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 iMay 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