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Securities Exchange Act of 1934 - Rule 13e-4 and Rule 102 of Regulation MNo Action, Interpretive and/or Exemptive Letter:
|
Re: |
Behringer Harvard REIT I |
Dear Ms. Prevost:
We are responding to your letter dated October 18, 2004, as supplemented by telephone conversations with the staff, with regard to your request for exemptive and no-action relief. Our response is attached to the enclosed photocopy of your correspondence to avoid having to recite or summarize the facts set forth in your letter. Unless otherwise noted, capitalized terms in this letter have the same meaning as defined in your letter.
Response:
As a consequence of the continuous offerings of the REIT's shares of common stock and the Funds' limited partnership units, the entities will be engaged in a distribution of securities pursuant to Rule 102 of Regulation M. As a result, bids for or purchases of shares of common stock or limited partnership units by the REIT, the Funds or any affiliated purchaser of the REIT or the Funds are prohibited during the restricted period specified in Rule 102, unless specifically excepted by or exempted from Rule 102. Furthermore, in connection with the REIT's redemptions of shares of common stock and the Funds' redemptions of limited partnership units pursuant to the Redemption Programs, the entities may be engaged in issuer tender offers for purposes of Rule 13e-4 under the Exchange Act.
On the basis of your representations and the facts presented, but without necessarily concurring in your analysis, the Commission hereby grants an exemption from Rule 102 of Regulation M to permit the REIT to repurchase shares of its common stock and the Funds to repurchase limited partnership units under the Redemption Programs while the REIT is engaged in a distribution of shares of common stock and the Funds are engaged in a distribution of their limited partnership units. In granting this exemption, we considered the following facts, among others:
This exemption is subject to the condition that the REIT and the Funds shall terminate the Redemption Programs during the distribution of the REIT's common stock and the Funds' limited partnership units if a secondary market for such securities develops.
In addition, based on your opinion that the Redemption Programs do not constitute issuer tender offers subject to Rule 13e-4, and the facts and representations made in your correspondence and in conversations with the staff, the Division of Corporation Finance, without necessarily concurring with the analysis and conclusions set forth in your letter, will not recommend that the Commission take enforcement action under Rule 13e-4 with respect to repurchases made under the Redemption Programs. In issuing this no-action position, the Division of Corporation Finance considered the following facts, among others:
The foregoing exemption from Rule 102 and no-action position taken under Rule 13e-4 are based solely on your representations and the facts presented to the staff, and are strictly limited to the application of Rule 102 and Rule 13e-4 to the Redemption Programs as described above. The Redemption Programs should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations. In addition, your attention is directed to the anti-fraud and anti-manipulation provisions of the federal securities laws, particularly Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the REIT and the Funds, as the case may be. The Division of Market Regulation and Division of Corporation Finance express no view with respect to any other question that the Redemption Programs may raise, including, but not limited to, the adequacy of the disclosure concerning, and the applicability of other federal or state laws to, the Redemption Programs.
For the Division of Corporation Finance,
Brian V. Breheny
Chief
Office of Mergers and Acquisitions
Division of Corporation Finance
For the Commission, by the Division of Market
Regulation, pursuant to delegated authority,
James A. Brigagliano
Assistant Director
Division of Market Regulation
October 18, 2004
VIA FEDERAL EXPRESS
Mr. James Brigagliano, Assistant Director Office of Trading Practices and Processing
Division of Market Regulation
U.S. Securities and Exchange Commission Stop 10-01
450 Fifth Street, N.W.
Washington, D.C. 20549
Mr. Brian V. Breheny, Chief
Office of Mergers and Acquisitions
Division of Corporation Finance
U.S. Securities and Exchange Commission
Stop 03-03450
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: |
Behringer Harvard REIT I, Inc., Behringer Harvard Mid-Term Value Enhancement Fund I LP and Behringer Harvard Short-Term Opportunity Fund I LP Request for Relief under Rule 102(e) of Regulation M and Rule 13e-4 |
Dear Messrs. Brigagliano and Breheny:
We are counsel to Behringer Harvard REIT I, Inc. (the "REIT"), Behringer Harvard Mid-Term Value Enhancement Fund I LP (the "Mid-Term Fund") and Behringer Harvard Short-Term Opportunity Fund I LP (the "Short-Term Fund"; the Mid-Term Fund and the Short-Term Fund are collectively referred to herein as the "Funds"). On behalf of the REIT, we request that the Division of Market Regulation grant the REIT an exemption from the prohibitions of Rule 102(a) of Regulation M promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to redemptions by the REIT of shares of its common stock under its proposed stock redemption program (the "Stock Redemption Program"). On behalf of the Funds, we request that the Division of Market Regulation grant the Funds an exemption from the prohibitions of Rule 102(a) of Regulation M with respect to redemptions by the Funds of units of limited partnership interest under their respective unit redemption programs (each a "Unit Redemption Program" and collectively, the "Unit Redemption Programs"). The Stock Redemption Program and the Unit Redemption Programs are collectively referred to herein as the "Redemption Programs." We also request that the Division of Corporation Finance, under the authority provided in Rule 13e 4(h)(9), exempt the Redemption Programs, either unconditionally or on specified terms and conditions, as not constituting a fraudulent, deceptive or manipulative act or practice comprehended within the purpose of Rule 13e-4, or in the alternative, that the Division of Corporation Finance agree not to recommend that the Commission take enforcement action under Rule 13e 4 with respect to repurchases made under the Redemption Programs.
The REIT was incorporated in Maryland on June 26, 2002, and was formed primarily to invest in commercial real estate properties, generally institutional quality office buildings and other commercial properties, and lease each such property to one or more tenants. The REIT intends to operate for federal income tax purposes as a real estate investment trust.
The REIT filed a registration statement under the Securities Act of 1933, as amended (the "Securities Act") on June 28, 2002 (Registration No. 333-91532), as declared effective on February 19, 2003, with respect to 88,000,000 shares of its common stock and is offering up to 80,000,000 of those shares in an initial public offering (the "REIT Offering") and 8,000,000 of those shares under the REIT's dividend reinvestment plan (the "REIT Reinvestment Plan"). The REIT is also offering up to 3,520,000 shares to broker-dealers pursuant to warrants whereby participating broker-dealers will have the right to purchase one share for every 25 shares they sell in the REIT Offering. The REIT is selling shares in the REIT Offering on a "best efforts" basis at $10.00 per share. Shares are being offered under the REIT Reinvestment Plan at $10.00 per share, and the exercise price for shares purchased pursuant to the warrants is $12.00 per share.
The REIT has no current plans to seek to cause its shares of common stock to be listed on any securities exchange or the Nasdaq National Market, nor does it anticipate that such shares will be the subject of bona fide quotes on any inter-dealer quotation system or electronic communication network. To provide stockholders with some liquidity for their common stock, the REIT has adopted the Stock Redemption Program.
The Mid-Term Fund was organized in Texas on July 30, 2002, and was formed primarily to invest in and operate commercial properties, including properties that have been constructed and have operating histories, are newly constructed or are under development or construction.
The Mid-Term Fund filed a registration statement under the Securities Act on September 27, 2002 (Registration No. 333-100126), as declared effective on February 19, 2003, with respect to 44,000,000 units of limited partnership interest and is offering up to 40,000,000 of those units in an initial public offering (the "Mid-Term Fund Offering") and 4,000,000 of those units under the Mid-Term Fund's distribution reinvestment plan (the "Mid-Term Fund Reinvestment Plan"). The Mid-Term Fund is selling units in the Mid-Term Fund Offering on a "best efforts" basis at $10.00 per unit and offering units under the Mid-Term Fund Reinvestment Plan at $10.00 per unit.
The Mid-Term Fund has no current plans to seek to cause its units of limited partnership interest to be listed on any securities exchange or the Nasdaq National Market, nor does it anticipate that such units will be the subject of bona fide quotes on any inter-dealer quotation system or electronic communication network. To provide limited partners some liquidity for their units, the Mid-Term Fund has adopted a Unit Redemption Program.
The Short-Term Fund was organized in Texas on July 30, 2002, and was formed primarily to invest in and operate commercial properties, including properties that have been constructed and have operating histories, are newly constructed or are under development or construction.
The Short-Term Fund filed a registration statement under the Securities Act on September 27, 2002 (Registration No. 333-100125), as declared effective on February 19, 2003, with respect to 11,000,000 units of limited partnership interest and is offering up to 10,000,000 of those units in an initial public offering (the "Short-Term Fund Offering"; the REIT Offering, the Mid-Term Fund Offering and the Short-Term Fund Offering are collectively referred to herein as the "Offerings") and 1,000,000 of those units under the Short-Term Funds' distribution reinvestment plan (the "Short-Term Fund Reinvestment Plan"; the REIT Reinvestment Plan, the Mid-Term Fund Reinvestment Plan and the Short-Term Fund Reinvestment Plan are collectively referred to herein as the "Reinvestment Plans"). The Short-Term Fund is selling units in the Short-Term Fund Offering on a "best efforts" basis at $10.00 per unit and offering units under the Short-Term Fund Reinvestment Plan at $10.00 per unit.
The Short-Term Fund has no current plans to seek to cause its units of limited partnership interest to be listed on any securities exchange or the Nasdaq National Market, nor does it anticipate that such units will be the subject of bona fide quotes on any inter-dealer quotation system or electronic communication network. To provide limited partners some liquidity for their units, the Short-Term Fund has adopted a Unit Redemption Program.
The REIT's board of directors has approved and adopted a Stock Redemption Program for the REIT, and the Funds' respective general partners have approved and adopted a Unit Redemption Program for each of the Funds. The terms of the Stock Redemption Program and the Unit Redemption Programs are fully disclosed in the prospectus included in the registration statements described above for each of the REIT and the Funds. Neither the REIT nor the Funds have redeemed any securities under their respective Redemption Programs.
Pursuant to the terms of the Stock Redemption of the REIT Program and the Unit Redemption Programs of the Funds, a stockholder or limited partner who has held shares of common stock or units of limited partnership interest for at least one year may with appropriate notice, present all or any portion of such stockholder's common stock or limited partner's interest for repurchase, subject to the minimum holding requirements described below. If a stockholder of the REIT or limited partner of the Funds redeems all of his or her shares or units, there may be no holding period requirement for shares or units purchased pursuant to the Reinvestment Plans, in the discretion of the REIT's board of directors and the Funds' general partners.
The REIT and the Funds will redeem shares or units, as the case may be, on a quarterly basis. If the REIT or the Funds do not have sufficient funds set aside to accommodate all of the redemption requests made during any quarter, then requests will be accepted on a pro-rata basis, with priority given (1) first upon the death or disability of a stockholder or limited partner, (2) next to stockholders or limited partners who demonstrate, in the discretion of the REIT's board of directors or the Funds' general partners, some other involuntary exigent circumstance, such as a bankruptcy, and (3) next to stockholders or limited partners subject to a mandatory distribution requirement under an individual retirement account. These priorities are designed to provide investors with an increased likelihood of having their shares or units redeemed should they die or become subject to some other involuntary event that would increase their need for redemption. Because a priority is given only where the REIT or the Funds do not have sufficient funds set aside to accommodate all redemption requests and then only to stockholders or limited partners who are subject to events beyond their control, no investor will be able to control his or her priority status. As a result, investors will not be encouraged to take action to influence their priority status and will undergo minimal pressure to sell.
In order to further minimize any investor being subjected to pressure to sell, a stockholder or limited partner or his or her estate, heir or beneficiary that is not able to sell as a result of limited funds being available can (1) withdraw the request for redemption at any time in writing prior to redemption, or (2) ask that the request be honored at such time, if any, when sufficient funds become available. The advisors and affiliates of the REIT and the Funds will defer their redemption requests, if any, until all other requests for redemption have been met.
A stockholder of the REIT or limited partner of the Funds or his or her estate, heir or beneficiary may present fewer than all of his or her shares or units then-owned for redemption, provided, however, that the minimum number of units that must be presented for redemption must be at least 25% of the holder's shares or units. Notwithstanding the foregoing, where redemption is being requested (1) on behalf of a deceased stockholder or limited partner; (2) by a stockholder or limited partner that is permanently disabled or in need of long-term care; (3) by a stockholder or limited partner subject to other involuntary exigent circumstances, such as bankruptcy; or (4) by a stockholder or limited partner subject to a mandatory distribution requirement under an individual retirement account, and where the redemption request is made within 180 days of the event giving rise to such special circumstance, a minimum of 10.0% of the shares or units may be presented for redemption; provided, however, that any future redemption request by such stockholder or limited partner must present for redemption at least 25.0% of such stockholder or limited partner's remaining shares.
The number of shares or units that the REIT and the Funds can redeem under their respective Redemption Programs will be limited in two ways. First, the REIT and the Funds will use no more than 1% of their operating cash flow from the previous fiscal year, plus any proceeds from their respective Reinvestment Plans to redeem shares or units. Second, during any calendar year the REIT and the Funds will not redeem more than 5% of the weighted average number of shares of common stock of the REIT or units of limited partnership interest of the Funds outstanding during the twelve-month period immediately prior to the date of redemption.
Except as described below for redemptions upon the death of a stockholder, the purchase price for the redeemed shares of the REIT will equal the lesser of (1) the price the stockholder actually paid for the shares or (2) either (i) prior to the time the REIT begins having appraisals performed by an independent third party, a set amount up to the price paid for the shares, or (ii) after the REIT begins obtaining such appraisals, 90% of the net asset value per share, as determined by the appraisals. Beginning two years after the last offering of the REIT's shares, the REIT's board of directors will order appraisals to determine the REIT's net asset value per share to be conducted by independent third-parties as determined by the board of directors.
Except as described below for redemptions upon the death of a limited partner, the purchase price for the redeemed units of the Funds, for the period beginning after a limited partner has held the units for a period of one year and ending after the first three full fiscal years following termination of the Mid-Term Fund Offering and the Short-Term Fund Offering, will be a set amount up to the price paid for the units. Thereafter, the purchase price will be the lesser of (1) 90% of the fair market value per unit, or (2) the price the limited partner actually paid for the units. The fair market value utilized for purposes of establishing the purchase price per unit for the Funds will be the estimated value of units determined annually for ERISA purposes.
Upon the death of a stockholder of the REIT or limited partner of the Funds who is a natural person, including the death of a grantor of a revocable grantor trust, the REIT and the Funds will redeem shares or units after receiving written notice from the estate of the deceased or recipient of the shares or units through request or inheritance. The written notice must be received within 180 days after the death of the stockholder or limited partner. The purchase price for shares redeemed by the REIT upon the death of a stockholder, until the REIT begins having appraisals performed by an independent third party, will be equal to the price the stockholder actually paid for the shares, and thereafter, the purchase price will be the fair market value of the shares or units as determined by appraisals. The purchase price for units redeemed by the Funds upon the death of a limited partner, until after the first three full fiscal years following termination of their respective offerings, will be the price the limited partner actually paid for the units, and thereafter, the purchase price will be the fair market value of the units as determined by estimated unit valuations. The REIT and the Funds will redeem shares or units upon the death of a stockholder or limited partner only to the extent that sufficient funds are available to fund such redemptions. Other than the redemption price disclosure and the disclosures required in each prospectus and the periodic Exchange Act reports of the REIT and the Funds, the REIT and the Funds will not publicize the Redemption Programs. The REIT and the Funds will not actively solicit redemptions; their roles in their respective programs will be ministerial and merely to facilitate redemption requests.
Shares or units repurchased by the REIT and the Funds will become authorized but unissued shares or units. The REIT and the Funds will not reissue the shares or units without registration under the Securities Act or an exemption therefrom. The Stock Redemption Program of the REIT will terminate upon the development of a trading market for the REIT's shares of common stock. The Unit Redemption Programs of the Funds will terminate upon the development of a trading market for the their respective units of limited partnership interest. Additionally, the board of directors of the REIT and the general partners of the Funds reserve the right in their sole discretion at any time to (1) reject any request for redemption, (2) change the purchase price for redemptions, (3) terminate, suspend and/or reestablish their respective Redemption Programs, or (4) waive the one-year holding period in the event of the death or bankruptcy of a limited partner or other exigent circumstances. The board of directors of the REIT and the general partners of the Funds will determine whether to waive the one-year holding period based on individual circumstances as they arise, and they will not make, and have not made, any plan to waive the holding period for any investor in advance of such event. Neither the REIT nor the Funds have redeemed any securities under their respective Redemption Programs.
Rule 102(a) of Regulation M, which is intended to preclude manipulative conduct by those with an interest in the outcome of a distribution, prohibits issuers and those affiliated with issuers, among others, from bidding for, purchasing or attempting to induce another to bid for or purchase a security that is the subject of a distribution while such distribution is underway. Rule 102(e) of Regulation M authorizes the Commission to exempt from the provisions of Rule 102 any transaction or series of transactions, either unconditionally or subject to specified terms and conditions.
The REIT and the Funds respectfully request that the Division grant each of them an exemption under Rule 102(e) to permit them to effect repurchases under their respective Redemption Programs. The REIT and the Funds will not actively solicit shares or units for redemption. Repurchases will not be made with the purpose of and should not have the effect of manipulating the price of the REIT's stock or the Funds' units.
The REIT has no current plans to seek to cause its shares of common stock to be listed on any securities exchange or the Nasdaq National Market, nor does it anticipate that such shares will be the subject of bona fide quotes on any inter-dealer quotation system or electronic communications network. Due to the illiquidity of the REIT's shares, the Stock Redemption Program was created solely to provide stockholders of the REIT with a vehicle through which, after having held shares for at least one year, they could liquidate all or a portion of their investment in the REIT's common stock. If a secondary trading market does develop, the REIT will terminate the Stock Redemption Program. The REIT Offering will expire in February 2005.
The Funds have no current plans to seek to cause their respective units of limited partnership interest to be listed on any securities exchange or the Nasdaq National Market, nor do they anticipate that such units will be the subject of bona fide quotes on any inter-dealer quotation system or electronic communications network. Due to the illiquidity of the Funds' units, their Unit Redemption Programs were created solely to provide limited partners of the Funds with a vehicle through which, after having held units for at least one year, they could liquidate all or a portion of their investment in the Funds' units. If a secondary trading market does develop, the Funds will terminate their respective Unit Redemption Programs. The Mid-Term Fund Offering and the Short-Term Fund Offering each will expire in February 2005.
Although stockholders of the REIT and limited partners of the Funds are apprised of the availability of the Redemption Programs at the time they purchase their shares or units by means of a description in each prospectus of the REIT and the Funds, they do not actively solicit participation by their stockholders or limited partners in their respective programs. Stockholders and limited partners desiring to present all or a portion of their shares or units for repurchase will do so of their own volition and not at the behest, invitation or encouragement of the REIT or the Funds. The role of the REIT and the Funds in effectuating repurchases under their respective Redemption Programs will be ministerial and will merely facilitate the stockholders' or limited partners' liquidation of their investment in the REIT and/or the Funds. No shares of the REIT's stock or units of limited partnership interest of the Funds have been redeemed under the Redemption Programs to date.
Repurchasing shares under the Redemption Programs during the Offerings should not manipulate the REIT's stock price or the Funds' unit prices in connection with the Offerings because the repurchase price under the Redemption Programs will be fixed and less than or equal to the offering price of the REIT's common stock or the offering price of the Funds' units in the Offerings. Moreover, the extent of the Redemption Programs is limited by (i) a percentage of operating cash flow from the previous fiscal year set at 1%, plus any proceeds from dividends or distributions under their respective Reinvestment Plans and (ii) the prohibition on redemptions during any calendar year in excess of 5% of the weighted average number of shares or units outstanding during the twelve-month period immediately prior to the date of redemption. The potential for manipulation is further reduced by the one-year holding requirement of the Redemption Programs. These and all other terms of the Redemption Programs are clearly set forth in each prospectus included in the REIT's and the Funds' respective registration statements.
The special redemption terms applicable upon the death of a stockholder of the REIT or limited partner of the Funds would only be available to a small number of stockholders or limited partners. Furthermore, because purchasers in the Offerings must die to take advantage of these terms, the favorable terms upon death should not have a manipulative effect on the REIT's stock price or a Funds' unit price.
The REIT and the Funds believe that the relief they request in this letter is consistent with the relief granted by the Division of Market Regulation in CNL Income Properties, Inc. (March 11, 2004), Wells Real Estate Investment Trust II, Inc. (December 9, 2003), Inland Western Retail Real Estate Trust, Inc. (August 25, 2003), T REIT, Inc. (June 4, 2001) and CNL American Properties Fund (August 13, 1998) under Regulation M and in Excel Realty Trust, Inc. (May 21, 1992) under former Rule 10b-6. In particular, except for some features of the Redemption Programs in the limited cases of the death of a stockholder or limited partner, we note that (i) stockholders of the REIT and the limited partners of the Funds must hold shares of common stock or units of partnership interest for at least one year to participate in any of the Redemption Programs; (ii) each of the REIT and the Funds will terminate their respective Redemption Programs in the event a secondary market for its common stock or units develops; (iii) for at least three years after completion of the Mid-Term Fund Offering and the Short-Term Fund Offering and after two years of the completion of the REIT's last offering, the shares and units will be repurchased at a price that is fixed and less than the public offering price of the shares and units in the Offerings, and thereafter the redemption price will equal 90% of the net asset value per share of the REIT and 90% of the fair market value per unit of the Funds; (iv) the number of shares or units to be repurchased under the Redemption Programs will not exceed, during any calendar year, 5% of the weighted average number of shares of common stock or units of limited partnership interest outstanding during the twelve-month period immediately prior to the date of redemption; and (v) the terms of the Redemption Programs are fully disclosed in the each respective prospectus of the REIT and the Funds.
The REIT and the Funds also believe that the requested relief is consistent with relief granted in Panther Partners, L.P. (March 3, 1994) and Dean Witter Cornerstone Funds II, III and IV (June 3, 1992) with respect to certain limited partnerships under former Rule 10b-6 where (i) no secondary market existed or was expected to develop for the limited partnership interests, (ii) the motivation for repurchasing limited partnership interests was to create liquidity for limited partners, (iii) the limited partnership interests were repurchased at prices that were based on the valuation of the partnerships' net assets and (iv) the repurchase programs were to be terminated in the event a secondary market developed. The REIT and the Funds believe that their respective Redemption Programs as proposed are consistent with those plans described in the aforementioned cases and, similarly, have a very low risk of the type of manipulation that Regulation M and former Rule 10b-6 were promulgated to address.
Pursuant to Rule 13e-4 under the Exchange Act, an issuer with equity securities registered under Section 12 of the Exchange Act or that is required to file periodic reports with the Commission pursuant to Section 15(d) is required, in connection with any tender offer for its own equity securities, to make certain disclosures with respect to such offers. The provisions of Rule 13e-4 are intended to prevent fraudulent, deceptive or manipulative acts in connection with issuer tender offers. The REIT and the Funds believe that redemptions under the Redemption Programs do not constitute tender offers subject to Rule 13e-4.
The REIT and the Funds believe that, despite the fact that the Redemption Programs are described in their respective prospectuses, the REIT and the Funds are not engaging in and will not engage in an active and widespread solicitation for their securities. Rather, information regarding the Redemption Programs is provided solely for the benefit of investors in the REIT and the Funds in order to provide them with information about the limited liquidity of their investment. Additionally, under the Redemption Programs, during any calendar year, the REIT and the Funds would repurchase only up to a maximum of 5% of the weighted average number of shares of common stock of the REIT or units of limited partnership interest of the Funds outstanding during the twelve-month period immediately prior to the date of redemption. Moreover, the REIT and the Funds will use no more than 1% of their operating cash flow from the previous fiscal year, plus any proceeds from their respective Reinvestment Plans to redeem shares or units.
Further, no premium is to be paid by the REIT or the Funds for the shares repurchased. In fact, except as stated above with respect to redemptions upon the death of a stockholder, the shares of the REIT are to be repurchased at a price generally equal to the lesser of (1) the price the stockholder actually paid for the shares or (2) either (i) prior to the time the REIT begins having appraisals performed by an independent third party, a set amount up to the price paid for the shares, or (ii) after the REIT begins obtaining such appraisals, 90% of the net asset value per share, as determined by the appraisals. Except as stated above with respect to redemptions upon the death of a limited partner, the units of the Funds, for the period beginning after a limited partner has held the units for a period of one year and ending after the first three full fiscal years following termination of the Mid-Term Fund Offering and the Short-Term Fund Offering, are to be repurchased at a price generally equal to a set amount up to the price paid for the units. Thereafter, the purchase price will be the lesser of (1) 90% of the fair market value per unit, or (2) the price the limited partner actually paid for the units.
In addition, the REIT and the Funds believe that despite the fact that the pricing has a variable component, because the price is fixed at the lower of the applicable factors and will never exceed the then current appraised value of the REIT's shares or the fair market value of the Funds' units, such pricing does not lend itself to the fraudulent, deceptive or manipulative acts of the type Rule 13e-4 was intended to prevent. Further, the Redemption Programs are not contingent on the tender of a fixed number of securities. In addition, repurchases under the Redemption Programs may be made for an indefinite period of time, with purchases being consummated on a quarterly basis. As a result, if funds are not available to repurchase an investor's shares, the investor may request that the redemption be made at such time that sufficient funds become available.
The Commission has previously granted relief in instances where repurchases made under repurchase programs were made for cash on a periodic basis at fixed prices that are based on the net asset values of the issuer's underlying assets. This relief has been granted either through providing an exemption (Puerto Rico Investors Flexible Allocation Fund (June 19, 1999), Popular Balanced IRA Trust Fund (April 29, 1999), Puerto Rico Income & Growth Fund, Inc. (March 27, 1998), First Puerto Rico Growth and Income Fund, Inc. (November 5, 1997), Merrill Lynch Puerto Rico Tax Exempt Fund, Inc. (August 7, 1995)) or by agreeing not to recommend that the Commission take enforcement action (CNL Income Properties, Inc. (March 10, 2004), Inland Western Retail Real Estate Trust, Inc. (August 25, 2003), T REIT Inc. (June 4, 2001), CNL American Properties Fund, Inc. (August 13, 1998)). Such relief has been granted where the number of shares that may be repurchased during any 12-month period is limited to 5% of the number of the company's outstanding shares on the first day of such 12-month period (CNL Income Properties, Inc. (March 10, 2004), CNL American Properties Fund, Inc. (August 13, 1998), Brock Exploration Company (June 30, 1980)) and 5% of the number of the company's outstanding shares during the prior fiscal year (Wells Real Estate Investment Trust II, Inc. (December 9, 2003). Repurchases under the Redemption Programs are based on the average weighted number of shares outstanding during the twelve-month period immediately prior to the date of redemption, which is a more equitable comparison that can be more consistently applied than a calculation based on the number of shares outstanding during the prior year. Because repurchases under the Redemption Programs (i) would be priced at an amount which will never exceed the then current appraised value of the REIT's shares or the fair market value of the Funds' units; (ii) would be made on a quarterly basis; and (iii) would only involve a very small percentage of the REIT and the Funds' outstanding securities, the REIT and the Funds believe the Redemption Programs as proposed would not bring about the abuses Rule 13e-4 was intended to prevent and should not be subject to Rule 13e-4.
Repurchases by closed-end investment companies that could be defined as issuer tender offers and are otherwise not exempt under Rule 23c-3 are generally required to comply with the disclosure requirements set forth in Rule 13e-4. Securities of closed-end investment companies are not redeemable and usually trade in the secondary market at a substantial discount from the net asset value of the shares. Although the Rule 13e-4 exemption requests have been granted in connection with repurchases by closed-end investment companies (Merrill Lynch Puerto Rico Tax Exempt Fund, Inc., Id.), such issuers generally have been required to meet the requirements set forth in Rule 23c-3 under the Investment Company Act of 1940. The provisions of Rule 23c-3 are intended to allow certain closed-end investment companies to offer investors a limited ability to resell their shares in a manner that traditionally was available only to investors in open-end investment companies. Inasmuch as (i) no trading market exists for the REIT or the Funds' securities, (ii) securities of the REIT and the Funds do not sell at a substantial discount from the net asset value of such securities, and (iii) the REIT and the Funds expect to offer their securities in a continuous public offering, the REIT and the Funds believe they are not similar to a closed-end company for purposes of Rule 13e-4.
If you have any questions regarding this request, or if you need any additional information, please do not hesitate to contact the undersigned at (404) 504-7744.
Very truly yours,
MORRIS, MANNING & MARTIN, LLP
Lauren Burnham Prevost
http://www.sec.gov/divisions/corpfin/cf-noaction/bhr102604.htm
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