[ REQUEST LETTER]

BROWN & WOOD

ONE WORLD TRADE CENTER

NEW YORK, N.Y. 10048-0557

TELEPHONE (212) 839-5300

May 17, 1994

Linda C. Quinn, Esq.

Director

Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: Mortgage and Asset-Backed Securities -- Furnishing Information to Customers

Dear Ms. Quinn:

Our clients, Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured Asset Corporation (collectively, "Kidder"), are involved in the issuance and underwriting of residential, commercial and multifamily mortgage securities ("MBS Securities") and asset-backed securities ("ABS Securities," and collectively with MBS Securities, "MBS/ABS Securities") that are registered on Form S-3 or Form S-11 pursuant to Rule 415 under the Securities Act of 1933 (the "Act"). ¹ In accordance with the discussions at our previous meetings with members of the staff of the Commission, we request on behalf of Kidder the staffs advice that it would not recommend enforcement action under Section 5 of the Act if, in connection with the issuance and sale of MBS/ABS Securities, Kidder, acting as an underwriter or on behalf of the issuer, were to furnish to prospective investors written computational materials concerning such securities after the effective date of a registration statement but before the availability of a final prospectus ² so long as such materials were filed under the Act as herein provided.

I. MBS/ABS Securities Market

The Commission is well aware of the size and importance of the MBS/ABS Securities market in the United States and the vital role played by private issuers of MBS/ABS Securities. ³ The MBS/ABS Securities market allows lenders to liquidate their loan portfolios, thus providing capital for additional loans and other business purposes. Accordingly, each contributes to a stimulation of economic activity in the United States.

II. Structure and Sale of MBS/ABS Securities

The structuring and sale of MBS/ABS Securities differ significantly from conventional offerings of corporate securities because of the variety of securities structures that can be issued based upon a pool of underlying assets. ⁴ Continuing interaction between underwriters and prospective investors, whereby alternative structures are developed by underwriters and prospective investors to meet such investors needs by adjusting interest rate, prepayment rate and cash flow variables, is commonplace. Proposed structures are frequently abandoned during the process of developing a satisfactory structure. This interaction between underwriters and prospective investors typically extends to the printing of the prospectus supplement. As a result of this process, there is no practical distinction, as there is in the case of "traditional" securities offerings, between the "structuring" and "offering" phases of a transaction.

The interaction between prospective investors and underwriters during the structuring process involves the exchange of data and the specification of assumptions concerning the payment priorities and characteristics of the MBS/ABS Securities being structured. A limited number of prospective investors have the computer resources and the quantitative sophistication to analyze data relating to the structure of, and the assets underlying, MBS/ABS Securities without significant interaction with the underwriters. The vast majority of prospective investors, however, require underwriters to furnish them, in writing, with computer generated tables and charts displaying for a proposed class of MBS/ABS Securities the yield, average life, duration, expected maturity, interest rate sensitivity and cash flow characteristics of the class under a variety of possible prepayment scenarios including, without limitation, such information as may be required to comply with the capital and reporting treatment recommendations of the Federal Financial Institutions Examination Council, as well as such background information concerning the underlying pool of assets ⁵ and the proposed structure of the MBS/ABS Securities ⁶ as may be necessary for an analysis of the comparative data (such information being collectively referred to herein as the "Computational Materials"). This information is provided to a prospective investor, generally at such investors request, in order to assist the prospective investor in determining whether the proposed structure will meet such investors needs under varying assumptions.

Computational Materials are customarily furnished to prospective investors by means of facsimile or electronic ⁷ transmission. Theoretically, of course, the necessary interaction between the underwriter and the prospective investor could be confined to oral communication, but this is impractical in view of the quantity and complexity of information that must be communicated to prospective investors.

Computational Materials do not attempt to predict actual future payment rates or interest rates, but they help prospective investors understand the fundamental economic aspects of MBS/ABS Securities by analyzing the effect of prepayments on yield to maturity given hypothetical interest rate scenarios suggested by the prospective investor. In addition, Computational Materials contain customary legends regarding the assumptions on which they are based and the absence of assurances or representations as to the actual rate or timing of principal payments or prepayments on any of the underlying assets or the performance characteristics of the MBS/ABS Securities.

MBS/ABS Securities sponsored by private entities are, of course, registered under the Act. A registration statement (including a base prospectus) is in effect as to any MBS/ABS Securities issue while a transaction is being structured. A prospectus supplement relating to a specific class or classes is issued to describe the transaction after the structure of the MBS/ABS Securities has been finalized and is used to confirm the sales of such class or classes. The final prospectus is filed with the Commission pursuant to Rule 424(b). The base prospectus contains material information regarding the general structure of an MBS/ABS Securities transaction, but the prospectus supplement contains more specific information since the assets underlying the securities and the related structure differ from transaction to transaction.

III. No-Action Relief Requested

We request, on behalf of our clients, that the staff advise us that it would not recommend enforcement action under Section 5 of the Act if Kidder, acting as an underwriter of MBS/ABS Securities registered on Form S-3 or on behalf of the issuer of such securities, were to furnish Computational Materials to prospective investors prior to the availability of a final prospectus relating to the MBS/ABS Securities in question.

Kidder will file or cause to be filed, for incorporation into the registration statement, at a minimum all Computational Materials that:

(i) are generated based on assumptions regarding the payment priorities and characteristics of a class of MBS/ABS Securities that is actually issued and purchased by an underwriter; and

(ii) are provided to prospective investors under the following conditions prior to the time of filing of the final prospectus for the issue pursuant to Rule 424(b):

(a) in the case of each prospective investor that has orally indicated to the underwriter that it will purchase all or a portion of the class of MBS/ABS Securities to which such Computational Materials relate, the Computational Materials relating to such class that are sent to such prospective investor; and

(b) for any other prospective investor, all Computational Materials that are sent to such prospective investor after the structure for the entire issue of MBS/ABS Securities is finalized.

To reduce the volume of the filing, Kidder may, in its discretion, aggregate data presented in the Computational Materials that are to be filed and file or cause to be filed such data in consolidated form. Any such aggregation, however, would not result in the omission of any information contained in the Computational Materials otherwise undertaken to be filed. The undertaking described in the preceding paragraph does not extend to the filing of any Computational Materials that relate to abandoned structures or that are furnished to prospective investors prior to the time that the structure of the entire issue of MBS/ABS Securities is finalized where such investors have not indicated to the underwriter their intention to purchase the MBS/ABS Securities described in such Computational Materials. It is anticipated that the structure for an entire issue of MBS/ABS Securities will be finalized shortly before or immediately prior to the printing of the final prospectus.

Computational Materials will be filed as a Current Report on Form 8-K ("Form 8-K") and will be incorporated by reference into a registration statement on Form S-3. In the case of an existing registration statement on Form S-11, Kidder will amend or cause to be amended such registration statement so as to change its form to Form S-3 as soon as practicable. To avoid disrupting the use of shelf registration statements, Kidder requests that the Commission declare effective in a timely manner any post-effective amendment to a registration statement on Form S-11 where such amendment is solely intended to change the form of such registration statement from Form S-11 to Form S-3.

Kidder will file or cause to be filed a Form 8-K containing the Computational Materials described above not later than the time of filing of the final prospectus pursuant to Rule 424(b). Confirmations required to be distributed pursuant to Rule 10b-10 will not be sent to customers until the Form 8-K for the related series has been filed.

IV. Basis for Relief

In the absence of the requested no-action relief, underwriters will be unable to engage in sufficient dialogue with prospective investors to arrive at a mutually satisfactory transaction based on structure and price. In addition, prospective investors will continue to be disadvantaged by their inability to obtain Computational Materials from the underwriters in usable, i.e., written, form. Prospective investors require this information in tangible form for their own protection, to meet regulatory requirements, to compare potential structures and to compete on equal terms with those prospective investors who have adequate computer resources to process relevant data without the underwriters assistance. Restrictions on freedom of communication between such investors and underwriters serves to frustrate, and not advance, the purposes of the Act.

Oral communication of Computational Materials is clearly permitted under the Act but totally impractical in view of the quantity and complexity of the information requested by the customer. The filing of Computational Materials as proposed above will make such information available to all interested prospective investors.

V. Conclusion

For the reasons set forth in this letter, we urge the staff to adopt the no-action position requested above.

The undersigned would welcome an opportunity to discuss this letter with the staff or to provide additional information that might be helpful to the staff. Please communicate for either of these purposes with the undersigned at 212-839-5576.

Very truly yours,

Michael P. Peck

[SEC STAFF REPLY LETTER]

May 20, 1994

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

RE: Mortgage and Asset-Backed Securities -- Furnishing Information to Customers

Incoming letter dated May 17, 1994

Based on the facts presented and policy considerations, the Division will not recommend to the Commission any enforcement action under Section 5 of the Securities Act of 1933 ("Securities Act") if, in connection with the offer and sale of MBS/ABS Securities (as defined in your letter) in underwritten transactions registered on Form S-3, Kidder Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated or Kidder Structured Asset Corporation, acting as an underwriter or on behalf of the issuer, furnishes to prospective investors written Computational Materials (as defined in your letter) regarding such securities after the effective date of a registration statement and before availability of the final prospectus. This position assumes that the Computational Materials (as defined in your letter) are filed as described in your letter.

Because this position is based on the representations made to the Division in your letter, it should be noted that any other facts or conditions might require another result. Further, this position merely represents the Divisions position on enforcement and does not represent any legal opinion on the issue presented.

Sincerely,

Abigail Arms

Associate Director (Legal)

SEC_CODE_REF_0090001192884