SEC Division of Investment Management staff letter: Nottingham Realty Securities

FRANK SEAMANS
CARL CHERIN
CLOYD R.MELLOIT
GREGG KERR
RODERICK NORRIS
JOHN MORGAN
CARL BARGER
EDWARD GREENE
DONALD WINSON
ROBERT MCCARTNEY
WILLIAM MALLIN
BARTON Z.COWAN
EDWIN L.KLETT
THOMAS WRIGHT
ARTHUR WILSON JR C.KENT MAY
EDWARD OCONNOR ALFRED VADNAIS
WM ALVAH STEWART
DALE E.WILLIAMS
DALE HERSIIEY
ROBERT DOTY
GARY KOSINSKI
JOHN KENRICK
ROBERT WILLIAMS
WILLIS SIEGFRIED JR
DAVID E.TUNGATE
ROBERT M.BROWN
MICHAEL R.STABILEJR
RICHARD GLADSTONE RICHARD GOLD RAY C.STONER MONTGOMERY WILLIAM NUERNBERG PETER BAGGERMAN MARK A.WILLARD JOHN UBINGERJR RICHARD FUNK THOMAS SNYDER HOWARD D.SCHWARTZ ROBERT L.ALLMANll STEVEN McGRATH BRYAN ROSENBERGER DENNIS L.VERALDI MICHAEL BORASKY DENNIS LEWIS WILLIAM H.SCHORLING JAMES ROBERTS K.DOYLE GEORGE HERBERT BOATNER JR JOHN SCHMIDT RICHARD HALPERN JOHN MYERS JOHN ARTZ WILLIAM WATSON SMITH 1871-1964 WU.LIAM ECKERT 1900-1981 ANDREW M.ROMAN ROBERT L.BYER JANICE BOWERS DENNIS OBRIEN JONATHAN HERGERT MARGARET P.JOY GEORGE MEDVED STUART WILLIAMS FRED GEORGE GEORGE E.YOKITIS CLIFFORD PASTEL ELLEN MERCER SCHINDLER CARLA GREENFIELO WILLIAM E.KELLEHERJR ANN MCCLURE LINDA McCLELLAN RICHARD WIEDMAN MARK C.COULSON RICHARD RINALDO RICHARD DAN DREA JOHN FORD FREDERICK CASPAR SARA MERCER PATRICIA DODGE SAMUEL M.BROCKm BLAINE LUCAS LOUIS MORAYTIS BRIAN LUCAS EDWARD FLYNN RICHARD McGONIGLE LARRY K.ELLIOTT CHRISTOPHER OPALINSKI GARY R.WALKER R.NARK SOLANO ANN ANNASE PETER PROSS LAURA J.WILLIAMS McDOWELL SHARPE STEVEN LYNCH GARY L.KARL MARK SCOTT NANCY HAITLAND JEFFREY JOHNSTON JAMES NORRIS JO ANN HALLER JOSEPH A.NAPOLI GEORGE CORNELIUS MARK MURPHY MARK SULLIVAN PAUL YENERALL MICHAEL A.MARTIN KATHLEEN WECIITER JAMES BOLLENBACHER MARCIA L.GRIMES Gentlemen Re Nottingham Realty Securities Inc Reference No 83210CC By letter dated June 27 1983 request was made that the Division take noaction position with respect to the status of Nottingham Realty Securities Inc Nottingham as an investment company By letter dated July 28 1983 the Division advised that it would not recommend that the Commission take any enforcement action against Nottingham under the Investment Company Act of 1940 as amended the Act on the grounds that Nottingham was excepted under Section 3c of the Act from the definition of investment company copy of each of the aforementioned letters is enclosed Nottingham proposes to issue 2000000 shares of adjustable rate cumulative preferred stock through public offering as described in registration statement on Form Sll Registration No 289512 filed with the Commission on February 17 1984 EcKERT SEAMANs CHERN MELL0TT ATTORNEYS AT LAW 600 GRANT STREET FORTY-SECOND FLOOR PITTSBURGH PA 15219 412 566-6000 TELEx-e66172 TEL ECO PIERS 412 566-6099 412 566-5952 SPECIAL COUNSEL SIDNEY RUFFIN ROBERT HAZLETT OF COUNSEL MILTON LAMPROPLOS LEON HICKMAN March 1984 t.. Of Securities ce of Chief and Exchange Counsel Ma Comu ement c_ Judiciary Plaza ub1i 450 Fifth Street N.W 7///c b. Washington DC 20549

Securities and Exchange Commission
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March 1984
The facts and circumstances relating to Nottinghams operations which were described in the aforementioned letters remain substantially unchanged at this time One modifica tion to the method of operation has been implemented as described below and another is proposed and forms the basis for our further request that the Division advise us that it will not recommend that the Commission take any enforcement action against Nottingham if it proceeds in the manner described herein without registering under the Act The modifications to the facts described in the abovereferenced letters are First whereas it previously was expected that Nottingham would hold whole mortgages as permissible form of investment upon analysis it was determined that the mechanics of obtaining suitable information with respect to such mortgages in order to be able properly to rate the preferred stock to be issued by Nottingham would be so complicated and potentially costly that the concept of holding whole mortgages was abandoned Second it previously was expected that if Nottingham held mortgagebacked certi ficates guaranteed by Government National Mortgage Association GNMA Certificates Nottingham would hold only GNMA Certi ficates constituting the entire issue of GNMA Certificates with respect to particular pools of mortgages It now appears that the prospects for Nottinghams future operations and potential profitability would be enhanced if Nottingham were permitted to invest in GNMA Certificates without regard to the percentage of pool of mortgages represented thereby In July 1983 the Staff stated that it would not recommend action against an issuer which agreed to maintain at least 65% of its assets in GNMA Certificates representing 100% of the certificates backed by particular pools of mortgages wholepool GNMA Certificates Investors GNMA Trust Inc July 22 1983 In Salomon Mortgage Securities Inc November 1983 the Staff took similar noaction position where the representation was made that the issuer would maintain at least 55% of its assets in wholepool GNMA Certificates Recently in acting upon an application pursuant to Section 6c of the Act the Commission on January 31 1984 entered an Order In the Matter of Guaranteed Mortgage Corporation II Release No 13744 which Order in substance

Securities and Exchange Commission
Page Three
March 1984 provided that Guaranteed Mortgage Corporation II would be free to issue its debt instruments secured directly or indirectly by any GNMA Certificates without regard to the percentage of the pool of mortgages represented thereby That is to say the distinction between wholepool GNMA Certificates and those GNMA Certificates representing less than 100% of pool partialpool GNMA Certificates should not be material in determining whether registration was required under the Act. More particularly it is our opinion that both whole-pool GNMA Certificates and partial-pool GNMA Certi ficates represent interests in real estate Each GNMA Certificate represents an undivided beneficial interest in the underlying mortgages partialpool GNMA Certificate is for all intents and purposes tenancy in common in the underlying mortgages with the holders of other certi ficates backed by the pool If at least 55% of Nottinghams assets consists of partialpool GNMA Certificates it is our view that Nottingham would be primarily engaged in acquiring interests in real estate Under the circumstances described above in our opinion Nottingham will be person engaged primarily in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate and accordingly since it will not issue redeemable securities face amount certificates of the installment type or periodic payment plan certificates Nottingham will not be an invest ment company as defined in the 1940 Act Based upon the foregoing we respectfully request that the Division take noaction position with respect to Nottinghams status as an investment company We request an expedited response to this letter and to that end we will be pleased to discuss this matter with the Staff at its convenience either in person or by telephone and to provide additional information promptly Please do not hesitate to call me or my associate Ellen Schindler 4o CKMml Very truly yours -- -rS

MAR20 1984
Our Ref No 8475CC
Nottingham Realty
RESPONSE OF ThE OFFICE OF CHIEF CJNSEL Securities Inc DIVISION OF INVESIMENT MANAGv1ENT File No 132-3 We are unable to advise you that we would recommend noaction to the Commission if Nottingham Realty Securities Inc proceeded to invest in GI4A securities in the manner proposed without registering under the Investment Company Act of 1940 or being exempted from the provisions of that act by rule or order Arlington Investment Company pub avail August 31 1974 But cf American Home Finance Corporation pub avail May 11 1981 treating whole pool G4Ps as 1TKrtgages and other liens on and interests in real estate Deputy Chief Counsel