FEDERAL INCOME TAX CONSEQUENCES
Question #6: UPDATED - What are Schedule 4 and Schedule 12 investors and how will that affect my distributions from the DBSI Real Estate Liquidating Trust?

As noted above, the Short Term Development Fund and the 2006 Land Opportunity Fund provided investors with a choice of investment, with certain (Preferred) investments receiving priority over other (Non-Preferred) investments.  In addition, the DBSI Land Improvement and Development Fund and the DBSI 2008 Development Opportunity Fund provided investors with a choice of investments, with certain (Notes) investments receiving priority over other (Sharing Unit) investments.  Pursuant to the Second Amended Joint Liquidating Plan, the DBSI Real Estate Liquidating Trust preserves the priority system for these the Short Term Development Fund, the 2006 Land Opportunity Fund, the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund with respect to recoveries from real estate assets. 

For the Short Term Development Fund and the 2006 Land Opportunity Fund, this means that recoveries from real estate assets are subject to the “waterfall” described above.  For the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund, this means that investors who purchased Sharing Units are not entitled to receive any distribution from real estate assets until investors who purchased Notes obtain a full recovery (which is not projected to happen).

However, the holders of Non-Preferred investments in the Short Term Development Fund and the 2006 Land Opportunity Fund, and the holders of Sharing Units in the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund, are entitled to share in the proceeds of certain litigation recoveries.

In order to properly calculate distributions of real estate proceeds versus litigation proceeds, the pro rata interests of the holders of Non-Preferred investments in the Short Term Development Fund and the 2006 Land Opportunity Fund, and the holders of Sharing Units in the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund, are listed on Schedule 12.

All other holders of beneficial interests (i.e. those investors whose original investment was not subordinated to other senior investments) are listed on Schedule 4.

Accordingly, the beneficiaries who are listed on Schedule 4 and the beneficiaries who are listed on Schedule 12 together share pro rata in litigation  proceeds, whereas only those beneficiaries who are listed on Schedule 4 share pro rata in the amounts distributed by the DBSI Real Estate Liquidation Trust from the sale of the real estate assets (subject to the “waterfall”).

Thus far, the DBSI Real Estate Liquidating Trust has distributed approximately $47.3 million in proceeds from real estate assets to Schedule 4 beneficiaries, and the DBSI Real Estate Liquidating Trust also has distributed $9.2 million in litigation proceeds to Schedule 4 and Schedule 12 beneficiaries.

You can download copies of Schedules 4 and/or 12 from this website. Go Here For Schedule 4, select number 13, for Schedule 12 select number 21.