upon such terms and conditions as the Managing General Partner may
deem advisable, and entering into an agency agreement with the Dealer-Manager on
behalf of the Partnership.
(d) Immediately upon the release by the Escrow Agent of funds of prospective
Assignees and the delivery of such funds to the Partnership, the Assignor
Limited Partner shall be credited on the books and records of the Partnership
with additional Capital Contributions in the amount of such orders, and its
initial Capital Contribution will be returned. On each Investment Date, an
Assignment Agreement between the Partnership and the Assignor Limited Partner
(as a Limited Partner of the Partnership and on behalf of the Assignees) shall
be executed to reflect the number of BACs purchased by Assignees. The Assignor
Limited Partner's rights and interest in such Limited Partnership Interests
shall be deemed to have been transferred and assigned to the Assignees in
accordance with Section 11.01.
(e) The name, address and Capital Contribution of any Limited Partner (other
than the Assignor Limited Partner) shall be set forth in a schedule to this
Agreement at such times as such other Limited Partners may be admitted hereto
pursuant to Sections 7.02, 7.03 or 11.04.
(f) 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 or secured creditor, as the case may be.
(g) The Partnership may sell BACs aggregating not more than 15% of the total
BACs authorized for sale in any series directly to either the General Partner or
any Affiliate of the General Partner or employees of such Affiliates. Any BACs
acquired by the General Partner or its Affiliates will be on the same terms and
conditions as other Investors, except that they will not pay the 7% Selling
Commissions, the 2% Dealer-Manager Fee, the non-accountable expense allowance of
up to 1% or the accountable due
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diligence expense reimbursement of up to 0.5% otherwise payable to the
Dealer-Manager.
(h) All interest income earned on Offering proceeds prior to the date the
Offering proceeds are released to the Partnership on behalf of the Assignor
Limited Partner pursuant to this Section 3.03 shall be allocated and paid solely
to Assignees, within 75 days of the end of the fiscal quarter following the
applicable Investment Date, in the amount earned by their respective shares of
Offering proceeds, less any escrow fees and expenses, and the General Partner
shall not receive any portion of such interest income.
3.04. PARTNERSHIP CAPITAL.
(a) No Partner or Assignee shall be paid interest on any Capital Contribution;
provided, however, that if no assignments are made from the Assignor Limited
Partner to the Assignees, subscription proceeds shall be returned to the
Assignees with a pro rata portion of any interest earned thereon.
(b) The Partnership shall not redeem or repurchase any Partnership Interest or
BAC, and no Partner or Assignee shall have the right to withdraw, or receive any
return of, his Capital Contribution, except as specifically provided herein. No
Capital Contribution may be returned in the form of property other than cash or
cash equivalents. The General Partner shall have no personal liability for the
repayment of the Capital Contribution of any Limited Partner or Assignee.
Nothing in this Section 3.04 shall alter the limitation on liability of the
General Partner or its Affiliates pursuant to Section 5.08(a).
(c) Any portion of the Capital Contributions of the Assignees with respect to
the first series of BACs (except for any amounts utilized to pay Partnership
Operating Expenses, or Organizational and Offering Expenses, or any amounts set
aside for the Working Capital Reserve) which is not invested or committed for
investment in Operating Partnership Interests within 24 months from the date the
Prospectus is declared effective by the Securities and Exchange Commission (or,
with respect to Capital Contributions of the Assignees of subsequent series of
BACs, if any, 24 months from the commencement of such series offering(s))
(subject to the Partnership's authority to substitute Operating Partnership
Interests for previously-committed investments in Operating Partnership
Interests) shall be distributed to the Assignees by the Partnership as a return
of capital, without reduction for any Selling Commission paid with respect to
such Capital Contributions by the Partnership to the Dealer-Manager or the
Soliciting Dealers and subject to the provisions of Section 5.15 of this
Agreement relating to the return of a pro rata portion of the Asset Acquisition
Fee. For the purpose of this Agreement, funds will be deemed to have been
committed for investment in Operating Partnership Interests and will not be
returned to the Assignees to the extent such funds are deposited in the Working
Capital Reserve or to the extent that written agreements in principle,
commitment
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letters, letters of intent or understanding, option agreements or any similar
contracts or understandings with respect to such investments shall be at any
time executed, and as to which some portion of the funds have been invested.
Any return of Capital Contributions previously made by the Partnership to the
Operating Partnerships during the first 24 months after the making of such
Capital Contributions, and any other funds which have been earned or returned
to the Partnership with respect to Operating Partnership Interests and any
Liquidation, Sale or Refinancing Proceeds otherwise received within 36 months
from the Partnership's acquisition of Operating Partnership Interests shall,
in the discretion of the Managing General Partner, be invested in additional
Operating Partnership Interests, placed in the Working Capital Reserve or
returned to the Assignees in proportion to their respective Capital Accounts
as a return of capital, provided that in no event shall the Managing General
Partner make any reinvestments in Operating Partnership Interests later than
36 months from the final Investment Date. Any such funds which are not so
invested or placed in the Working Capital Reserve as permitted by the
preceding sentence within six months of the completion of the construction
period of all of the Apartment Complexes owned by the Operating Partnerships
shall be returned to Assignees in proportion to their respective Capital
Accounts as a return of capital; provided, further, that a sufficient portion
of such funds shall be distributed to Assignees and Limited Partners to cover
their estimated income tax liabilities, if any, arising out of the receipt of
such funds.
(d) Any return of capital under this Section 3.04 shall be deemed to be a
compromise within the meaning of Section 17-502(b) of the Delaware Revised
Uniform Limited Partnership Act and Assignees receiving any such return shall
not be obligated to return any such money to the Partnership or a creditor of
the Partnership.
3.05. LIABILITY OF PARTNERS AND ASSIGNEES.
The liability of each Limited Partner or Assignee for the losses, debts,
liabilities and obligations of the Partnership shall be limited to his Capital
Contribution (or, in the case of Assignees, the Capital Contribution made on his
behalf) and his share of any undistributed profits of the Partnership; provided,
however, that under applicable law a Limited Partner or Assignee may be liable
to the Partnership to the extent of previous distributions made to him, with
interest, if the Partnership does not have sufficient assets to discharge its
liabilities. No Limited Partner or Assignee shall be required to lend any funds
to the Partnership or, after his Capital Contribution (or, in the case of
Assignees, the Capital Contribution made on his behalf) has been paid pursuant
to Section 3.03, to make any further Capital Contribution to the Partnership. It
is the intent of the Partnership that, for purposes of establishing liability of
the Limited Partners and Assignees as discussed in this Section 3.05, no
distribution (or any part of any distribution) made to any
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Limited Partner or Assignee pursuant to Section 4.01 of this Agreement shall
be deemed a return or withdrawal of capital, and that no Limited Partner or
Assignee 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 Assignee is obligated to make any such
payment, such obligation shall be the obligation of such Limited Partner or
Assignee and not of the General Partner. To the extent that the Assignor
Limited Partner is required to return any distributions or repay any amount by
law or pursuant to this Section 3.05, each Assignee who has received any
portion of such distribution agrees, by virtue of accepting such distribution,
to pay his proportionate share of such amount to the Assignor Limited Partner
immediately upon Notice by the Assignor Limited Partner to such Assignee. To
the extent that any Limited Partner or Assignee fails to return such
distribution to the Partnership, the Managing General Partner may withold
further distributions to such Limited Partner or Assignee as an offset. In the
event that the Assignor Limited Partner is determined to have unlimited
liability for the debts of the Partnership, nothing set forth herein shall be
construed to require Assignees to assume any portion of such liability.
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS,
CREDITS AND LOSSES
4.01. ALLOCATIONS OF PROFITS, CREDITS AND LOSSES AND DISTRIBUTIONS OF CASH
AVAILABLE FOR DISTRIBUTION.
(a) Prior to the initial Investment Date, any Profits, Credits and Losses and
any Cash Available for Distribution will be specially allocated to the General
Partner, determined on the basis of an interim closing of the Partnership's
books on that date. Thereafter, all Profits, Credits and Losses and all Cash
Available for Distribution, after payment of Accounting Fees, reimbursement to
the General Partner of payments to the Accountants for the preparation of
Partnership tax returns and other reports, reimbursement to the General Partner
and its Affiliates for any unreimbursed Acquisition Expenses, and payment of the
Partnership Management Fee, shall be allocated and distributed 99% to the
Assignees and Limited Partners as a group, and 1% to the General Partner,
annually; provided that the distributions of cash to the General Partner
pursuant to this subparagraph (a) shall be subordinated to the Priority Return.
(b) Distributions of Cash Available for Distribution, if any, shall be made
annually, within 180 days after the end of the annual period to which they
relate every calendar year.
(c) In the event that the deduction of all or a portion of any fee paid or
incurred out of Cash Flow or Net Cash Flow by the Partnership to a Partner
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or an Affiliate of a Partner is disallowed for federal income tax purposes by
the Internal Revenue Service with respect to a taxable year of the
Partnership, the Partnership shall then allocate to such Partner an amount of
gross income of the Partnership for such year equal to the amount of such fee
as to which the deduction is disallowed.
(d) In accordance with Section 704(c) of the Code (relating to allocations with
respect to appreciated contributed property) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Partnership shall be allocated, solely for tax purposes,
among the Partners and Assignees so as to take account of any variation between
the adjusted basis of such property to the Partnership for federal income tax
purposes and its fair market value. Any elections or other decisions relating to
such allocations shall be made by the General Partner in any manner that
reasonably reflects the purpose and intention of this Agreement.
4.02. DISTRIBUTIONS OF LIQUIDATION, SALE OR REFINANCING PROCEEDS.
(a) Except as may be required by Section 8.02(c), all Liquidation, Sale or
Refinancing Proceeds shall be applied and distributed in the following amounts
and order of priority:
(i) to the payment of debts and liabilities of the Partnership (including any
expenses of the Partnership incident to any such liquidation, sale or
refinancing of an Apartment Complex or of the Partnership's interest in an
Operating Partnership), excluding loans or other debts and liabilities of the
Partnership to the General Partner or any Affiliate (such debts and
liabilities, in the case of a nonliquidating distribution, to be only those
which are then required to be paid or, in the judgment of the Managing
General Partner, required to be provided for);
(ii) to any additions to the Working Capital Reserve or other reserves as the
Managing General Partner deems reasonably necessary for contingent, unmatured
or unforeseen liabilities or obligations of the Partnership;
(iii) to the repayment of any unrepaid loans theretofore made by the General
Partner and/or any Affiliates to the Partnership for Partnership obligations
and to the payments of any unpaid amounts owing to the General Partner and/or
its Affiliates under this Agreement, including repayment of any Accounting
Fee Advances and payment of any unpaid Partnership Management Fees;
(iv) the balance, 95% to the Assignees and Limited Partners and 5% to the
General Partner; provided that the distribution to the General Partner
pursuant to this subparagraph (iv) shall be subordinated to a return of all
of the Assignees' and Limited Partners' Capital Contribution and to the
Priority Return.
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(b) If there are insufficient funds to make payment in full of all amounts under
any subsection of Section 4.02(a), the funds then available for payment shall be
allocated proportionately among the Persons entitled to payment pursuant to such
subsection; provided, however, that within any subsection, funds shall be
distributed in the order of any priority specifically stated therein.
(c) Subject to the provisions of Section 3.04(c), distributions of Liquidation,
Sale or Refinancing Proceeds, if any, shall be made quarterly, within 45 days
after the end of each calendar quarter to which such proceeds relate.
4.03. ALLOCATION OF GAINS AND LOSSES.
(a) All gains (but not losses) arising from the sale, exchange or other
disposition of all or substantially all the property owned by an Operating
Partnership or the Partnership's interest in an Operating Partnership shall be
allocated in the following manner:
(i) first, that portion of gains (including any profits treated as ordinary
income for federal income tax purposes) shall be allocated to the Partners or
Assignees who have negative Capital Account balances in an amount equal to
and in proportion to such balances; provided that no gain shall be allocated
to a Partner or Assignee under this Section 4.03(a)(i) once such Partner's or
Assignee's Capital Account is brought to zero;
(ii) second, gain in excess of the amount allocated under Section 4.03(a)(i)
shall be allocated to the Partners and Assignees in the amount and to the
extent necessary to increase their Capital Accounts so that the proceeds
distributed under Section 4.02(a)(iv) will be distributed in accordance with
the positive balance in the Partners' and Assignees' respective Capital
Accounts.
(b) All losses shall be allocated as follows:
(i) first, an amount of loss to the Partners and Assignees to the extent and
in such proportions as the respective balances in all Partners' and
Assignees' Capital Accounts;
(ii) second, any remaining loss to the Partners and Assignees in accordance
with the manner in which they bear the economic risk of loss or, if none, in
accordance with their Interests.
(c) Each Partner shall retain his respective Interest in the Partnership
attributable to property described in Section 751(a) of the Code ("interest in
Section 751 property") for so long as such Partner has an Interest in the
Partnership. Accordingly, any portion of the gains which are allocated pursuant
to Section 4.03(d) above, and which are treated as ordinary income for federal
income tax purposes under Section 1245 and 1250 of the Code, shall be allocated
to those Partners who have an interest in Section 751
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property, in proportion to the amounts of such Partners' respective interests
in Section 751 property.
(d) Notwithstanding any other provision of this Agreement to the contrary that
may be expressed or implied herein, the Interests of the General Partners, in
the aggregate, in each item of Partnership income, gain, loss, deduction or
credit will be equal to at least 1% of each of those items at all times during
the existence of the Partnership.
4.04. DETERMINATION OF ALLOCATIONS AND DISTRIBUTIONS AMONG PARTNERS AND
ASSIGNEES.
(a) Except as provided in Sections 4.04(d) and 4.04(e), all Profits, Credits and
Losses allocable to the Limited Partners and Assignees and all Cash Available
for Distribution and all Liquidation, Sale or Refinancing Proceeds distributable
to the Limited Partners and Assignees shall be allocated or distributed, as the
case may be, to each Limited Partner and Assignee entitled to such allocation or
distribution in the ratio which the BACs or Limited Partnership Interests owned
by such Limited Partner or Assignee bears to the total BACs and Limited
Partnership Interests owned by all Limited Partners and Assignees entitled to
such allocation or distribution; provided, however, that any distribution
pursuant to Section 4.02(a)(iv) shall be made to each Limited Partner or
Assignee entitled to such distribution in the ratio which the positive balance
in such Limited Partner's or Assignee's Capital Account bears to the total
positive balances in the Capital Accounts of all Limited Partners and Assignees
entitled to such distribution as of the date of the Liquidation, Sale or
Refinancing.
(b) Except as provided in Section 4.04(c), all Profits, Credits and Losses
allocable to the Limited Partners and Assignees, as a group, shall be allocated,
and all Cash Available for Distribution distributable to the Limited Partners
and Assignees, as a group, shall be distributed, as the case may be, to the
Persons recognized by the Partnership as the holders of record of BACs or
Limited Partnership Interests as of the last day of the calendar month for which
such allocation or distribution is to be made.
(c) All Profits, Credits and Losses for a Partnership year allocable to any BACs
or Limited Partnership Interests which has been transferred during such year
shall be allocated between the transferor and the transferee based upon the
number of monthly periods on the last day of which each was recognized (in
accordance with Section 7.02(b)) as the holder of record of the BACs or Limited
Partnership Interests for purposes of this Section, without regard to the
results of Partnership operations during particular monthly periods of such year
and without regard to whether cash distributions were made to either the
transferor or transferee.
(d) All Profits, Credits and Losses arising from an event giving rise to
Liquidation, Sale or Refinancing Proceeds allocable to the Limited Partners and
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Assignees shall be allocated, and all Liquidation, Sale or Refinancing Proceeds
arising from such Liquidation, Sale or Refinancing distributable to the Limited
Partners and Assignees shall be distributed, as the case may be, to the Persons
who are holders of record of BACs or Limited Partnership Interests as of the
date of such Liquidation, Sale or Refinancing, or on a different record date as
may be established by the Managing General Partner within ten days thereof. All
Profits, Credits and Losses and all Liquidation, Sale or Refinancing Proceeds
which are attributable to a Liquidation, Sale or Refinancing but which are not
received by the Partnership as cash upon a Liquidation, Sale or Refinancing but
which will be received later by the Partnership as a result of an installment or
other deferred sale shall be allocated or distributed, as the case may be, to
the Persons recognized (in accordance with Sections 7.03(e) and 11.01(a) in the
case of a transfer of BACs or Limited Partnership Interests) as the holders of
BACs or Limited Partnership Interests as of the date such Liquidation, Sale or
Refinancing Proceeds are received by the Partnership or on a different record
date within ten days thereof as may be established by the Managing General
Partner.
(e) In the event that there is more than one Investment Date with respect to any
series, all Cash Available for Distribution, and all Profits, Credits and Losses
allocable to the Limited Partners and Assignees in such series as a class for
the period commencing with the first day following the previous Investment Date
and ending on the last day preceding the next succeeding Investment Date shall
be distributed or allocated solely to those Persons who held BACs or Limited
Partnership Interests as of or prior to the Investment Date occurring within
such period, on the basis of an interim closing of the Partnership's books on
such dates. In the event that the BACs are listed on a national exchange or
included for quotation on NASDAQ, the General Partner is authorized to allocate
Profits, Credits and Losses and to make distributions of cash or other property,
so as to equalize the BACs on an economic basis and to equalize any differences
in Capital Accounts attributable to multiple Investment Dates.
(f) Any portion of the gains treated as ordinary income for federal income tax
purposes under Section 1245 and 1250 of the Code ("Recapture Amount") shall be
allocated on a dollar for dollar basis to those Partners and Assignees to whom
the items of Partnership deduction or loss giving rise to the Recapture Amount
had been previously allocated.
(g) Subject to the requirements of Section 469 of the Code, if any, in the event
that there is a determination that any provision of the Code requiring
imputation of interest is applicable to the Capital Contributions of any Partner
or Assignee or any loan between a Partner or Assignee and the Partnership, any
income or deduction attributable to such Capital Contribution or loan (whether
stated or unstated) shall be allocated solely to such partner. The amount of any
imputed interest attributable to Capital Contribution of a
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Partner or Assignee shall not be included in such Partner's or Assignee's
Capital Account to the extent previously included as capital.
(h) Notwithstanding any other provision in this Agreement, income, gain, loss
and deduction with respect to property which has a variation between its basis
computed in accordance with Treasury Regulation Section 1.704-1(b) and its basis
computed for Federal income tax purposes shall be shared among Partners so as to
take account of such variation in a manner consistent with the principles of
Section 704(c) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
4.05. CAPITAL ACCOUNTS.
A separate Capital Account shall be maintained and adjusted for each Partner in
accordance with the Code and the Regulations. There shall be credited to each
Partner's Capital Account the amount of his capital contributed (including the
Capital Contributions of the Assignor Limited Partner on behalf of the
Assignees), the fair market value of any property contributed to the capital of
the Partnership (net of any liabilities secured by such property), such
Partner's distributive share of the Profits, Credits and Losses of the
Partnership, and such Partner's share of any tax-exempt income of the
Partnership; and there shall be charged against each Partner's Capital Account
the amount of all Cash Available for Distribution distributed to such Partner,
all Liquidation, Sale or Refinancing distributed to such Partner, the fair
market value of any property distributed to such Partner (net of any liabilities
secured by such property), such Partner's distributive share of the Losses of
the Partnership, and allocations to such Partner of expenditures of the
Partnership described in Section 705(a)(2)(B) of the Code. Each Partner's
Capital Account shall be maintained and adjusted in accordance with the Code and
Treasury Regulations thereunder, including expressly, but not by way of
limitation, the adjustments to Capital Accounts under Section 704(b) of the Code
and the Treasury Regulations thereunder. The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Treas. Reg. (S)1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. It is the intent of the
Partners that the Capital Accounts maintained under this Agreement be determined
and maintained throughout the full term of this Agreement in accordance with the
accounting rules of Treas. Reg. (S)1.704-(b)(2)(iv). The Assignor Limited
Partner's Capital Account shall be subdivided into separate Capital Accounts for
each Assignee and shall be maintained and adjusted for each Assignee in
accordance with the foregoing.
4.06. AUTHORITY OF GENERAL PARTNERS TO VARY ALLOCATIONS TO PRESERVE AND PROTECT
PARTNERS' INTENT.
It is the intent of the Partners that each Partner's or Assignee's distributive
share of income, gain, loss, deduction, or credit (or item thereof) shall be
determined and allocated in accordance with this Article IV to the fullest
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extent permitted by Section 704(b) of the Code. The General Partner is
authorized and directed to allocate income, gain, loss, deduction, or credit (or
item thereof) arising in any year differently than otherwise provided for in
this Article IV to the extent that, allocating income, gain, loss, deduction, or
credit (or item thereof) in the manner provided for in this Article IV in the
opinion of tax advisors to the Partnership would cause the determinations and
allocations of each Partner's or Assignee's distributive share of income, gain,
loss, deduction, or credit (or item thereof) not to be permitted by Section
704(b) of the Code and Treasury Regulations promulgated thereunder. Any
allocation made pursuant to this Section 4.06 shall be deemed to be a complete
substitute for any allocation otherwise provided for in this Article IV in the
opinion of tax advisors to the Partnership and no amendment of this Agreement or
approval of any Partner or Assignee shall be required.
4.07. ALLOCATIONS BETWEEN AND AMONG SERIES.
To the extent that BACs are issued in series, allocations and distributions of
each item set forth in this Article IV shall be made and accounted for
separately for each series of BACs.
4.08. SPECIAL ALLOCATIONS.
(a) Notwithstanding any other provision of this Agreement, if there is a net
decrease in Partnership Minimum Gain during a Partnership taxable year, each
Partner or Assignee shall be specially allocated, before any other allocation is
made under this Agreement, items of income and gain for such year (and, if
necessary, for subsequent taxable years) in amounts equal to the greater of (i)
the amounts needed to eliminate any deficit Capital Account balance (reduced by
the portion of such deficit balances (A) that must be restored upon liquidation,
if any, and (B) that would be eliminated under Treas. Reg. (S)1.704-2(b) if the
Partnership were liquidated at such time, and increased by the items described
in Treas. Reg. (S)1.704-1(b)(2)(ii)(d)(4), (5) and (6)), or (ii) the portion
of each such Partner's share of the net decrease in Partnership Minimum Gain
during such year (as specified in Treas. Reg. 1.704-2(b) and (d)) that is
allocable to the disposition of Partnership property subject to one or more
nonrecourse liabilities of the Partnership. The items so allocated shall be
determined in accordance with Treas. Reg. (S)1.704-2(b), (g) and (j). This
provision is intended to comply with the minimum gain charge BAC requirement
of the Treasury Regulations under Section 704(b) of the Code and shall be
interpreted consistently therewith.
(b) Except as provided in Section 4.08(a) hereof, in the event any Partner or
Assignee unexpectedly receives any adjustments, allocations or distributions
described in Treas. Reg. (S)1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Partnership income and gain shall be specially allocated to each such Partner in
an amount and manner sufficient to eliminate (to the extent required by the
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Regulations under Code Section 704(b)) the deficit balance in each such
Partner's or Assignee's Capital Account as quickly as possible, provided that an
allocation pursuant to this Section 4.08(b) shall be made only if and to the
extent that such Partner or Assignee has a deficit Capital Account balance in
excess of such sum after all other allocations provided for in this Section 4
have been tentatively made, as if this Section 4.08(b) were not in this
Agreement.
(c) In the event that a Partner or Assignee has a deficit Capital Account
balance at the end of any Partnership year that exceeds the sum of (i) the
amount that such Partner or Assignee must repay to the Partnership upon
liquidation, if any, and (ii) the amount that such Partner or Assignee is deemed
to be obligated to restore under Treas. Reg. (S)1.704-2(g), such Partner or
Assignee shall be allocated items of Partnership income in the amount of such
excess as soon as possible, provided that an allocation pursuant to this Section
4.08(c) shall be made only if and to the extent that such Partner or Assignee
has a deficit Capital Account balance in excess of such sum after all other
allocations provided for in this Section 4 have been tentatively made, as if
this Section 4.08(c) were not in this Agreement.
(d) The allocations set forth in this Section 4.08 (the "Regulatory
Allocations") are intended to comply with certain requirements of Treas. Reg.
(S)1.704-1(b) and Treas. Reg. (S)1.704-2. Notwithstanding any other provisions
of this Article IV (other than the Regulatory Allocations), the Regulatory
Allocations shall be taken into account in allocating other profits, losses and
items of income, gain, loss and deduction among the Partners or Assignees so
that, to the extent possible, the net amount of such allocations of other
profits, losses and other items and the Regulatory Allocations to each Partner
or Assignee shall be equal to the net amount that would have been allocated to
each such Partner if the Regulatory Allocations had not occurred.
(e) If there is a net decrease in Partner Non-Recourse Debt Minimum Gain during
a Partnership taxable year, then each Partner with a share of the minimum gain
attributable to such debt at the beginning of such year will be allocated items
of income and gain for such year (and, if necessary, subsequent years) in
proportion to, and to the extent of, an amount equal to such Partner's share of
the net decrease in Partner Non-Recourse Debt Minimum Gain during the year. A
Partner is not subject to this Partner Non-Recourse Debt Minimum Gain charge BAC
to the extent that any of the exceptions provided in Treas. Reg.
(S)1.704-2(i)(4) applied consistently with Treas. Reg. (S)1.704-2(f)(2)-(5)
apply. Such allocations shall be made in a manner consistent with the
requirements of Treas Reg. (S)1.704-2(i)(4) under Section 704 of the Code.
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ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS OF THE
GENERAL PARTNER
5.01. MANAGEMENT OF THE PARTNERSHIP.
(a) The General Partner, within the authority granted to it under this
Agreement, shall have full, complete and exclusive discretion to manage and
control the business of the Partnership to the best of its ability and to use
its best efforts to carry out the purpose of the Partnership. In so doing, the
General Partner shall take all actions necessary or appropriate to protect the
interests of the Limited Partners and the Assignees. The General Partner shall
devote such time as is necessary to the affairs of the Partnership. The General
Partner shall not receive compensation therefor from the Partnership other than
as expressly provided herein. The General Partner shall have fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the General Partner's possession or control, and
it shall not employ such funds or assets in any manner except for the exclusive
benefit of the Partnership.
(b) Subject to the other provisions of this Agreement, Boston Capital Associates
IV L.P. shall be the Managing General Partner. All decisions made for and on
behalf of the Partnership by the Managing General Partner shall be binding upon
the Partnership. Except as expressly otherwise set forth elsewhere in this
Agreement, the Managing General Partner (acting for and on behalf of the
Partnership), in extension and not in limitation of the rights and powers given
by this or by the other provisions of this Agreement shall, in its sole
discretion, have full and entire right, power and authority in the management of
the Partnership business to do any and all things necessary to effectuate the
purpose of the Partnership. Without limiting the foregoing grant of authority
but subject to the other provisions of this Agreement, the Managing General
Partner, in its capacity as General Partner shall have the right, power and
authority, acting for and on behalf of the Partnership, to do all acts and
things set forth in Section 5.02. No Person dealing with the Managing General
Partner shall be required to determine its authority to make any undertaking on
behalf of the Partnership or to determine any facts or circumstances bearing up
on the existence of such authority.
(c) The Managing General Partner shall, after the release from escrow of orders
for BACs pursuant to Section 3.03, establish the Working Capital Reserve out of
Capital Contributions in an amount of not less than 4% of the Gross Proceeds.
The Working Capital Reserve may be increased or reduced by the Managing General
Partner as it deems appropriate under the circumstances from time to time.
(d) All of the Partnership's Operating Expenses shall be billed to and paid by
the Partnership. In the event that legitimate Partnership expenses are
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billed by its creditors to the Managing General Partner rather than the
Partnership, subject only to the limitations herein which apply generally to
the Partnership's expenses, such expenses shall be paid by the Partnership.
The Operating Expenses to be paid by the Partnership in connection with the
Partnership's business include without limitation: (i) all costs of personnel
employed by the Partnership and involved in the business of the Partnership,
except as prohibited pursuant to Section 5.01(e) below, (ii) all costs of
borrowed money, taxes and assessments applicable to the Partnership (including
interest or other changes on loans or letters of credit by or obtained by the
General Partners or their Affiliates), (iii) legal, audit, accounting and
appraisal fees, (iv) printing, engraving and other expenses and taxes incurred
in connection with the issuance, distribution, transfer, registration and
recording of documents evidencing ownership of an Interest in the Partnership
or in connection with the business of the Partnership, (v) fees and expenses
paid to independent contractors, mortgage bankers, finders, brokers and
servicers, consultants, real estate brokers, and other agents, (vi) expenses
in connection with the acquisition, sale, exchange or other disposition and
financing of the Operating Partnership Interests, (vii) expenses of
organizing, revising, amending, converting, modifying or terminating the
Partnership and (viii) costs incurred in connection with any litigation or
regulatory proceeding in which the Partnership is involved except as may be
prohibited by Section 5.08.
(e) Reimbursements to the General Partner or any of its Affiliates shall not be
allowed, except for reimbursement of (i) Organizational and Offering Expenses,
(ii) the actual cost to the General Partners or such Affiliates of goods and
materials supplied by unaffiliated parties used for or by the Partnership, or in
the case of any goods and materials purchased from the General Partner or its
Affiliates, 90% of the competitive price of such goods and materials and (iii)
the direct expenses, including, but not limited to, travel and telephone, of
them or their employees on Partnership business, and direct out-of-pocket
expenses incurred in rendering legal, accounting, bookkeeping, computer,
printing, public relations and any other administrative services necessary to
the prudent operation of this Partnership, which services could be performed by
independent parties. 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. Notwithstanding the foregoing, the General Partner and its
Affiliates (including the Assignor Limited Partner) may be reimbursed for the
administrative services necessary to the prudent operation of the Partnership,
provided that any such reimbursement shall be at the lower of the General
Partner's actual cost or the amount the Partnership would be required to pay to
independent parties for comparable administrative services in the same
geographic location. No reimbursement shall be permitted for services for which
the General Partner is entitled to compensation by way of a separate fee. The
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General Partner or its Affiliates may not be reimbursed for general overhead
expenses in connection with the ongoing administration of the Partnership during
its operational phase, such as rent, depreciation, utilities, capital equipment
and other administrative expenses, or the salaries, fringe benefits, travel
expenses and other administrative items incurred by or allocated to any of their
Controlling Persons.
The amount of Organization and Offering Expenses are estimated to be 5.5% of
the Gross Proceeds applicable to the first 250,000 BACs issued, and may be
proportionally more if fewer than 250,000 BACs are issued and proportionally
less with respect to the issuance of additional BACs. Subsequent series (if
applicable) may therefore be required to reimburse the first series for that
pro rata share of such items.
Notwithstanding the terms and conditions of Sections 5.01(d) and (e) above,
if Front End Fees exceed the percentage of Gross Proceeds (after investment
in Invested Properties and deposit into the Working Capital Reserve)
allowable therefor pursuant to Section IV.C.2. of the NASAA Guidelines, the
excess will be paid by the General Partner and not the Partnership.
The annual report of the Partnership will include a breakdown of the amounts
actually reimbursed to the General Partner and its Affiliates. The Accountants
for the Partnership will certify that the amounts actually reimbursed were costs
incurred in the management of the Partnership. The methods of verification used
by the Accountants will be in accordance with generally accepted auditing
standards and other auditing procedures which the Accountants consider
appropriate, including but not limited to, review of the time records of the
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 method of verification shall at minimum provide: (a) a review of the time
records of individual employees, the cost of whose services were reimbursed and
(b) a review of the specific nature of the work performed by each such employee.
The additional costs of such verification will be itemized by said Accountants
on a program-by-program basis and may be reimbursed to the General Partner by
the Partnership in accordance with this provision only to the extent that such
reimbursement, when added to the cost for administrative services rendered, does
not exceed the competitive rate for such services as determined above.
5.02. AUTHORITY OF THE MANAGING GENERAL PARTNER.
(a) Subject to Sections 5.03 and 5.04, the Managing General Partner for, and in
the name and on behalf of, the Partnership is hereby authorized, without
limitation:
(i) to negotiate for and enter into agreements to acquire, hold, encumber,
sell, dispose of and otherwise manage the Operating Partnership Interests,
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at such price and upon such terms, as it deems to be in the best interests
of the Partnership, the Limited Partners and Assignees;
(ii) to give the consent of the Partnership in its capacity as a limited
partner of an Operating Partnership to any action proposed to be taken by
such Operating Partnership which, under the provisions of its Operating
Partnership Agreement, requires the consent of the Investment Partnership,
including the sale or refinancing of any Apartment Complex;
(iii) to waive any condition precedent to the making of an installment of
capital contributions to an Operating Partnership or to waive any material
default by an Operating General Partner in the performance of his obligations
under any Operating Partnership Agreement;
(iv) to designate, on the behalf of the Investment Partnership, a successor
Operating General Partner, to the extent so provided in any Operating
Partnership Agreement;
(v) to require the applicable Operating General Partner(s) to repurchase an
Operating Partnership Interest upon the occurrence of a repurchase event
under the applicable Operating Partnership Agreement;
(vi) to execute any applicable documents which the General Partner deems
necessary or appropriate in connection with the development and financing of
any Apartment Complex in which the Partnership acquires an interest;
(vii) to acquire by purchase, lease, exchange or otherwise, any real or
personal property;
(viii) to borrow money and issue evidences of indebtedness, and to secure the
same by mortgage, deed of trust, pledge or other lien on any Operating
Partnership Interest or other assets of the Partnership;
(ix) 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, expenses,
salaries, wages and other compensation to such Persons;
(x) 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;
(xi) to determine the appropriate accounting method or methods to be used by
the Partnership (the Partnership intends to utilize the accrual method of
accounting);
(xii) to cause the Partnership to make or revoke any of the elections
referred to in Sections 195, 709, 732, 754, or 1017 of the Code or any
similar provisions enacted in lieu thereof or any other elections beneficial
to the Assignees and the Partners of the Partnership;
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(xiii) to allocate income, gain, loss, deduction, or credit (or item thereof)
in accordance with Article IV of this Agreement;
(xiv) to establish and maintain the Working Capital Reserve, originally in
the amount of not less than 4% of Gross Proceeds, and thereafter in such
amounts as it deems appropriate from time to time;
(xv) to amend this Agreement to reflect the substitution of Limited Partners,
and to amend this Agreement as provided for in Section 12.02;
(xvi) to invest 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 Operating Partnerships, (B) the Net
Proceeds allocated for subsequent investment in a particular Operating
Partnership or (C) the Working Capital Reserve, in Permitted Temporary
Investments;
(xvii) to deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from any Person who has
provided any services to, lent money to, sold property to, or purchased
property from the General Partner or any of its Affiliates or who may in the
future provide services to, lend money to, sell to or purchase property from
such parties;
(xviii) to obtain loans for the Partnership from the General Partner or any
Affiliate of the General Partner in accordance with the requirements of
Section 5.03;
(xix) to prepare and file with the Securities and Exchange Commission a
registration statement with respect to the Offering and take all actions
necessary or desirable to cause such registration statement to be declared
effective by the Securities and Exchange Commission; to prepare and
distribute, or cause to be distributed, the Prospectus; and to take any and
all other actions to effectuate the Offering;
(xx) to cooperate with the Assignor Limited Partner to facilitate the
issuance of one or more series of BACs;
(xxi) to take such actions as are necessary and appropriate to permit or
restrict the transfer of BACs, including the listing of the BACs on, and/or
the delisting of the BACs from (pursuant to Section 11.04), public trading
markets or include the BACs for quotation on the National Association of
Securities Dealers Automated Quotation System; provided that the General
Partner may not take such actions to list the BACs for quotation or trading
until counsel to the Partnership has rendered its opinion that it is
substantially more likely than not that listing the BACs will not cause the
Partnership to be treated as a corporation for federal income tax purposes;
(xxii) to deal with, delegate, enter into an agreement, agreements, or
contracts with a financial institution or other entity to conduct, on its
behalf, transfers of BACs, including correspondence with the Assignees,
preparing, transmitting and doing all other necessary actions to effect
transfers,
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assignments or other dispositions of BACs as requested by Assignees and to
do all other acts authorized hereunder in connection with such
administrative activities relating to the Assignees; provided however,
that except as set forth in Sections 7.03(c) and 7.05(c), the cost of such
services shall be borne by the Partnership for ordinary and necessary
business expenses with respect to the provision of services to the
Partners and Assignees. Further, any contractual arrangement between the
Partnership and the transfer agent with respect to the BACs shall not
relieve the Managing General Partner of its fiduciary duties hereunder;
(xxiii) to engage in any kind of activity and to perform and carry out
contracts of any kind necessary to, or in connection with, or incidental to
the accomplishment of the purposes of the Partnership.
(b) With respect to all of its obligations, powers and responsibilities under
this Agreement, the Managing General Partner is authorized to execute and
deliver, for and on behalf of the Partnership, such notes and other evidences
of indebtedness, 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.
(c) All series of BACs will (i) have substantially identical investment
objectives in generating Tax Credits, and possibly State Housing Tax Credits,
(ii) provide for no duplication of property management or other fees, (iii)
provide for substantially identical compensation to the General Partner and
its Affiliates and (iv) provide for investment in Operating Partnership
Interests under substantially the same terms and conditions. Additionally,
Operating Partnership Interests may be invested in jointly by series of BACs
only in accordance with the conditions set forth in Section 5.05(c).
5.03. AUTHORITY OF GENERAL PARTNER AND ITS AFFILIATES TO DEAL WITH PARTNERSHIP
AND OPERATING PARTNERSHIPS.
(a) The General Partner and its Affiliates may not be an Operating General
Partner, unless there has been a material and adverse breach of the Operating
Partnership Agreement by the unaffiliated Operating General Partner. In such
instance, the affiliated Operating General Partner shall fully comply with all
provisions of Section V.H.6 of the NASAA Guidelines. An Affiliate of the General
Partner may, and shall have the right to, act as management agent of any
Apartment Complex on terms and conditions permitted by any applicable
governmental regulations or any applicable requirements of any lender and as set
forth in Section 5.03(b).
(b) (i) Except in extraordinary circumstances, the General Partner or any
Affiliate shall not have the right to contract or otherwise deal with any
Operating Partnership for the sale of goods or services or the lending of money
to an Operating Partnership or the Operating General Partners, except for:
(i) Apartment Complex management services, the fee for which shall be as set
forth in Section 5.03(b)(ii) hereof, (ii) loans made by, or guaranteed
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by, the General Partner or its Affiliates and (iii) for those dealings,
contracts or provision of services described in this Agreement.
Extraordinary circumstances shall only be presumed to exist where there is
an emergency situation requiring immediate action and the services
required are not immediately available from unaffiliated parties. All
services rendered shall be rendered pursuant to a written contract which
shall contain a clause allowing termination without penalty on sixty (60)
days Notice. Goods and services will be provided at the lesser of actual
cost or the price charged for such goods or services by independent
parties. Any payment made to the General Partner or any Affiliate for such
goods, services or loans shall be fully disclosed to all Assignees and
Limited Partners in the reports required hereunder. Neither the General
Partner nor any Affiliate shall, by the making of lump sum payments to any
other Person for disbursement by such other Person, circumvent the
provisions of this Section 5.03(b).
(ii) Property management, rent-up or leasing fees shall be paid to the
General Partner or any of its Affiliates only for services actually rendered
and shall be in an amount equal to the lesser of (i) fees competitive in
price and terms with those of non-Affiliated Persons rendering comparable
services in the locality where the Apartment Complex is located and which
could reasonably be available to the Partnership or (ii) 5% of such Apartment
Complex's gross revenues. No duplicate property management fees or other fees
shall be paid to any Person.
(c) In the event extraordinary circumstances arise, the General Partner and its
Affiliates may provide construction services. The General Partner or its
Affiliates shall not provide such services to the Partnership unless it believes
that it has an adequate staff to do so and unless such provision of goods and
construction services is part of its ordinary and ongoing business in which it
has previously engaged, independent of the activities of the Partnership. Such
services being provided shall be reasonable for and necessary to the
Partnership, shall be actually furnished to the Partnership and, shall be
provided at the lower of 100% of the construction contract rate with respect to
the applicable Apartment Complex or 90% of the competitive price charged for
such services by independent parties for comparable goods and services in the
same geographic location (except that in the case of transfer agent, custodial
and similar banking-type fees, and insurance fees, the compensation, price or
fee shall be at the lesser of cost or the compensation, price or fee of any
other Person rendering comparable services as aforesaid). Cost of services as
used herein means the pro rata cost of personnel, including an allocation of
overhead directly attributable to such personnel, based on the amount of time
such personnel spent on such services, or other method of allocation acceptable
to the Partnership's Accountants. The costs of verification of costs reimbursed
to the General Partner or its Affiliates contained in the annual report may be
reimbursed only to the
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extent, when added to the costs of such goods or services rendered, that the
sum does not exceed the competitive rate for such services.
(d) All services provided by the General Partner or any Affiliates pursuant to
Section 5.03(c) shall be rendered pursuant to this Agreement or a written
contract, which contract precisely describes the services to be rendered and all
compensation to be paid and shall contain a clause allowing termination without
penalty on 60 days Notice to the General Partner by the vote of the majority in
Interest of the Limited Partners and the BAC Holders (the Assignor Limited
Partner acting according to the direction of the BAC Holders). The General
Partner and its Affiliates shall not have the right to contract or otherwise
deal with the Partnership for the sale of goods or services, except for those
dealings, contracts or provision of services on terms described in this
Agreement.
(e) The following prohibitions shall apply with respect to the General Partner
and its Affiliates: (i) neither the General Partner nor any such Affiliate shall
be given an exclusive right to sell, or exclusive employment to sell, any
Apartment Complex, (ii) the Partnership shall not lend money to the General
Partner or any Affiliate of the General Partner, (iii) neither the General
Partner nor any Affiliate of the General Partner shall make any loan to the
Partnership if such loan provides for a prepayment penalty or the interest rates
and other finance charges and fees in connection with such loan are in excess of
the rate or fees at which the Partnership could have borrowed from an
independent bank under comparable circumstances or, if lower, the rate which the
General Partner or such Affiliate paid to obtain the funds to make the loan to
the Partnership compounded monthly and (iv) no compensation or fees may be paid
by the Partnership or an Operating Partnership to the General Partner or its
Affiliates except as described in this Agreement or in the Prospectus, and in no
event shall the aggregate compensation payable to the Partnership, the General
Partner or its Affiliates exceed the amounts permitted under Section IV of the
NASAA Guidelines.
(f) Notwithstanding any provisions of this Section 5.03, neither the General
Partner nor any of its Affiliates shall:
(i) receive any rebate or give-up, or participate in any reciprocal
arrangement, of which would circumvent the provisions of the Partnership
Agreement;
(ii) receive any compensation for providing insurance brokerage services to
the Partnership, unless such services and compensation are provided in
compliance with Section 5.03(b), and (x) the cost of providing such services
is no greater than the lowest quotes obtained from two unaffiliated insurance
agencies and the coverage and terms are comparable, and (y) at least 75% of
the insurance brokerage service gross revenues of the General Partner or its
Affiliates are derived from other than insurance brokerage services provided
to Affiliates;
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(iii) provide "financing" to the Partnership, as that term is defined in
Section I.B.17. of the NASAA Guidelines as the indebtedness encumbering
program properties, the principal amount of which is scheduled to be paid
over a period of not less than 48 months, and not greater than 50 percent of
the principal amount of which is scheduled to be paid during the first 24
months. Nothing in this definition shall be construed as prohibiting a
bonafide prepayment provision in the financing agreement;
(iv) charge the Partnership for, or take from any other Person, any property
management fee with respect to Partnership property or assets, except as
provided in Section 5.03(b);
(v) pay or award, directly or indirectly, any commission or other
compensation (other than normal sales commissions and reimbursement of
expenses payable to registered broker-dealers which may include cash
incentives under a program submitted for review and approval by the National
Association of Securities Dealers, Inc. ("NASD") in accordance with Section
5(f) of Appendix F to Section 34 of the NASD Rules of Fair Practice) to any
Person engaged by a potential investor for investment advice as an inducement
to such advisor to advise such investor to purchase BACs.
(g) Notwithstanding any provision in this Agreement, in no event shall the
General Partner or its Affiliates provide services or receive compensation other
than as allowed by Sections V.E.2 and V.J. of the NASAA Guidelines.
5.04. GENERAL RESTRICTIONS ON AUTHORITY OF GENERAL PARTNER.
In exercising management and control of the Partnership, the General Partner, on
behalf of the Partnership and in furtherance of the business of the Partnership,
shall have the authority to perform all acts which the Partnership is authorized
to perform. However, the General Partner shall not have any authority to:
(a) perform any act in violation of this Agreement or any applicable law or
regulation thereunder;
(b) do any act required to be approved or ratified in writing by all Limited
Partners (including the Assignor Limited Partner voting as instructed by the
Assignees) under the Act, unless the right to do so is expressly otherwise
given in this Agreement;
(c) without the Consent of a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the
Assignees), sell or otherwise dispose of all or substantially all of the
assets of the Partnership in a single sale or disposition or in a series of
contemporaneous sales or dispositions with a view towards distribution;
(d) borrow from the Partnership;
(e) elect to dissolve the Partnership without the Consent of a majority in
Interest of the Limited Partners (including the Assignor Limited Partner
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voting as instructed by the Assignees) (unless a greater number of Limited
Partners is then required under the Act);
(f) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(g) confess a judgment against the Partnership;
(h) possess Partnership property, or assign its rights in specific
Partnership property, for other than a Partnership purpose;
(i) admit a Person as a General Partner, except as provided in this
Agreement;
(j) knowingly perform any act that would subject any Assignee to liability as
a general partner in any jurisdiction;
(k) invest Partnership funds in junior trust deeds, land sale contracts or
similar obligations;
(l) invest in or underwrite the securities of other issuers, except as
provided in Sections 5.02(a)(xvi) or 9.03; provided, however, that the
General Partner may temporarily invest Partnership funds in money market
funds or other suitable investments (other than funds organized as limited
partnerships);
(m) invest Partnership funds in investments organized and/or operated by its
Affiliates other than as set forth in Sections 5.03(a) and 5.05(c) hereof;
(n) allocate any income, gain, loss, deduction, or credit (or any item
thereof) to any Partner or Assignee if, and only to the extent that, such
allocation will cause the determinations and allocations of income, gain,
loss, deduction, or credit (or any item thereof) provided for in Article IV
hereof not to be permitted by Section 704(b) and the Treasury Regulations
promulgated thereunder;
(o) issue senior securities or offer BACs or Partnership Interests in
exchange for property other than cash;
(p) utilize Net Proceeds for any purpose other than as set forth in this
Agreement and in the Prospectus;
(q) utilize for Investment in Properties less than the greater of (i) 82.5%
of the Gross Proceeds reduced by 0.1625% for each 1% of financing encumbering
the Apartment Complex; or (ii) 69.5% of the Gross Proceeds. To calculate the
percentage of financing encumbering the Apartment Complex, divide the amount
of financing by the Purchase Price, excluding Front End Fees and multiply the
quotient by .1625% to determine the percentage deducted from 82.5%;
(r) make loans to the Partnership or accept loans on behalf of the
Partnership from any Affiliate of the General Partners that do not comply
with Section 5.03(e)(iii);
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(s) utilize any Liquidation, Sale or Refinancing Proceeds to acquire
additional Operating Partnership Interests, except that with respect to each
series of BACs, any return of Capital Contributions received by the
Partnership from any Operating Partnership during the first 24 months after
acquisition of such Operating Partnership Interests and any Liquidation, Sale
or Refinancing Proceeds otherwise received within 36 months from the
Partnership's acquisition of Operating Partnership Interests may, in the
discretion of the General Partner, be invested in additional Operating
Partnership Interests, placed in the Working Capital Reserve, or refunded to
Investors in such series, provided that in no event shall the General Partner
make any reinvestments in Operating Partnership Interests with respect to a
particular series of BACs later than 36 months from the final Investment Date
with respect to such series; provided, further, that (i) a sufficient portion
of such funds shall be distributed to BAC Holders to cover their estimated
income tax liabilities, if any, arising out of the receipt of such funds, and
(ii) any compensation to the General Partner and/or its Affiliates in the
event of a reinvestment is subject to the limitations set forth in Sections
5.03, 5.04(q), 5.15 and 5.16 of this Agreement;
(t) invest in limited partnership interests of programs other than programs
which own and operate a property to be qualified pursuant to Section 42(g) of
the Code;
(u) invest in Operating Partnership Interests jointly with other programs,
except in accordance with the conditions set forth in Section 5.05(c);
(v) sell, lease or lend Partnership assets to the General Partner or any
Affiliate of the General Partner or purchase or lease property from the
General Partner or its Affiliates, or acquire property from a program in
which the General Partner or its Affiliates have an interest, or sell or
lease an Apartment Complex to an Operating Partnership;
(w) reinvest Net Cash Flow (excluding Liquidation, Sell or Refinancing
Proceeds) in Operating Partnership Interests;
(x) incur Partnership indebtedness exceeding 85% of the value of the
Partnership's assets;
(y) take any action to merge or Roll-Up the Partnership with or into any
other entity.
5.05. MANAGEMENT OBLIGATIONS.
In conducting the business of the Partnership, the General Partners shall be
bound by the following:
(a) The Partnership's interest in any Operating Partnership shall not be
acquired with a view to resale and shall be acquired for long-term
appreciation.
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(b) The Partnership shall normally seek to minimize depreciation recapture
and to defer capital gain taxes by not selling any interest in any Operating
Partnership, or by not causing, or consenting to, the sale of any Apartment
Complex unless proceeds arising from such sale are likely to be sufficient to
meet the federal tax liabilities at the then maximum rate of the Assignees or
the Limited Partners arising from such sale.
(c) Operating Partnership Interests may be invested in jointly by series of
BACs, or may be invested in jointly by a series of BACs with another publicly
registered program (either of such parties referred to as a "Program"),
provided that any joint investment in Operating Partnership Interests will
satisfy the following conditions:
(i) the two Programs have substantially identical investment objectives;
(ii) there are no duplicate property management or other fees;
(iii) the compensation to the sponsor of each Program is substantially
identical in each Program;
(iv) each Program will have a right of first refusal if the other Program
wishes to sell its Operating Partnership Interest;
(v) the investment of each Program is on substantially the same terms and
conditions.
(d) Operating Partnership Interests may also be invested in jointly with an
affiliated Program which is not publicly registered if in addition to the
requirements set forth in Section 5.05(c), such investment is necessary to
relieve the Sponsor from any commitment to purchase an Operating Partnership
Interest in compliance with this Agreement prior to the closing of the
Offering.
(e) The completion of any Apartment Complex which is under construction at
the time of the acquisition of an Operating Partnership Interest by the
Partnership shall be secured by a completion bond in the amount of the
contract price or other satisfactory security, which may include, but is not
limited to, the following:
(i) A written guarantee of completion by a Person, supported by financial
statements demonstrating sufficient net worth or adequately collateralized
by other real or personal properties or other Persons' guarantees;
(ii) A retention of a reasonable portion of the capital contributions to
the Operating Partnership and/or fees to the Operating General Partner(s)
as a potential offset in the event the Operating General Partner does not
perform in accordance with the Operating Partnership Agreement.
(f) All acquisitions by the Partnership of Operating Partnership Interests in
Operating Partnerships owning Apartment Complexes must be supported by either
(i) an appraisal prepared by a competent, independent appraiser
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or (ii) FmHA Forms 1924-13 (estimate and BAC of actual cost) and 1930-7
(statement of budget, income and expense) or HUD project cost and budget
analysis on Form 2264, or any successor or FmHA or HUD form, any comparable
form of a state or other governmental agency, including any applicable Tax
Credit allocation agency, setting forth estimates with respect to
construction and mortgage financing costs and initial rental income and
operating expenses figures. The appraisal or governmental form(s) shall be
maintained in the Partnership's records for at least five years, and shall
be available for inspection and duplication by any Partner or Assignee.
Such appraisal or governmental form(s) shall demonstrate that the total
amount of indebtedness incurred by the Operating Partnerships shall not
exceed the sum of 85% of the Aggregate Cost of all Apartment Complexes
which have not been refinanced, and 85% of the aggregate fair market value
of all refinanced Apartment Complexes, as determined by the lender as of
the date of refinancing. Notwithstanding the foregoing, however, to the
extent any Apartment Complexes are financed by (i) 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 the foregoing, and/or (ii) loans received by any of the foregoing,
following termination of the Offering, the total amount of indebtedness
incurred by the Operating Partnerships with respect to such Apartment
Complexes shall not exceed the sum of 100% of the Aggregate Cost of all
such Apartment Complexes which have not been refinanced, and 100% of the
aggregate fair market value of all such refinanced Apartment Complexes, as
determined by the lender as of the date of refinancing.
5.06. DELEGATION OF AUTHORITY.
Subject to the provisions of this Article V, the General Partner may delegate
all or any of its 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.
5.07. OTHER ACTIVITIES.
The General Partner and any Affiliate may engage in or possess interests in
other business ventures of every kind and description for its own account,
including, without limitation, serving as general partner of other partnerships
which own, either directly or through interests in other partnerships, apartment
complexes similar to the Apartment Complexes. Neither the Partnership nor any of
the Partners shall have any rights by virtue of this Agreement in or to such
other business ventures or to the income or profits derived therefrom.
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5.08. LIMITATION ON LIABILITY OF GENERAL PARTNER AND ASSIGNOR LIMITED PARTNER;
INDEMNIFICATION.
(a) Neither the General Partner, its Affiliates nor the Assignor Limited Partner
shall be liable, responsible or accountable in damages or otherwise to the
Partnership or to any of the Limited Partners or BAC Holders for any act or
omission performed or omitted by such General Partner or Assignor Limited
Partner if the General Partner determines in good faith, that the act or
omission was in the best interests of the Partnership, provided that such
General Partner's or Assignor Limited Partner's conduct did not constitute
Cause. Notwithstanding the foregoing, the General Partner shall be liable to the
Partnership, Limited Partners, or BAC Holders for violations of federal
securities laws for which lack of Cause is not a defense. The Partnership shall
indemnity and hold harmless the General Partner and its Affiliates, including,
the Assignor Limited Partner against and for any loss, liability or damage
incurred by any of them or the Partnership by reason of any act performed or
omitted to be performed by them in good faith, in connection with the business
of the Partnership including all judgments, costs and attorneys' fees (which
costs and attorneys' fees may not be paid as incurred, except as provided in
Section 5.08 (c)) and any amounts expended in settlement of any claims of
liability, loss or damage, provided that the indemnified Person's conduct did
not constitute Cause if the General Partner determines, in good faith, that such
course of conduct was in the best interests of the Partnership. The satisfaction
of any indemnification obligation shall be from and limited to Partnership
assets, and no Limited Partner or BAC Holder shall have any personal liability
on account thereof. Notwithstanding any provision of this subsection to the
contrary, the General Partner shall be presumed to be personally liable to
creditors for the debts of the Partnership.
(b) Notwithstanding anything to the contrary contained in paragraph (a) above,
neither the General Partner, its Affiliates nor the Assignor Limited Partner,
any Person acting as a broker-dealer or the Partnership shall be indemnified
with regard to any liability, loss or damage incurred by them in connection with
any claim or settlement involving allegations that federal or state securities
laws, rules or regulations were violated by the General Partner or by any such
above listed Persons unless: (A) (i) the General Partner or other Persons
seeking indemnification are successful in defending such action on the merits of
each count involving such violation and the court approves indemnification of
the litigation costs, (ii) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction and the court approved
indemnification of the litigation costs or (iii) a court of competent
jurisdiction approves a settlement of such claims and finds that indemnification
of the settlement and related costs should be made and (B) such indemnification
is specifically approved by a court of law which shall have been advised as to
the then-current position of the Securities and Exchange Commission, the
Massachusetts Securities Commission, the
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Missouri Securities Commission, Tennessee Securities Division and other
applicable state securities laws administrators regarding indemnification for
violations of securities laws. Notwithstanding the provisions of Section
5.08(a), the Assignor Limited Partner shall not be indemnified by the
Partnership against any loss, damage or liability and related expenses
(including attorneys' fees) incurred by reason of any action or inaction
performed or omitted to be performed by the Assignor Limited Partner in
connection with activities of the Assignor Limited Partner acting exclusively in
its capacity as Assignor Limited Partner on behalf of the BAC Holders. Further,
to the extent the Assignor Limited Partner otherwise would be entitled to
indemnification pursuant to Section 5.08(a), indemnification shall be provided
only so long as the Assignor Limited Partner is an Affiliate of the General
Partner.
(c) The General Partner, its Affiliates, including the Assignor Limited Partner
may receive advances from the Partnership for payment of their costs and
attorneys' fees as incurred only if each of the following three conditions are
satisfied: (A) the legal action relates to the performance of duties or services
by the General Partner or its Affiliates on behalf of the Partnership (B) the
legal action is initiated by a third party who is not a Partner or BAC Holder
and (C) the General Partner, its Affiliates, including the Assignor Limited
Partner undertake to repay the advanced funds to the Partnership in cases in
which they are not entitled to indemnification pursuant to Section 5.08(a).
(d) The Partnership shall not incur the cost of liability insurance which
insures any party for any liability as to which such parties are prohibited from
being indemnified under this Section 5.08.
(e) For purposes of Sections 5.08(a), (b) and (c) only, "Affiliates" shall be
defined to mean any Person (A) performing services on behalf of the Partnership
who (1) directly or indirectly controls or is controlled by or is under common
control with the specified Person, (2) is an officer of, director of, partner in
or trustee of, or serves in a similar capacity with respect to, the specified
Person or of which the specified Person is an officer, director, partner or
trustee, or with respect to which the specified Person serves in a similar
capacity, (3) directly or indirectly is the beneficial owner of 10% or more of
any class of equity securities of the specified Person or of which the specified
Person is directly or indirectly the owner of 10% or more of the voting
securities of the specified Person or (4) is an officer, director, general
partner, trustee or holder of 10% or more of the voting securities of any of the
foregoing and (B) acting in a manner within the scope of authority granted to a
General Partner by this Agreement.
5.09. TAX STATUS OF PARTNERSHIP.
The General Partner shall use its best efforts to meet such requirements of the
Code, including any net worth requirements, as interpreted from time to time by
the Internal Revenue Service, any other agency of the federal
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government, or the courts, necessary to assure that the Partnership will be
classified as a partnership for federal income tax purposes.
5.10. FIDUCIARY DUTY; DERIVATIVE ACTION.
The General Partner owes the same fiduciary duty to the BAC Holders as the
General Partner owes to the Limited Partners. An Assignee may bring a derivative
action to enforce a right of the Partnership to recover a judgment to the same
extent as a Limited Partner has such a right. No BAC Holder or Limited Partner
may alter, by means of contract, the fiduciary duty owed to him by the General
Partner under common law.
5.11. AGENCY AGREEMENT.
The Partnership shall execute an Agency Agreement with the Dealer-
Manager pursuant to which said firm will assist the Partnership in the sale of
BACs, be paid Selling Commissions, accountable and non-accountable due diligence
expense reimbursements and a Dealer-Manager Fee therefor, all as described in
Section 3.02, and be indemnified by the General Partner against certain
liabilities. Neither the General Partner nor the Assignor Limited Partner shall
directly or indirectly pay or award any commissions or other compensation to any
Person engaged by a potential Assignee for investment advice as an inducement to
such advisor to advise the purchaser of BACs; provided, however, that
notwithstanding the preceding sentence, sales commissions payable to a
registered broker-dealer or other properly licensed person shall not be
prohibited.
5.12. RESTRICTIONS ON AUTHORITY TO DEAL WITH GENERAL PARTNER AND AFFILIATES.
Other than as specifically authorized in this Agreement or with respect to other
transactions unrelated to this Partnership, the Managing General Partner is
prohibited from entering into any agreements, contracts or arrangements on
behalf of the Partnership with any General Partner or any Affiliate of any
General Partner.
5.13. ADDITIONAL RESTRICTIONS ON THE GENERAL PARTNER.
(a) If any public offering is made by the General Partner or any of its
Affiliates of interests in a partnership or of beneficial assignee interests in
a partnership, which partnership intends to invest in investments which would
satisfy the same criteria and standards of investments to be made by the
Partnership, the following criteria will be followed with respect to determining
which entity should acquire such investments: The General Partner and its
Affiliates will review the investment portfolio of each such entity (including
any series being offered by each such partnership) and will in their sole
determination decide which such entity will acquire the investment on the basis
of various factors such as the amount of funds available and the length of time
such funds have been available for investment; the cash requirements
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of each such entity; and the effect of the acquisition on each such entity's
portfolio. If funds should be available to two or more public limited
partnerships to purchase a given investment and all factors have been evaluated
and deemed equally applicable to each entity (including any series being offered
by each such partnership), then the General Partner and its Affiliates will
acquire such investments for the entities on a basis of rotation with the order
of priority determined by the dates of formation of the entities (including any
series being offered by each such partnership).
(b) No investment in any Operating Partnership will be made unless the General
Partner or its designee, exercising the rights of the Partnership (or such
designee) as a limited partner in an Operating Partnership, and in any event
acting on behalf of the Partnership, is provided certain rights under the terms
of the Operating Partnership Agreement substantially similar to the rights set
forth below: (i) the right to remove and replace the applicable Operating
General Partner(s) on the basis of the performance and discharge of the
Operating General Partner(s) obligations constituting Cause, (ii) the right to
approve or disapprove of certain transactions not in the ordinary courses of
business, including the right to approve or disapprove any sale or refinancing
of an Apartment Complex, (iii) the right to receive information and/or reports
with regard to the financial and physical condition of an Apartment Complex
owned by an Operating Partnership, (iv) the right to approve or disapprove the
dissolution of the applicable Operating Partnership, (v) the right to direct an
Operating General Partner to convene meetings and to submit matters to a vote,
(vi) the right to approve or disapprove amendments to the applicable Operating
Partnership Agreement materially and adversely affecting the Partnership's
investment in the Operating Partnership and (vii) the right to have access,
inspect and copy the books and records of the applicable Operating Partnership.
(c) Neither the General Partner nor its Affiliates (except the Partnership)
shall become a limited partner in an Operating Partnership whose Operating
General Partner is an Affiliate of the General Partner.
5.14. ACCOUNTING FEE ADVANCES.
In the event that the Partnership does not have sufficient funds in 1993 to pay
the fee to the Accountants for the preparation of Partnership tax returns and
other reports (the "Accounting Fee"); the General Partner shall advance up to
$5,000 to the Partnership to pay the Accounting Fee incurred with respect to
such year. Thereafter, the General Partner may, but shall not be obligated to,
advance funds to enable the Partnership to pay the Accounting Fee. Any amounts
so advanced (the "Accounting Fee Advances") shall be repaid by the Partnership
from the Cash Flow of the Partnership or, if applicable, from Liquidation, Sale
or Refinancing Process.
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5.15. ASSET ACQUISITION FEE.
The General Partner or its Affiliates shall receive from the Partnership an
Asset Acquisition Fee for the services of the General Partner and/or its
Affiliate(s) in connection with selecting, evaluating and negotiating the terms
of investments in Operating Partnership Interests. The amount of the Asset
Acquisition Fee shall be equal to 8.5% of the Gross Proceeds, reduced by any
Acquisition Fees paid to the General Partner or its Affiliates by the Operating
Partnerships or Operating General Partners. A pro rata portion of such fee will
be refunded to the Partnership to the extent that investments in Operating
Partnership Interests are not made. Notwithstanding the foregoing, payment of
the Asset Acquisition Fee described therein shall be payable only for services
actually rendered.
5.16. PARTNERSHIP MANAGEMENT FEE.
The Partnership shall pay the General Partner or an Affiliate thereof an annual
Partnership Management Fee commencing in 1993 of 0.5% of the Aggregate Cost of
the Apartment Complexes then held by the Operating Partnerships. The Partnership
Management Fee shall be payable, on a cumulative basis, solely from Cash Flow of
the Partnership, or from the proceeds of a Capital Transaction as provided in
Section 4.02. The Partnership Management Fee shall be prorated in 1993 based on
the number of months remaining in the year after the initial Investment Date. In
the event a reporting fee is paid to an Affiliate of the General Partner by an
Operating Partnership for services in preparing reports for such Operating
Partnership, the annual Partnership Management Fee will be reduced by the amount
of any such reporting fee to the extent the combined amounts of both fees exceed
0.5% of the Aggregate Cost of the Apartment Complexes on an annual basis.
ARTICLE VI
CHANGES IN GENERAL PARTNERS
6.01. WITHDRAWAL OF THE GENERAL PARTNER.
(a) Except in the event of the Bankruptcy or dissolution of the General Partner
as provided in Section 6.05, without the prior Consent of a majority in Interest
of the Limited Partners (including the Assignor Limited Partner voting as
instructed by the Assignees), Boston Capital Associates IV L.P. shall not be
entitled to withdraw from the Partnership or to sell, transfer or assign its
Interest as General Partner. Upon such withdrawal by Boston Capital Associates
IV L.P. and subject to the Consent of such number of Limited Partners (if any)
as are then required under the Delaware Revised Uniform Limited Partnership Act
(including the Assignor Limited Partner voting as instructed by the Assignees),
Boston Capital Associates IV L.P. may substitute as General Partner in the
Partnership any entity which has, by merger, consolidation or otherwise,
acquired substantially all of its assets.
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(b) In the event that Boston Capital Associates IV L.P. withdraws from the
Partnership or sells, transfers or assigns its entire Interest, it shall be and
shall remain liable for all obligations and liabilities incurred by it as
General Partner before such withdrawal, sale, transfer or assignment shall have
become effective, but shall be free of any obligation or liability incurred on
account of the activities of the Partnership from and after the time of such
withdrawal, sale, transfer or assignment shall have become effective.
(c) The General Partner may at any time designate additional Persons to be
General Partners, whose Interest(s) in the Partnership shall be such as agreed
upon by the General Partner and such additional General Partners, provided that
the Interests of the Assignees shall not be affected thereby.
Such additional Persons shall become additional General Partners only upon
meeting the conditions provided in Section 6.02.
6.02. ADMISSION OF A SUCCESSOR OR ADDITIONAL GENERAL PARTNER.
A Person shall be admitted as a General Partner of the Partnership only if the
following terms and conditions are satisfied:
(a) except as permitted in Section 6.01(a), the admission of such Person
shall have been Consented to, or ratified, by not less than a majority in
Interest of the Limited Partners (including the Assignor Limited Partner
voting as instructed by the Assignees) voting together as a class or by such
greater number of Limited Partners (including the Assignor Limited Partner)
as are then required under the Act to Consent to, or ratify, the admission of
a general partner;
(b) such Person shall have accepted and agreed to be bound by the terms and
provisions of this Agreement, by executing a counterpart hereof, and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner shall have been
filed for recording, and all other actions required by law in connection with
such admission shall have been performed;
(c) if such Person is a corporation, it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of its authority to
become a General Partner and to be bound by the terms and provisions of this
Agreement;
(d) counsel for the Partnership or the Limited Partners and Assignees, as the
case may be, shall have rendered an opinion to the Partnership that the
admission of such Person is in conformity with the Act and that none of the
actions taken in connection with the admission of such Person are in
violation of the Act, will impair the limited liability of the Assignees,
will cause the termination or dissolution of the Partnership or will cause
the Partnership to be classified other than as a partnership for federal
income tax purposes;
(e) the interests of the Assignees are not affected thereby.
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6.03. CONSENT OF ASSIGNEES AND LIMITED PARTNERS TO ADMISSION OF SUCCESSOR OR
ADDITIONAL GENERAL PARTNER.
Unless otherwise prohibited under the Act at the time that such Consent is
necessary, each of the Assignees by the execution of this Agreement by the
Assignor Limited Partner Consents to the admission of any Person as a successor
or additional General Partner to which at the time there has been given the
express Consent of a majority in Interest of the Limited Partners (including the
Assignor Limited Partner voting as instructed by the Assignees). Upon receipt of
such Consent of a majority in Interest of the Limited Partners (including the
Assignor Limited Partner voting as instructed by the Assignees), such admission
shall, without any further Consent or approval of the Limited Partners or the
Assignees, be the act of all the Limited Partners and Assignees.
6.04. REMOVAL OF A GENERAL PARTNER.
Subject to Section 10.02, a majority in Interest of the Limited Partners
(including the Assignor Limited Partner voting as instructed by the Assignees),
without the Consent or other action by the General Partner may remove any
General Partner and elect a replacement therefor.
6.05. EFFECT OF REMOVAL, BANKRUPTCY, DEATH, WITHDRAWAL, DISSOLUTION OR
INCOMPETENCY OF A GENERAL PARTNER.
(a) In the event of the Bankruptcy of a General Partner or the withdrawal, death
or dissolution of a General Partner or an adjudication that a General Partner is
incompetent (which term shall include, but not be limited to, insanity) the
business of the Partnership shall be continued with Partnership property by the
other General Partners (and the other General Partners, by execution of this
Agreement and/or an amendment hereto, as applicable, expressly so agree to
continue the business of the Partnership); provided, however, that if the
withdrawn, Bankrupt, deceased, dissolved or incompetent General Partner is then
the sole General Partner, the provisions of Section 8.01 shall be applicable.
(b) Upon the removal, withdrawal, Bankruptcy, death, dissolution or adjudication
of incompetency of a General Partner such General Partner shall immediately
cease to be a General Partner. The value of the General Partner's interest is to
be determined by agreement between the General Partner so removed and the
Partnership, or in the absence of such agreement, by arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association.
The expense of arbitration shall be borne equally by the General Partner so
removed and the Partnership. If a General Partner is removed for cause, it shall
be required to sell its General Partner's interest at one-half its value to a
substitute General Partner. Any method of payment to a General Partner
involuntarily removed may be an interest bearing promissory note with a term of
no less than five years with equal
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annual installments bearing interest at the Prime Rate; provided that such note
will become due and payable when Liquidation, Sale or Refinancing Proceeds with
respect to the last Operating Partnership Interest held by the Partnership are
received. Any method of payment to a General Partner that voluntarily withdraws
from the Partnership will be in the form of a non-interest bearing unsecured
promissory note with principal payable, if at all, from distributions which the
withdrawing General Partner otherwise would have received under this Partnership
Agreement had it not withdrawn. Nothing in this Section 6.05(b) shall affect any
rights or liabilities of the Bankrupt, deceased, dissolved or incompetent
General Partner which matured prior to the Bankruptcy, death, dissolution or
incompetence of such General Partner.
(c) If, at the time of withdrawal, removal, Bankruptcy, death, dissolution or
adjudication of incompetence of a General Partner, the withdrawn, removed,
Bankrupt, deceased, dissolved or incompetent General Partner was not the sole
General Partner of the Partnership, the remaining General Partner or Partners
shall immediately (i) give Notice to the Limited Partners and Assignees of such
withdrawal, removal, Bankruptcy, death, dissolution or adjudication of
incompetence and (ii) prepare such amendments of this Agreement and execute and
file for recording such amendments or documents or other instruments necessary
to reflect the assignment, transfer, termination or conversion (as the case may
be) of the Interest of the withdrawn, removed, Bankrupt, deceased, dissolved or
incompetent General Partner.
(d) All parties hereto hereby agree to take all actions and to execute all
documents necessary or appropriate to effect the foregoing provisions of this
Section 6.05.
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNERS'
INTERESTS AND TRANSFERABILITY OF BACS
7.01. ASSIGNMENTS OF THE INTEREST OF THE ASSIGNOR LIMITED PARTNER.
(a) Pursuant to Section 11.01(a), the Assignor Limited Partner shall assign
units of beneficial interest in its Limited Partnership Interest to each Person
purchasing BACs pursuant to Section 3.03, each of which is equivalent to the
number of BACs so purchased. The Partnership shall recognize as an Assignee each
Person to whom the Assignor Limited Partner assigns such beneficial interests as
of such dates as provided in Section 3.03, provided that the Partnership has
received from each such Assignee proceeds in the amount of $10.00 (subject to
quantity discounts with respect to selling commissions) per BAC ($8.95 in the
case of the General Partner, its Affiliates and employees of its Affiliates) for
a minimum of 500 BACs.
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(b) The Assignor Limited Partner shall remain an Assignor Limited Partner on the
books and records of the Partnership notwithstanding the assignment of all of
the beneficial interest in its Limited Partnership Interest until such time as
the Assignor Limited Partner transfers its position as the Assignor Limited
Partner to another Person or Persons.
(c) All Persons becoming Assignees shall be bound by the terms and conditions
of, and shall be entitled to all rights of, Limited Partners under this
Agreement.
(d) Other than pursuant to this Section and Section 11.01(a), the Assignor
Limited Partner may not transfer or assign a beneficial interest in its
Partnership Interest without the prior written Consent of the Managing
General Partner or its designee.
7.02. CONVERSION OF BACS.
After the termination of the offering with respect to any series of BACs, on at
least a semi-annual basis, any BAC Holder who desires to convert his BACs into
Limited Partnership Interests may do so by fulfilling the requirements of
Section 7.03 for the admission of Substitute Limited Partners and the payment of
the legal and administrative costs and recording fees (currently estimated to be
$500). Persons who effect such conversion will receive one Limited Partnership
Interest for each BAC they convert and shall not thereafter be permitted to
re-exchange their Limited Partnership Interests for BACs. The Capital Account of
the Assignor Limited Partner shall be reduced by an amount equal to the Capital
Account of such former BAC Holder and such amount will be credited to such BAC
Holder's account as a Substitute Limited Partner. BACs which have been converted
into Limited Partnership Interests will be cancelled and will not be reissued.
Persons who convert BACs into Limited Partnership Interests may request and
receive from the Partnership BACs representing such Limited Partnership
Interests.
7.03. ASSIGNEES OF LIMITED PARTNERS; SUBSTITUTE LIMITED PARTNERS.
(a) The Partnership need not recognize for any purpose any assignment or
transfer of all or any fraction of the Partnership Interest of a Limited Partner
admitted to the Partnership pursuant to Sections 7.02, 10.02(b) or 11.04 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 (currently
estimated to be $500) in connection with such assignment or transfer (applicable
only to transfers of Limited Partners admitted pursuant to Section 7.04), (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 BACs 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
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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 Partners. Except as provided in Section
4.04(d), Substitute Limited Partners shall be recognized as such no later than
on the first day of the calendar month following the month in which the
Partnership receives the instrument of assignment provided in this Section 7.02.
(b) Any Limited Partner who shall assign all his Partnership Interest shall
cease to be a Limited Partner of the Partnership, except that unless and until a
Substitute Limited Partner is admitted in his stead, such Limited Partner shall
retain the statutory rights of an assignor of a limited partnership interest
under the Delaware Revised Uniform Limited Partnership Act.
7.04. JOINT OWNERSHIP OF INTERESTS.
(a) Subject to the other provisions of this Agreement, Limited Partnership
Interests or BACs may be acquired by two or more individuals, who shall, at the
time they acquire such Limited Partnership Interests or BACs, indicate to the
Partnership whether the Limited Partnership Interests or BACs are being held by
them as joint tenants with the right of survivorship, as tenants-in-common or as
community property. In the absence of any such designation, they shall be
presumed to hold such Limited Partnership Interests or BACs as
tenants-in-common. Any Consent of the Limited Partners and Assignees shall
require the action or vote of all owners of any such jointly held Limited
Partnership Interests or BACs.
(b) Upon Notice to the Managing General Partner from all owners of any jointly
held Limited Partnership Interests or BACs and the submission of such
documentation as may be required, the General Partner shall (unless otherwise
instructed by the owners) cause the Limited Partnership Interests or BACs to be
divided into two or more equal portions, except that there may be no partial
Limited Partnership Interests or BACs in any such portion, which shall
thereafter be owned separately by each of the former owners.
7.05. ASSIGNABILITY OF BACS.
Subject to the provisions of this Agreement, including Section 11.04, the
General Partner in its discretion may cause the BACs to be freely transferable
by an Assignee to a Person who shall become a substitute Assignee. To the extent
such transfers are permitted, they will be subject to the following limitations:
(a) no transfer shall be permitted if it would result, when considered with
all other transactions in BACs and Partnership Interests within the previous
twelve months, in the Partnership being considered to have been terminated
within the meaning of Section 708 of the Code;
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(b) no transfer shall be permitted if such transfer of BACs would be in
violation of any applicable federal or state securities law (including any
investor suitability requirements);
(c) no transfer fee shall be imposed by the Partnership for the transfer of
BACs;
(d) any attempted transfer of BACs in contravention of the provisions of this
Section shall not be recognized by the Partnership;
(e) the Partnership shall recognize the transferee of a BAC as the BAC Holder
on the Partnership's books and records as of the last business day of the
calendar month during which the Partnership or its agent receives all
necessary documentation with respect to the transfer (unless such
documentation is received less than five business days prior to the last
business day of a calendar month, in which case the transferee will be
recognized as the BAC Holder on the last business day of the next calendar
month following such receipt);
(f) in order to record a trade on its books, the Partnership is under no
obligation to, but may require such evidence of transfer or assignment and
authority of the transferor or assignor (including signature guarantees), an
opinion of counsel to the effect that there has been no violation of federal
or state securities laws in the assignment or transfer, as the Managing
General Partner may determine;
(g) in order to record a trade on its books, the Partnership will require
evidence of the transferee's suitability under state securities laws and the
Code, as the Managing General Partner may determine.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
8.01. EVENTS CAUSING DISSOLUTION.
(a) The Partnership shall dissolve upon the happening of any of the following
events:
(i) the Bankruptcy, death, dissolution, withdrawal, removal or adjudication
of incompetence of a General Partner who is at that time the sole General
Partner;
(ii) the passage of ninety (90) days after the Liquidation, Sale or
Refinancing of all Apartment Complexes and/or Operating Partnership
Interests, as applicable and this sale or other disposal substantially all
other tangible assets of the Partnership;
(iii) the vote by a majority in Interest of the Limited Partners, or such
greater number as are then required under the Delaware Revised Uniform
Limited Partnership Act (including the Assignor Limited Partner voting as
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instructed by the Assignees), pursuant to Section 10.02(a)(ii) to dissolve
the Partnership;
(iv) the expiration of the term of the Partnership specified in Section 1.04;
(v) any other event causing the dissolution of the Partnership under the laws
of the State of Delaware.
Notwithstanding the foregoing, the Partnership shall not be dissolved upon the
occurrence of the Bankruptcy, death, dissolution, withdrawal, removal or
adjudication of incompetence of a General Partner if (a) all of the remaining
General Partners, if applicable, elect within 30 days after such an event to
continue the business of the Partnership or (b) within 90 days, after the
withdrawal of a General Partner, all of the remaining Partners (including the
Assignor Limited Partner voting as instructed by a majority in Interest of the
Assignees or such greater number as is then required under the Act) agree in
writing to continue the business of the Partnership, and, if the General Partner
who became Bankrupt, died, dissolved, withdrew or was removed or adjudicated
incompetent was the sole General Partner, designates a substitute General
Partner. If all of the remaining General Partners elect to continue the
Partnership pursuant to (a) in the preceding sentence, and if the General
Partner who became Bankrupt, died, dissolved, withdrew or was removed or
adjudicated incompetent was the Managing General Partner, all of the rights and
obligations of the Managing General Partner hereunder shall be assumed by a
General Partner selected by the remaining General Partners or, if there is only
one remaining General Partner, by such sole remaining General Partner.
(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 a BAC of Cancellation shall be filed with the Delaware Secretary
of State and the assets of the Partnership shall have been distributed as
provided in Section 8.02. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, the business of the Partnership and
the affairs of the Partners and Assignees shall continue to be governed by this
Agreement.
8.02. LIQUIDATION.
(a) Upon dissolution of the Partnership, the Managing General Partner or other
liquidator (the "Liquidator") shall liquidate the assets of the Partnership,
apply and distribute the proceeds thereof as contemplated by this Section 8.02
and cause the cancellation of the Partnership's BAC of limited partnership;
(b) After payment of liabilities owing to creditors of the Partnership, the
Managing General Partner or the Liquidator shall set aside as a reserve such
amount as it deems reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership. Said reserve may be paid over by
the Managing General Partner or the Liquidator to a bank, to be held in
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escrow for the purpose of paying any such contingent or unforeseen liabilities
or obligations and, at the expiration of such period as the Managing General
Partner or the Liquidator may deem advisable, the amount in such reserve shall
be distributed to the Partners and Assignees in the manner set forth in Section
8.02(c).
(c) After paying such liabilities and providing for such reserves, the Managing
General Partner or the Liquidator shall cause the remaining assets of the
Partnership to be distributed to the Partners or Assignees. All distributions to
the Partners or Assignees upon liquidation of the Partnership, shall be deemed
to be distributions arising from Liquidation, Sale or Refinancing and shall be
made as distributions of Liquidation, Sale or Refinancing Proceeds in accordance
with Section 4.02.
It is the intent of the Partners and Assignees that, upon liquidation of the
Partnership, all distributions to the Partners or Assignees be made in
accordance with the Partners' or Assignees' respective Capital Account balances
and the Partners and Assignees believe that distributions in accordance with
Section 4.02 will effectuate such intent. In the event that, upon liquidation,
there is any conflict between distributions pursuant to the Partners' or
Assignees' respective Capital Account balances and the intent of the Partners
and Assignees with respect to distributions as provided in Section 4.02, the
Liquidator shall, notwithstanding the provisions of Sections 4.01, 4.03 and
4.04, allocate the Partnership's gains and losses in a manner that will cause
the distribution of Liquidation, Sale or Refinancing Proceeds to the Partners or
Assignees to be in accordance with the Partners' or Assignees' respective
Capital Account balances. After paying such liabilities and providing for such
reserves, the Managing General Partner shall cause the remaining assets of the
Partnership to be distributed to the Partners or Assignees. All distributions to
the Partners or Assignees upon liquidation of the Partnership shall be deemed to
be distributions arising from a Liquidation, Sale or Refinancing and shall be
made as distributions of Liquidation, Sale or Refinancing Proceeds in accordance
with Section 4.02.
(d) If the Managing General Partner shall determine that an immediate sale of
part or all of the Partnership's assets would cause undue loss to the Partners
or Assignees, the Managing General Partner may, after having given Notice to all
the Limited Partners and Assignees, 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 withold from distribution, for a reasonable
time any assets of the Partnership except those necessary to satisfy the
Partnership's debts and obligations. No distributions in kind shall be made.
(e) Upon dissolution of the Partnership, if there is no Managing General
Partner, such other Person who may be appointed in accordance with applicable
law shall be responsible to take all action related to the winding up and
distribution of assets of the Partnership and shall perform the actions of the
Managing General Partner described in this Section 8.02.
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(f) Each Limited Partner or Assignee 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 Available for Distribution,
Liquidation, Sale or Refinancing Proceeds, and Profits, Credits and Losses, and
shall have no recourse therefor, upon dissolution, or otherwise, against any
General Partner or Limited Partner or Assignee. No Partner or Assignee shall
have any right to demand or receive property other than cash upon dissolution
and termination of the Partnership. Nothing in this Section 8.02(f) shall alter
the limitation on liability of the General Partner or its Affiliates pursuant to
Section 5.08(a).
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX MATTERS
9.01. BOOKS AND RECORDS.
(a) The Partnership shall maintain at the principal office of the Partnership
the following records, which are available for examination and copying there at
the request, and at the expense, of any Partner or Assignee or his duly
authorized representative during ordinary business hours or, copies of which may
be requested by any Partner or Assignee or his duly authorized representative
provided that the reasonable costs of fulfilling such request, including copying
expenses, shall be paid by the Person making such request:
(i) a current list, updated at least quarterly, of the full name and last
known home or business address and business telephone number of each Partner
and Assignee, set forth in alphabetical order and each Partners' or
Assignees' related interest in the Partnership. Any requests for copies of
said list shall be mailed within 10 days of the request thereof. A Partner or
Assignee may request a copy of said list, without limitation, for matters
relating to voting rights under the Agreement and the exercise of rights
under federal proxy laws.
(ii) a copy of the BAC and of this Agreement, together with executed copies
of any powers of attorney pursuant to which this Agreement, and any
amendments hereto, has been executed;
(iii) copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the three most recent years;
(iv) copies of (1) any effective written partnership agreements and (2) any
financial statements of the Partnership for the three most recent years;
(v) for a period of at least five years, copies of each appraisal received
pursuant to Section 5.05(f);
(vi) the Partnership books.
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(b) The Managing General Partner or its agent or designee shall maintain for a
period of at least six years a record of the information obtained to indicate
that an Assignee meets the suitability standards set forth in the Prospectus.
(c) If a Partner or Assignee must compel production of the list set forth in
Section 9.01(a)(i), then the General Partner will pay the Partner's or
Assignee's actual costs and damages, including attorneys' fees. It shall be a
defense that the actual purpose and reason for the requests 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 Partner or Assignee relative to the affairs of the Partnership.
The General Partner may require the requesting party to represent that the list
is not requested for a commercial purpose unrelated to the Partner's or
Assignee's interest in the Partnership. The remedies provided hereunder are in
addition to, and shall not in any way limit, other remedies available to
Partners or Assignees under federal law, or the laws of any state.
9.02. ACCOUNTING BASIS AND FISCAL YEAR.
The Partnership will initially utilize the accrual method of accounting. The
fiscal year of the Partnership shall begin on April 1st of each calendar year.
9.03. BANK ACCOUNTS.
The bank accounts of the Partnership shall be maintained in such banking
institutions as the Managing General Partner shall determine. All deposits and
other funds not immediately needed in the operation of the business may be
invested in Permitted Temporary Investments, as directed by the Managing General
Partner; provided, however, prior to the sale by the Partnership of the minimum
number of BACs, no funds paid by subscribers for BACs shall be invested in
tax-exempt notes or bonds. The funds of the Partnership shall not be commingled
with the funds of any other Person.
9.04. REPORTS.
(a) Within 45 days after the end of each of the first three fiscal quarters of
each year, the Managing General Partner shall send to each Person who was an
Assignee during such quarter certain unaudited financial information with
respect to the Partnership as of the end of, such fiscal quarter, together with
a report of the activities of the Partnership during such fiscal quarter.
(b) Within 120 days after the end of the fourth quarter in each fiscal year, the
Managing General Partner shall cause to be prepared and distributed to each
person who was an Assignee at any time during the quarter then ended (i) a
detailed statement describing (a) any new agreement, contract or arrangement
required to be reported by Section 5.03(b) and (b) the amount of all fees, other
compensation and amounts paid by the Partnership during such fiscal period to
any General Partner or any Affiliate of any General Partner which may be
included in the financial statements sent to BAC
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Holders and (ii) until the Capital Contributions of the Assignees shall be fully
invested, a report of acquisitions of Operating Partnership Interest.
(c) The Managing General Partner shall send to each Person who was an Assignee
at any time during the year then ended such tax information as shall be
necessary for the preparation by such Assignee of his federal income tax return
and required state income and other tax returns with regard to jurisdictions in
which the Partnership is formed or qualified or owns investments. The Managing
General Partner shall send this information within 75 days after the end of each
year.
(d) Within 120 days after the end of each fiscal year, the Managing General
Partner shall send to each Person who was an Assignee at any time during the
fiscal year then ended (i) the balance sheet of the Partnership as of the end of
such year and statements of operations, changes in Partners' and Assignees'
capital and changes in financial position of the Partnership for such year, all
of which shall be prepared in accordance with generally accepted accounting
principles and accompanied by a report of the Accountants containing an opinion
of the Accountants, (ii) a statement of Cash Available for Distribution for such
year (which need not be audited), (iii) a report of the activities of the
Partnership during such year and (iv) a statement (which need not be audited)
showing distributions per Unit by admission date at any time during such year in
respect of such year, which statement shall identify distributions from (a) Cash
Available for Distribution generated during the year, (b) Cash Available for
Distribution generated during prior years which has been held as reserves, (c)
proceeds from a Capital Transaction, (d) lease payments on net leases with
builders and sellers and (e) the Working Capital Reserve and other sources.
(e) A copy of each report referred to in this Section 9.04 shall be filed with
all securities commissions requiring such filing at the time required by such
commissions.
(f) If BACs are issued in series, all reports described in this Section 9.04
shall set forth required information for each series separately, as applicable.
9.05. SECTION 754 ELECTIONS.
In the event of a transfer of all or any part of the Interest of an Assignee,
the Partnership may, but is not required to elect, pursuant to Section 754 of
the Code (or any corresponding provision of succeeding law), to adjust the basis
of the Partnership property.
9.06. DESIGNATION OF TAX MATTERS PARTNER.
The Managing General Partner is hereby authorized to designate itself or any
other General Partner, as Tax Matters Partner of the Partnership, as provided in
regulations pursuant to Section 6231 of the Code. Each Partner and Assignee, by
the execution of this Agreement consents to such designation
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of the Tax Matters Partner and agrees to execute, certify, acknowledge, deliver,
swear to, file and record at the appropriate public offices such documents as
may be necessary or appropriate to evidence such consent.
9.07. DUTIES OF TAX MATTERS PARTNER.
(a) To the extent and in the manner provided by applicable law and regulations,
the Tax Matters Partner shall furnish the name, address, profits interest and
taxpayer identification number of each Partner and Assignee to the Secretary of
the Treasury or his delegate (the "Secretary").
(b) To the extent and in the manner provided by applicable law and regulations,
the Tax Matters Partner shall keep each Partner and Assignee informed of the
administrative and judicial proceedings for the adjustment at the Partnership or
Operating Partnership level of any item required to be taken into account by a
Partner and Assignee for income tax purposes (such administrative proceeding
referred to hereinafter as a "tax audit" and such judicial proceeding referred
to hereinafter as "judicial review").
(c) If the Tax Matters Partner, on behalf of the Partnership, receives a notice
with respect to a Partnership tax audit from the Secretary or from the Tax
Matters Partner of the Operating Partnership, the Tax Matters Partner shall,
within 30 days of receiving such notice forward a copy of such notice to the
Persons who hold or held an interest (through their Interest in the Partnership
or the BACs) in the Profits, Losses and Credits of such Operating Partnership
for the Operating Partnership taxable year to which the notice relates.
9.08. AUTHORITY OF TAX MATTERS PARTNER.
The Tax Matters Partner is hereby authorized, but not required:
(a) to enter into any settlement with the Internal Revenue 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 or Assignees, except that such settlement agreement shall not
bind any Partner or Assignee who (within the time prescribed pursuant to the
Code and regulations thereunder) files a 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 Assignee;
(b) in the event that a notice of a final administrative adjustment at the
Partnership or Operating Partnership level of any item required to be taken into
account by a Partner or Assignee 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;
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(c) to intervene in any action brought by any other Partner or Assignee 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 Internal Revenue 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 Assignee for tax purposes, or an item
affected by such item;
(f) to take any other action on behalf of the Partners or Assignees or the
Partnership in connection with any administrative or judicial tax proceeding to
the extent permitted by applicable law or regulations.
9.09. EXPENSES OF TAX MATTERS PARTNER.
The Partnership shall indemnity 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 or Assignees. The payment of
all such expenses shall be made before any distributions are made from Cash Flow
or the Working Capital Reserve are set aside by the Managing General Partner.
Neither the General Partner, or 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 5.08
of this Agreement shall be fully applicable to the Tax Matters Partner in its
capacity as such.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED
PARTNERS AND ASSIGNEES
10.01. MEETINGS.
(a) Except as otherwise provided in Section 10.01(b), the Managing General
Partner may, and at the written request signed by 10% or more in Interest of the
Limited Partners (including the Assignor Limited Partner acting on behalf of and
at the instruction of the Assignees) shall, submit any matter to the Limited
Partners and Assignees upon which the Limited Partners and Assignees are
entitled to vote for a vote by written Consent without a meeting. With regard to
all matters to be brought before the Limited Partners, the Assignor Limited
Partner shall act for and at the direction of the Assignees.
(b) Meetings of the Limited Partners and Assignees for any purpose may be called
by the Managing General Partner at any time and, after receipt of a
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written request for such a meeting signed by 10% or more in Interest of the
Limited Partners (including the Assignor Limited Partner acting on behalf of and
at the instruction of the Assignees) the Managing General Partner shall notify
in person or in writing by a certified mailing all Limited Partners (including
the Assignor Limited Partner) and Assignees of such request within ten days of
receiving such request. Any such request shall state the purpose of the proposed
meeting and the matters proposed to be acted upon thereat. Meetings shall be
held at the principal office of the Partnership or at such other place as may be
designated by the Managing General Partner or, if the meeting is called upon the
request of Assignees, as designated by such Assignees. In addition, the Managing
General Partner shall submit any matter upon which the Limited Partners
(including the Assignor Limited Partner acting on behalf of and at the
instruction of the Assignees) are entitled to act to the Limited Partners and
Assignees for a vote by written Consent without a meeting.
(c) Any meeting called pursuant to Section 10.01(b) shall be held not less than
15 days nor more than 60 days after the date of the receipt of the request for
such meeting. Notice to each Limited Partner and Assignee shall be given at his
record address, or at such other address which he may have furnished in writing
to the Managing General Partner or Assignor Limited Partner. Such Notice shall
state the place, date and hour of the meeting and shall indicate that the Notice
is being issued at the direction of, or by, the Partner or Partners calling the
meeting. Included with such notice shall be a detailed statement of the action
proposed, including a verbatim statement of the wording of any proposal to be
acted upon at the meeting. The Partnership will provide proxies or written
consents which provide for approval and disapproval of each matter to be acted
upon at 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 Notice of the adjourned meeting. The presence in
person or by proxy of a majority in Interest of the Limited Partners (including
the Assignor Limited Partner acting on behalf of and at the instruction of the
Assignees) shall constitute a quorum at all meetings of the Limited Partners and
the Assignees; provided, however, that if there be no such quorum, holders of a
majority in Interest of the Limited Partners (including the Assignor Limited
Partner voting on behalf of the Assignees) so present or so represented may
adjourn the meeting from time to time without further Notice, until a quorum
shall have been obtained. No Notice of the time, place or purpose of any meeting
of Limited Partners and Assignees need be given to any Limited Partner or
Assignee who attends in person or is represented by proxy, except for a Limited
Partner or Assignee attending a meeting for the express purpose of objecting at
the beginning of the meeting to the transaction of any business on the ground
that the meeting is not lawfully called or convened, or to any Limited Partner
or Assignee entitled to such Notice who, in writing, executed and filed with the
records of the meeting, either before or after the time thereof, waives such
Notice.
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(d) 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, and the Assignees entitled to
direct the voting of the Assignor Limited Partner on any such occasion, the
Managing 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 and Assignees. 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 and Assignees for a vote by written Consent.
(e) At each meeting of Limited Partners and Assignees, the Limited Partners and
Assignees present or represented by proxy shall elect such officers and adopt
such rules for the conduct of such meeting as they shall deem appropriate.
(f) The provisions of this Section 10.01 are subject to the provisions of
Section 12.11.
10.02. VOTING RIGHTS OF LIMITED PARTNERS AND ASSIGNEES.
(a) The consent of 80% in Interest of the Limited Partners (or of such greater
number of Limited Partners as are then required under the Act) (it being
understood that the Assignor Limited Partner is voting at the direction of the
Assignees), shall be required to approve any transaction involving the sale,
transfer or other disposition of all or substantially all of the assets of the
Partnership when the consideration to be received by Limited Partners or
Assignees does not consist entirely of cash, prior to the consummation of such
transaction.
(b) A majority in Interest of the Limited Partners (or of such greater number of
Limited Partners as are then required under the Act) (it being understood that
the Assignor Limited Partner is voting at the direction of the Assignees),
without the concurrence of the General Partner, may: (i) amend this Agreement,
subject to the conditions that such amendment (a) may not in any manner allow
the Limited Partners or Assignees to take part in the management or control of
the Partnership's business or otherwise modify their limited liability and (b)
may not, without the Consent of the Partner affected and subject to the
provisions of Section 6.05(b), alter the rights, powers and duties of such
Partner as set forth in Article V, the interest of such Partner in Profits,
Credits and Losses, or Cash Available for Distribution, or Liquidation, Sale or
Refinancing Proceeds as set forth in this Agreement; (ii) dissolve the
Partnership, (iii) remove any General Partner and elect a replacement therefore,
(iv) approve or disapprove the sale of all or substantially all of the assets of
the Partnership at any one time (including the Partnership's interest in all of
the Operating Partnerships) and (v) advise the General Partner to: (a) remove
any Operating General Partner from an Operating Partnership or (b) disapprove
any material and adverse amendment to the Operating
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Partnership Agreement. If so advised, the General Partner shall promptly take
such action as may be required to remove such Operating General Partner or to
disapprove such amendment, in accordance with the terms of the Operating
Partnership Agreement. If the Limited Partners (including the Assignor Limited
Partner voting at the direction of the Assignees) vote to remove a General
Partner pursuant to this Section 10.02, they shall provide the removed General
Partner with Notice thereof, which Notice shall set forth the date upon which
such removal is to become effective.
(c) Any General Partner removed pursuant to this Section shall, upon such
removal, have the rights afforded to it pursuant to Section 6.05. Assignees, or
any successor General Partner proposed by them, shall have the option, but not
the obligation, to acquire, upon payment of any agreed upon value or the fair
market value therefor, the Interest in the Partnership of any General Partner so
removed. Any dispute as to fair market value shall be settled by arbitration in
accordance with the rules of the American Arbitration Association. The cost of
arbitration shall be borne equally by the removed General Partner and the
Partnership.
(d) Any General Partner removed pursuant to this Section shall remain liable for
all obligations and liabilities incurred by him as General Partner before such
removal shall have become effective, but shall be free of any obligation or
liability as General Partner incurred on account of the activities of the
Partnership from and after the time such removal shall have become effective.
(e) A Limited Partner shall be entitled to cast one vote for each Limited
Partnership Interest which he owns and an Assignee shall be entitled to direct
the Assignor Limited Partner to cast one vote for each BAC 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 for each Limited Partner or the Assignor Limited Partner
for each Assignee 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 for each Limited Partner or the
Assignor Limited Partner for each Assignee prior to the date upon which the
votes of Limited Partners and Assignees are to be counted. Every proxy must be
signed by the Limited Partner or Assignee 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 Assignee executing it. Only the votes of Limited
Partners and Assignees of record on the Notice date, whether at a meeting or
otherwise, shall be counted. The General Partner shall not be entitled to vote.
The laws of the State of Delaware pertaining to the validity and use of
corporate proxies shall govern the validity and use of proxies given by the
Limited Partners. Assignees may give proxies only to the Assignor Limited
Partner. The Assignor Limited
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Partner will vote in accordance with the directions of the Assignees so that
each Interest of an Assignee will be voted separately.
(f) The provisions of this Section 10.02 are subject to the provisions of
Section 12.11.
(g) Notwithstanding anything herein to the contrary, the General Partner and any
affiliated partnerships or corporations which purchased BACs may not vote as
Limited Partners and may not direct the Assignor Limited Partner to vote on
their behalf with respect to matters set forth in Section 10.02(b)(iii);
provided, however, that the above-described restriction shall not apply in the
event the BACs are listed for trading and the applicable stock exchange or
NASDAQ prohibits restrictions on voting rights of the BAC Holders or Limited
Partners.
(h) The merger or combination of the Partnership with another entity shall be
prohibited.
10.03. VOTING BY THE ASSIGNOR LIMITED PARTNER ON BEHALF OF BAC HOLDERS.
The Assignor Limited Partner hereby agrees that, with respect to any matter on
which a vote of the Limited Partners is taken, the Consent of the Limited
Partners is required or any other action of the Limited partners is required or
permitted, it shall vote its Limited Partnership Interest or grant such Consent
or take such action (other than solely administrative actions as to which the
Assignor Limited Partner has no discretion) only for the sole benefit of, and in
accordance with the written instructions of the BAC Holders to which units of
beneficial interest in such Limited Partnership Interest have been assigned. The
General Partner shall provide notice to the BAC Holders containing information
regarding any matters to be voted upon or as to which any Consent or other
action is requested or proposed sufficiently in advance of the date of the vote,
Consent or action for which instructions are requested to permit BAC Holders to
provide written instructions and shall otherwise establish reasonable procedures
for any such request for instructions. The Partnership and the General Partners
hereby agree to permit BAC Holders to attend any meetings of Partners and the
Assignor Limited Partner shall, upon the written request of BAC Holders owning
BACs which represent in the aggregate 10% or more of all of the outstanding
BACs, request the General Partners to call a meeting of Partners pursuant to
Section 10.01 or to submit a matter to the Assignor Limited Partner without a
meeting pursuant to this Agreement. The General Partners shall give the Limited
Partners and BAC Holders Notice of any meeting to be held pursuant to Section
10.01(a) or (b) at the same time and manner as such Notice is required to be
given to the Assignor Limited Partner pursuant to Section 10.01(c).
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10.04. MANAGEMENT OF THE PARTNERSHIP.
No Limited Partner or Assignee shall take part in the management or control of
the business of the Partnership or transact any business in the name of the
Partnership. No Limited Partner or Assignee shall have the power or authority to
bind the Partnership or to sign any agreement or document in the name of the
Partnership. No Limited Partner or Assignee shall have any power or authority
with respect to the Partnership except insofar as the Consent of the Limited
Partners or Assignees shall be expressly required.
10.05. OTHER ACTIVITIES.
The Limited Partners and Assignees may engage in or possess interests in other
business ventures of every kind and description for their own accounts,
including without limitation, serving as general or limited partner of other
partnerships which own, either directly or through interests in other
partnerships, apartment complexes similar to the Apartment Complexes. Neither
the Partnership nor any of the Partners or Assignees shall have any rights by
virtue of this Agreement in or to such business ventures or to the income or
profits derived therefrom.
ARTICLE XI
ASSIGNMENT OF BENEFICIAL INTERESTS
TO ASSIGNEES AND RIGHTS OF ASSIGNEES
11.01. ASSIGNMENT OF BENEFICIAL INTERESTS TO ASSIGNEES.
(a) The Assignor Limited Partner, by the execution of this Agreement,
irrevocably transfers and assigns to the Assignees all of the Assignor Limited
Partner's rights and beneficial interest in and to the Limited Partnership
Interest held by the Assignor Limited Partner, such transfer and assignment made
in the number of units equal to the number of BACs purchased by each such Person
no later than the next business day following the day such Person's funds are
released to the Partnership, on behalf of the Assignor Limited Partner, of any
proceeds from the Offering. The rights and interest so transferred and assigned
shall include the following:
(i) all rights to receive distributions of Capital Contributions pursuant to
Section 3.04(c);
(ii) all rights with respect to profits, credits, losses and cash
distributions pursuant to Article IV;
(iii) all rights to receive any proceeds of sales or refinancings pursuant to
Section 4.02 or liquidation of the Partnership pursuant to Section 8.02;
(iv) all rights to inspect books and records and to receive reports pursuant
to Article IX;
(v) all rights which Limited Partners have, or may have in the future, under
the Act, except as otherwise provided herein.
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(b) The General Partner, by the execution of this Agreement, irrevocably
Consents to and acknowledges that (i) the transfer and assignment pursuant to
Section 11.01(a) by the Assignor Limited Partner to the Assignees of the
Assignor Limited Partner's rights and beneficial interest in its Limited
Partnership Interest is effective and (ii) the Assignees are intended to be
third party beneficiaries of all rights and privileges of the Assignor Limited
Partner in respect of its Limited Partnership Interest. The General Partner
covenants and agrees that, in accordance with the foregoing transfer and
assignment, all the Assignor Limited Partner's rights and privileges may be
exercised by the Assignees.
11.02. RIGHTS OF ASSIGNEES OF THE ASSIGNOR LIMITED PARTNER.
(a) The Assignees shall share pari passu on the basis of one unit of beneficial
interest in the Assignor Limited Partner's Limited Partnership Interest for one
BAC, and shall be considered as a single class with respect to all rights to
receive distributions of Net Cash Flow, Liquidation, Sale or Refinancing
Proceeds, allocations of Profits, Credits and Losses, and other determinations
of allocations and distributions pursuant to this Agreement.
(b) Limited Partners (including the Assignor Limited Partner voting the
Interests of the Assignees at their direction) shall vote on all matters in
respect of which they are entitled to vote (either in person, by proxy or by
written Consent), as a single class with each Limited Partner entitled to one
vote per Partnership Interest and each BAC Holder entitled to one vote per
BAC through the Assignor Limited Partner.
11.03. FIDUCIARY DUTY OF ASSIGNOR.
Pursuant to Section VII.E.3. of the NASAA Guidelines and in conformance with the
terms of this Agreement, the Assignor shall have fiduciary responsibility for
the safekeeping of any funds and assets of the Assignees and shall not permit
the use of such funds and assets other than for the benefit of the Assignees.
11.04. PRESERVATION OF TAX STATUS AND PRESERVATION OF PARTNERSHIP STATUS.
(a) The Managing General Partner may, upon advice of counsel, restrict, halt or
suspend trading of BACs to prevent a termination of the Partnership for federal
income tax purposes which is deemed harmful to the Assignees. In the event of
such suspension, the transferring or assigning Assignee will be notified in such
event, and any deferred transfers or assignments will be affected (in
chronological order to the extent practicable), as of the first day of the next
succeeding period in which such transfers or assignments can be affected without
either premature termination of the Partnership for tax purposes or any adverse
effects from such premature termination, as the case may be. In the event
transfers or assignments are suspended for the foregoing reasons, the General
Partner will give notice of such suspension to Assignees as soon as practicable.
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(b) The Managing General Partner may, upon advice of counsel, (i) restrict or
halt trading in BACs, (ii) cause the delisting of BACs from public trading
markets, (iii) require a purchaser of BACs (at no additional cost) to be
admitted to the Partnership as a Limited Partner, (iv) require a BAC Holder (at
no additional cost) to become a Limited Partner, and/or (v) take such other
action with respect to the manner in which BACs are being or may be transferred
or traded, as it may deem necessary or appropriate (including causing the
amendment of this Agreement in connection therewith), in order to preserve the
status of the Partnership as a partnership, prevent a termination of the
Partnership for federal income tax purposes which is deemed harmful to the
Assignees, prevent federal income tax treatment of the Partnership as an
association taxable as a corporation, insure that BAC Holders will be treated as
limited partners of the Partnership for state law and federal income tax
purposes and/or qualify the Partnership as a pass-through entity pursuant to the
provisions of any future legislation.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01. APPOINTMENT OF MANAGING GENERAL PARTNER AS ATTORNEY-IN-FACT.
(a) Each Limited Partner, including each Substitute Limited Partner, by the
execution of this Agreement, irrevocably constitutes and appoints, with full
power of substitution, the Managing General Partner, acting through any partner
of its general partner, 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 this
Agreement, and such other documents as may be necessary or appropriate to carry
out the provisions of this Agreement, including but not limited to:
(i) all BACs and other instruments (including counterparts of this
Agreement), 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 Delaware Revised Uniform Limited
Partnership Act on the date thereof) in a 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 and Assignees;
(ii) any other instrument or document which may be required to be filed by
the Partnership under Federal law or under the laws of any state in which any
such Person deems it advisable to file;
(iii) all amendments to this Agreement adopted in accordance with the terms
hereof and all instruments which any such Person deems
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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,
which may be required to (A) effect the continuation of the Partnership, the
admission of any Limited Partners, any Substitute Limited Partner or any
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), (B) to
reflect any reductions in amount of contributions of Partners or (C) to make
a correction to any Exhibit thereto.
(b) The appointment by each Limited Partner of each of such Persons 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 Persons to act as contemplated
by this Agreement in any filing and other action by them on behalf of the
Partnership, and such power shall survive the removal, Bankruptcy, death,
incompetence or dissolution of any Person hereby giving such power and the
transfer or assignment of all or any part of the BACs or Partnership Interests
of such Person; provided, however, that in the event of a transfer by a Limited
Partner or a BAC Holder of all or any part of his Interests, the foregoing power
of attorney of a transferor Limited Partner or BAC Holder shall survive such
transfer only until such time as the transferee shall have been admitted to the
Partnership as a Substitute Limited Partner and all required documents and
instruments shall have been duly executed, filed and recorded to effect such
substitution.
12.02. SIGNATURES; AMENDMENTS.
(a) Each Limited Partner, additional General Partner and successor General
Partner shall become a signatory hereto by signing such number of counterpart
signature pages to this Agreement and such other instrument or instruments in
such manner and at such time as the Managing General Partner shall determine. By
so signing, each Limited Partner, successor General Partner or additional
General Partner, as the case may be, shall be deemed to have adopted, and to
have agreed to be bound by, all the provisions of this Agreement, as amended
from time to time; provided, however, that no such counterpart shall be binding
if and until it shall have been accepted by the Managing General Partner.
(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 (or the Assignees), (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
or correct or supplement any provision herein which may be inconsistent with the
manifest intent of this Agreement or the administrative efficiency of the
Partnership and (iii) to delete or add any
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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 "Blue
Sky" commissioner or similar official, or by any national securities exchange or
NASDAQ, which addition or deletion is deemed by such Commission, agency, entity
or official to be for the benefit or protection of Limited Partners or the
Assignees; provided, however, that no amendment shall be adopted pursuant to
this Section 12.02(b) unless the adoption thereof (1) is for the benefit of, or
not adverse to the interests of, the Limited Partners and the Assignees, (2) is
not inconsistent with Section 5.01, (3) does not affect the distribution of Cash
Available for Distribution or Liquidation, Sale or Refinancing Proceeds or the
allocation of Profits, Credits and Losses among the Limited Partners or the
Assignees and (4) does not affect the limited liability of the Limited Partners
or the Assignees 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 substituting a Limited
Partner, the amendment to this Agreement shall be signed by the Managing General
Partner and by the Person to be substituted (which signature of the Person to be
substituted may be made by such Person's attorney-in-fact), and if a Limited
Partner is to be substituted, either by the assigning Limited Partner or by the
Managing General Partner pursuant to its authority to act as Attorney-in-Fact on
behalf of 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 Partners and by such additional 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 Partners.
(d) In making any amendments, there shall be prepared and filed by the Managing
General Partner for recording such documents and BACs if and to the extent
required to be prepared and filed under the Act.
12.03. OWNERSHIP BY LIMITED PARTNERS OR ASSIGNEES OF GENERAL PARTNER OR ITS
AFFILIATES.
No Limited Partner or Assignee 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 Assignees 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 Assignee shall promptly supply any information requested by the
Managing General Partner in order to establish compliance by the Limited Partner
or Assignee with the provisions of this Section 12.03.
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12.04. 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.
12.05. APPLICABLE LAW.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware provided, however, that causes of action
for violations of federal or state securities laws shall not be governed by this
section.
12.06. 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, except that no
counterpart shall be binding unless signed by the Managing General Partner.
12.07. 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 invalid and
contrary to any law, such invalidity shall not impair the operation of or affect
those portions of this Agreement which are valid.
12.08. CAPTIONS.
Article and Section titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
12.09. DISALLOWANCE OF EXPENSES.
Any fee paid to any General Partner pursuant to this Agreement which is
disallowed as a deductible expense for federal income tax purposes shall
constitute, for federal income tax purposes, a special allocation of gross
income to the General Partner receiving such fee.
12.10. ENTIRE AGREEMENT.
This Agreement, together with the Exhibits attached hereto, sets forth all (and
is intended by all parties to be an integration of all) of the promises,
agreements and understandings among the parties hereto with respect to the
Partnership, the Partnership business and the property of the Partnership, and
there are no promises, agreements, or understandings, oral or written, express
or implied, among them other than as set forth or incorporated herein.
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12.11. SERIES TREATED AS SEPARATE PARTNERSHIPS; EXCEPTIONS.
(a) Except as otherwise provided in Section 12.11(b), this Partnership Agreement
shall apply to each series of BACs as though each such series were a separate
partnership and the terms set forth herein shall be applied identically in each
series. The General Partners shall maintain separate bank accounts and books and
records for each series and shall credit income and apportion Operating Expenses
and other costs which are not specifically allocable to a particular series
among all outstanding series upon the advice of the Accountants.
(b) Section 12.11(a) shall not apply in the following instances:
(i) if the topics of a meeting or a vote without a meeting concern more than
one series of BACs, then for purposes of Section 10.01 all affected series
will be combined and treated as a single class;
(ii) the right of Limited Partners and Assignees set forth in Sections
10.02(a) and (b) may be exercised only by a majority in interest (or such
greater percentage as is then required under the Act) of the Limited Partners
of all affected series (including the Assignor Limited Partner acting for and
at the direction of BAC Holders of all affected series) voting as a single
class.
(c) In the event that a creditor asserts a claim against the assets of the
Partnership and it can be determined by the nature of the creditor's claim that
such claim is attributable to one series only, and that series' funds are
insufficient to satisfy the claim, then the General Partner will assume
liability for any unsatisfied portion of the creditor's claim. In the event of
such claim against more than one series, if the proportional liability of a
particular series can be determined, such series will only be liable for such
proportional amount of the claim; if such series' funds are insufficient to
satisfy the proportional amount of the claim, the General Partner will assume
liability for any unsatisfied portion thereof.
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IN WITNESS WHEREOF, the parties hereto hereunder affix their signatures and
seals on December 16, 1993.
GENERAL PARTNER:
BOSTON CAPITAL ASSOCIATES IV L.P.
By: Boston Capital Associates,
its General Partner
By: /s/ Herbert F. Collins
-----------------------------------
Herbert F. Collins
General Partner
By: /s/ John P. Manning
-----------------------------------
John P. Manning
General Partner
ASSIGNOR LIMITED PARTNER:
BCTC IV ASSIGNOR CORP.
By: /s/ John P. Manning
-----------------------------------
John P. Manning
President
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<Table>
BOSTON CAPITAL BOSTON CAPITAL TAX CREDIT FUND IV INVESTOR FORM
THE TAX CREDIT EXPERTS
I. INVESTOR INFORMATION (Please Type or Print Clearly)
/ / This investment is for Series ________________ / / I have previously invested in Series _______________
Individual Name Social Security Number
__________________________________________________________________________________________ _______________________________
Joint Name Social Security Number
__________________________________________________________________________________________ _______________________________
Entity Name Taxpayer Identification Number
__________________________________________________________________________________________ _______________________________
Home Address
________________________________________________________________________________________________________________________________
City State Zip Code Home Telephone
______________________________________________ ________________ __________________________ _______________________________
Occupation Fax Number (OPTIONAL) E-mail Address
______________________________________________ _____________________________________________ _______________________________
Check One / / Mr. / / Mrs. / / Ms. / / Mr. & Mrs. / / Dr. / / Other ___________________
II. LEGAL FORM OF OWNERSHIP
/ / Individual (01) / / Community Property (15) / / Partnership (04) / / Grantor Trust/Living Trust (07)
/ / JTWROS (08) / / Tenants in Common (09) / / Corporation (05) / / Other (specify) _______________
III. INVESTMENT INFORMATION
Investment Amount $_______________________ Minimum Investment: $5,000 (Additional increments: $1,000)
MAKE CHECKS PAYABLE TO: "WB&T/BCTC FUND IV ESCROW ACCOUNT"
IV. INVESTOR SIGNATURE (IF REQUIRED)
Investors who are residents of the states of Alabama, Arizona, Arkansas,
California, Iowa, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska,
New Hampshire, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, South
Dakota, Texas, Washington, and Wisconsin must make the following representations
and sign below. In addition, certain Soliciting Dealers have internally
determined that Investor Signatures will be required. Each Account Executive
should consult with his or her central office regarding an Investor Signature
requirement. If there is such a requirement, please have your client complete
the information and make the representations that follow by signing below.
I hereby confirm that I have received a Prospectus relating to the offering of
Beneficial Assignee Certificates ("BACs") representing assignments of limited
partnership interests in Boston Capital Tax Credit Fund IV L.P. and that I meet
the minimum suitability standards regarding annual income and net worth as
disclosed in the Prospectus. __________________
Signature of First Investor Date
____________________________________________________________________________________________
Signature of Second Investor Date
____________________________________________________________________________________________
FOR INTERNAL USE ONLY
B/D No. Check No.
____________________________ ________________________
- CONTINUED ON THE OTHER SIDE
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BOSTON CAPITAL TAX CREDIT FUND IV INVESTOR FORM
side two
V. BROKER/DEALER INFORMATION
/ / Please check if new address
Account Executive Broker/Dealer Firm
________________________________________ ____________________________________________________
Account Executive's Branch Address
________________________________________________________________________________________________________________
City State Zip Code Telephone
________________________________________ _____________ ____________________ _____________________________
Fax Number (OPTIONAL) E-mail Address
_____________________________________ _____________________________
The undersigned represents that he has complied with the requirements of the
rules of fair practice of the NASD with respect to the subscriber whose name
appears on the above Investor Form and hereby certifies that he has reasonable
grounds to believe on the basis of information obtained from the investor
concerning his objectives, financial situation and needs and any other
information known to the undersigned that the investment in the interests is
suitable for the investor, and, in addition, has informed the investor as to the
lack of liquidity and marketability of the interests.
Account Executive's Signature and/or Branch Manager Date
________________________________________________________________________________ _____________________________
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MAKE CHECKS PAYABLE TO: "WB&T/BCTC FUND IV ESCROW ACCOUNT"
Submit Documents To: BOSTON CAPITAL SERVICES
ESCROW ADMINISTRATOR
ONE BOSTON PLACE, SUITE 2100
BOSTON, MASSACHUSETTS 02108-4406
(617) 624-8900 OR (800) 866-2282
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[GRAPHIC]
BOSTON CAPITAL
TAX CREDIT FUND IV L.P.
PROSPECTUS
TABLE OF CONTENTS
PAGE
Summary 8
Additional Summary Information for Corporate Investors 20
Suitability of an Investment in Certificates 23
Estimated Use of Proceeds 28
Risk Factors 30
Fiduciary Responsibility of Boston Associates 37
Conflicts of Interest 39
Compensation and Fees 46
Investment Objectives and Acquisition Policies 49
Investment in Operating Partnerships 65
Tax Credit Programs 65
Government Assistance Programs 77
Management 89
Prior Performance of Boston Associates and Its Affiliates 94
Description of Certificates 98
Sharing Arrangements: Profits, Credits, Losses, Net Cash Flow and Residuals 101
Federal Income Tax Matters 105
The Offering 153
Summary of Provisions of the Fund Agreement 159
Sales Literature 165
Experts 165
Investor Reports 165
Legal Matters 166
Registration Statement 166
Glossary 167
Appendix I--Reports of Independent Certified Public Accountants,
Financial Statements and Tabular Information Concerning
Prior Limited Partnerships I-1
Exhibit A--Fund Agreement A-1
Exhibit B--Investor Form B-1
[BOSTON CAPITAL LOGO] Services, Inc.
ONE BOSTON PLACE, SUITE 2100
BOSTON, MA 02108-4406
(617) 624-8900 OR (800) 866-2282
www.BostonCapital.com
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts)
payable by the Registrant (or, to the extent expenses exceed the
limits set forth in the Prospectus, by the General Partner or its
Affiliates) in connection with the issuance and distribution of
7,000,000 beneficial assignee certificates ("BACs").
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Securities and Exchange Commission Registration Fee $ 17,500
NASD Filing Fee 10,500
*Printing 100,000
*Accounting Fees and Expenses 25,000
*Blue Sky Expenses (including legal fees) 50,000
*Counsel Fees and Expenses 125,000
*Transfer Agent and Registrar Fees 10,000
Miscellaneous including advertising 50,000
Total $ 388,000
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Item 31. SALES TO SPECIAL PARTIES.
None.
Item 32. RECENT SALES OF UNREGISTERED SECURITIES.
The General Partner of the Registrant, Boston Capital Associates IV
L.P., holds a 1% interest in the Partnership for which it contributed
$500.00 to the Partnership as of October 12, 1993. The Assignor
Limited Partner of the Registrant, BCTC IV Assignor Corp., holds a 99%
interest for which it has contributed $100.00 to the Partnership.
These sales were exempt from registration under Section 4(2) of the
Securities Act of 1933 as they did not involve any public offering.
------------------------
* Estimated.
Item 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 5.08 of the Partnership Agreement provides in part that
neither the General Partner, its Affiliates nor the Assignor Limited
Partner, shall be liable, responsible or accountable in damages or
otherwise to the Partnership or any of the Limited Partners (including
assignees of the Assignor Limited Partner) for any act or omission
performed or omitted by any General Partner or the Assignor Limited
Partner in good faith and in the best interests of the Partnership and
the Assignees, provided that such General Partner's or Assignor
Limited Partner's conduct did not constitute fraud, bad faith,
negligence, misconduct or breach of fiduciary duty. The Partnership
shall indemnify and hold harmless the General Partner, and its
Affiliates, including
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the Assignor Limited Partner, from any loss, liability or damage
incurred by any of them or by the Partnership by reason of any act
performed or omitted to be performed by them in good faith and in a
manner reasonably believed by them to be in the Partnership's best
interests, in connection with the business of the Partnership,
including all judgments, costs and attorneys' fees (which costs and
attorneys' fees may be paid as incurred only if the legal action
relates to the performance of duties or services by the General
Partner or its Affiliates on behalf of the Partnership; the legal
action is initiated by a third party who is not a Partner or BAC
Holder; and the General Partner, the Assignor Limited Partner or their
Affiliates undertake to repay the advanced funds to the Partnership in
cases in which they are not entitled to indemnification) and any
amounts expended in settlement of any claims of liability, loss or
damage, provided that such General Partner's or Assignor Limited
Partner's conduct did not constitute fraud, bad faith, negligence,
misconduct or breach of fiduciary duty. The satisfaction of any
indemnification obligation shall be from and limited to Partnership
assets, and no Limited Partner or BAC Holder shall have any personal
liability on account thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the General Partner and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, 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 General Partner or controlling person of the
registrant in the successful defense of any such action, suit or
proceeding) is asserted by such general partner or controlling person
in connection with the securities being registered, the 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
See "Fiduciary Responsibility of the General Partner" in Part I of
this Registration Statement and Section 5.08 of the Limited
Partnership Agreement.
Item 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
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Item 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
All Financial Statements (which include all information required
by any schedule) are included in the Prospectus, including the
following:
Boston Capital Associates IV L.P. - Report of Independent
Certified Public Accountants.
Boston Capital Associates IV L.P. Balance Sheet, December 31,
2000.
Boston Capital Associates IV L.P. - Notes to Balance Sheet.
BCA Associates Limited Partnership - Report of Independent
Certified Public Accountants.
BCA Associates Limited Partnership Balance Sheet, June 1, 2001.
BCTC IV Assignor Corp. - Report of Independent Certified Public
Accountants.
BCTC IV Assignor Corp. - Balance Sheet, December 31, 2000.
BCTC IV Assignor Corp. - Notes to Balance Sheet.
(b) Description of Exhibits
*1. Form of Dealer-Manager Agreement between Boston Capital
Services, Inc. and the Registrant (including, as an exhibit
thereto, the form of Soliciting Dealer Agreement).
2. Inapplicable.
*3. Organization Documents -
Certificate of Limited Partnership of Boston Capital Tax Credit
Fund IV L.P.
------------------------
* Previously filed
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Certificate of Limited Partnership of Boston Capital
Associates IV L.P.
Certificate of Incorporation and By-Laws of BCTC IV Assignor
Corp. (the Assignor Limited Partner).
4. Instruments defining the rights of security holders,
including indentures.
Agreement of Limited Partnership of Boston Capital Tax
Credit Fund IV L.P. (included in Part I of this Registration
Statement).
*5. Opinion re legality.
Form of Opinion of Nixon Peabody LLP
Items (b)6 and 7 are inapplicable.
*8. Opinion re tax matters.
Form of Opinion of Nixon Peabody LLP
Item (b)9 is inapplicable.
*10. Material Contracts.
A. Form of Beneficial Assignee Certificate.
B. Form of Capital Contributions Escrow Agreement between
Wainwright Bank & Trust Company and the Registrant.
Items (b)11 through (b)20 are inapplicable.
21. Other documents or Statements to Security Holders.
A. None.
22. Subsidiaries of Registrant.
See "Conflicts of Interest," and "Management" in Part I of
this Registration Statement.
------------------------
* Previously filed
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Item (b)23 is inapplicable.
*24. Consents of Experts and Counsel.
A. Letter of Nixon Peabody LLP (included in Exhibits 5 and
8).
B. Letter of Reznick Fedder & Silverman.
C. Letter of Kevin P. Martin & Associates, P.C.
*25. Powers of Attorney - Included with Signature Page to
Registration Statement.
------------------------
* Previously filed
Item (b)26 and 27 is inapplicable.
Item 36. UNDERTAKINGS.
The Registrant undertakes (a) to file any prospectuses required by
Section 10(a)(3) of the Securities Act of 1933 as post-effective
amendments to the Registration Statement; (b) 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 the offering of such securities at
that time may be deemed to be the initial bona fide offering thereof;
(c) that all post-effective amendments will comply with the applicable
forms, rules, and regulations of the Commission in effect at the time
such post-effective amendments are filed, and (d) to remove from
registration by means of a post-effective amendment any of the
securities being registered which remain at the termination of the
offering.
The Registrant undertakes to send to each Investor at least on an
annual basis 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.
The Registrant undertakes to provide to the Investors the financial
statements required by Form 10-K for the first full fiscal year of
operations of the Partnership.
The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period with respect
to any applicable series 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
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simultaneously to the existing Investors. Each sticker supplement
should 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.
The Registrant also undertakes to file, after the end of the
distribution period with respect to any applicable series, 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 percent or more (on a cumulative basis) of the net proceeds
of the offering and to provide the information contained in such
report to the Investors at least once each quarter after the
distribution period of the offering has ended.
The Registrant undertakes that the prospectus will be supplemented at
the close of any series to state the number of participants in that
series, the amount of BACs sold therein, the cumulative amount sold
under all series sold under the subject registration statement, and
the amount of BACs to be offered in the next series.
The Registrant undertakes that if at the commencement of the offering
of any series (which will not take place until completion of the
offering of any prior series with the same investment objectives and
the filing of the supplement contemplated by the preceding
undertaking) the series to be offered has a reasonable probability of
acquiring an interest in an Operating Partnership, the offering will
not commence until after a post-effective amendment to the
registration statement has been filed and declared effective. Any such
post-effective amendment shall contain such information as would be
required in an original registration statement with respect to the
Operating partnership being acquired (including audited financial
statements complying with Rule 3-14 of Regulation S-X).
The undersigned registrant 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;
(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,
<Page>
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 effective 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
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) 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.
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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. 1 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on this 26th day of November 2001.
BOSTON CAPITAL TAX CREDIT FUND IV L.P.
By: Boston Capital Associates IV L.P., its
general partner
By: BCA Associates Limited
Partnership, its general partner
By: C&M Management, Inc., its
general partner
By: /s/ John P. Manning
-----------------------
John P. Manning
President
ASSIGNOR LIMITED PARTNER
BCTC IV ASSIGNOR CORP.
By: /s/ John P. Manning
-----------------------
John P. Manning
President
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Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE: TITLE: DATE:
/s/ John P. Manning Director, President November 26, 2001
- --------------------- (Principal Executive
John P. Manning Officer), C&M Management, Inc.;
Director, President
(Principal Executive Officer)
BCTC IV Assignor Corp.
/s/ Anthony A. Nickas Treasurer, (Principal Financial November 26, 2001
- --------------------- Officer and Principal Accounting
Anthony A. Nickas Officer) C&M Management, Inc.;
Senior Vice President,
(Principal Financial Officer
and Principal Accounting Officer)
BCTC IV Assignor Corp.
</Table>