ITEM 1. BUSINESS - ----------------
MCD Freedom Tax Credit Fund L.P. is a Delaware limited partnership formed on July 13, 1995 (the "Partnership"), for the purpose of investing in other limited partnerships or limited liability companies (each, an "Operating Partnership"), each of which will generate low-income housing tax credits by owning and operating an apartment complex or complexes intended for occupancy by individuals and families of low or moderate income (each, a "Tax Credit Property").
The Partnership's primary objectives are to generate federal income tax credits allowed with respect to low-income housing developments pursuant to Section 42 of the Internal Revenue Code of 1986, as amended, preserve and protect the Partnership's original capital, participate in any capital appreciation in the value of Tax Credit Properties and allocate passive losses to investors. The achievement of these factors will depend on many factors, including the ability of MCD Freedom Advisers, Inc. (the "General Partner") 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. Consequently, there can be no assurance that these objectives will be achieved.
On January 31, 1996, a registration statement on Form S-11 for an offering of a minimum of 2,000 units of limited partnership interest ("Units") and a maximum of 20,000 Units at $1,000 per Unit became effective with the United States Securities and Exchange Commission (File No. 33-95448). McDonald & Company Securities, Inc., an affiliate of the General Partner, is acting as the selling agent for the offering (the "Selling Agent"). As of July 5, 1996, subscriptions for 707 Units have been received by the Selling Agent. All such subscriptions and the proceeds represented thereby are being held in escrow with Star Bank, N.A., Cleveland, Ohio (the "Escrow Agent"), pursuant to the terms of an Escrow Agreement between the Partnership and the Escrow Agent. Because the minimum number of Units has not yet been sold, no money has been released from escrow. Consequently, no Units have actually been sold.
The Partnership itself has no executive officers as employees. The General Partner, which has responsibility for the management of the Partnership, has assigned certain individuals to devote as much time to the operations of the Partnership as deemed necessary. All these individuals serve the Partnership on a part-time basis.
ITEM 2.
ITEM 2. PROPERTIES - -------------------
Because the Partnership has not sold any Units the Partnership has neither acquired any interests in any Operating Partnerships nor entered into any negotiations with respect to any such acquisitions.
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ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - -------------------------
The Partnership is not a party to any material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------
None.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED PARTNER MATTERS - ------------------------------------------------------------------
The Partnership has only 1 limited partner, the original limited partner. The original limited partner did not purchase its interest in the Partnership in the offering. It is not anticipated that the Units, when sold, will be traded on any public market.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - ---------------------
Liquidity, Capital Resources and Results of Operations - ------------------------------------------------------
As of March 31, 1996, the Partnership had not conducted any operations. The principal source of the Partnership's liquidity will be derived from the net proceeds of the offering. Once the Partnership has received the net proceeds of the offering and invested such net proceeds in Operating Partnerships, it is anticipated that the Partnership's principal source of liquidity will be distributions its receives, if any, from the Operating Partnerships.
The proceeds of the offering, when received by the Partnership, will represent virtually all of the Partnership's capital. Once received, the proceeds of the offering, less expenses and fees, will be invested in Operating Partnerships. If the minimum number of Units is not sold, the Partnership will not be able to conduct
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the business for which it was formed or meet its stated investment objectives and all money previously received from investors will be returned to the investors.
As of March 31, 1996, the Partnership had not conducted any operations nor made any distributions to its partners.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
See pages to.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - --------------------
None.
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MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
MARCH 31, 1996 FINANCIAL STATEMENTS
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MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
CONTENTS
- --------------------------------------------------------------------------------
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Independent Auditors' Report ----------------------------
To the Partners MCD Freedom Tax Credit Fund L.P. (in Organization) Cleveland, Ohio
We have audited the accompanying balance sheet of MCD Freedom Tax Credit Fund L.P. (in Organization) as of March 31, 1996, and the related statements of operations and cash flows for the period July 13, 1995, the date of formation, to March 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MCD Freedom Tax Credit Fund L.P. (in Organization) as of March 31, 1996, and the results of its operations and its cash flows for the period July 13, 1995 to March 31, 1996 in conformity with generally accepted accounting principles.
HAUSSER + TAYLOR
Cleveland, Ohio July 5, 1996
Page 8 of 24 MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
BALANCE SHEET
March 31, 1996 --------------
The accompanying notes are an integral part of these financial statements.
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MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
STATEMENT OF OPERATIONS
Period July 13, 1995 to March 31, 1996 --------------------------------------
The accompanying notes are an integral part of these financial statements.
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MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
STATEMENT OF CASH FLOWS
Period July 13, 1995 to March 31, 1996 --------------------------------------
Supplemental Schedule of noncash investing, financing and other information:
The Partnership incurred accounts payable of $318,983 for deferred costs relating to the offering of the Partnership's Units. See notes to financial statements for information relating to the offering.
The accompanying notes are an integral part of these financial statements.
Page 11 of 24 MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS
Organization and Principal Purpose ----------------------------------
MCD Freedom Tax Credit Fund L.P., a Delaware limited partnership (the "Partnership") was formed on July 13, 1995 to invest in other limited partnerships or limited liability companies (collectively, the "Operating Partnerships"), each of which will generate low-income housing tax credits by owning and operating an apartment complex or complexes intended for occupancy by individuals and families of low or moderate income (a "Tax Credit Property"). The Partnership's principal business is to invest in Operating Partnerships, each of which will own and operate a Tax Credit Property, in order to:
- Provide tax benefits in the form of Federal Housing Tax Credits which investors may use to reduce their federal income tax liability.
- Preserve, protect and enhance the Partnership's capital.
- Maximize the value of the Partnership's assets in contemplation of the eventual sale of such assets.
Concentration of Credit Risk ----------------------------
Financial instruments which potentially subject the Partnership to concentrations of credit risk consist principally of temporary cash investments. The Partnership places its temporary cash and other investments with high credit quality financial institutions which balances may exceed federally and privately insured amounts at times.
Deferred Costs --------------
Deferred costs consist principally of syndication (offering) costs that will be charged against the gross proceeds of the offering (capital) at closing.
General Partner ---------------
MCD Freedom Advisers, Inc., a newly formed Ohio Corporation, is the General Partner of the Partnership and as such will serve as the intermediary for substantially all Partnership transactions. The General Partner will manage the business of the Partnership, including investment and management of the Partnership's assets. The General Partner, and/or its affiliates, will receive substantial compensation and fees from the Partnership and/or the operating partnerships in connection with the offering of the Partnership's units and the operations of the Partnership.
Page 12 of 24 MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Offering/The Units ------------------
On January 31, 1996, a registration statement on Form S-11 for an offering of a minimum of 2,000 units of limited partnership interest ("Units") and a maximum of 20,000 Units at $1,000 per Unit became effective with the United States Securities and Exchange Commission. The offering expires on January 31, 1997. McDonald & Company Securities, Inc., an affiliate of the General Partner, is acting as the selling agent for the offering (the "Selling Agent"). As of March 31, 1996, subscriptions for 150 Units have been received by the Selling Agent. All such subscriptions and the $150,000 proceeds represented thereby are being held in escrow with Star Bank, N.A., Cleveland, Ohio (the "Escrow Agent"), pursuant to the terms of an Escrow Agreement between the Partnership and the Escrow Agent. Because the minimum number of Units has not yet been sold, no money has been released from escrow. Consequently, no Units have actually been sold. The $150,000 proceeds is included on the balance sheet as an asset under the caption "Escrowed (restricted) cash - investors' subscription proceeds" and as a liability under the caption "Investors' subscription proceeds held in escrow". Subsequent to March 31, 1996 (and as of July 5, 1996) the Partnership received subscriptions for an additional 557 Units representing $557,000 of subscription proceeds.
The net proceeds of the sale of Units will be contributed by the Partnership to Operating Partnerships which, in turn, will develop or renovate affordable multi-family housing projects for persons of low or moderate income. Investors will be entitled to all the rights and economic benefits of a limited partner of the Partnership, including the rights to a percentage of the Partnership's income, gain, credits, losses, deductions and distributions. No holder of Units ("Unit Holders") will be personally liable for the debts, liabilities, contracts or other obligations of the Partnership unless the Unit Holder is deemed to have taken part in the control or management of the Partnership. The Units are not transferable without the consent of the General Partner, which may be granted or withheld in the sole discretion of the General Partner. In no event will more than 5% of the Units be permitted to be transferred in any 12-month period.
Investments in the Partnership involves certain risks. Such risks include the following:
- Risks associated with the development, ownership and operation of real property.
- The Partnership has not identified any of the Operating Partnerships in which it will invest. Consequently, investors will not have an opportunity to evaluate for themselves the Operating Partnerships in which the Partnership will invest.
- There are restrictions and limits on the transferability of Units and it is unlikely that there will be a market for the Units.
- The operation of the Partnership involves transactions between the Partnership and the General Partner and its Affiliates which may involve conflicts of interest.
Page 13 of 24 MCD FREEDOM TAX CREDIT FUND L.P. (IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Sharing Arrangements-Profits, Credits, Losses, Cash Available for ----------------------------------------------------------------- Distribution and Residuals --------------------------
The Partnership will allocate or distribute, as applicable, to Unit Holders:
(a) 99% of its Profits, Credits and Losses from normal operations; and
(b) 99% of its Cash Available for Distribution (the difference between the Partnership's revenues and its expenses), if any, from normal operations.
Of such items, 1% of each shall be allocated or distributed, as applicable, by the Partnership to the General Partner.
In the event of a capital transaction related to the Partnership (the sale or refinancing of a Tax Credit Property or the sale of the Partnership's interest in an Operating Partnership), the Partnership will distribute 75% of the proceeds to the investors and 25% of the proceeds to the General Partner after the investors have received an amount equal to their original Capital Contributions, reduced by any proceeds from capital transactions previously distributed to the investors.
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PART III --------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
(A) AND (B) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS --------------------------------------------------------------
The Partnership, as an entity, does not have any directors or officers. The General Partner is MCD Freedom Advisers, Inc. (located at c/o McDonald & Company Securities, Inc., McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114), an Ohio corporation formed for the purpose of becoming the general partner of the Partnership. The General Partner is a wholly owned subsidiary of McDonald & Company Investments, Inc., an affiliate of the Selling Agent. The executive officers/directors of the General Partner as of March 31, 1996, were as follows: Thomas M. O'Donnell (Chairman/Director), Richard R. Cundiff, III (President), Thomas C. Rini (Executive Vice President), Jack E. Griffiths (Chief Financial Officer), William B. Summers (Director), Patricia J. Jamieson (Treasurer/Director), Henry Kerr (Secretary), Gary Zdolshek (Vice President) and George Luburich, II (Vice President). Each of the executive officers and directors named above has served as an officer and/or director, as the case may be, of the General Partner since its incorporation on September 13, 1995.
(C) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES ---------------------------------------------------
Not applicable
(D) FAMILY RELATIONSHIPS ------------------------
Not applicable
(E) BUSINESS EXPERIENCE -----------------------
Mr. O'Donnell, age 58, has been Chairman of the Board of Directors of McDonald & Company Securities, Inc. since 1989 and served as its Chief Executive Officer from 1989 to 1993. Mr. O'Donnell joined McDonald & Company in 1965 and became a partner in 1968. He worked in the corporate finance and special products area of the firm until July 1984 at which time he was elected President and Chief Operating Officer of the firm. In addition, Mr. O'Donnell has been an active member of the Regional Firms Advisory Committee of the Board of Directors of the New York Stock Exchange since 1986. He has also served as Chairman of the Board of Directors of the Securities Industry Association since 1987.
Mr. Cundiff, age 36, joined McDonald & Company in 1982. Since then he has been actively involved in the firm's Real Estate and Oil and Gas investment banking practice. Mr. Cundiff has participated in the development, structuring and financing of all facets of real estate. Since the enactment of the 1986 Tax Act,
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Mr. Cundiff has led the firm's low income housing tax credit practice. Mr. Cundiff has participated in the structuring, financing and development of over 6,000 affordable housing units for McDonald & Company's corporate and retail clientele. Mr. Cundiff is President of the General Partner, the Managing Director of the Structured & Real Estate Finance group of the Selling Agent, the President of MCD Property Advisors, Inc., a Vice President of MCD Real Estate, Inc. and MCD Oil & Gas and is a member of the acquisition committee of the Partnership (the "Acquisition Committee").
Mr. Rini, age 39, joined McDonald & Company in 1991. Mr. Rini is Executive Vice President of the General Partner, a Senior Vice President of the Selling Agent and a member of the Acquisition Committee. Mr. Rini has extensive financial experience and real estate experience, is a certified public accountant, has supervised construction of single family homes and has completed over $100,000,000 of institutional investment property sales.
Mr. Griffiths, age 35, joined McDonald & Company in 1994. As Chief Financial Officer of the General Partner, Mr. Griffiths is responsible for the accounting, compliance, structuring and underwriting of tax credit properties for various partnerships. Mr. Griffiths is a Senior Vice President of the Selling Agent, a member of the Acquisition Committee and is active in maintaining investor relations for the Partnership. Prior to joining McDonald & Company, Mr. Griffiths spent eleven years with Hausser + Taylor, Cleveland, Ohio, a public accounting firm, specializing in the real estate and construction fields.
Mr. Summers, age 44, has been Chief Executive Officer of McDonald & Company since January 1994 and served as Chief Operating Officer from 1988 to 1993. Mr. Summers joined McDonald & Company in 1971 and became a partner in 1975. Mr. Summers began in the firm's municipal trading and underwriting areas and later established the institutional fixed-income sales function as a major component of McDonald & Company's business base. He has also been active in the National Association of Securities Dealers since 1980 and, in 1991, chaired the NASD's Board of Governors.
Ms. Jamieson, age 41, is Managing Director and Chief Financial Officer of the Selling Agent. Ms. Jamieson also serves on the Board of Directors of the Selling Agent. Ms. Jamieson joined McDonald & Company in October 1983. She was named Manager of Financial Administration in June 1991 and Chief Accounting Officer in August 1995. She is Assistant Treasurer of McDonald & Company Investments, Inc., Treasurer of the Gradison-McDonald family of mutual and money market funds, and a member of McDonald & Company's Capital Commitment, Investment, and Retirement Savings Plan Advisory Committees. Before joining McDonald & Company, Ms. Jamieson worked for six years with the public accounting firm of Ernst & Whinney (Ernst & Young).
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Mr. Kerr, age 57, joined McDonald & Company in 1991 and is General Counsel to the firm. Mr. Kerr is the Senior Vice President of the Legal and Compliance Department, which is responsible for overseeing that the firm complies with all rules and regulations established by the various exchanges and self-regulatory organizations of which the firm is a member.
Mr. Zdolshek, age 43, joined McDonald & Company in 1984 and is the Senior Managing Director of the Structured & Real Estate Finance group of the Selling Agent. The Structured & Real Estate Finance group is responsible for the origination and distribution of structured real estate debt/equity and asset-securitized products. Prior to his current position, Mr. Zdolshek created and supervised McDonald & Company's Mortgage and Asset Securitization Trading Desk. Mr. Zdolshek is a member of the Acquisition Committee.
Mr. Luburich, age 31, joined McDonald & Company as a Vice President in May 1995. Mr. Luburich is responsible for overseeing and supervising the sale of mortgage and real estate debt/equity products through McDonald & Company's retail sales network. Prior to joining McDonald & Company, Mr. Luburich was employed by Inland Real Estate Investment Corporation in Oak Brook, Illinois. Mr. Luburich is a member of the Acquisition Committee.
(F) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS --------------------------------------------
No director or officer of the General Partner was involved in any event during the past five years which would be responsive to this question.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - --------------------------------
No direct remuneration was paid or payable by the Partnership for the period ended March 31, 1996, to directors or officers of the General Partner. During the period ended March 31, 1996, no remuneration was paid to any affiliate of the General Partner. The amounts and kinds of all of the compensation and fees to be paid to the General Partner and its affiliates during the various phases of the organization, operation and termination of the Partnership are summarized below. NONE OF THE FEES TO BE PAID TO THE GENERAL PARTNER AND ITS AFFILIATES HAS BEEN OR WILL BE NEGOTIATED AT ARMS-LENGTH.
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The Asset Management Fee will be reduced by the amount of any Reporting Fees paid to the General Partner or its affiliates to the extent the combined amounts of the Asset Management Fee and the Reporting Fees exceed one-half of one percent (1/2 of 1%) of the aggregate cost of the applicable Tax Credit Properties on an annual basis.
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ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -----------------------------------------------------------------------
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS - --------------------------------------------------------------
None.
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PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------
(A) 1. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES -------------------------------------------------------------
The following Financial Statements of the Partnership are included in Part II, Item 8:
All schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in the Financial Statements and notes thereto.
(A) 2. EXHIBITS ---------------
Exhibit 27 - Financial Data Schedule
(A) 3. REPORTS ON FORM 8-K --------------------------
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MCD Freedom Tax Credit Fund L.P. ------------------------------------------------------------------ By: MCD Freedom Advisers, Inc., its general partner
By (Signature and Title)* /s/ Richard R. Cundiff, III ----------------------------------------------------- Richard R. Cundiff, III, President Date July 12, 1996 --------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ Richard R. Cundiff, III ----------------------------------------------------- Richard R. Cundiff, III, Principal Executive Officer Date July 12, 1996 --------------------------------------------------------------------------
By (Signature and Title)* /s/ Jack E. Griffiths ----------------------------------------------------- Jack E. Griffiths, Principal Accounting Officer Date July 12, 1996 --------------------------------------------------------------------------
By (Signature and Title)* /s/ William B. Summers ----------------------------------------------------- William B. Summers, Director Date July 12, 1996 --------------------------------------------------------------------------
By (Signature and Title)* /s/ Patricia J. Jamieson ----------------------------------------------------- Patricia J. Jamieson, Director Date July 12, 1996 --------------------------------------------------------------------------
___________________ *Print the name and title of each signing officer under his signature.
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