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UNITED STATES 

SECURmES AND EXCHNGE COMMISSION
 

WASHINGTON. D.C. 20549 

DIVISION 01" 

INVESTMENT MANAGEMENT 

June 30, 1994 .~ ~
 

"Am! ---- C:.
 Edward H. Fleischan, Esg.


Rosenman' Colin SEON )ec/ú) 575 Madison Ave. RULE New York, N. Y. 10022-2585
 

PUBLIC 

Re: C; /30/9 y The PanAgora Group Trust No-Action Let\VSLABILITY 

Dear Mr. Fleichn:
 

Your letter to the Division of Investment Management dated
 

June 24, 1994 notes widespread concern among practitioners in the
 

fields of both employee benefits and investment company law about
 

the implications of our recent letter to The PanAgora Group Trust
 

(pub. avail. Apr. 29, 1994) (the "PanAgora letter"). In the


PanAgora letter, the staff stated that for purposes of the
 

exception for private investment companies set forth in Section


3 (c) (1) of the Investment Company Act of 1940, we would consider 

a defined contribution plan participant who decides whether or
 

how much to invest in a private investment company to be a
 

beneficial owner of the company's securities. The group trust
 

described in the Pangora letter and any investment fund
 

comprising the group trust, therefore, would be required to count
 

as beneficial owners all participants in participant-directed
 

def ined contribution plans who invest in that trust or investment


fund. 

In your letter, you ask the staff to clarify the
 

applicability of the PanAgora letter to private investment
 

companies in which participant-directed defined contribution
 

plans invest under circumstances or conditions that differ from
 

those presented in the PanAqora letter. You offer to provide the
 

staff, and to elicit other interested parties to provide the
 

staff, with information relevant to the requested clarification.
 

You also ask that, with respect to existing arrangements
 

under which defined contribution plan participants have directed
 

plan investments into private investment companies that have not
 

counted the individual participants as beneficial owners, we
 

delay the effectiveness of our response in the PanAqora letter
 

for a reasonable time. You believe that this would allow those
 

private investment companies to liquidate, in an orderly manner,
 

investments that may cause them to violate the. requirements of


Section 3 (c) (1). 

We have determined to delay the effective date of the
 

PanAqora letter response until January 1, 1995. We also would
 

consider information that interested parties submit in writing to
 

help clarify the applicability of the PanAqora letter to facts
 
different fram those presented in that letter. Any request for
 

clarification should fully describe the facts to be distinguished
 

from those presented in the PanAqora letter and analyze from a
 

leqal and policy perspective whether, under those different
 

facts, defin contribution plan participants who direct their
 

plan investments in a private investment company should be


treated as beneficial owners for purposes of Section 3 (c) (1). 

Sincerely, 

~~¿.~

Richard F~ackson 

Special Counsel
 

Office of Chief Counsel
 

2
 
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.
 

ROSENMAN & COLIN 

575 MADISON AVENUE. NEW YORK. NY 10022-2585
 

'-ELEPHONE 12121 gAO-aBOO SA"'UE~ 1 ROSEN"'AN (1696-'973) 

c~eLE ROCOKAY NEwyOPK RA~PH I' CO~IN (1900-19SS) 

'T£LECOPIER l2!21940-B776 

IZIZI 935-0679 WASHINGTON OI'I'CE 

TE~EX "Z7571 ROSCO~ (ITT) 

971SZ0 RCI'~C NYK (w uJ June 24, 1994 1300 19'" STREET, N. W.

WASHINGTON, D. C. 20036

TE~EPHONE (2DZ) 463-7177 

EDWARD H. FLEISCH MAN 

TEL. ,Z121 940-6640 

Division of Investment Management
 

Securi ties and Exchange Commission
 

450 5th street, N.W.
 

Washington, D.C. 20549
 

Attn: Barbara Green, Esq.,
 

Deputy Director
 

Re: Staff Letter concerning The PanAgora
 

Group Trust
 

Ladies and Gentlemen:
 

We refer to the letter (the "PanAgora Letter") dated and
 

publicly available April 29, 1994 from Richard Jackson, Special
 

Counsel in the Division, concerning the PanAgora Trust. We have
 

no authorization to speak for any firm or organization other than
 

Rosenman & Colin, but we can assure you, on the basis of
 

inquiries we have made among active practitioners in the fields
 

of both employee benefits and investment company law, of the
 

widespread concern evoked by the PanAgora Letter.
 

The PanAgora Letter concludes that a participant in any
 

defined contribution plan who has the ability to direct his or
 

her balance in the plan into an investment in the group trust
 

and/or one or more of the funds comprising that group trust would
 

be considered a beneficial owner of the securities of that group
 

trust and of each fund in the group trust into which he or she
 

has directed a portion of his or her balance under the plan.
 

Thus, each such participant would be considered as one person for
 

the purposes of determining whether or not the group trust and/or
 

the respective separate investment funds will qualify for the 100


securityowner exemption provided by Section 3 (c) (1) of the 

Investment Company Act of 1940 (the "Act"). While written in
 

response to an inquiry from an undivided group trust with no
 

expressed limitations on participants' authority to make
 
" ­

t 

Division of Investment Management
 

June 24, 1994
 

Page 2
 

investment decisions, this conclusion could equally extend to
 

investments in other forms of collective investment vehicles if
 

indicia associated with participant direction of investments are


present. 

As you know, the staff letter to Intel corporation (the
 

"Intel Letter"), dated and publicly available November 18, 1992
 

(and included on the SEC List of Significant staff Letters dated


March 11, 1993), which addressed the attribution analysis under
 Section 3 (c) (1) (A) of the Act, assumed (without deciding) that,

unless Section 3 (c) (1) (A) made the general rule of Section 3 (c) (1) inapplicable, a plan with participant direction would 

only be considered as one person for the purposes of Section
 3(c)(1). 

It is our experience that a number of disparate collective
 

investment vehicles have chosen to utilize the exemption from the
 definition of "investment company" provided by Section 3 (c) (1) of 

the Act and, in rel iance upon the Intel Letter, have accepted
 

qualified plans as investors in such vehicles. Furthermore, it


is our experience that a number of such vehicles, in accepting
 

the entry of qualified plans into participation, have made no
 

inquiry as to whether those qualified plans allow or prohibit
 

participant direction of investments. Immediate and across-theboard application of the PanAgora conclusion without taking into
 

account differences among categories of collective investment
 

vehicles and the terms governing operation of their constituent
 

investors would have the effect of leaving many such investment
 

vehicles in a putatively non-exempt status, to the severe
 

detriment not only of the vehicles themselves but of the
 

participating employee "securi tyowners". We, therefore,
 

respectfully request that the staff clarify the applicability of
 

the PanAgora Letter to investment vehicles of various categories
 

other than undivided group trusts and/or governed by terms
 

placing varying limitations upon participant direction of
 

investments therein. This would allow investment vehicle
 

sponsors and other interested parties an opportunity to provide
 

the staff with additional information and argument upon which to
 

make a more informed decision on these issues. This Firm will be
 

pleased to provide the staff with such information as we can, and
 to el ici t from other interested parties additional information, relevant to such clarification. 

We also respectfully request that, at least with respect to
 

vehicl~s that have already accepted participant-directed plans as
 

investors in reliance upon the implicit approval of the Intel
 

Letter, the staff announce a delay in the application of the
 

PanAgora conclusion for a reasonable time. This would allow the
 

orderly liquidation of investments that may be impermissible
 
, .. T .. 

Division of Investment Management
 

June 24, 1994
 

Page 3
 

under the PanAgora Letter as clarified by the staff, and would
 

avoid placing collective investment vehicles or their
 

"securityowners" at risk of economic loss or law violation for
 

actions taken in good faith based upon prior staff interpretation
 of the statute. 

We shall very much appreciate your prompt attention to these


requests. 

Very truly yours,
 

ROSENM & COLIN

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