Company Name: PaineWebber Capital Inc.
Public Availability Date:  July 19, 1988

INQUIRY LETTER

OSullivan, Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
TELEPHONE(212) 408-2400

June 16, 1988

Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549

PaineWebber Capital Inc.

Request for Interpretation Advice

Ladies and Gentlemen:

We are acting as counsel to PaineWebber Capital Inc. ("PWC"), in connection with PWCs proposed sale pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Act"), of 170,000 shares of Common Stock (the "Shares") of H.M.S.S., Inc. ("HMSS"). The Shares are restricted under Rule 144(a)(3). We request that the Division of Corporation Finance (the "Division") confirm our opinion that under paragraph (d)(1) of Rule 144 PWC may tack the holding period of PWCs affiliate, Rotan Mosle Investments Inc. ("RMI"), for the Shares.

PWC is a direct, wholly-owned subsidiary of PaineWebber Group Inc. ("Group"). In August 1983, Group acquired, through PaineWebber Incorporated, another direct, wholly-owned subsidiary of Group, 100% ownership of Rotan Mosle Financial Corp. ("RMFC"). RMI was then, and continues to be, a direct, wholly-owned subsidiary of RMFC. Thus, both PWC and RMI are wholly-owned by Group, but neither PWC nor RMI has an ownership interest in the other.

On May 28, 1982, RMI purchased 45,000 shares of HMSS Common Stock for the aggregate purchase price of $100,000 ($2.22 per share), paid in cash at the time of purchase, in a private transaction exempt from registration under the Act. In March 1985, as a result of a 10 for 1 stock split, HMSS issued 405,000 additional shares of its Common Stock to RMI, thus bringing the total number of shares of HMSS Common Stock owned by RMI to 450,000.

In 1987, RMI divested itself of its HMSS shares in three separate transactions. First, pursuant to the exercise of over-allotment options granted by RMI to underwriters of an initial public offering of shares of HMSS Common Stock, RMI sold 250,000 HMSS shares to such underwriters. Second, RMI sold 30,000 HMSS shares to an employee pursuant to the exercise of an option granted the employee as compensation for services. After these first two sales and as of October 1987, RMI held 170,000 HMSS shares (which are the subject Shares). In December 1987, PWC purchased the Shares from RMI for $3.25 per share in an intra company transaction.

PWC now proposes to sell the Shares under Rule 144 and has requested our opinion as to whether it can compute its holding period for the Shares by including, or tacking, the holding period of RMI. Paragraph (1) of Rule 144 provides, in pertinent part, that, if the securities to be sold are "restricted securities," the person for whose account the securities are to be sold must have been the beneficial owner of the securities for a period of at least two years prior to such sale. In the event the securities were purchased, the full purchase price must have been paid at least two years prior to the sale. RMI paid cash equal to the full purchase price for the initial 45,000 shares of HMSS Common Stock acquired in May 1982. Under subparagraph (d)(4)(i) of Rule 144, RMIs holding period for the additional 405,000 shares acquired as a result of the 10 for 1 stock split is deemed to have commenced when the initial 45,000 shares were purchased and fully paid for, that is, on May 28, 1982.

The holding period that is the focus of this letter is that which commenced when Group acquired full ownership of RMI in August 1983. PWC wishes to tack to its own holding period that of RMI since August 1983. Our opinion, based on the foregoing facts, is that PWC may tack RMIs holding period because the "person" for whose account PWC proposes to sell the Shares is Group, which has beneficially owned the Shares since acquiring RMI in August 1983. Group has borne the economic risk of investment in the Shares since August 1983 by virtue of its 100% ownership of both RMI and PWC. The sale of the Shares from RMI to PWC in December 1987 did not result in a shift of the economic risk of investment of the Shares because Group was then, and still is, the 100% owner of both RMI and PWC, and thus was the beneficial owner of the Shares both before and after the sale.

Our opinion is supported by the language and intent of paragraph (d)(1) of Rule 144 and applicable interpretive releases regarding beneficial ownership of securities. In addition, although the provisions of Rule 144 and its interpretive releases do not specifically address the situation described here, namely, whether a corporation which purchases restricted securities from an affiliate sister corporation can tack the affiliates holding period where both entities are wholly-owned by a common parent, we believe that this position is consistent with the views expressed by the Division in prior no-action letters with respect to similar situations.

The purpose of the holding period requirement of Rule 144 is to ensure that persons who buy unregistered securities under a claim of exemption have assumed the economic risk of investment and are not simply acting on the issuers behalf as conduits for the sale of unregistered securities to the public. Securities Act Release No. 5223, 1971-72 Transfer Binder Fed. Sec. L. Rep. (CCH) Paragraph 78,487 (January 11, 1972). In situations in which there has been a transfer of restricted securities between persons or entities sharing a 100% control relationship (e.g. from a parent corporation to its wholly-owned subsidiary or from an individual to a corporation in exchange for all of that corporations outstanding securities), the Division has interpreted paragraph (d)(1) of Rule 144 to permit the transferee to "tack" the transferors holding period. Securities Act Release No. 6099, Items 33(b) and (c), Fed. Sec. L. Rep. (CCH) (Vol. I) Paragraph 2705H (August 2, 1979).

The Division has previously considered other situations in which restricted securities were transferred between entities sharing a 100% control relationship and agreed that in situations in which there was no shift in economic risk resulting from such transfer, the transferee was entitled to tack the holding period of the transferor. A situation substantially similar to the present case was considered in Abingworth Limited, available January 15, 1982 ("Abingworth"). In that situation, the Division concurred in the opinion of counsel that both Abingworth Limited ("Abingworth") and Abingworth (St. George) Limited, a wholly-owned subsidiary of Abingworth ("St. George"), could tack the holding periods of a group of wholly-owned subsidiaries of Abingworth (the "Subsidiaries") for restricted securities transferred from the Subsidiaries to Abingworth and St. George in connection with a reorganization of Abingworths holdings. One Subsidiary was to transfer all assets, including restricted securities of third-party issuers, directly to Abingworth. With respect to all other Subsidiaries, St. George was to purchase restricted securities from the Subsidiaries.

The facts presented in this situation are sufficiently similar to those in Abingworth to warrant the same conclusion. In Ablingworth, one subsidiary, St. George, could tack the holding periods of several other subsidiaries for restricted securities purchased because both St. George and the Subsidiaries were wholly-owned by a common parent, Abingworth. Similarly, PWC, one subsidiary of Group, should be able to tack the holding period of RMI, another subsidiary of Group, for the shares which PWC purchased from Group. Although it is not clear from the description of the facts in Abingworth whether St. George owned any stock issued by the subsidiaries from which it purchased the restricted securities, in which case the transfer might be one from a subsidiary to its parent, this factor should not warrant a different conclusion in the instant case because Group has been the beneficial owner of the Shares for the relevant time period.

In its response in Abingworth, the Division stated that it gave particular consideration to the fact that Abingworth was the beneficial owner of the restricted securities sold by the Subsidiaries to St. George during all relevant time periods, by virtue of its 100% ownership of both St. George and the Subsidiaries. Since Group has been the beneficial owner of the Shares during the relevant time period in question here, we conclude that PWC can tack RMIs holding period.

Other situations in which the Division agreed that no shift in the economic risk of investment resulted from the transfer of restricted securities among entities sharing a 100% control relationship, thus allowing the transferee to tack the holding period of the transferor, include Wendys International, Inc., available October 23, 1987 (transferee could tack holding period of transferor sharing 100% control relationship for restricted securities obtained as dividend, merger consideration and capital contribution); Hellman, Gal Investment Associates, available January 19, 1981 (parent corporation could tack holding periods of wholly-owned subsidiary for restricted securities (i) purchased by subsidiary directly from third-party issuers and (ii) received from parent corporation, which included parent corporations original holding period); and The Black and Decker Manufacturing Company, available June 13, 1975 (corporation could tack holding period of sole shareholder for restricted shares transferred from shareholder to corporation in exchange for all of corporations outstanding shares of stock).

We respectfully request that the Division concur with our opinion that, based on the facts presented, PWC can tack the holding period of RMI for the Shares of H.M.S.S., Inc. Should the Division require any further information, questions may be directed to either Christopher Lane Davis or Michael F. Killea, at (212) 408-2400. We appreciate the Divisions response as soon as possible.

Very truly yours,

Christopher Lane Davis

9305/93007.

STAFF REPLY LETTER

July 19, 1988

RESPONSE OF THE OFFICE CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE

Re: PaineWebber Capital, Inc. ("Company")

Incoming letter dated June 16, 1988

Based on the facts presented, this Division is of the view that the Companys holding period for the shares of H.M.S.S., Inc. common stock under Rule 144(d) began not later than August 1983. In arriving at this conclusion, we have given particular consideration to the fact that the Company is a wholly-owned subsidiary of Paine Webber Group Inc. which, through its indirect wholly-owned subsidiary RMI, has been and will be the beneficial owner of the Common Stock during all relevant time periods.

Because this position is based upon the representations made to the Division in your letter, it should be noted that any different facts or conditions might require a different conclusion.

Sincerely,

Felicia Smith

Attorney-Adviser