March 15, 1989
TO: SEC RULES MEMBERS NO. 18-89
CLOSED-END FUND MEMBERS NO. 16-89
INVESTMENT ADVISER MEMBERS NO. 22-89
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 21-89
RE: INSTITUTE COMMENTS ON SEC PROPOSED AMENDMENTS TO SECTION 16
RULES
__________________________________________________________
In December, the SEC proposed a number of substantive
changes to the rules under section 16 of the Securities Exchange
Act of 1934. (See Institute memorandum to Closed-End Fund
Committee No. 35-88, dated December 15, 1988; and Institute
memorandum to SEC Rules Committee No. 12-89, dated February 6,
1989.) Under that statutory provision, a beneficial owner of
more than ten percent of any class of equity security registered
under section 12 of the Exchange Act is treated as an insider
subject to the reporting obligations of section 16(a) and the
short swing profit recovery rules of section 16(b).
The proposed rules include a new two part definition for
determining beneficial ownership. Either or both of these
proposed rules could be interpreted to attribute more than ten
percent beneficial ownership to an investment adviser managing
investment companies and other discretionary accounts. Under the
first proposed rule, an investment adviser could be deemed to be
a more than ten percent beneficial owner of a specific security
pursuant to an attribution analysis under section 13(d) of the
Exchange Act. The second test could attribute to an adviser
ownership of any security in which he were deemed to have a
direct or indirect pecuniary interest.
In the attached comment letter, the Institute requests
clarification of the proposed rules relating to the determination
of ten percent beneficial ownership to exclude from attribution
to an adviser those shares held by an investment company or
account managed by the adviser in the ordinary course of his
business, provided that the shares were not acquired for the
purpose of influencing or exercising control. The letter notes
that an analysis importing into section 16 the attribution rules
of section 13(d) should not ignore the different policy goals of
section 13(d) and section 16. If, however, the Commission
concludes that the rules of section 13(d) should be applied to
determine beneficial ownership under section 16, the distinction
drawn in rule 13d-1 between those who invest for the purpose of
control and those who do not should be maintained. The letter
also requests confirmation of the Institute's view that an
adviser managing investment companies and other accounts
typically would not have a sufficient pecuniary interest in the
securities held by those companies and accounts to be deemed
their beneficial owner.
Clarification of the treatment of investment companies
organized as business trusts as beneficial owners is also
requested in the Institute's letter. Such a company should not
be deemed an insider under section 16 solely by virtue of the
insider status of one or more trustees of the fund.
We will keep you informed of developments.
Catherine L. Heron
Deputy General Counsel
Attachment