Company Name: Winthrop Financial Co., Inc.
Public Availability Date: June 25, 1982

INQUIRY LETTER 1

HALE AND DORR

1201 PENNSYLVANIA AVENUE, N.W.

WASHINGTON, D.C. 20004

(202) 393-0800

April 23, 1982

April 23, 1982

HAND DELIVERED

Lee B. Spencer, Jr., Esq.

Director

Division of Corporation Finance

Securities and Exchange Commission

500 North Capitol Street

Washington, D.C. 20549

Re: Winthrop Financial Co., Inc.: Request for

Interpretation of Regulation D, Rule 501(a)(5)(iii)

Dear Mr. Spencer:

I am writing on behalf of our client, Winthrop Financial Co., Inc. ("Winthrop Financial"), to request the views of the staff of the Securities and Exchange Commission (the "Commission") concerning a provision of Regulation D recently adopted by the Commission under the Securities Act of 1933, as amended. See 17 C.F.R. 230.501-506. Winthrop Financial is engaged in the organization and sponsorship of real estate limited partnerships, interests in most of which are sold to investors in private offerings exempt from registration under Section 4(2) of the Securities Act of 1933.

This letter requests your concurrence with our interpretation of the installment payment provisions of Rule 501(a)(5) in Regulation D. That section provides, in pertinent part, that any person who invests at least $150,000 is an accredited investor. Installments due within five years after the "sale of securities" may be aggregated to reach the $150,000 minimum, pursuant to Rule 501(a)(5)(iii).

Our request for interpretation concerns the date on which this five year installment payment period begins to run. That date is specified in the Rule only as the date of "sale," which could be either (1) the date a subscription is accepted from the accredited investor, individually, or (2) the date of the "closing," when the escrow is broken and the funds delivered to the issuer by the escrow agent. This occurs, typically, only when a specified minimum amount of funds has been raised and the requisite opinions of counsel have been furnished.

Winthrop Financial would prefer that Regulation D be interpreted to provide that the payment period begins to run from the date the escrow is broken, and we see no countervailing policy reasons to interpret Regulation D to require selection of a different date. Until the actual closing, it remains a possibility that the offering will not close, and the investor will receive a refund of his money. In effect, the sale is conditional until the occurrence of the closing. Delaying the commencement date of the installment payment period comports with that economic reality.

Commencing the five-year payment period on the closing date also has certain beneficial effects. It will establish a uniform payment schedule for all investors, in accord with prevailing practice under Securities Act Rule 146, with two resultant advantages. First, the issuer will be able to schedule the receipt of installment payments to coincide with its business plan and, in the case of programs providing "tax shelter," the realization of tax benefits by investors. Second, the time periods when the issuer is required to handle payments will be circumscribed and definite, reducing the associated administrative burdens.

We believe that the above interpretation is consistent with the Commissions intent to streamline exempt offerings and to facilitate capital formation by small businesses. Therefore, we request that you exercise your discretion to interpret Regulation D to mean that investors must pay $150,000 within five years from the date of the closing, when the escrow is broken and the issuer receives the proceeds of the offering.

We appreciate your time and attention to this matter.

Sincerely,

Carol Herndon Israel

CHI/jbj

cc: David B. H. Martin, Esq.

INQUIRY LETTER 2

HALE AND DORR

1201 PENNSYLVANIA AVENUE, N.W.

WASHINGTON, D.C. 20004

TELEPHONE(202) 393-0800

April 23, 1982

April 23, 1982

HAND DELIVERED

Lee B. Spencer, Jr., Esq.

Director

Division of Corporation Finance

Securities and Exchange Commission

500 North Capitol Street

Washington, D.C. 20549

Re: Winthrop Financial Co., Inc.: Request for

Interpretation of Regulation D, Rule 502(b)(2)(A)

Dear Mr. Spencer:

I am writing on behalf of our client, Winthrop Financial Co., Inc. ("Winthrop Financial"), to request the views of the staff of the Securities and Exchange Commission (the "Commission") concerning a provision of Regulation D recently adopted by the Commission under the Securities Act of 1933, as amended. See 17 C.F.R. 230.501-506. Winthrop Financial is engaged in the organization and sponsorship of real estate limited partnerships, interests in most of which are sold to investors in private offerings exempt from registration under Section 4(2) of the Securities Act of 1933.

This letter seeks confirmation that the staff of the Commission agrees with our interpretation of the disclosure requirements of Regulation D, particularly Securities Act Rule 502(b)(2)(A), 17 C.F.R. §230.502(b)(2)(A), as applied to the facts described below.

The issuer will be a limited partnership (the "Partnership") formed for the purpose of acquiring an existing building. The proposed offering will cover approximately $4 million of limited partnership interests and will be structured to comply with the requirements of Rule 506 under Regulation D.

Rule 502(b)(2)(A), which applies offerings of under $5 million, requires the Partnership (which is not currently eligible to use Form S-18) to furnish prospective investors with the same kind of information as required by Form S-11, with certain reductions in the required financial information, that is, only two years of financial statements, the most recent of which must be certified. If financial statements cannot be obtained without "unreasonable effort or expense," the partnership may furnish financial statements prepared for tax purposes and examined in accordance with generally accepted auditing standards ("GAAS") by an independent accountant. This much is clear from the text of the rule.

Our question arises in applying the rule to the requirement, imposed upon real estate programs by Regulation S-X, that issuers provide financial information regarding the operating history of properties to be acquired with the proceeds of the offering of securities by the program. See Regulation S-X §3-14, 17 C.F.R. §210.3-14-(1981). That provision of Regulation S-X requires three years of audited financial statements, which is more burdensome than the requirement applied to issuer financial statements under Regulation D.

Such a result does not seem to be consistent with the intent of Regulation D. Therefore, we interpret the Rule to mean that the financial information about properties with operating histories to be acquired by an issuer making an offering under Regulation D is also to be reduced to two years, only the most recent of which must be audited, and may in appropriate instances be prepared on a "tax basis" and be examined in accordance with GAAS.

We would appreciate your written concurrence with this interpretation.

Thank you very much.

Sincerely yours,

Carol Herndon Israel

CHI/jbj

STAFF REPLY LETTER

MAY 25 1982

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: Winthrop Financial Co., Inc. ("Winthrop")

Incoming letters dated April 23, 1982

Your letters seek, on behalf of Winthrop, interpretive advice from this Division as to provisions of Regulation D under the 1933 Act. Winthrop is engaged in the organization and sponsorship of real estate limited partnerships, and your questions relate to offerings of interests in real estate limited partnerships pursuant to exemptions from 1933 Act registration contained in Regulation D. In one letter you request advice as to the date on which a five-year installment obligation may start to run for purposes of determining whether a purchaser qualifies as an "accredited investor" under Rule 501(a)(5). In the other letter you seek the Divisions interpretation of the disclosure requirements of Rule 502(b)(2)(i)(A) as applied to real estate limited partnerships that will acquire properties with the proceeds of the offering.

Under Rule 501(a)(5), an investor purchasing at least $150,000 of the securities being offered qualifies as an "accredited investor" under certain circumstances if the securities are paid for by an unconditional obligation to pay "within five years of the sale of the securities to the purchaser." For purposes of measuring the length of the installment obligation, Winthrop seeks the Divisions concurrence that the five-year period may commence at the date the investors subscription is accepted and the funds are delivered to the issuer by the escrow agent, rather than at the date upon which the subscription is received into escrow from the investor. Based on the representations in your letter, and solely for purposes of determining the date of commencement of the five-year installment obligation under Rule 501(a)(5), the Division is of the view that the time period of the investors obligation to pay may be measured from the date the subscription is accepted from the investor and the funds are delivered to the issuer by the escrow agent. It should be noted that this interpretation applies only to the issue discussed and therefore should not be regarded as an opinion as to when the sale of the limited partnership interest occurs.

Your second question involves the provisions of Rule 502(b)(2)(i)(A) as they relate to the disclosure of financial statements of significant properties to be acquired. Rule 502(b)(2)(i)(A) requires an issuer in an offering up to $5,000,000 to furnish the same kind of information as would be required in Part I of Form S-18. Currently, that form is not available for use by limited partnerships, and Rule 502(b)(2)(i)(A) provides that if the Form S-18 is not available the issuer should refer to Part I of a form of registration that the issuer would be entitled to use. A real estate limited partnership presumably would refer to Form S-1 or Form S-11. As you know, the Commission has proposed expanding the availability of Form S-18 to limited partnerships. See Release No. 33-6388 (March 3, 1982).

Under Form S-1 or Form S-11, disclosure regarding significant properties to be acquired is governed by Rule 3-14 of Regulation S-X (17 CFR 210.3-14). Currently, that rule requires audited income statements for the properties for the three most recent fiscal years. The Commission, however, has proposed that this rule be amended. See Release No. 33-6354 (October 7, 1981). Under the proposed amendments, if it meets three conditions, the issuer may present one year of audited income statements, instead of three. In the proposed amendments to Form S-18 at Item 21(g), the Commission has included a special instruction for real estate operations to be acquired. This instruction follows the format of Rule 3-14 of Regulation S-X and requires two years audited income statements, but permits presentation of only one year of audited statements if certain conditions are met.

Given these requirements and proposed amendments, this Division has the following views with respect to the presentation of financial statements of properties to be acquired in offerings under $5,000,000 pursuant to Regulation D. If the issuer is following current Rule 3-14 of Regulation S-X, the issuer may rely on the language in Rule 502(b)(2)(i)(A) of Regulation D and present two years of income statements on properties to be acquired, only one year of which must be audited. If the Commission adopts Rule 3-14 of Regulation S-X in its proposed form, then the Regulation D issuer that meets the three conditions in the new Rule 3-14 may present only one year of audited income statements, with no additional requirement to present a second year on an unaudited basis. If the Regulation D issuer cannot meet the three conditions of proposed Rule 3-14, then it may present two years of income statements on properties to be acquired, but only one year need be audited.

If the Regulation D issuer is following Form S-18 and assuming the Commission adopts the proposed instruction in that form with respect to properties to be acquired, then the issuer may present only one year of audited income statements on properties to be acquired if the issuer satisfies the conditions in the instruction. If the Regulation D issuer cannot meet the conditions in the Form S-18 instruction, then it may present two years of income statements, only one of which must be audited.

Rule 502(b)(2)(i)(A) also provides that if the issuer is a limited partnership and cannot obtain the required financial statements without unreasonable effort or expense, then the issuer may furnish financial statements prepared on the basis of federal income tax requirements and examined and reported on in accordance with generally accepted auditing standards by an independent public or certified accountant. In applying this provision, it is the Divisions view that where the limited partnership issuer cannot obtain, without unreasonable effort or expense, the requisite financial statements regarding properties to be acquired, then the issuer may furnish financial information for such properties prepared on the basis of federal income tax requirements and examined and reported on in accordance with generally accepted auditing standards by an independent public or certified accountant.

Because these positions are based upon the representations made to the Division in your letters, it should be noted that any different facts or conditions might require different conclusions.

Sincerely,

David B.H. Martin, Jr.

Special Counsel