[Federal Register Volume 60, Number 195 (Tuesday, October 10, 1995)]
[Notices]
[Pages 52718-52720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25022]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21386; 812-9748]


The Freedom Tax Credit Fund L.P., et al.; Notice of Application

October 2, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANT: The Freedom Tax Credit Fund L.P. (the ``Partnership'') and 
MCD Freedom Advisers, Inc. (the ``General Partner'').

RELEVANT ACT SECTION: Exemption requested under section 6(c) of the Act 
from all provisions of the Act.

SUMMARY OF APPLICATION: Applicants seek an order that would exempt the 
Partnership from all provisions of the Act. The order would permit the 
Partnership to invest in limited partnerships that engage in the 
ownership and operation of housing for low and moderate income persons.

FILING DATE: The application was filed on September 6, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on October 27, 
1995, 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 may request 
notification of a hearing by writing to the SEC's Secretary.


[[Page 52719]]

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants, 800 Superior Avenue, Cleveland, Ohio 44114.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at 
(202) 942-0574, or Alison E. Baur, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Partnership was organized on July 13, 1995, under the 
Delaware Revised Uniform Limited Partnership Act. The Partnership is 
intended to serve as a vehicle for equity investment in real property 
eligible for low income housing tax credits under section 42 of the 
Internal Revenue Code of 1986, as amended (the ``Tax Credit 
Properties''). The General Partner is organized as a Delaware 
corporation. McDonald & Company Securities, Inc. and other selected 
soliciting dealers will act as selling agents for the offering of units 
of limited partnership interest (``Units'').
    2. The Partnership will operate as a ``two-tier'' partnership and 
will invest in limited partnerships and limited liability companies 
(the ``Operating Partnerships'') which will acquire, operate and 
maintain Tax Credit Properties in accordance with the purposes and 
criteria set forth in Investment Company Act Release No. 8456 (August 
9, 1974) (``Release No. 8456'').
    3. The Partnership's investment objectives are to realize (a) 
certain tax benefits including low income housing tax credits, (b) 
potential capital appreciation through increases in value and 
amortization of the mortgage indebtedness of the Tax Credit Properties, 
(c) cash distributions from liquidation, sale or refinancing of the Tax 
Credit Properties (except with respect to certain non-profit operating 
partnerships), and (d) limited cash flow from operations.
    4. On August 4, 1995, the Partnership filed a registration 
statement under the Securities Act of 1933 (the ``Prospectus'') for the 
sale of a maximum of 1,000,000 Units at $20.00 per Unit with a minimum 
investment of $10,000 per investor.
    5. Subscriptions for Units will be made conditional upon 
representations as to suitability of the investment for each 
subscriber. The subscription agreement for Units provides that each 
subscriber will represent in writing that it meets the general investor 
suitability standards established by the Partnership. The Prospectus 
provides that each subscriber must meet the following requirements: (a) 
Minimum annual gross income for the current year of $60,000 and a net 
worth (exclusive of home, home furnishings and automobiles) of not less 
than $60,000 or (b) net worth (exclusive of home, home furnishings and 
automobiles) in excess of $200,000. Units will be sold in certain 
states only to persons who meet different standards which will be set 
forth in the Prospectus. In addition, the Partnership will allow 
corporate investors (subject to certain requirements and limitations) 
to purchase Units. In no event shall the Partnership employ any such 
suitability standards which are less restrictive than those set forth 
in the application.
    6. The partnership agreement also provides that, in order to record 
a transfer on its books, counsel for the Partnership must be of the 
opinion that the transfer is not in violation of any applicable federal 
or state securities laws (including any investor suitability 
standards). The Partnership will invest in Units which are not readily 
marketable, and each such interest will have no value apart from the 
value of the Tax Credit Property owned by such Operating Partnership. 
Therefore, applicants assert that there will be no separate market for 
such interests.
    7. All proceeds of the public offering of Units will initially be 
placed in an escrow account with the Star Bank, N.A. The offering of 
Units will terminate approximately 24 months from the date upon which 
the Partnership's registration statement is declared effective. If 
subscriptions for at least 100,000 Units have not been received by such 
date, no Units will be sold and funds paid by subscribers will be 
returned promptly, together with any accrued interest earned thereon. 
If subscriptions for at least 100,000 Units have been received by the 
effective date, and the Units are sold, purchasers of Units (the 
``Limited Partners'') then will become limited partners in the 
Partnership. The Partnership intends to apply capital raised in its 
public offering to the acquisition of interests in Operating 
Partnerships as soon as practicable following the release of such funds 
from the escrow account. Prior to such use, the offering proceeds may 
be temporarily invested in bank time deposits, certificates of deposit, 
bank money market accounts and government securities.
    8. The Partnership will be controlled by the General Partner. The 
Limited Partners, consistent with their status, will not be entitled to 
participate in the control of the Partnership's business. However, the 
majority in interest of the Limited Partners will have the right 
(subject to certain limitations) to amend the partnership agreement, 
dissolve the Partnership, remove the General Partner and consent to a 
successor General Partner. In addition, under the partnership 
agreement, each Limited Partner is entitled to review all books and 
records of the Partnership at any and all reasonable times.
    9. The partnership agreement provides that the General Partner 
shall not have any authority to: (a) Do any act required to be approved 
or ratified in writing by the Limited Partners under the Delaware 
Revised Uniform Limited Partnership Act, unless the right to do so is 
expressly otherwise given in the partnership agreement; (b) do any act 
which would make it impossible to carry on the ordinary business of the 
Partnership; (c) without the consent of the Limited Partners owning a 
majority of the Units, 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; or 
(e) without the consent of the Limited Partners owning a majority of 
the Units, elect to dissolve the Partnership or change the investment 
objectives or policies of the Partnership.
    10. The Partnership will attempt to acquire a 50% to 99% interest 
in the operating profits, losses, credits, and distributable cash flow 
of each Operating Partnership. In addition, the General Partner 
anticipates that the Partnership's share of liquidation, sale or 
refinancing proceeds of each Operating Partnership will be between 50% 
and 95%. Regardless of the percentage interest the Partnership has in 
an Operating Partnership, the Partnership will have certain rights 
under the terms of the operating partnership agreements, which will 
include the right to: (a) Approve or disapprove any sale or refinancing 
of the applicable Tax Credit Property; (b) replace the operating 
general partner; (c) approve or disapprove the dissolution of the 
Operating Partnership; (d) approve or disapprove amendments to the 
operating partnership agreement materially and adversely affecting the 
Partnership's investment in the Operating Partnership; and (e) direct 
the operating general partners to convene meetings and submit matters 
to a vote. The Partnership will have access to the books and records of 
each Operating 

[[Page 52720]]
Partnership and to receive annual and quarterly reports. In addition, 
the Partnership will require that all Operating Partnerships provide to 
the Limited Partners substantially all of the rights required by 
section VII of certain guidelines adopted by the North American 
Securities Administrators Association, Inc.
    11. McDonald & Company Securities, Inc., an affiliate of the 
General Partner, will receive commissions up to 6% of the aggregate 
gross proceeds on the sale of Units, an expense allowance of up to 1.5% 
of the gross proceeds to defray due diligence activities, and up to a 
2% dealer-manager fee. The General Partner or its affiliates will 
receive an acquisition fee of up to 4.5%.
    12. All compensation to be paid to the General Partner and its 
affiliates is specified in the partnership agreement and the 
Prospectus. The fees and other forms of compensation that will be paid 
to the General Partner and its affiliates will not have been negotiated 
through arms-length negotiations. The partnership agreement and the 
Prospectus will contain numerous provisions designed to insure fair 
dealing by the General Partner with the Limited Partners.

Applicants' Arguments

    1. Section 6(c) authorizes the SEC to grant an exemption from the 
Act to the extent ``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].'' Applicants seek 
an order under section 6(c) exempting the Partnership and the General 
Partner from all provisions of the Act.
    2. Applicants assert that the requested relief is consistent with 
the protection of investors and the purposes and policies underlying 
the Act. Applicants assert, among other things, that investment in low 
and moderate income housing is not economically suitable for private 
investors without the tax and organizational advantages of the limited 
partnership form. By investing in the Operating Partnerships, the 
Partnership is implementing the national policy enunciated by Congress 
in section 901 of Title IX of the Housing and Urban Development Act of 
1968.
    3. Release No. 8456 lists two conditions, designed for the 
protection of investors, which must be satisfied in order to qualify 
for the type of exemptive relief which the Partnership seeks: (a) 
``interests in the issuer should be sold only to persons for whom 
investments in limited profit, essentially tax-shelter, investments 
would not be unsuitable''; and (b) ``requirements for fair dealing by 
the General Partners of the issuer should be included in the basic 
organizational documents of the company.'' The Partnership will comply 
with these conditions and will otherwise operate in a manner designed 
to insure investor protection. Applicants assert that interests in the 
Partnership will be sold only to, and transfers will be permitted only 
to, investors who meet specified suitability standards which the 
Partnership believes are consistent with the requirements in Release 
No. 8456, with the guidelines of those states which prescribe 
suitability standards, and with the securities laws of all states where 
the Units will be sold. In order to insure that the Limited Partners 
receive extensive information about the Partnership, the Partnership 
will distribute to the Limited Partners certain reports concerning its 
business and operations. The Partnership believes that all potential 
conflicts of interest between the General Partner and the Limited 
Partners will be disclosed in the Prospectus, including the receipt of 
commissions, fees and other compensation by the General Partner and its 
affiliates.
    4. Applicants believe that the contemplated arrangement of the 
Partnership is not susceptible to abuses of the sorts the Act was 
designed to remedy. The requirements for fair dealing provided by the 
Partnership's governing instruments and pertinent governmental 
regulations imposed on the Operating Partnerships by various federal, 
state and local agencies provide protection to investors comparable to, 
and in some respects greater than that provided by the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-25022 Filed 10-6-95; 8:45 am]
BILLING CODE 8010-01-M