Company Name: Citizens and Southern Realty Investors
Public Availability Date: Aug. 30, 1974

[INQUIRY LETTER]

ALSTON, MILLER & GAINES

NATIONAL BANK BUILDING, 35 BROAD STREET

ATLANTA, GEORGIA 30303

(404) 588-0300

July 12, 1974

July 12, 1974

1933 Act - Section 4(1)

Rule 144

Division of Corporation Finance

Securities and Exchange Commission

500 North Capitol Street

Washington, D.C. 20549

RE: Request for Interpretive Letter Under Rule 144: CITIZENS AND SOUTHERN REALTY INVESTORS

Gentlemen:

As counsel for Citizens and Southern Realty Investors, (the "Trust"), we respectfully request interpretive advice under Rule 144 in accordance with the Commission's Release No. 5127 under the Securities Act of 1933. The question is whether securities which were originally issued pursuant to a registered public offering and were acquired by an affiliate of the issuer in transactions effected on a national securities exchange and subsequently were sold by that affiliate to another affiliate of the issuer in a transaction exempt under Section 4(1) of the Securities Act of 1933, as amended (the "Act"), are "restricted securities" in the hands of the second affiliate and consequently subject to the two-year holding period under paragraph (d) of the Rule.

All of the Shares of Beneficial Interest of the Trust (with the exception noted hereafter) were issued by the Trust pursuant to an initial registered public offering of Units consisting of Shares of Beneficial Interest ("Shares") and Warrants to purchase Shares, and upon subsequent exercise of the Warrants pursuant to an effective Registration Statement. The only Units of the Trust which were not issued pursuant to a registered public offering were those issued in order to form the Trust. The Shares are listed on the New York Stock Exchange (the "Exchange").

In August, 1972, a Trustee of the Trust who is also President of the Trust's Adviser (the "Affiliate-Vendor") purchased Shares in transactions effected on the Exchange, and resold a portion of these Shares to another affiliate of the Trust (the "Affiliate-Vendee") in a transaction exempt under Section 4(1) of the Act. The Shares transferred to the Affiliate-Vendee were demonstrably securities originally distributed pursuant to a public offering and were not "restricted securities" in the hands of the Affiliate-Vendor.

For the following reasons, we believe that the Shares are not "restricted securities" in the hands of the Affiliate Vendee, and accordingly, that no holding period is applicable to him.

By letter dated March 2, 1973, Mr. William L. Goodwin of our office requested interpretive advice on a question closely analogous to our present question. That letter also involved Shares of the Trust which were originally issued pursuant to a registered public offering and were acquired by an affiliate of the Trust in transactions effected on the Exchange. Subsequently, the affiliate donated the Shares to a donee, and the question was whether the Shares were not "restricted securities" in the hands of the donee, thus requiring a two-year holding period. Our view, which was confirmed by interpretive letter dated April 5, 1973, from Mr. John Heneghan, then Deputy Chief Counsel, was that the Shares were not "restricted securities" in the hands of the donee and that no holding period was applicable to the donee. (Copies of Mr. Goodwin's letter of March 2, 1973, and Mr. Heneghan's response of April 5, 1973, are enclosed for your convenience.)

Mr. Goodwin's letter reasoned that the definition of "restricted securities" did not apply to the Shares held by the donee because they were initially distributed pursuant to a registered public offering and thus were not securities acquired "in a transaction or chain or transactions not involving any public offering." The same reasoning applies to the Shares which are the subject of this request since they were initially distributed in the same registered public offering and were purchased by the Affiliate-Vendor in transactions effected on the Exchange.

Mr. Goodwin's letter went on to point out that inasmuch as the affiliate-donor could have sold the Shares without regard to a holding period, there was no reason to impose the holding period upon the donee. There is no way in which donees of securities which were the subject of a previous registered public offering may be used as conduits for the sale to the public of unregistered securities, directly or indirectly, on behalf of an issuer. Furthermore, because of the aggregation of sales for the account of the donee and sales for the account of the donor during any period of six months within two years after the donation, pursuant to paragraph (e)(3)(C) of the Rule, it is impossible to use donees as conduits since they and the affiliate-donor can sell no more Shares acting together than the affiliate-donor could sell alone.

Likewise, the justification for the imposition of a two-year holding period is not applicable to the Shares which are the subject of this letter. The Preliminary Note to the Rule states that ". . . a holding period prior to resale is essential, among other reasons, to assure that those persons who buy under a claim of a Section 4(2) exemption have assumed the economic risks of investment, and therefore are not acting as conduits for sale to the public of unregistered securities, directly or indirectly, on behalf of an issuer." As previously stated, the Shares held by the Affiliate-Vendee were initially distributed pursuant to a registered public offering. Consequently, the primary reason for imposing a holding period does not apply. Further, as an affiliate of the issuer, the Affiliate-Vendee must resell either in compliance with Rule 144 or outside the Rule in private transactions exempt under Section 4(1) of the Act.

Since the Shares were not restricted securities in the hands of the Affiliate-Vendor, he could have sold them under the provisions of Rule 144 without regard to the holding period. However, the Affiliate-Vendor could not have sold the Shares directly to the Affiliate-Vendee under the Rule, and, consequently, it was necessary to comply with Section 4(1) of the Act by placing appropriate legends on the certificates to assure that the Affiliate-Vendee would not effect a distribution and thus be classified as an underwriter. If the Affiliate-Vendee sells the Shares in compliance with Rule 144, then by operation of the Rule he will not be engaged in a distribution and will not be an underwriter. The only justification for imposing the holding period on the Affiliate-Vendee under these circumstances would seem to be to ensure that the Affiliate-Vendor's private sale of Shares to the Affiliate-Vendee would not result in the two together reselling more Shares under Rule 144 than the Affiliate-Vendor alone could have sold under the Rule. The aggregation of sales by affiliates acting in concert required by paragraph (e)(3)(F) of the Rule avoids any possible abuse that might result from allowing the Affiliate-Vendee to sell without a holding period.

We concede that it might be appropriate to aggregate all sales of the Affiliate-Vendor and the Affiliate-Vendee during any period of six months for two years from the date that the Affiliate-Vendor sold the Shares to the Affiliate-Vendee, even without a specific finding that they were acting in concert. If this is done, there seems to be no reason for imposing a two-year holding period on the Affiliate-Vendee. Just as in the donor-donee situation covered by Mr. Heneghan's response to Mr. Goodwin's letter, there would be no way that the two parties involved (here the Affiliate-Vendor and the Affiliate-Vendee) could sell more Shares in any shorter period of time than the Affiliate-Vendor (Donor) could have sold alone under Rule 144. This being the case, there is no way in which the Affiliate-Vendee could be used as a conduit for sale to the public, and the rationale for imposing a two-year holding period does not apply.

For these reasons, it is our view that the purposes of the Rule do not require that the Shares held by the Affiliate-Vendee be considered "restricted securities" and subjected to the two-year holding period. We therefore respectfully request a confirming interpretation that securities initially distributed pursuant to a registered public offering and acquired by the Affiliate-Vendor on a national securities exchange are not "restricted securities" in the hands of the Affiliate-Vendee. We are enclosing two copies of this letter, and if any additional information is desired, please contact the undersigned by collect telephone call at (404) 588-0300.

Sincerely,

ALSTON, MILLER & GAINES

By:

Alexander W. Patterson

Enclosures

AWP:lap

[STAFF REPLY LETTER]

July 31, 1974

Alexander W. Patterson, Esq.

Alston, Miller & Gaires

Citizens & Southern National Bank Bldg.

35 Broad Street

Atlanta, Georgia 30303

Re: Citizens and Southern Realty Investors

Dear Mr. Patterson:

This is with reference to your letter of July 12, 1974 in which you request our interpretation as to whether securities originally issued pursuant to a registered public offering which are acquired by an affiliate of the issuer in transactions effected on a national securities exchange and subsequently sold by that affiliate to another affiliate of the issuer in a private transaction under Section 4(1) of the Securities Act of 1933 would be deemed to be "restricted securities" in the hands of the second affiliate and consequently subject to the two year holding period under paragraph (d) of Rule 144.

On the basis of the facts presented, it is the view of this Division that the securities purchased by the second affiliate would be "restricted securities" within the definition of paragraph (a)(3) of Rule 144 and that the second affiliate would have to comply with all of the provisions of Rule 144 including the holding period provisions of paragraph (d) thereunder in making any public resales of such securities.

Sincerely,

William E. Morley

Attorney Adviser