Release No. 33-6354

Release No. 34-18161

October 7, 1981

Proposed Revision of Guide 60 and Related Disclosure Provisions

SUMMARY: As the result of a cooperative effort with a subcommittee of the North American Securities Administrators Association, the Commission is publishing for public comment three proposals concerning disclosure by public real estate programs in registration statements and periodic reports. The proposed amendments to Guide 60, "Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships," of the Guides for Preparation and Filing of Registration Statements and Reports would simplify and standardize disclosure concerning the prior performance of the general partner and affiliates and would reduce the requirement for financial statements of significant properties acquired by a real estate program from three years to one year if certain conditions are met by the issuer. Because of the changes to financial statement disclosure, coordinating changes are proposed to Regulation S-X and Form 8-K. The proposals are intended to standardize and streamline disclosure for public real estate programs.

DATE: Comments should be received on or before November 30, 1981.

ADDRESSES: Comments should be addressed in triplicate to George A. Fitzsimmons, Secretary, Securities and Exchange Commission, 500 North Capitol Street, Washington, D.C. 20549. All comment letters should refer to File No. S7-908. All comments received will be available for public inspection and copying in the Commissions Public Reference Room, 1100 L Street, N.W., Washington, D.C. 20549.

FOR FURTHER INFORMATION CONTACT: William L. Larsen, (202) 272-2604, Office of Disclosure Policy, Division of Corporation Finance.

SUPPLEMENTARY INFORMATION: As part of a major cooperative effort with the Subcommittee on Financial Statement and Track Record Disclosure (the ("Subcommittee") of the North American Securities Administrators Association ("NASAA"), ¹ the Commission is proposing certain amendments to Guide 60, "Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships," of the Guides for the Preparation and filing of Registration Statements and Reports under the Securities Act of 1933 (the "Securities Act") ² which would comprehensively revise current disclosure requirements concerning the prior performance of the general partner and its affiliates ("track record"). The proposal would replace the current provisions of Item 8A of Guide 60 with a new Item 8 which would standardize and simplify the track record disclosure that now appears in registration statements of real estate limited partnerships. In conjunction with the proposed revision of track record disclosure standards, Rule 3-14 of Regulation S-X (17 CFR 210.3-14), "Special instructions for real estate operations to be acquired," is proposed to be amended to allow, under certain circumstances, presentation of one year of audited financial statements for individual properties acquired by the partnerships instead of the current three year requirement. The Commission also is proposing an amendment to Undertaking D in Item 21 of Guide 60 and a new Instruction 2(e) to Item 7 of Form 8-K (17 CFR 249.308) to coordinate with the proposed change in Rule 3-14 of Regulation S-X. Other minor conforming amendments to Guide 60 Items 3 and 9 are also proposed.

Table of Contents

I. Background

In the early 1970s, the real estate limited partnership emerged as an increasingly popular investment device. In the typical public real estate limited partnership program, the sponsor (who also serves as promoter and, later, general partner) organizes and registers the offering of limited partnership shares under the Securities Act. ³ At the time they are offered to the public most real estate programs are "blind pools," i.e., the properties to be purchased by the program have not been identified. Thus, investors must usually make their real estate limited partnership investment decision without knowing exactly what the specific assets of the program will be. After the partnership interests are sold to the public, the program is "closed" and the operational phase of the program commences with the acquisition of properties. As a public company, the real estate limited partnership is subject to the continuous reporting obligations of the Securities Exchange Act of 1934 (the "Exchange Act"), including annual and periodic reports such as Form 10-K, 10-Q and 8-K. ⁴ Depending on the investment objectives of the program, at some future point, the program is "completed" as the partnerships assets are liquidated and the partnership wound down. The length of a program cycle varies according to investment objective.

Due to the popularity of real estate limited partnerships among investors, the number of offerings and sponsors proliferated in the last decade. The Commission and the states began, independently at first, to develop a regulatory format for the burgeoning public real estate program investment area. Aware of the relative novelty of this area of investment, both the states and the Commission sought to maximize investor protection, while minimizing disclosure burdens on sponsors. A number of states approved regulations governing real estate limited partnerships. ⁵

The Commission approved the issuance of Guide 60 in March 1976. ⁶ The Guide was designed to reflect the experience of the Division of Corporation Finance in processing the growing numbers of registration statements filed by real estate limited partnerships. While not promulgated as an official Commission rule, the Guide was published to minimize delay in the review of registration statements relating to real estate limited partnerships and also to assist issuers, accountants, attorneys and others in the preparation of such filings. At the time of Guide 60s publication, the Commission noted that the area of real estate limited partnerships was still evolving and that, as developments occurred, changes might be made in the Guide as necessary. ⁷

As the number of public real estate programs has increased, both the Commission and the states, through their state securities administrators, have become concerned about the length and complexity of prospectus disclosure in this area. In early 1980, the Midwest Securities Commissioners Association, ⁸ on the basis of its members experience in administering their detailed disclosure and substantive guides for real estate syndications, decided to form a subcommittee to study regulatory needs. At the outset, the Subcommittee was particularly concerned with the open unnecessarily voluminous nature of disclosure made by sponsors of public real estate programs regarding their prior experience. The Subcommittee also sought to harmonize state and federal guidelines in the public real estate program area. Since early 1980, the Subcommittee and the Commissions staff have worked together in a cooperative effort to standardize, streamline and reduce the burdens of disclosure for real estate limited partnerships, for the benefit of investors and sponsors. These efforts have resulted in proposals concerning track record disclosure and presentation of financial statements for properties acquired, which today are being published for public comment. ⁹

II. Synopsis of Proposals

A. Track Record Disclosure in Guide 60

In light of the fact that at the time of offering most real estate programs are "blind pools" lacking specific program asset information, the federal and state guidelines as well as the sponsors themselves have recognized that the experience of the sponsor of the program being offered is a critical area of disclosure for investors. In particular, this disclosure includes information regarding the sponsors past experience in forming and managing programs and the performance and success of the sponsors previous programs. The sponsors past experience in forming and managing programs is known as the sponsors "track record." ¹⁰ Item 8.A. of Guide 60 currently requires the presentation of "a reasonable summary of the experience of the General Partner and its affiliates during the last five years in the investment of investor funds in real estate, including both registered and exempted offerings." The Guide also sets forth a table (Table II) which can be used to show the operations of previous partnerships.

While current Item 8.A. appears, on its face, to be a simple and straightforward directive to sponsors to present a summary of their prior experience, the reality of track record disclosure bears little resemblance to the brevity of Item 8A. Instead, in the past few years, the typical track record for an experienced sponsor of public programs has grown to consist in many instances of 50 to 80 prospectus pages--fully half the total volume of the prospectus. The causes of this development are not difficult to describe. First, since the adoption of Guide 60 in 1976, there has been a steady accretion of requirements for the presentation of further information in the track record. As the Commission continued to develop new approaches to disclosure, the staff has sometimes sought the presentation of additional information in the track record. In addition, the state securities administrators and the National Association of Securities Dealers (the "NASD") have taken great interest in the disclosure of real estate limited partnerships--the state securities administrators because of their concern, where they exercise responsibilities under "fair, just and equitable" standards about compensation and conflicts of interest, and the NASD because of the involvement of its members in sponsoring and developing real estate limited partnership programs.

Second, the sponsors have used certain types of information in their sales efforts. The sponsors have thus included more information about these areas than might have been requested by the regulators.

Third, inevitably over time there has been a steady increase in the experience of most syndicators who sponsor public programs. When investment in public real estate limited partnerships began to increase a decade ago, there were few seasoned sponsors and their track records were not lengthy. Today, there are many more seasoned sponsors and track records cover every program, public and nonpublic, they have sponsored.

The result of these developments is a track record for experienced sponsors which has become so lengthy and complex as to confuse investors or discourage the reading of the prospectus. The complexity is further heightened by the fact that there is no standard format for the presentation of track record information.

It is in this context that the Commission, working with the NASAA Subcommittee, seeks to shorten and focus the track record disclosure requirements of Guide 60 to meet the regulatory needs of the states and the Commission. The proposed track record disclosure amendment is designed to ease registration burdens on sponsors of public real estate programs and to make prospectuses easier for investors to follow and understand, without sacrificing meaningful track record disclosure, in order to provide investors with a basis for simple analysis and evaluation of comparable programs.

There are three important features of the Commissions proposed Item 8 which would revise track record disclosure: (1) a description of terms used in the Guide, which, in large part, determine the type and content of track record disclosure for sponsors; (2) a narrative summary of the sponsors track record, described in proposed Item 8, which would be located in the body of the prospectus; and (3) the prior performance tables which are proposed to be added to the Guide as Appendix II, and which would be located at the back of the prospectus or in Part II of the registration statement, as specified. As noted above, the major rationale for new Guide 60 track record disclosure guidelines is to streamline disclosure requirements and reduce disclosure burdens. To this end, the proposed narrative summary and prior performance tables set forth specific topics and time limits for prospectus discussion. As stated in proposed Item 8, sponsors are urged not to include in the prospectus additional information about prior performance beyond that required by the Guide unless it is material information necessary to make any required statements, in light of the circumstances under which they were made, not misleading.

1. Description of Terms Used in the Guide

Proposed Item 8 contains descriptions of three key terms which would determine the type and amount of track record disclosure. First, "public" programs include all offerings registered under the Securities Act of 1933, all programs required to report under Section 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), all programs with a class of equity security registered pursuant to Section 12(g) of the Exchange Act, and all other programs with at least 300 security holders of record that initially raised at least $1 million. Second, the term "similar investment objectives" refers to those prior and on-going programs of the sponsor which have investment objectives comparable to those stated in the prospectus. Since the sponsor is generally in the best position to make this comparison, the determination of similar investment objectives is proposed to be made by the registrant.

Building on the terms "public" and "similar investment objectives," the third description, "public track record," is particularly important because it is the term which would determine the amount of disclosure called for by the tables. If a sponsor has a public track record, the tables would require only information about public programs in the relevant time period. Track record information regarding nonpublic programs would normally not be required in the tables except in the case of sponsors who do not meet the public track record criteria. To have a public track record, three elements would be required. First, the sponsor must have sponsored at least three programs which are subject to the periodic reporting requirements of Section 13(a) of the Exchange Act that have investment objectives similar to those of the registrant. Second, at least two public programs with similar investment objectives must have had three years of operations after investment of 90% of the proceeds available for investment. Third, at least two public offerings for programs with similar objectives must have closed in the three years prior to the instant registration statement. This proposed description is designed to ensure that sponsors meeting the criteria of the "public track record" have both recent and historical information available for presentation in the tables.

The description would apply to many existing sponsors of public programs. By limiting tabular disclosure by sponsors with a public track record to public programs, the Commission expects to reduce the prospectus volume of track record disclosure by these experienced sponsors while ensuring that investors receive material information about programs that are most similar to the one offered in the prospectus. A reduction in the volume of track record disclosure by such sponsors is also anticipated because the most experienced sponsors generally file the most extensive track record disclosure.

The Commission is not proposing a special glossary of terms for use in the proposed tables at this time. Registrants are directed to current Item 13 of Guide 60, which provides that sponsors should, where appropriate, set forth definitions to terms in the prospectus that are technical in nature or are susceptible to varying methods of computation.

2. The Narrative Summary

The narrative summary described in the four subparagraphs of proposed Item 8.A. is a new provision intended to provide investors with a comprehensible prospectus description of the sponsors overall experience. Paragraph A.1. would require the narrative summary to contain general information to convey a sense of the scope of the sponsors operations and its experience within the last ten years, regardless of investment objectives, or the public or nonpublic nature of the sponsors programs. To provide guidance in the preparation of the narrative summary, a non-exclusive listing of eight factors is included in paragraph A.1. ¹¹ Sponsors would be required to indicate the approximate percentage of the overall data that represents activities of programs with similar investment objectives and to present aggregate figures for public and nonpublic programs separately. Sponsors narratives would also be required to cross-reference the detailed track record tables located at the back of the prospectus.

To ensure that investors receive a fair and accurate picture of the prior experience of a sponsor, proposed Item 8.A.2. would require a discussion of major adverse business developments or conditions experienced by any prior public or nonpublic program that would be material to investors in the program being registered. Such discussion need not include every negative development ever experienced by the registrant, but only those developments which would be material to a potential investor in the current offering. The proposal also provides that appropriate cross-references should be made to proposed Table III (Operating Results of Prior Programs) in Appendix II.

To enable investors to seek more detailed information regarding the sponsors prior public programs, paragraph A.3. of proposed Item 8 would require the narrative summary to include a list of all prior public programs sponsored by the General Partner or its affiliates. In addition, the sponsor would undertake to provide free, upon request, the most recent Form 10-K Annual Report filed pursuant to the Exchange Act with the Commission by any prior public program that has reported to the Commission in the last twenty-four months and to provide, for a reasonable fee, the exhibits to such Form 10-K.

Finally, Paragraph A.4. of proposed Item 8 would require that the narrative summary include a summary of acquisitions of properties by programs in the most recent three years as set forth in proposed Table VI. As discussed below, Table VI is proposed to be included in Part II of the registration statement and thus would not appear in the prospectus. Registrants would be required to undertake to provide without charge more detailed information from Part II to investors upon request.

3. The Prior Performance Tables

An integral part of the track record disclosure of proposed Item 8.B. of Guide 60 is Appendix II of the Guide, which would be comprised of six track record tables. ¹² Although Guide 60 currently contains one track record table, the proposed tables developed by the NASAA Subcommittee reflect the table presentation in many public offerings. With the exception of Table VI, which would appear only in Part II of the registration statement, the tables would be located in the back of the prospectus. This location would prevent interruption of the flow of the narrative summary for readers of the prospectus. As noted above, however, cross-references to the tables would be required in the narrative summary. Thus, readers could easily refer from the summary to the tables if desired.

To further assist investors in understanding the tables, the proposed Instructions to Appendix II would require each table to be introduced by a brief explanatory narrative that cross-references the narrative summary in the text; to explain the significance of the track record and the table; to explain where additional information can be obtained; to define pertinent terms, if appropriate; and to set forth any further material information necessary to prevent the required tabular data from being misleading in light of the circumstances under which the data was provided.

To the extent permitted by the subject matter of the tables, the proposed tables would utilize similar instructions designed to reduce the volume of track record disclosure by limiting the number of programs sponsors are required to discuss in the tables. A three year standard is proposed in each of the tables. Thus, Tables I-III require disclosure for programs the offering of which closed in the most recent three year period. Table IV would require disclosure regarding programs that have completed operations in the last three years, while Table V pertains to sales or disposals of property and Table VI concerns acquisitions during a similar three year period. The three year standard is intended to limit the number of prior programs that the sponsor can include in the prospectus and to present investors with information about the sponsors most recent experience.

Similar instructions to the six proposed tables would provide that sponsors with public track records should include only public programs with similar investment objectives. As previously noted, this proposed instruction is crucial to reducing the quantity of track record disclosure.

Another similar instruction to the tables would provide that if a sponsor has no public track record it should include all programs with similar investment objectives, both public and nonpublic. However, with respect to proposed Tables I-IV, if five such programs have not been sponsored, then the sponsor would include information about all prior programs even if the investment objectives are not similar. The sponsor would aggregate by year such dissimilar nonpublic programs by their investment objective, noting the number of programs aggregated and describing the dissimilar investment objectives.

The proposed tables are not only designed to elicit disclosure of comparable programs, but, consistent with streamlined track record disclosure, to limit the number of programs required to be described in the tables. The six proposed tables are self-explanatory to a large degree. For the particular details of each table, reference should be made to the text of the individual tables. However, the following discussion highlights the basic thrust of each proposed table and raises certain issues for comment.

a. Table I. Experience in Raising and Investing Funds

Proposed Table I is intended to include information on a percentage basis showing how the sponsor has dealt with investors funds in recent programs, particularly focusing on the percentage of the amount raised available for investment (or total acquisition cost), the percentage of leverage used in purchasing properties, and the time frame for raising and investing funds.

This table combines elements from existing Table I (Use of Proceeds) ¹³ of Guide 60 as regards raising and investing funds on a dollar basis and from existing Table II (the exemplary prior experience table) as regards raising and investing funds on a percentage basis. However, as previously discussed, proposed Table I would cover only those offerings closed in the most recent three years and would be limited by the common instructions concerning sponsors with a public track record.

b. Table II. Compensation to Sponsor and Affiliates

Proposed Table II is intended to provide, a minimum of space, information that will enable an investor to understand the significance of compensation paid to the sponsor and its affiliates, as well as to gain an understanding of how the compensation is spread over the cycle of the program.

The proposed compensation table is different from the table that many registrants include in their prospectuses. It covers fewer partnerships in detail (only those offerings closed in the most recent three years), and it requires information that provides a context for evaluating the compensation paid. Thus, not only does the table show the amount paid to the sponsor from the proceeds of the offering, it also shows what the proceeds of the offering were. Similarly, it requires a statement of cash generated from operations and of dollar amount of property sales and refinancing in order to provide a context for the disclosure of amounts paid to the sponsor from operations and from property sales and refinancing, respectively.

Proposed Table II calls for separate columns of aggregate payments to the sponsor or its affiliates in the most recent three years from each recent partnership required to be separately discussed. Sponsors required to include nonpublic partnerships would be able to group these programs by investment objective and to present information on an aggregate basis by year. The proposed table also requires disclosure in a separate column of an aggregate figure of all compensation received by the sponsor in the last three years from all other partnerships not otherwise disclosed.

Instruction 4 to proposed Table II makes it clear that the table should include commissions and other fees paid to the sponsor or its affiliates in connection with the programs acquisition or disposition of properties from any entity other than the program. This disclosure is particularly important when the program has purchased a property and the seller, as often occurs, pay the sponsor a commission. Such commissions may constitute the major portion of the sponsors compensation and thus should be disclosed to investors.

Because the proposed table would include only programs the offering of which closed in the last three years, the Commission is aware that complete data regarding the full range of compensation paid to sponsors and affiliates over the entire life of each program will not appear in Table II as proposed. This would be especially true as regards amounts paid from operations and amounts paid from property sales and refinancing. An instruction that would have required compensation disclosure only about completed programs was also considered. While such an alternative would have provided complete compensation information regarding such programs, it would also have required disclosure of stale information in the case of long-completed programs and would not have required disclosure by sponsors that do not have many completed programs. In this regard, the Commission solicits specific comment on the issue of how to obtain more complete compensation data from sponsors without significantly expanding the requirements of Table II or making the tables disclosure unmanageable in size.

c. Tables III and IV--Operating Results of Prior Programs and Results of Completed Programs

These two proposed tables constitute the area of greatest condensation of track record disclosure. They are discussed under the same heading because, in terms of the information they are designed to elicit for investors, Tables III and IV represent, respectively, the start-up and the completion phases of a programs existence. In the past, sponsors have covered many prospectus pages with operating histories of all of their prior programs, seemingly without regard to prospectus length of clarity. Proposed Tables III and IV would limit track record disclosure in these matters to programs the offering of which closed (Table III) and programs that have completed operations (Table IV) in the most recent three years. The two tables are designed to provide investors with a reasonably complete picture of the financial operations of partnerships with the same sponsor over the existence of the programs. If presented for a sufficient number of programs, the information from the tables can give an appropriate indication of the sponsors success in meeting its objectives.

Instruction 4 to proposed Table III would permit operating results of nonpublic partnerships to be presented on a tax basis, rather than in accordance with generally accepted accounting principles ("GAAP"), if the programs books have not previously been kept on a GAAP basis. This instruction is designed to permit a small real estate syndicator to present operating results of prior programs without spending substantial amounts to converts its bookkeeping system. However, the proposed instruction points out that if there are any significant differences in operating results between accounting on a tax and GAAP basis, such differences should be explained. Further, the sponsor would be specifically required to provide such additional information as it necessary under the circumstances to prevent table data, including accounting data on a tax basis, from being materially misleading. ¹⁴

Proposed Table IV would apply to the results of programs completed in the last three years. Completed operations would mean a program which no longer holds properties, even if it still holds notes on the properties.

d. Table V. Sales or Disposals of Properties

The sales table proposed by the Commission would show details of sales of property by programs with the same sponsor and similar investment objectives in the previous three years. The table is similar, but not identical, to most of the tables currently used by sponsors; however, it does contain an additional column reflecting cash flow from the property during the time it was held by the partnership. The Commission believes that the cash flow column would provide investors with an analytic tool for determining operating results of a program during the period of property is held and for assessing overall program results. In addition, due to high interest rates, many newly acquired properties have minimal or negative cash flow. This information should be considered in assessing the overall results on sale of the property. The Commission believes that cash flow operating information is generally available by property and that the benefits to investors of this information in assessing a program justify the additional burden to a sponsor of presenting such information.

e. Table VI--Acquisitions of Properties by Programs

In order to decrease the volume of prospectus disclosure, the proposed acquisitions table would not appear in the prospectus but would be required in Part II of the registration statement. Proposed Table VI would not differ significantly from existing purchase tables except that it would include purchases only in the most recent three years by partnerships with similar investment objectives. As noted above, paragraph A.4. of proposed Item 8 would require a narrative summary of the purchases of property in the track record in order to provide a general picture of the types, location, and method of financing of properties purchased by programs with the same sponsor and similar investment objectives over the previous three years. The narrative summary would also describe Table VI as it appears in Part II of the registration statement and would contain an undertaking to provide the Table VI data to investors upon request. The instructions to proposed Table VI are similar to those found in proposed Table V with the exception of the location requirement for Table VI in Part II of the registration statement.

B. Conforming Amendments to Guide 60

In relation to the proposed revisions discussed above, the Commission proposes to make conforming changes in Guide 60 Items 3 and 9, the former by adding a reference to Appendix I as the new location for the sample Use of Proceeds Table referred to in that Item, and the latter by adding the current Item 8C to Item 9 as paragraph D. In view of the proposed prior performance tables, current Table II is proposed to be deleted. Since Form S-11 and Item 3 of Regulation S-K (17 CFR 229.20) currently require disclosure regarding the General Partner or any of its officers, directors or affiliates if they are doing business with the partnership, current Item 8B of Guide 60 is proposed to be deleted. While the other items of Guide 60 are not proposed to be revised, the numbering of subparagraphs within items would be conformed. Moreover, the Commission requests specific comment on what, if any, revisions can or should be made to the other items in order to streamline disclosure and to maintain investor protection while reducing the burden of compliance.

C. Financial Statements

In addition to the track record disclosure provision of Guide 60, the Subcommittee and the Commission have concurrently examined another difficult issue in the real estate limited partnership area--the issue of financial statement disclosure. Pursuant to Rule 3-14, "Special Instructions for Real Estate Operations to be Acquired," of Regulation S-X (17 CFR 210.3-14) registrants must furnish, during any period for which income statements are required, ¹⁵ audited income statements for the three most recent fiscal years for each significant property (or significant properties in the aggregate) acquired by the partnership. ¹⁶ The requirement for real estate programs parallels that applicable to other registrants. ¹⁷;

Generally, financial statements of properties acquired must appear in the prospectus (as effective or as supplemented and amended) if the properties are acquired before or during the offering. Current Item 21D of Guide 60 also requires an undertaking to file a sticker supplement during the distribution period describing each property not identified in the prospectus and to file a post-effective amendment consolidating the stickers at least once every three months. Audited financials for properties acquired during the distribution period need only be filed with the post-effective amendment. After the end of the distribution period, the registrant is also required, again pursuant to Item 21D of Guide 60, to undertake to file a current report on Form 8-K to reflect each commitment made involving the use of 10% or more (on a cumulative basis) of the net proceeds and to provide that information to limited partners at least once a quarter.

The requirement of three years of audited financial information has been subject to criticism for several reasons. First, sponsors claim that they usually rely on their own examination of the property and on their own assessment of economic conditions and demographic information in determining whether to purchase it. They assert that historical financial statements for real property do not usually provide significant information about the trends and factors that are most likely to affect future operations, such as demographic information, application of managerial techniques and competition.

Second, sponsors point out that the problems and expense in obtaining audited financial statements can be significant. According to these sponsors, because most real estate managers do not maintain their books on a GAAP basis, or obtain audits themselves, audited financial statements for a property are rarely available from the seller without additional effort and expense. Thus, the program must pay to obtain the audits itself. ¹⁸ Moreover, the sponsor must spend considerable time trying to enlist the cooperation of previous owners to obtain their books and access to their accountants.

In light of the above and at the recommendation of the NASAA Subcommittee, the Commission is proposing to amend Rule 3-14 of Regulation S-X. Generally, Rule 3-14 would continue to require three years of audited financial statements but a proposed proviso would permit the presentation of one year, instead of three, if three conditions are met. First, the property cannot have been acquired from a related party. Second, the prospectus would have to contain specific disclosure of the material factors considered by the registrant in assessing the property. Specific discussion is required of such material factors as sources of revenue and expense. Finally, the registrant would be required to indicate that, after reasonable inquiry, it is not aware of any material factor that would cause the reported financial information not to be necessarily indicative of future operating results. The reasonable inquiry envisioned here is in regard to the property itself rather than to general economic conditions. ¹⁹ The proposed proviso is intended to reduce burdens on sponsors to the extent feasible without decreasing investor protection and to bring financial statements requirements into accord with actual industry practices.

In conjunction with the proposed amendment to Rule 3-14 of Regulation S-X, the Commission is also proposing a conforming amendment to Undertaking D of Item 21 of Guide 60 and the addition of an Instruction 2(e) to Item 7 of Form 8-K.

Undertaking D, as previously described, relates to information about properties acquired that the sponsor is required to file after the registration statement becomes effective and includes an undertaking to file a current report on Form 8-K under certain circumstances. The proposed amendment would make clear that the Form 8-K should contain the financial and related information required by amended Rule 3-14. Undertaking D would also be rearranged for clarity. The order of the second and third paragraphs of the Undertaking would be reversed to reflect the fact that the filings described in the sticker supplement paragraph usually take place during the distribution period and those described in the current report paragraph take place after the distribution period.

Finally, in another conforming amendment, the Commission proposes to add a new instruction to Item 7 of Form 8-K to make clear that the financial information required on Form 8-K with regard to real estate acquisitions is that required by Rule 3-14.

III. Request for Comment

Any interested person wishing to submit comments on the proposed amendments, as well as other matters that might have an impact on the proposals contained herein, is requested to do so. The Commission also solicits comment as to whether the proposed amendments would have an adverse effect on competition or would impose a burden on competition which is not necessary or appropriate in the furtherance of the purposes of the Securities Act and the Exchange Act.

TEXT OF PROPOSALS

In accordance with the foregoing, it is proposed to amend Title 17, Chapter II, of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

1. By revising paragraph (a)(1) of §210.3-14 to read as follows:

§210.3-14 Special instructions for real estate operations to be acquired.

(a) * * *

(1) Audited income statements (not including earnings per unit) for the three most recent fiscal years, which shall exclude items not comparable to the proposed future operations of the property such as mortgage interest, leasehold rental, depreciation, corporate expenses and Federal and state income taxes: Provided, however, That such audited statements need be presented for only the most recent fiscal year if (i) the property is not acquired from a related party; (ii) material factors considered by the registrant in assessing the property are described with specificity in the prospectus with regard to the property, including sources of revenue (including, but not limited to, competition in the rental market, comparative rents, occupancy rates) and expense (including, but not limited to, utility rates, ad valorem tax rates, maintenance expenses, capital improvements anticipated); and (iii) the registrant indicates in the appropriate filing that, after reasonable inquiry, the registrant is not aware of any material factors relating to that specific property other than those discussed in response to paragraph (1)(ii) of this section that would cause the reported financial information not to be necessarily indicative of future operating results.

NOTE: The discussion of material factors considered should be combined with that required by Item 11 of Form S-11.

* * * * *

PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF 1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

2. By revising Items 3B, 8, 9 and 21D; by redesignating Table I as Appendix I; and by removing Table II and adding Appendix II to Guide 60 of the Guides for Preparation and Filing of Registration Statements and Reports under the Securities Act of 1933 to read as follows:

Guide 60--Preparation of registration statements relating to interests in real estate limited partnerships.

* * * * *

3. Summary of the Partnership and Use of Proceeds

* * * * *

B. Use of Proceeds. The use of proceeds tabular summary will vary according to the partnership but should include, where appropriate, estimates of the public offering expenses (both organizational and sales), the amount available for investment, non-recurring initial investment fees, prepaid items and financing fees, cash down payments, reserves, and acquisition fees including those paid by the seller. Estimated amounts to be paid to the General Partner and its affiliates should be identified. The summary should include both dollar amounts and percentages of the maximum and minimum proceeds of the offering. Inclusion of percentages of the estimated maximum and minimum total assets is optional. An example of a summary of Use of Proceeds is attached as Appendix I, but the summary will vary according to the circumstances.

* * * * *

8. Prior Performance of the General Partner and Affiliates

A narrative summary of the "track record" or prior performance of programs sponsored by the General Partner or its affiliates ("sponsors") containing the information set forth below should be included in the text of the prospectus. Tables following the format of those in Appendix II, relating to historical use of proceeds of prior programs, compensation to the sponsors, operations of prior programs, and acquisitions and sales of properties by prior programs, should be included at the back of the prospectus or in Part II of the registration statement as specified in paragraph B "Prior Performance Tables" hereunder.

Sponsors are urged not to include in the prospectus information about prior performance beyond that required by this Guide except for such further material information as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

Terms used in the Guide. "Public" programs include all offerings registered under the Securities Act of 1933, all programs required to report under Section 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), all programs with a class of equity security registered pursuant to Section 12(g) of the Exchange Act, and all other programs with at least 300 security holders of record that initially raised at least $1 million.

Programs with "similar investment objectives" are those with similar objectives as set forth in the prospectus. Generally, the sponsor has the responsibility to determine which previous programs had "similar investment objectives," taking into consideration the materiality of information about the prior programs in analyzing the registrants proposed activities.

A sponsor would be considered to have a "public track record" if it has sponsored at least three programs with investment objectives similar to those of the registrant that file reports under Section 13(a) or Section 15(d) of the Exchange Act and at least two public programs with investment objectives similar to those of the registrant that had three years of operations after investment of 90% of the amount available for investment. In addition, at least two of the public offerings for programs with investment objectives similar to those of the registrant must have closed in the previous three years.

A. Narrative Summary.

1. The narrative summary in the text of the prospectus should include a description of the sponsors experience in the last ten years with all other programs, both public and nonpublic, that have invested primarily in real estate, regardless of the investment objectives of the programs. This summary should include at least (a) the number of programs sponsored, (b) the total amount of money raised from investors, (c) the total number of investors, (d) the number of properties purchased and location by region, (e) the aggregate dollar amount of property purchased, (f) the percentage (based on purchase prices rather than on number) of properties that are commercial (broker out by shopping centers, office buildings and others) and residential, (g) the percentage (based on purchase prices) of new, used or construction properties, and (h) the number of properties sold. Aggregate figures should be presented separately for public and nonpublic programs. In addition, the narrative should indicate the approximate percentage of the overall data that represents activities of programs with investment objectives similar to those of the registrant. The summary also should cross-reference the prior performance tables.

2. The narrative summary should include a discussion of those major adverse business developments or conditions experienced by any prior program, either public or nonpublic, that would be material to investors in this program. The narrative summary also should include a cross-reference to further information that may be found in Appendix II as part of Table III.

3. The narrative summary should include a list of all prior public programs sponsored by the General Partner or its affiliates and an undertaking to provide upon request, for no fee, the most recent Form 10-K Annual Report filed with the Commission by any prior public program that has reported to the Commission within the last twenty-four months and to provide, for a reasonable fee, the exhibits to each such Form 10-K.

4. The narrative summary should include a summary of acquisitions of properties by programs in the most recent three years as set forth in Table VI of Appendix II. The summary should include the number of properties purchased, the type, location and method of financing. Reference should be made to the more detailed description of these acquisitions in Part II of the registration statement, and the registrant should undertake to provide the more detailed description from Part II without fee upon request.

B. Prior Performance Tables. The information required by the tables set forth in Appendix II should be included in the format shown. Tables should appear at the back of the prospectus except for Table VI, which should appear only in Part II of the registration statement. The instructions to the tables specify the programs and time periods about which information is required.

9. Management

* * * * *

D. The amount of, and reason for, any contingent liabilities of the General Partner with regard to prior programs now in existence should be disclosed. If this information appears in the financial statements it may be incorporated hereunder by reference.

* * * * *

21. Undertakings

* * * * *

D. The following undertakings relating to investment of the proceeds of an offering in which a material portion of the maximum net proceeds (allowing for reasonable reserves) is not committed (i.e., subject to a binding purchase agreement) to specific properties should be included in the registration statement:

The registrant undertakes to file a sticker supplement pursuant to Rule 424(c) under the Act during the distribution period describing each property not identified in the prospectus at such time as there arises a reasonable probability that such property will be acquired and to consolidate all such stickers into a post-effective amendment filed at least once every three months, with the information contained in such amendment provided simultaneously to the existing Limited Partners. Each sticker supplement should disclose all compensation and fees received by the General Partner(s) or its affiliates in connection with any such acquisition. The post-effective amendments shall include audited financial statements meeting the requirements of Rule 3-14 of Regulation S-X only for properties acquired during the distribution period.

The registrant also undertakes to file, after the end of the distribution period, a current report on Form 8-K containing the financial statements and any additional information required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the Limited Partners at least once each quarter after the distribution period of the offering has ended.

Note. Offers and sales of the interests may continue after the filing of a post-effective amendment containing information previously disclosed in sticker supplements to the prospectus, as long as the information disclosed in a current sticker supplement accompanying the prospectus is as complete as the information contained in the post-effective amendment.

* * * * *

APPENDIX I

EXAMPLE OF SUMMARY OF THE USE OF PROCEEDS SECTION

* * * * *

APPENDIX II

PRIOR PERFORMANCE TABLES

Instructions to Appendix II

1. The prior performance tables should be preceded by a narrative introduction that cross references the narrative summary in the text, explains the significance of the track record and the tables, explains where additional information (Part II of the registration statement or Form 10-K Annual Reports for prior programs) can be obtained on request and includes a glossary of terms used in the tables.

This introduction also should include a discussion of the factors the sponsor considered in determining which previous programs had "similar investment objectives" to those of the registrant.

2. Each of the tables should be introduced by a brief narrative explaining the objective of the table and what it covers so that the investor will be able to understand the significance of the information presented. There also should be set forth with or in each table any further material information as may be necessary to make the required tabular data, in light of the circumstances under which it is presented, not misleading.

Table I. Experience in Raising and Investing Fund

(on a percentage basis)

Instructions: 1. Include information only for programs the offering of which closed in the most recent three years.

2. Sponsors with a "public track record" should include information relating only to public programs with investment objectives similar to those of the registrant.

3. If the sponsor does not have a "public track record," information must be given for each prior program, public or nonpublic, with investment objectives similar to those of the registrant. If the sponsor has not sponsored at least five such programs, then information must be given for each prior program, public or nonpublic, even if the investment objectives for those programs are not similar to those of the registrant. In that case, nonpublic programs with investment objectives that are not similar to those of the registrant should be grouped together according to investment objective and information about those programs presented on an aggregate basis by year. If so presented, the number of programs that have been aggregated should be disclosed. The sponsor also should indicate by note if the investment objectives of any program are not similar to those of the registrant and should briefly describe those investment objectives.

                                              Program X       Program Y
Dollar amount offered
Dollar amount raised (100%)
Less offering expenses:
Selling commissions and discounts
Retained by affiliates
Organizational expenses
Other (explain)
Reserves
Percent available for investment
Aquisition costs:
Prepaid items and fees related to purchase of
property
Cash down payment
Acquisition fees
Other (explain)
Total acquisition cost
Percent leverage (mortgage financing divided
by total acquisition cost)
Date offering began
Length of offering (in months)
Months to invest 90% of amount available for
investment (measured from beginning of offering)

Table II. Compensation to Sponsor and Affiliates

Instructions: 1. Include in a separate column for each program aggregated payments made to the sponsor and its affiliates only by real estate programs the offering of which closed in the most recent three years. Include in another separate column aggregate payments to the sponsor or its affiliates in the most recent three years from all other programs and indicate the number of programs involved.

2. Sponsors with a "public track record" should include information relating only to public programs with investment objectives similar to those of the registrant.

3. If the sponsor does not have a "public track record," information must be given for each prior program, public or nonpublic, with investment objectives similar to those of the registrant. If the sponsor has not sponsored at least five such programs, then information must be given for each prior program, public or nonpublic, even if the investment objectives for those programs are not similar to those of the registrant. In that case, nonpublic programs with investment objectives that are not similar to those of the registrant should be grouped together according to investment objective and information about those programs presented on an aggregate basis by year. If so presented, the number of programs that have been aggregated should be disclosed. The sponsor also should indicate by note if the investment objectives of any program are not similar to those of the registrant and should briefly describe those investment objectives.

4. The table should include any real estate commissions and other fees paid to the sponsor or its affiliates in connection with the acquisition or disposition of any properties by the program by entities other than the program itself.

                                                                                          Other
Type off Compensation                                           Program X       Program Y       Program
Date offering commenced
Dollar amount raised
Amount paid to sponsor and affiliates from proceeds of
offering:
Underwriting fees
Acquisition fees
=real estate commissions
=advisory fees
=other (identify and quantify)
Other
Dollar amount of cash generated from operations before
deducting payments to sponsor and affiliates
Amount paid to sponsor and affiliates from operations:
Property management fees
Partnership management fees
Reimbursements
Leasing commissions
Other (identify and quantify)
Dollar amount of property sales and refinancing before
deducting payments to sponsor and affiliates
=cash
=notes
Amount paid to sponsor and affiliates from property sales
and refinancing:
Real estate commissions

                                     Incentive fees *
Other (identifying and quantify)

* Explain subordinated commissions in a note.

Table III. Operating Results of Prior Programs

Instructions:

1. Include information only for programs the offerings of which closed in the most recent three years. Financial data for each program should be presented separately for each year.

2. Sponsors with a "public track record" should include information relating only to public programs with investment objectives similar to those of the registrant.

3. If the sponsor does not have a "public track record," information must be given for each program, public or nonpublic, with investment objectives similar to those of the registrant. If the sponsor has not sponsored at least five such programs, then information must be given for each prior program, public or nonpublic, even if the investment objectives for those programs are not similar to those of the registrant. In that case, nonpublic programs with investment objectives that are not similar to those of the registrant should be grouped together according to investment objective and information about those programs presented on an aggregate basis by year. If so presented, the number of programs that have been aggregated should be disclosed. The sponsor also should indicate by note if the investment objectives of any program are not similar to those of the registrant and should briefly describe those investment objectives.

4. Information should be presented on the basis of generally accepted accounting principles ("GAAP") where indicated. However, where information about nonpublic programs is required to be included, such information may be presented on a tax basis if the programs books have not been kept on a GAAP basis. If there are any significant differences in operating results between accounting on a tax and GAAP basis, they should be explained. This explanation should provide the reader with such additional information about the particular programs presented as may be necessary to make the information contained in the Table not materially misleading in light of the circumstances under which the information was given.

                                                                 Program X

                                                          Year       Year       Year

                                                             1          2          3
Gross Revenues
Profit on sale of properties
Less: Operating expenses
Interest expense
Depreciation
Net Income=GAAP Basis
Taxable Income

                     Cash generated from operations *
Cash generated from sales
Cash generated from refinancing
Cash generated from operations, sales and refinancing
Less:Cash distributions to investors
=from operating cash flow
=from sales and refinancing
=from other
Cash generated (deficiency) after cash distributions
Less: Special Items (not including sales and refinancing)
(identify and quantify)
Cash generated (deficiency) after cash contributions and
special items
Tax and Distribution Data Per$1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
=from operations
=from recapture
Capital gain (loss)
Cash Distributions to Investors
Source (on GAAP basis)
=Invest income
=Return of capital
Source (on cash basis)
=Sales
=Refinancing
=Operations
=Other

 * Indicate in a note what amount is from sources other than operations, such as  guaranteed rents or interest.

Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all properties in program)

Table IV. Results of Completed Programs

Instructions:

1. Include programs that have completed operations (no longer hold properties) in the most recent three years, even if they still hold notes.

2. Sponsors with a "public track record" should include information relating only to public programs with investment objectives similar to those of the registrant.

3. If the sponsor does not have a "public track record," information must be given for each prior program, public or nonpublic, with investment objectives similar to those of the registrant. If the sponsor has not sponsored at least five such programs, then information must be given for each prior program, public or nonpublic, even if the investment objectives for those programs are not similar to those of the registrant. In that case, nonpublic programs with investment objectives that are not similar to those of the registrant should be grouped together according to investment objective and information about those programs presented on an aggregate basis by year. If so presented, the number of programs that have been aggregated should be disclosed. The sponsor also should indicate by note if the investment objectives of any program are not similar to those of the registrant and should briefly describe those investment objectives.

Program Name

Dollar Amount Raised

Number of Properties Purchased

Date of Closing of Offering

Date of First Sale of Property

Date of Final Sale of Property

Tax and Distribution Data Per $1000 Investment Through...

Federal Income Tax Results:

Ordinary income (loss)

--from operations

--from recapture

Capital Gain (loss) ²⁰

Deferred Gain ²¹

Capital

Ordinary

Cash Distributions to Investors

Source (on GAAP basis)

--Investment income

--Return of capital

Source (on cash basis)

--Sales

--Refinancing

--Operations

--Other

Receivable on Net Purchase Money Financing ²²

Table V. Sales or Disposals of Properties

Instructions:

1. Include all sales or disposals of property by programs with similar investment objectives within the most recent three years.

2. Sponsors with a "public track record" should only include information relating to public programs. If the sponsor does not have a "public track record," then information should be given about sales or disposals of properties by public and nonpublic programs. Where properties held by nonpublic programs are included, information should be on a GAAP basis where feasible without undue effort or expense.

                                                                                                                                             Excess

                                                                                                                                          (Deficiency)

                                                                                                                                           of Property

                                                                                                                                            Operating

                        Date of                                                                               Cost of Properties          Cash Receipts

          Date           Sale                                                                              Including Closing and            Over Cash
Property       Acquired         *           Selling Price, Net of Closing Costs and GAAP Adjustments                 Soft Costs               Expenditures

                                                                                                                                              Total

                                        Cash                                             Adjustments                                       acquisition

                                      received       Mortgage       Purchase money        resulting                                       cost, capital

                                       net of        balance        mortgage taken          from                          Original        improvement,

                                      closing        at time          back by            application                      mortgage        closing and

                                       costs         of sale         program 2/          of GAAP ***       Total #     financing       Soft costs ##    Total

* Note if sales of properties are to related parties.
**Indicate in a note that the amounts shown are face amounts and do not represent discounted current value. In addition, describe the terms of purchase money mortgages taken back by the partnership,
   including the interst rate, any balloon payment requirements and other special provisions. Also, describe those sales made with a leaseback or any other guarantees which require continued seller involvement.
*** Include an explanation of any GAAP adjustments.

# Note the allocation of the taxable gain between ordinary and capital, and identify those sales that are being reported fro tax purposes on the installment basis.

## Identify real estate commissions carried but not taken. Indicate that amounts shown do not include pro rata share of original offering costs.

### Do not include amounts otherwise included under "Selling Price, Net of Closing Costs and GAAP Adjustments" or "Cost of Properties including Closing and Soft Costs," Costs incurred in the administration of the partnership not related to the operation of properties need not be included if so indicated in a note to the Table.

Table VI. Acquisitions of Properties by Programs

Instructions:

1. Include the following table only in Part II of the registration statement.

2. Include all properties acquired by any prior programs with similar investment objectives in the most recent three years.

3. Sponsors with a "public track record" should only include information relating to public programs. If the sponsor does not have a "public track record," then information should be given about properties acquired by public and nonpublic programs.

Program X

Name, location, type of property

Gross leaseable space (sq. ft.) or number of units and total square feet of units

Date of purchase

Mortgage financing at date of purchase

Cash down payment

Contract purchase price plus acquisition fee

Other cash expenditures expensed

Other cash expenditures capitalized

Total acquisition cost

PART 249--FORMS, SECURITIES, EXCHANGE ACT OF 1934

3. By adding Instruction 2(e) to Item 7 of §249.308 to read as follows: §249.308 Form 8-K, for current reports.

* * * * *

Item 7. Financial Statements and Exhibits.

List below the financial statements and exhibits, if any, filed as part of this report.

(a) * * *

Instructions.

* * * * *

2. * * *

(e) With regard to the acquisition of one or more real estate properties, only the financial statements and any additional information specified by Rule 3-14 of Regulation S-X shall be filed.

* * * * *

Initial Regulatory Flexibility Analysis

This initial regulatory flexibility analysis, prepared in accordance with 5 U.S.C. 603, relates to proposed changes in Guide 60, "Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships" and related financial statement regulations under the Securities Act of 1933 and the Securities Exchange Act of 1934.

Reasons for Proposed Action

Since the publication of Guide 60 in the spring of 1976, the Securities and Exchange Commission (the "Commission") has become increasingly concerned over unnecessary and overly complex prospectus presentation of information relating to the prior real estate program experience ("track record") of real estate limited partnerships. The states, through their state securities administrators, many of whom are members of the North American Securities Administrators Association, ("NASAA") have become aware of the same track record disclosure problem. Since early 1980, the Commission has been working in conjunction with a NASAA subcommittee ("the Subcommittee") to develop uniform proposals for reducing the amount of track record disclosure, thus benefiting both sponsors of public real estate programs, by reducing their disclosure burdens, and investors, who would receive a more readable prospectus. As the culmination of this cooperative effort with the states, the Commission is publishing for public comment this release proposing reduction of the track record disclosure required by Guide 60 and amendment of related financial statement provisions.

Objective

As discussed in more detail in the release, the proposal is expected to achieve a reduction in voluminous track record disclosure by real estate limited partnerships in prospectuses, resulting in more streamlined prospectus presentation. The objectives of the proposals are, first, to provide investors with sufficient information to evaluate investment in public real estate programs presented in the most comprehensive fashion possible and, second, to reduce track record disclosure burdens for sponsors by limiting the amount of required disclosure, imposing a more standardized prospectus presentation format than currently exists, and cooperating with the states to develop a uniform disclosure regulation for public real estate programs. These objectives would be achieved, in large part, by: (1) Using Guide instructions to limit track record disclosure, to the extent possible, to prior public programs of sponsors with investment objectives similar to those of the sponsors currently offered program; (2) requiring, for clarity and uniformity, presentation of track record disclosure in a readable narrative summary in the body of the prospectus; (3) requiring, for clarity and uniformity, presentation of tabular track record disclosure in six specified tables, examples of which would be included as Appendix II to Guide 60; and (4) limiting where possible, through prior performance table instructions, the time periods from which track record disclosure data should be drawn.

In addition to the proposed amendment of Guide 60, the Commission is also proposing to amend the financial statement disclosure requirements of Rule 3-14 of Regulation S-X, "Special Instructions for Real Estate Operations to be Acquired." The proposed amendment would reduce the financial reporting burden on sponsors by reducing from three years to one year the number of years that audited financial statements for properties to be acquired would be required under Rule 3-14 of Regulation S-X, provided certain conditions designed to protect investors are met.

As part of the Commissions proposals, conforming amendments discussed in detail in the release are also proposed for comment at this time.

Legal Basis

The Commission is proposing these Guide amendments and related rule changes pursuant to Sections 7, 10 and 19(a) of the Securities Act of 1933 and Sections 13, 15(d) and 23(a) of the Securities Exchange Act of 1934.

Small Entities Subject to the Rule

If the proposed amendments discussed above and in the release become effective, it is believed that certain small entities will have their regulatory burdens decreased. In the Commissions experience, sponsors of public real estate programs vary across a broad range of size and assets. However, utilizing the Commissions proposed $2.5 million "small business" parameter, ²³ it appears likely that a substantial number of small business entities would be affected by the proposed amendments. The Commission is unable to determine the cost savings associated with reduced track record disclosure requirements. Such savings would depend on the experience of the sponsor in offering prior public real estate programs. As regards reduced financial statement disclosure, sponsors which do not keep property accounts on a generally accepted accounting principles ("GAAP") basis would not have to change accounting systems to GAAP in order to comply with track record disclosure and financial statement requirements. This cost-saving provision is aimed specifically at small entities which sponsor real estate limited partnerships. Moreover, the proposed amendment to Rule 3-14 will allow registrants, regardless of their size, to file audited income statements for real estate operations to be acquired covering only one year instead of the currently required three years, provided specified conditions are met. Thus registrants would be able to reduce their audit expenses accordingly.

Reporting, Recordkeeping and other Compliance Requirements

The Commission does not believe that amending the track record disclosure guidelines and related financial disclosure provisions as proposed would result in any new reporting, recordkeeping or other compliance requirements. As noted, in certain cases, the proposals would reduce such requirements.

Overlapping or Conflicting Federal Rules

The Commission does not believe that the proposed amendments duplicate or conflict with any existing rule provisions.

Significant Alternatives

Since the proposed amendments do not increase the regulatory burden on any registrant, but rather serve to reduce it, the establishment of different requirements for small entities was not considered necessary. By streamlining track record disclosure requirements and reducing financial statement filing burdens where possible, consistent with the protection of investors, the Commission expects that all registrants will benefit. However, as pointed out below, at least one of the proposed changes in track record disclosure guidelines is intended to benefit small entities, which are less likely than larger sponsors to maintain their property accounts on a GAAP basis. Such sponsors are not required by the proposals to change their bookkeeping systems.

Solicitation of Comments

The Commission encourages the submission of written comments with respect to any aspect of this initial regulatory flexibility analysis. Such written comments will be considered in the preparation of the final regulatory flexibility analysis, if the proposed amendments are adopted. Persons wishing to submit written comments should file three copies thereof with George A. Fitzsimmons, Secretary, Securities and Exchange Commission, Room 892, 500 North Capitol Street, Washington, D.C. 20549. All submissions should refer to File No. S7-908 and will be available for public inspection at the Commissions Public Reference Room, Room 6101, 1100 L Street, N.W., Washington, D.C. 20549.

Authority

These amendments are being proposed pursuant to Sections 7, 10 and 19(a) of the Securities Act of 1933 and Sections 13, 15(d) and 23(a) of the Securities Exchange Act of 1934.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81 85; secs. 205, 209, 48 Stat. 906, 908; sec. 8, 68 Stat. 685; sec. 308(a)(2), 90 Stat. 57; secs. 13, 15(d), 23(a), 48 Stat. 894, 895, 901; sec. 203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 4, 6, 78 Stat. 570-574; sec.2, 82 Stat. 454; secs. 1, 2, 84 Stat. 1497; secs. 10, 18, 89 Stat. 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 204, 91 Stat. 1494, 1498, 1499, 1500; 15 U.S.C. 77g, 77j, 77s(a) 78m, 78o(d), 78w(a);

By the Commission

George A. Fitzsimmons

Secretary

¹ NASAA is a voluntary organization composed of the securities regulatory agencies of 10 states, the Commonwealth of Puerto Rico, Guam, and 13 provinces of Canada and Mexico.

² In Release No. 33-6276 (December 23, 1980) (46 FR 78), and subsequently, in Release No. 33-6332 (August 6, 1981) (46 FR 41925), the Commission proposed the withdrawal of all Guides except those which pertain to disclosure by certain industries. The releases proposed that Guide 60 remain as an Industry Guide. In addition, the Commission noted that Guide 60 would be subject to re-evaluation in a joint effort with the North American Securities Administrators Association. The proposals contained in todays release are the result of that cooperative re-evaluation.

³ Securities issued by public real estate limited partnerships are primarily registered pursuant to the Securities Act on Form S-11 (17 CFR 239.18), which is specifically designed for such registration statements.

⁴ 17 CFR §§249.310, 249.308a, and 249.308. See Exchange Act Sections 15(d), 13(a) and 12(g) and the rules and regulations thereunder.

⁵ In 1973, the Midwest Securities Commissioners Association adopted rules and standards known as the Statement of Policy Regarding Real Estate Programs. Commonly referred to as the Midwest Guidelines, these regulations were amended in 1974 and 1975.

⁶See Release Nos. 33-5465 (March 1, 1974) (30 FR 10278) and 33-5692 (March 17, 1976) (41 FR 17374). Guide 60 was last amended in Release No. 33-5745 (September 27, 1976) (41 FR 43398). Guide 60 currently contains 21 Items, each addressing a separate aspect of disclosure for real estate offerings. These items include risk factors (Item 7), Federal taxes (Item 12) and use of proceeds (Item 23 and Table 1).

⁷ See Release No. 33-5692, supra.

⁸ This association was later absorbed by NASSA in the fall of 1980.

⁹ In addition to its cooperative effort with the Commission, on July 21, 1981, NASA published proposed changes in its Statement of Policy Regarding Real Estate Programs. These guidelines had superseded the Midwest Guidelines, supra, note 5. Item VIII.B. of the NASAA proposals would replace the current provision with one that would require the prospectus to meet the requirements of Guide 60. For the most part, the remaining NATSAA proposals relate to compliance with the "fair, just and equitable" standard embodied in a number of state securities statutes. The comment period for the NASAA proposals ended September 4, 1981.

¹⁰ The track record concept is integral to limited partnership and related offerings (oil and gas as well as real estate) where each program is a "new issuer," a sponsor may form and manage a number of issuers, and the initial investment is in a blind pool.

¹¹ The eight areas are: (a) the number of programs sponsored; (b) the total amount of money raised from investors; (c) the total number of investors; (d) the number of properties purchased and location by region; (e) the aggregate dollar amount of property purchased; (f) the percentage (based on purchase prices rather than on number) of properties that are commercial (broker out by shopping centers, office buildings and other properties) and residential; (g) the percentage (based on purchase prices) of new, used or construction properties; and (h) the number of properties sold.

¹² The Tables cover the following subjects: (I.) Experience in Raising and Investing Funds; (II.) Compensation to Sponsor and Affiliates; (III.) Operating Results of Prior Programs; (IV.) Results of Completed Programs; (V.) Sales or Disposals of Properties; and (VI.) Acquisition of Properties by Programs.

¹³See current Item 3 of Guide 60.

¹⁴ For example, assuming a sponsor kept a programs accounts on a cash basis, the fact that it had accumulated a number of significant overdue bills (but short of an amount that would cause foreclosure) would not be reflected in a cash account statement until the bills were paid. On a GAAP basis, this would not occur, since the bills would be accrued. In this example, the sponsor would have to disclose the existence of the programs significant overdue bills.

¹⁵ Rule 3-14(b) of the Regulation S-X provides that the information required by Rule 3-14(a) is not required to be included in filings on Form 10-K (17 CFR 249.310).

¹⁶ Following each such significant acquisition, Rule 3-14 of Regulation S-X also requires presentation of a pro-forma table of operating results based upon the most recent twelve month period, and, if appropriate, the estimated cash distribution per unit broken out into taxable income and return on capital. These provisions are not proposed to be amended by this time.

 Rule 3-14 of Regulation S-X was adopted in the fall of 1980. Release No. AS-281 (September 2, 1980) 45 FR 63682. Rule 3-14 was based on Item 6(b) of Form S-11, which required information regarding operations to be acquired. When the Commission adopted Rule 3-14, it deleted Item 6(b) of Form S-11. Item 6(b) had required a summary of operations for five years, three years of which had to be audited.

¹⁷ Rule 3-02 of Regulation S-X requires the filing of audited income statements and changes in financial position for each of the last three fiscal years preceding the date of the most recent audited balance sheet being filed.

¹⁸ Sponsors estimate that the cost for a standard audit may run from $5,000 to $12,000 a property or more, resulting in overall costs for the partnership of more than $100,000.

¹⁹ In connection with the proposed amendment of Rule 3-14 of Regulation S-X, the Commission wishes to remind sponsors, particularly those new to public real estate programs, that issuers that have identified properties to be purchased are obliged to make necessary disclosures, both during the pre-effective as well as the post-effective period of registration. See footnote to Item 11 of Guide 60. The practice of intentionally delaying the purchase of an identified property to avoid disclosure requirements, also known as "warehousing," is inconsistent with the duty of the issuer to disclose material facts relating to the offering.

²⁰ Note 60% capital gain exclusion.

²¹ Explain in a note deferred capital gain.

²² Explain in a note the terms of notes taken back and annual payments, and the fact that the amounts presented are face amounts and do not represent discounted current value.

²³See Securities Act Release No. 6302 (March 20, 1981) (46 FR 19251).