SEC Division of Investment Management staff letter: The State Street Mortgage Co.

Re Investment Company Act of 1940 Sections 3c and NORMAN KING PARSELLS OREOORY WILUS AVID MACLAY IUCE DIWNGHAM ER WILKINSON SEPH OORMLEV JR OBERTJ BERTA JAMES RICE MICHAEL WILLIAMS TIMOTHY ATWOOD ELIZABETH SEELEY MICHAEL DOWLINO SUZANNE BALDASARE KROLIDES ROBERT DANAHER PETER MOTT TIMOTHY HAUBURGER JENNIFER DAMON EDWARD KELLEHER ARTHUR IA MARSH 1697 1942 DAVID DAY 1910 1962 PHILO CALHOUN 1914 1964 DANIEL FAIRCHILD WHEELER COUNSEL MURIEL ZACHARIAS SPECIAL COUNSEL FAIRFIELD OFFICE 1150 POST ROAD FAIRFIELD CONN 06430 TELEpHONE 203 259-8993 .\ Dear Sir Please be advised that this office represents The State Street Mortgage Company Connecticut corporation organized on July 1983 The Company is in the businss of making mortgage loans primarily second mortgage loans on real property located in the State of Connecticut It is licensed as both first and second mortgage lender by the Banking Commissioner of the State of Connecticut As of December 31 1985 its total assets were $13370000 of which $11209000 invested in mortgage loans In 1985 its total income $1864000 of which $1810000 was interest received mortgage loans The Company has four Shareholders and stated capital of the Corporation is $1000 and as of December 31 1985 the net worth is $82100 Funds for the Companys operations come from two sources First $10000000 lineof credit from bank which line of credit is .secured by pledge of all of the Companys outstanding mortgage loan receivables Presently $7810000 is outstanding under this line of credit Sec ond the Company has borrowed from individuals who have loaned money to it on demand unsecured basis Presently there is $9067000 outstanding on these loans The loans from individuals are represented by demand notes of the Company Notes and these Notes are payable MARSH DAY CALHOUN COUNSELORS AT LAW 955 MAIN STREET BRIDGEPORT CONN 06604 rji1IL i/1 /.C203 368-4221 1AtLi .../t 203 384-9417 I1L i￾May 16 1986 ---- 7/i j4 Off ice of Chief Counsel Division of Corporation Finance Securities and Exchange Commission Washington DC 20549 Re The State Street Mortgage Company

M.D To Office of Chief Counsel -2- thirty days after demand has been made by the holder All Notes are personally guaranteed by the four principal off cers and stockholders of the Company These Notes bear in terest at the rate of 123/4 per cent per annum payable monthly but as long as the Notes are outstanding the Com pany has the right to change the rate upon giving the holder thirty days prior written notice to give him the opportunity to demand payment if he is not satisfied with the adjusted rate Most noteholders have taken the option of not having the interest paid to them monthly but to have the interest compounded on monthly basis Notes were sold to investors in three issues First private offering under Rule 506 of Reg commencing on October 1983 in the amount of $4000000 as result of which 50 persons purchased Notes second offering in the amount of $2000000 to $4000000 was commenced in April 1985 under Section 505 of Reg and 51 persons purchased Notes in this issue On continuous basis the Company has issued Notes to eight Officers and Directors of the Company and members of their families under Section 46 of the Securities Act At the present time there are in the aggregate 99 holders of Notes of the Company The Company now contemplates issuing additional Notes in private offering under Reg as result of which the outstanding security holders both noteholders and stock holders would exceed 100 in number The question involved concerns the Companys exemption from registration under the Investment Company Act of 1940 Act should it have in excess of 100 security holders It is the opinion of this firm that the Company is exempt from registration pursuant to Section 3c and Section 3c-5 of the Act In our opinion the Company need not register under the Act because Section 3c exempts Any issuer whose outstanding securities other than shortterm paper are beneficially owned by not more than 100 persons and which is not makinq and does not presently propose to make public offering of its securities In pertinent part Section 2a 38 of the Act defines shortterm paper to mean Any note .. payable on demand or navLng 1uLuLiLy cL L1I iu

MD To Office Chief Counsel 3- nine months exclusive of days of grace or any renewal thereof payable on demand or having maturity likewise limited ... Since all of the Companys Notes are payable thirty days after demand these should be short-term paper within the meaning of the Act and therefore not included when de termining the outstanding securities of the Company Since there are only four holders of common stock of the Company then its outstanding securities other than short-term paper being beneficially owned by not more than 100 per sons would make the issuer exempt from registration under
Section
In addition the applicable exemption under Section 3c of the Act exempts Any person who is not engaged in the business of Lssuing redeemable securities faceamount certificates of the installment type or peri odic plan certificates and who is primarily engaged in one or more of the following busi nesses .. Purchasing or otherwise acquir ing mortgages and other liens on and interests in real estate redeemable security is defined in the Act as fol lows
Section 32 Redeemable security means
any security other than short-term paper under the terms of which the holder upon its presen tation to the issuer or to person designated by the issuer is entitled whether absolutely or only out of surplus to receive approximately his proportionate share of the issuers current net assets or the cash equivalent thereof The demand notes issued by the Company are not re deemable securities for two reasons First they are shortterm paper and second they do not entitle the holder to receive his proportionate share of the issuers current net assets or the cash equivalent thereof Each Note is fixed obligation which is not related to the value of the issuers assets Also the Notes would not be face-amount certificates or periodic plan certificates urtner the Company meets the test of being pri marily engaged in purchasing or otherwise acquiring

M.D C.To Office of Chief Counsel mortgages and other liens on and interests in real estate Of its assets over 90 per cent are invested in first and second mortgage loans and the remainder are invested in properties acquired on foreclosure and other miscellaneous investments In our opinion the Company would be entitled to the exemption under Section 3c since it is issuing shortterm paper and is primarily engaged in purchasing or otherwise acquiring mortgages and other liens on and inter ests in real estate We respectfully request that the staff issue letter stating that based on the facts presented herein the staff is in agreement that the Company is exempt from registration under the Act pursuant to the exemptions contained in Sec tions 3c and of the Act Should you have any questions would you please ad vise the undersigned or in his absence Suzanne Krolides Very truly youJv Bruce Dillinghail CC Mr Jerome Goldman The State Street Mortgage Company

1986
Our Ref No 86245CC
RESPONSE OF THE OFFICE OF CHIEF COUNSEL The State Street Mortgage Cpany DIVISION OF INVESTMENT MANAGEMENT File No 132-3 In your letter of May 16 1986 you request that the staff issue letter stating that The State Street Mortgage Company Company is not required to register as an investment company by virtue of sections 3cl and 3c5 of the Investment Company Act of 1940 Act We express no opinion regarding the Companys ability to rely on section 3c1 of the Act Section 3c1 requires not only that an issuers out standing securities other than shortterm paper be beneficially owned by not more than one hundred persons but also that the issuer is not making and does not propose to make public offering of its securities We have taken the position that offerings which qualify under section 42 of or rule 506 under the Securities Act of 1933 would satisfy the nonpublic offering requirement of section 3cl See e. STARS STRIPES GNMA Funding Corporation pub avail Apr 17 1986 However unless an offering complies with rule 506 we will not as matter of policy issue noaction or interpretive letter on the question of whether an offering is nonpublic for purposes of section 3c1 under the Act Because the offerings described in your letter were not all pursuant to rule 506 we do not express any opinion on this question However we believe that the Company would be excepted from the definition of an investment company by section 3c5C of the Act and would therefore not be required to register under the Act See Salomon Brothers Inc pub avail June 17 1985 Our position is based on the facts and representations made in your letter Gerald Lins Attorney