SEC Division of Investment Management staff letter: The Standish Ayer & Wood Inc. Stable Value Group Trust

ROPES GRAY
ONE INTERNATIONAL PLACE
ONE rRANKLIN SQUARE
BOSTON MASSACH USETTS 02110-2624 I3 STREET
30 KENNEDY PLAZA 617 951-7000 SUITE 800 EAST
PROVIDENCE RI 02903-2328 WASHINGTON DC 20005-3333 40 455-4400 FAX 617 951-7050 202 626-3900 FAX 401 455-4401 WRITERS DIRECT DIAL NUMBER 95 7400 FAx 202 626-3961 December 27 1995 Jack Murphy Esq Associate Director Chief Counsel ACT Division of Investment Management SECTION Securities and Exchange Commission 450 Fifth Street N.W RULE Washington DC 20549 AVAILABILITY_1 Re The Standish Ayer Wood Inc Stable Value Group Trust Dear Mr Murphy On behalf of our client Standish Ayer Wood Inc Standish we respectfully request that the staff of the Division of Investment Management concur with our interpretation of Section 3c1 under the Investment Company Act of 1940 as amended the 1940 Act as it applies to the proposed activities described below Facts The Standish Ayer Wood Inc Stable Value Group Trust the Trust is being established by Standish and State Street Bank and Trust Company State Street as collective investment vehicle for tax-qualified pension and profit-sharing trusts and certain governmental retirement plans The Trust which will be organized as so-called group trust will be tax exempt by virtue of satisfying the requirements of Revenue Ruling 1-100 Standish which is registered as an investment adviser under the Investment Advisers Act of 1940 as amended will serve as the Trusts investment manager and State Street will serve as the Trusts directed Trustee It is expected that pursuant to the Trusts Agreement of Trust one or more separate investment funds each with its own investment objectives and policies may be established

ROPES GRAY
Jack Murphy Esq
December 27 1995
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from time to time by State Street at the direction of Standish The initial investment fund Group Trust Fund will seek to achieve high level of current income consistent with preserving principal and secondarily will seek capital appreciation when market factors such as declining interest rates indicate that capital appreciation may be available without significant risk to principal Group Trust Fund will seek to achieve its investment objective primarily through investing in diversified portfolio of U.S government and agency securities and AAA-rated securities of private issuers Standish will serve as Group Trust Fund Is investment adviser and State Street or another entity will serve as Group Trust Fund Is directed Trustee Group Trust Fund is designed to serve as synthetic Guaranteed Investment Contract Accordingly prior to participating in Group Trust Fund fiduciary of each plan or trust investing in Group Trust Fund Participating Trust must enter into guaranteed investment contract the Contract issued on behalf of the Participating Trust by designated contract provider Although the terms of each Contract may vary as result of negotiations between the contract provider and the Participating Trust each Contracts book value guarantee will provide that the contract provider subject to certain conditions will pay to such Participating Trust upon certain redemptions of units in Group Trust Fund pro-rated share of the amount withdrawn based on the difference between the value of such Participating Trusts structured investment account and the value of its units in Group Trust Fund but only to the extent the value of such structured investment account exceeds the value of such units.2 However if the value of the Participating Trusts units in Group Trust Fund exceeds the value of its structured investment account then upon certain redemptions the Participating Trust will be required to pay to the contract provider as additional premiums similar pro rated amount It is intended that units in Group Trust Fund will be offered either in compliance with Rule 506 under the Securities Act of 1933 as amended the 1933 Act or in such other manner as will not involve public offering within the meaning of Section 3c of the 1940 Act or Section 42 of the 1933 Act It is expected that some if not all of the Standish intends to treat each such investment fund as separate issuer for purposes of Section 3c1 of the 1940 Act The value of Participating Trusts structured investment account will initially equal the amount of cash invested in Group Trust Fund and thereafter will be adjusted based on accrued interest calculated by reference to formula contained in the Contract and other factors including withdrawals from or additional investments in Group Trust Fund and any increase or decrease in the premium owed to the contract provider

ROPES GRAY
Jack Murphy Esq
December 27 1995
Page
Participating Trusts will be participant-directed defmed contribution plans self-directed plans Standish and State Street will accept self-directed plans as investors in Group Trust Fund only under very limited circumstances where it can be clearly established that plan fiduciary -- and not plan participants -- actually decides whether or how much to invest in Group Trust Fund and thus only under circumstances where plan participants will not be deemed under the staffs test set forth in The PanAgora Group Trust no-action letter which is discussed in greater detail below to be the beneficial owners of units in Group Trust Fund Accordingly Standish has developed the following eligibility criteria and conditions for self￾directed plans seeking to invest in Group Trust Fund First the investment in Group Trust Fund must be made on behalf of an existing separate and distinct investment fund generic investment alternative serving as funding medium for Participating Trust.3 Second the decision to invest assets of the generic investment alternative in Group Trust Fund both initially and subsequent to the initial investment and to withdraw assets from Group Trust Fund must be made by fiduciary of the Participating Trust acting in the exercise of its sole discretion to make such investment decisions Such decisions must not be made pursuant to the direction of or upon consultation with any participant in the Participating Trust nor may anyone acting on behalf of the plan sponsor the plan or such fiduciary seek the views of or poll plan participants as to whether units in Group Trust Fund would be desirable investment for assets of the generic investment alternative Third the generic investment alternative immediately following each purchase of units in Group Trust Fund must have at least 50% of its assets invested in securities or other property other than units in Group Trust Fund Fourth no representation may be made to participants in the Participating Trust that any specific portion of their contributions to or account balances under the Participating Trust or any specific portion of the relevant generic investment alternative will be invested in Group Trust Fund Finally each Participating Trust will agree that any information delivered to participants that mentions the generic investment alternatives investment in Such generic investment alternative will typically have its own investment objective such as stable value income or growth

RoPEs GRAY
Jack Murphy Esq
December 27 1995
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Group Trust Fund will be accompanied by disclaimer to the effect that No assurances can be given that the investment alternative will continue to invest its assets or the same portion of its assets in Group Trust Fund By signing the Adoption Agreement required in connection with an investment in the Trust each Participating Trust will represent and warrant that at the time of each investment in Group Trust Fund it meets the applicable eligibility criteria and conditions established by Standish Each Participating Trust will agree to maintain compliance with such criteria and continue to satisfy such conditions for so long as the generic investment alternative invests in Group Trust Fund Standish will from time to time seek confirmation from each Participating Trust that it continues to comply with such criteria and satisfy such conditions and pursuant to the terms of the Agreement of Trust establishing the Trust Standish will have the ability to involuntarily redeem any Participating Trust that fails to meet the foregoing criteria satisfy the foregoing conditions or cooperate with Standishs efforts to monitor compliance with such criteria and conditions Analysis
Section 3c of the 1940 Act provides in relevant part that the term investment
company shall not include any issuer whose outstanding securities other than short-term paper are beneficially owned by not more than one hundred persons and which does not presently propose to make public offering of its securities In The PanAgora Group Trust no-action letter April 29 1994 the staff of the Division of Investment Management stated that it would consider defined contribution plan participant who decides whether or how much to invest in private investment company to be beneficial owner of the companys securities Emphasis added In the subsequent Latham Watkins no-action letter December 28 1994 the staff in discussing the scope of the PanAgora letter stated that might reach different conclusion under different circumstances For the reasons discussed below we believe that the proposed activities of the Trust and Group Trust Fund are clearly distinguishable from PanAgora as contemplated by Latham Watkins As discussed above Standish will impose eligibility standards on self-directed plans that seek to invest in Group Trust Fund which will assure that Group Trust Fund will not be mere device for facilitating individual investment decisions by plan participants separate plan fiduciary -- and not plan participants -- will determine whether and how much of the assets of separate pre-existing generic investment alternative to invest in Group Trust Fund The plan fiduciary will have represented and agreed that immediately following each purchase of units in Group Trust Fund by the generic investment alternative the generic investment alternative will have at least 50% of its assets invested in securities or other property other than units in Group Trust Fund Unlike the facts presented in PanAgora

ROPES GRAY
Jack Murphy Esq
December 27 1995
Page
Group Trust Fund will not be promoted to plan participants or otherwise held out to them in any manner as an investment choice under their plan The plan fiduciary will have represented that it has not sought and will not seek the views of plan participants and that it has not polled and will not poil them as to whether Group Trust Fund would be desirable investment for assets of the generic investment alternative The plan fiduciary will also have represented that it has not consulted with or taken direction from nor will it consult with or take direction from plan participants in connection with any investment of assets in Group Trust Fund In addition the plan fiduciary will have agreed to include disclaimer in all communications to plan participants that mention the generic investment alternatives investment in Group Trust Fund to the effect that there can be no assurances that the generic investment alternative will continue to invest its assets or the same portion of its assets in Group Trust Fund The cumulative effect of these factors will assure that investment decisions with respect to Group Trust Fund will in fact be made by the plan fiduciary and not by the plan participants Furthermore there simply will be no reasonable basis for participants to equate the generic investment alternative with Group Trust Fund nor an investment in the generic investment alternative with an investment in Group Trust Fund The fact that units in Group Trust Fund are as of any given time one of the investments of the generic investment alternative will not constitute representation that such units will continue to be so held or that additional contributions to the generic investment alternative will be invested on pro-rated basis in additional amounts of such units and the other investments held by such generic investment alternative Also the plan fiduciarys possession of the sole authority to alter the amount of the generic investment alternatives assets invested in Group Trust Fund including the ability to completely withdraw the investment from Group Trust Fund means that no participant can be assured that amounts allocated to generic investment alternative that currently invests in Group Trust Fund or for that matter in any other private or public investment company will continue to be invested in such entity in the future.4 Consequently the circumstances under which the assets of self-directed plans may be invested in Group Trust Fund are clearly distinguishable from the circumstances in PanAgora where the private investment trust or the separate investment funds created under the private investment trust would be identified as an available investment choice for such participants As described As noted above two of the conditions which will be imposed on self-directed plan that wishes to invest in Group Trust Fund are that no representation can be made to participants that any portion of their contributions or account balances will be invested in Group
Trust Fund and that any communications to plan participants mentioning the generic investment alternatives investment in Group Trust Fund will include disclaimer as to any continued investment in Group Trust Fund

RoPEs GRAY
Jack Murphy Esq
December 27 1995
Page
above the plan participants simply are not afforded the opportunity to make any investment decision with respect to units in Group Trust Fund We believe that there are substantial public policy reasons in favor of this interpretation of Section 3c1 Recently the number of employee benefit plans that permit participant direction has grown substantially This trend is likely to continue for the foreseeable future Unless the staff makes it clear that the scope of the PanAgora letter does not prohibit the circumstances described above private investment companies will be excluded from participating in this market to any significant degree From public policy perspective this result would be unfortunate for number of reasons Group trusts which provide collective investment vehicle for tax-qualified plans including plans subject to the Employee Retirement Income Security Act of 1974 as amended ERISA provide vehicles the assets of which are considered plan assets and the investment managers of which acknowledge that they serve as ERISA fiduciaries Consequently plan trustees may prefer these vehicles to other types of collective investment vehicles such as mutual funds due to the fact that they must be operated subject to the strict fiduciary standards and prohibited transaction provisions of ERISA Group trusts have grown to the point where such trusts constitute significant portion of all available collective investment vehicles Such trusts exist in substantial numbers and represent significant assets They provide pension plans with additional investment choices which may be preferable to other investment alternatives for variety of reasons In many cases group trust may be the only form of collective investment fund managed by particular investment manager and therefore may be the only way for smaller plan or plan with only limited amount of assets available for investment to obtain the benefits of management by such investment manager Often plan is able to obtain the expertise and skill of particular manager through group trust managed by that manager without having to commit the amounts normally required for the establishment of stand-alone account For example an investment manager may require minimum stand-alone account size of $20 million but accept minimum investment in group trust sponsored by it of $2 million Smaller plans benefit in this way as do plans seeking to obtain the benefits of the investment styles and strategies of several investment managers Many established group trusts are of substantial size e.g $100 million or more and are therefore able to provide plans investing in them with more diversified investment than could be achieved through establishment of reasonably sized stand-alone account In the case of an index investment plan could achieve better replication of the index through participation in group trust with substantial assets than by establishing its own smaller stand-alone index account To deprive self-directed plans of these
vehicles would significantly reduce the investment options available to such plans and in many cases deprive them of more diversified and less expensive alternatives

ROPES GRAY
Jack Murphy Esq
December 27 1995
Page
Request
We respectfully request your concurrence in our view that under the circumstances described above self-directed plan -- and not the participants thereof -- would be deemed to be the beneficial owner of units in Group Trust Fund for purposes of Section 3c1 of the 1940 Act assuming that the look-through provisions of Section 3c1A do not apply Should you need any further information please do not hesitate to contact the undersigned at 617 951-7400 Very truly yours Bryan Chegwidden 3050055.12

%rI DEC 28
Our Ref No 95-423--CC
The Standish Ayer
Wood Inc Stable
RESPONSE OF THE OFFICE OF CHIEF COUNSEL Value Group Trust DIVISION OF INVESTMENT MANAGEMENT File No 132-3 Your letter of December 27 1995 requests assurance that the staff would not recommend enforcement action to the Commission if for purposes of section 3c of the Investment Company Act of 1940 participant-directed defined contribution plan that invests portion of its assets in separate investment fund the Fund of The Standish Ayer Wood Inc Stable Value Group Trust Group Trust is treated as single beneficial owner of the investment fund under the circumstances described below You state that the Group Trust will be collective investment vehicle for tax-qualified retirement and prof it￾sharing plans including participant-directed defined contribution plans The Group Trust will consist of the Fund and any other investment funds that may in the future be created at the direction of Standish Ayer Wood Inc Standish the Group Trusts investment manager Each separate investment fund will have its own investment objectives and policies and will he treated as separate issuer for purposes of section You represent that Standish has developed certain criteria governing the investment of assets in the Fund by participant￾directed defined contribution plan Participating Plan or Plan including the following Plans investment in the Fund will be made with assets directed by Plan participants to an account with an identified generic investment objective generic investment option The decision to invest assets of generic investment option in the Fund both initially and subsequent to the initial investment and to withdraw assets from the Fund will be made solely by Plan fiduciary without direction from or consultation with any Plan participant Immediately following each purchase of Fund units by generic investment option at least 50 of the options assets will consist of securities or property other than units of the Fund No representation will be made to Plan participants that any specific portion of their contributions to or account balances under the Plan or any specific portion of the relevant generic investment option will be invested in the Fund If Plan delivers any information to participants that mentions an investment in the Fund it will be

-2- accompanied by disclaimer to the effect that no assurances can be given that the generic investment option will continue to invest its assets or the same portion of its assets in the Fund You represent that before accepting Plan as an investor in the Fund Standish will require the Plan to represent and warrant that it will comply with the foregoing eligibility criteria for as long as the Plan invests in the Fund Standish periodically will monitor Participating Plans compliance with these criteria and will have the ability without the consent of the Plan to redeem the Plans interest in the Fund if the Plan is not in compliance or fails to cooperate with Standishs efforts to monitor compliance
Section 3c of the Investment Company Act excludes from
the definition of investment company any issuer that is not making and does not propose to make public offering and whose outstanding securities other than short-term paper are beneficially owned by not more than 100 persons Generlly beneficial ownership of 3c issuer by company term that includes an employee benefit plan deemed to be beneficial ownership by single person In The PanAgora Group Trust pub avail Apr 29 1994 PanAgora the staff concluded that for purposes of determining compliance with the 100-person limit of section 3c each participant in participant-directed defined contribution plan who allocates portion of his or her account to 3c issuer should be treated as beneficial owner of that issuers securities PanAgora was based on the staffs view that the securityholders of company that invests in 3c issuer should be deemed to be beneficial owners of the issuers securities if the company is managed to facilitate its securityholders individual decisions to invest in the issuer.3 The term company is defined in section 2a of the Investment Company Act to mean any corporation partnership association joint-stock company trust fund or organized group of persons whether incorporated or not An exception to the general rule is found in the attribution provisions of section Your letter assumes that those provisions do not apply See e.g WR Investment Partners pub avail Apr 15 1992 the limited partners of partnership were the beneficial owners of the partnerships interest in 3c entity because the general partner which made all the investment decisions for the partnership would consult with the limited partners about their individual investment objectives and vary from investment continued..

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The eligibility criteria and other representations set out in your letter and described above are designed to ensure that Participating Plans will not be managed to facilitate their participants individual decisions to invest in the Fund In this regard we note particularly your representations that Plan participants discretion will be limited to allocating his or her account among number of generic investment options the decision to invest in the Fund and the amount of assets invested will be solely within the discretion of Plan fiduciary and immediately following any purchase of Fund units by Participating Plan less than 5O of the asets of generic investment option will be invested in the Fund On the basis of the foregoing we would not recommend enforcement action to the Commission if for purposes of section Plan is deemed to be single beneficial owner of the .continued to investment each limited partners percentage share of profits and losses based on individual circumstances Six Pack pub avail Nov 13 1989 the partners of general partnership were the beneficial owners of the partnerships investment in 3c entity because the partnership permitted each partner to determine the amount of his or her contribution to each particular investment based on his or her individual investment objectives Tyler Capital Fund L.P./South Market Capital pub avail Sept 28 1987 the partners of general partnership were the beneficial owners of the partnerships investment in entity because the partnership created separate sub￾account for each new investment it made and permitted each partner to contribute on an investment-by-investment basis The 50% representation is intended to ensure that Plan participants decision to allocate assets to generic investment option is not the substantial equivalent of decision to invest in the Fund By incorporating this representation in its response the staff does not suggest that higher percentage investment necessarily would mean that Plans participants must be treated as the beneficial owners of an underlying 3c issuers securities Nor does the staff foreclose the possibility that different facts from those stated here might justify treating Plan as single beneficial owner The staff does not intend to respond to no-action requests however that involve generic investment option seeking to invest more than 50% of its assets in 3c issuer if the request does not otherwise differ materially from the facts described in the incoming letter

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Funds units This position is based on the facts and represen tations in your letter and you should note that different facts and circumstances might require different result Barry Mendelson H_ Senior Counsel