July 17, 1989
TO: SEC RULES COMMITTEE NO. 39-89
INTERNATIONAL FUNDS TASK FORCE NO. 5-89
INVESTMENT ADVISERS COMMITTEE NO. 27-89
UNIT INVESTMENT TRUST COMMITTEE NO. 35-89
RE: PROPOSED RULE 144A
__________________________________________________________
Attached is the SEC release reproposing Rule 144A which
would provide a safe harbor exemption from registration under the
Securities Act of l933 (the "1933 Act") for resales of restricted
securities to specified institutional buyers. The Rule was
initially proposed on October 25, l988. (See Memorandum to SEC
Rules Committee No. 69-88, International Funds Task Force No. 9-
88 and Investment Advisers Committee No. 29-88, dated November
10, 1988.) The Commission has also reproposed amendments to
Rules 144 and 145 to redefine the required holding period for
restricted securities.
As initially proposed, the Rule would have provided an
exemption for three tiers of transactions. The first tier would
have permitted resales to "qualified institutional buyers," while
the other tiers would have allowed resales to a broader group of
institutional buyers. The Commission is now proposing to
implement the Rule in stages. Thus, the revised proposed Rule
establishes an exemption only for transactions under the
"qualified institutional buyer" tier.
The reproposal includes several revisions to the "qualified
institutional buyer" ("QIB") exemption as originally proposed.
The most significant change is that a QIB now would be defined as
an institution which had at the conclusion of its most recent
fiscal year assets invested in securities that were purchased for
more than $l00 million. For this purpose, the term "security"
has the same meaning as under the l933 Act. In addition, the
$l00 million threshold is based on the purchase price, as opposed
to the market value, of the securities. In the original
proposal, QIBs were defined as institutions with total assets in
excess of $l00 million. In the case of an investment company
which is part of a "family of funds," the investment company's
status as a QIB would be determined on the basis of the aggregate
assets of the family. Under the reproposed Rule, the definition
of a "family of funds" has been revised to include only funds
that share the same investment adviser, while the initial
proposal included two or more funds which share the same
investment adviser or principal underwriter and hold themselves
out to investors as related companies. The status of investment
advisers as QIBs would, as originally proposed, be determined by
aggregating both proprietary and discretionary assets under
management.
The reproposal also revokes the availability of the
exemption for securities that, when issued, were of the same
class as securities listed on a U.S. securities exchange or
quoted on NASDAQ. In addition, issuers who are non-reporting
companies under the Securities Exchange Act of 1934 will now be
required under the reproposal to provide specified information to
buyers. The reproposal also includes certain resale restrictions
applicable to securities of non-reporting foreign private issuers
sold in reliance on Rule l44A which are of the same class as
securities traded in the U.S. The reproposal further revises the
proposed amendments to Rules l44 and 145 to preclude "tracking"
of holding periods for securities of non-reporting foreign
private issuers.
On a related issue, the attached release notes that the
Commission is considering revising its position that restricted
securities are per se illiquid, so that if Rule 144A is adopted,
mutual funds and UITs would not be required to treat such
securities as illiquid for purposes of the investment limitations
on purchases of illiquid securities. Under the reproposal, the
determination of the liquidity of Rule 144A securities would be a
question of fact for the board of directors to determine based
upon the trading market for the specific security.
The comment period for the reproposal ends on September 12,
1989. Please provide me with your comments for inclusion in the
Institute's comment letter by August 18, 1989.
Amy B. Rosenblum
Assistant General Counsel
Attachment