
[Federal Register Volume 75, Number 67 (Thursday, April 8, 2010)]
[Notices]
[Pages 17976-17978]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-7978]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29202; 812-13687]


WNC Tax Credits 38, LLC, WNC Tax Credits 39, LLC, WNC Housing Tax 
Credits Manager, LLC and WNC & Associates, Inc.; Notice of Application

April 2, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under sections 6(c) and 
6(e) of the Investment Company Act of 1940 (the ``Act'') granting 
relief from all provisions of the Act, except sections 37 through 53 of 
the Act and the rules and regulations under those sections other than 
rule 38a-1 under the Act.

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    Applicants: WNC Tax Credits 38, LLC (``Fund 38'') and WNC Tax 
Credits 39, LLC (``Fund 39'') (each a ``Fund,'' and collectively, the 
``Funds''), WNC Housing Tax Credits Manager, LLC (the ``Manager'') and 
WNC & Associates, Inc. (``WNC & Associates'').
    Summary of the Application: Applicants request an order to permit 
each Fund to invest in limited liability companies that engage in the 
ownership and operation of apartment complexes for low and moderate 
income persons (``Apartment Complexes'').
    Filing Date: The application was filed on August 28, 2009, and 
amended on January 11, 2010, March 31, 2010, and April 1, 2010.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on April 26, 2010, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, 17782 Sky Park 
Circle, Irvine, CA 92614.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, 
(202) 551-6811, or Julia Kim Gilmer, Branch Chief, (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
by using the Company name box, at http://www.sec.gov/search/search.htm 
or by calling (202) 551-8090.

Applicants' Representations

    1. Fund 38 and Fund 39 each was formed as a California limited 
company in 2008 and 2009, respectively. Each Fund will operate as a 
``two-tier'' partnership, i.e., each Fund will invest as a limited 
partner or member in other limited partnerships or limited liability 
companies that are characterized as partnerships for Federal income tax 
purposes (``Local Limited Partnerships''). The Local Limited 
Partnerships in turn will engage in the ownership and operation of 
Apartment Complexes expected to be qualified for the low income housing 
tax credit under the Internal Revenue Code of 1986, as amended. The 
Manager is a California limited liability company whose sole member and 
manager is WNC & Associates, a California corporation.
    2. The objectives of each Fund are to provide current tax benefits 
in the form of (a) predictable stream of low income housing credits 
which investors may use to offset their Federal income tax liabilities 
and (b) tax losses.
    3. Each Fund intends to conduct a private placement of its units of 
limited liability company member interest (the ``Units'') on a 
commencement date to be determined by the Manager. Each Fund's 
placement will be conducted as described in, and by means of a private 
placement memorandum, to be supplemented periodically with updated 
information for each Fund's placement (the ``Memorandum''). Purchasers 
of Units in a Fund will be admitted as limited liability company 
members (``Members'') of the issuing Fund. The Units will be offered 
pursuant to the exemption from the registration requirements of the 
Securities Act of 1933 (the ``Securities Act''), provided by Rule 506 
of Regulation D under the Securities Act. Each Member will be required, 
as condition to acceptance of a subscription, to qualify as an 
``accredited investor,'' as that term is defined in Rule 501(a) of 
Regulation D (an ``Accredited Investor''). Each Fund intends to offer 
its Units at a price to be determined by the Manager prior to 
commencement of the Fund's placement. The minimum investment per 
Accredited Investor will be determined prior to commencement of the 
offerings. Each Fund will establish its minimum and maximum 
capitalization, and will disclose it by supplement to its Memorandum 
and deliver the supplement to all prospective Accredited Investors 
prior to subscription.
    4. Each Fund will not accept any subscriptions for Units until the 
requested exemptive order is granted or the Fund receives an opinion of 
counsel that it is exempt from registration under the Act. 
Subscriptions for Units must be approved by the Manager. The Accredited 
Investor will execute representations confirming suitability and the 
basis for such suitability. In addition, transfers of Units will be 
permitted only if the transferee meets the same suitability standards 
as had been imposed on the transferor Member.
    5. Although a Fund's direct control over the management of each 
Apartment Complex will be limited, the Fund's ownership of interests in 
Local Limited Partnerships will, in an economic sense, be the 
substantial equivalent of direct ownership of the Apartment Complexes 
themselves. A Fund normally will acquire at least a 90% interest in the 
profits, losses, and tax credits of the Local Limited Partnerships. 
However, in certain cases, at the discretion of the Manager, the Fund 
may acquire a lesser interest in a Local Limited Partnership.
    6. Each Fund will have certain voting rights with respect to each 
Local Limited Partnership. The voting rights will include the right to 
dismiss and replace the local general partner on the basis of 
performance, to approve or disapprove a sale or refinancing of the 
Apartment Complex owned by such Local Limited Partnership, to approve 
or disapprove the dissolution of the Local Limited Partnership, and to 
approve or disapprove amendments to the Local Limited Partnership 
agreement materially and adversely affecting the Fund's investment.
    7. Each Fund will be controlled by the Manager, pursuant to an 
operating

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agreement (the ``Operating Agreement''). The Members of each Fund, 
consistent with their limited liability status, will not be entitled to 
participate in the control of the Fund's business operations. However, 
a majority-in-interest of the Members will have the right to amend the 
Operating Agreement of their Fund (subject to certain limitations) with 
the consent of the Manager, which shall not be unreasonably withheld, 
to dissolve the Fund with the consent of the Manager, which shall not 
be unreasonably withheld, and to remove any Manager and elect a 
replacement. In addition, under the Operating Agreement, each Member is 
entitled to review all books and records of the Member's Fund at any 
and all reasonable times.
    8. Applicants state that the Operating Agreement and Memorandum of 
the Funds contain provisions to ensure fair dealing by the Manager with 
the Members. Applicants also state that all compensation to be paid to 
the Manager and its affiliates by a Fund is specified in the Operating 
Agreement and Memorandum, and no compensation will be payable to the 
Manager or any of its affiliates by the Fund unless so specified. 
Applicants believe that the fees and other forms of compensation that 
will be paid by each Fund to the Manager and its affiliates are fair 
and on terms no less favorable to the Fund than would be the case if 
such arrangements had been made with independent third parties.
    9. During the offering and organizational phase, WNC Capital 
Corporation, an affiliate of the Manager, will receive a dealer-manager 
fee from each Fund for its services in managing a group of independent 
broker-dealers who will sell the Units. The Manager or an affiliate 
will also receive from each Fund a nonaccountable organizational and 
offering expense allowance. In exchange for this allowance, the Manager 
has agreed to pay all organizational and offering expenses of each Fund 
(excluding retail selling commissions, the dealer-manager fee, and the 
nonaccountable organizational and offering expense allowance). During 
its acquisition phase, each Fund will pay to the Manager or its 
affiliates an acquisition fee for analyzing and evaluating potential 
investments in Local Limited Partnerships and for various other 
services. The Manager or its affiliates will receive from each Fund a 
nonaccountable acquisition expense allowance in consideration of which 
the Manager or its affiliates will pay all acquisition expenses of each 
Fund. All fees and expenses paid to all persons in connection with the 
organization of each Fund, the offering of Units and the acquisition of 
Local Limited Partnership interests will not exceed an amount equal to 
22% of the Fund's gross offering proceeds.
    10. During the operating phase, the Manager will receive a yearly 
asset management fee from each Fund in an amount equal to 0.75% of the 
Fund's invested assets for services rendered by the Manager in 
connection with the administration of the affairs of the Fund and the 
management of the Fund's assets. During the liquidation phase, each 
Fund will pay the Manager or its affiliates a disposition fee in an 
amount of up to 3% of the gross sales price of an Apartment Complex or 
a Local Limited Partnership interest.
    11. All proceeds of the private placement of a Fund's Units 
initially will be placed in an escrow account with U.S. Bank, National 
Association (``Escrow Agent''). Pending release of offering proceeds to 
the Fund, the Escrow Agent will deposit escrowed funds in accordance 
with instructions from time to time received from the Manager in short-
term United States Government securities, securities issued or 
guaranteed by the United States Government, and certificates of deposit 
or time or demand deposits in commercial banks. Upon receipt of a 
prescribed minimum amount of gross operating proceeds for a Fund, funds 
in escrow will be released to the Fund and held by it pending 
investment in Local Limited Partnerships. Any of a Fund's offering 
proceeds available for investment in Local Limited Partnership 
interests that the Fund has not either invested or committed to invest 
within 24 months following the termination of its offering of Units 
will be distributed to investors pro rata as a return of capital.
    12. If more than one entity that the General Partner or its 
affiliates advises or manages may invest in a particular investment 
opportunity, the decision as to the entity that will be allocated the 
investment will be based upon such factors as the effect of the 
acquisition on diversification of each entity's portfolio, the 
estimated income tax effects of the purchase on each entity, the amount 
of funds of each entity available for investment, and the length of 
time such funds have been available for investment.

Applicants' Legal Analysis

    1. Applicants believe that the Funds will not be ``investment 
companies'' under sections 3(a)(1)(A) or 3(a)(1)(C) of the Act. If the 
Funds are deemed to be investment companies, however, applicants 
request an exemption under section 6(c) and 6(e) of the Act from all 
provisions of the Act, except sections 37 through 53 of the Act and the 
rules and regulations under those sections, except rule 38a-1 
thereunder.
    2. Section 3(a)(1)(A) of the Act provides that an issuer is an 
``investment company'' if it is or holds itself out as being engaged 
primarily, or proposes to engage primarily, in the business of 
investing, reinvesting, or trading in securities. Applicants believe 
that the Funds will not be investment companies under section 
3(a)(1)(A) because each Fund will be in the business of investing in 
and being a beneficial owner of Apartment Complexes, not securities.
    3. Section 3(a)(1)(C) of the Act provides that an issuer is an 
``investment company'' if it is engaged or proposes to engage in the 
business of investing, reinvesting, owning, holding, or trading in 
securities, and owns or proposes to acquire ``investment securities'' 
having a value exceeding 40% of the value of such issuer's total assets 
(exclusive of Government securities and cash items). Applicants state 
that although the Local Limited Partnership interests may be deemed 
``investment securities,'' they are not readily marketable, cannot be 
sold without severe adverse tax consequences, and have no value apart 
from the value of the Apartment Complexes owned by the Local Limited 
Partnerships.
    4. Applicants believe that the two-tier structure is consistent 
with the purposes and criteria set forth in the Commission's release 
concerning two-tier real estate partnerships (the ``Release'').\1\ The 
Release states that investment companies that are two-tier real estate 
partnerships that invest in limited partnerships engaged in the 
development and operation of housing for low and moderate income 
persons may qualify for an exemption from the Act pursuant to section 
6(c). Section 6(c) provides that the Commission may exempt any person 
from any provision of the Act and any rule thereunder, if, and to the 
extent that, such exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 6(e) permits the Commission to require companies exempted from 
the registration requirements of the Act to comply with certain 
specified provisions of the Act as though the

[[Page 17978]]

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

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7978 Filed 4-7-10; 8:45 am]
BILLING CODE 8011-01-P


