Proposed Exemptions; Allied Old English, Inc. Employees' Profit Sharing Plan (the Plan) et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-9742, et al.]

Proposed Exemptions; Allied Old English, Inc. Employees' Profit

Sharing Plan (the Plan) et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

request for a hearing should state: (1) The name, address, and

telephone number of the person making the comment or request, and (2)

the nature of the person's interest in the exemption and the manner in

which the person would be adversely affected by the exemption. A

request for a hearing must also state the issues to be addressed and

include a general description of the evidence to be presented at the

hearing. A request for a hearing must also state the issues to be

addressed and include a general description of the evidence to be

presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

Allied Old English, Inc. Employees' Profit Sharing Plan (the Plan)

Located in Port Reading, New Jersey [Application No. D-9742]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)

of the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the

Code, shall not apply to the proposed loan (the Loan) of $600,000 by

the Plan to the Harold Ross Trust (the Ross Trust), a party in interest

with respect to the Plan.

This proposed exemption is conditioned upon the following

requirements: (a) The terms of the Loan are at least as favorable to

the Plan as those obtainable in an arm's length transaction with an

unrelated party; (b) the Loan will not exceed twenty-five percent of

the assets of the Plan at any time during the duration of the Loan; (c)

the Loan is secured by a first deed of trust on certain real property

(the Property) which has been appraised by an independent, qualified

appraiser to ensure that the fair market value of the Property is at

least 150 percent of the amount of the Loan; (d) the fair market value

of the Property remains at least equal to 150 percent of the

outstanding balance of the Loan throughout the duration of the Loan;

(e) the independent, qualified fiduciary determines on behalf of the

Plan that the Loan is in the best interests of the Plan and protective

of the Plan's participants and beneficiaries; and (f) the independent,

qualified fiduciary monitors compliance with the terms of the Loan and

conditions of the exemption throughout the duration of the transaction,

taking any action necessary to safeguard the Plan's interest, including

foreclosure on the Property in the event of default.

Summary of Facts and Representations

1. Allied Old English (Allied), the Plan sponsor, is a New Jersey

corporation with its principal place of business located in Port

Reading, New Jersey. Allied engages in the business of food

manufacturing and distributing.

The Plan is a profit sharing plan with assets totaling $2,489,603

as of December 31, 1993. Thirty individuals participate in the Plan.

The Plan trustees, Frederick Ross, Harold Ross and Richard Owens (the

Trustees), possess the sole investment discretion with regard to the

Plan's assets. Frederick Ross and Harold Ross both serve as directors

as well as President and Treasurer, respectively, of Allied.

2. On May 9, 1980, Harold Ross and Lucille Ross (the Grantors)

established the Ross Trust, which is an irrevocable investment trust.

As of October 5, 1994, the Ross Trust had $1,925,000 in total assets,

with the Ross Trust's only asset being the Property. Frederick Ross is

the trustee of the Ross Trust. The Grantors, the Grantors' son,

Frederick Ross, and the trustee of the Ross Trust on behalf of the

Grantors' daughter, Elyse Ames, hold the beneficial interests of the

Ross Trust. The Trustees represent that because at least fifty percent

of the beneficial interests of the Ross Trust are held by two of the

Plan's trustees, the Ross Trust appears to be a party in interest with

respect to the Plan under section 3(14)(G) of the Act.

3. The Trustees request an administrative exemption from the

Department to permit the Loan to the Ross Trust under the terms and

conditions described herein. The Ross Trust proposes to use the Loan

proceeds towards retiring an outstanding first mortgage on the Property

in the amount of $760,572 which becomes due and payable on January 1,

1995.

4. The Loan will be in a principal amount of $600,000. The

applicant states that at no time will the amount of the Loan represent

more than twenty-five percent of the Plan's total assets. The Loan will

be secured by a first deed of trust on the Property, which consists of

a 60,000 square foot, one-story manufacturing warehouse distribution

facility situated on 4.25 acres located at 100 Markley Street, Port

Reading, New Jersey. As of June 15, 1994, Allied leased the Property

pursuant to a lease scheduled to expire on October 31, 2007. Allied has

the option to renew such lease for five additional five-year periods

with a maximum term ending on October 31, 2032. The deed of trust will

be duly recorded in Middlesex County to reflect the Plan's security

interest in the Property. In addition, the Ross Trust will insure the

Property against casualty loss and designate the Plan as the loss payee

of such insurance.

5. The Loan will have a ten-year term and will be evidenced by a

promissory note (the Note). The Note will require the Ross Trust to

make monthly payments of principal and interest which will be fully

amortized over the ten-year term. The interest rate on the Loan will be

the greater of: (a) The prime rate of CoreStates Bank, N.A.

(CoreStates) of Philadelphia, Pennsylvania, an unrelated entity, plus

three quarters of a percentage point; or (b) 9.65 percent. The Plan

will not be required to pay any commissions, fees or other expenses in

connection with the Loan.

As a condition of the proposed exemption, the terms and conditions

of the Loan must be at least as favorable to the Plan as those which

the Plan could obtain in dealing at arm's length with an unrelated

party. In this regard, CoreStates states in a letter dated July 12,

1994 that CoreStates would make a secured loan of $600,000 to the Ross

Trust with interest accruing at either: (1) A daily floating rate equal

to its prime rate plus three quarters of a percentage point; or (2) a

fixed rate equal to 9.65 percent. In addition, CoreStates states that

it would charge the Ross Trust a facility fee equal to one percent of

the principal amount of such loan or $6000. Accordingly, the applicants

represent that the Ross Trust will pay a facility fee of $6000 to the

Plan at the inception of the Loan.

6. Dale R. Kilpatrick, MAI and Robert Appaluccio (the Appraisers)

of National Valuation Services, Inc. (National Valuation), a valuation

firm located in Florham Park, New Jersey, appraised the Property. Mr.

Kilpatrick is the Vice President of National Valuation and Mr.

Appaluccio has been actively engaged in appraising real estate since

1986. The Appraisers represent that both they and National Valuation

are independent of, and unrelated to, both the Ross Trust and Allied.

The Appraisers placed the fair market value of the Property at

$1,925,000 as of June 2, 1994. The Appraisers utilized the sales

comparison and income approaches of valuation by using recent sales and

current leases from comparable properties in the Woodbridge area.

Primary emphasis was given to the sale comparison approach.

Mr. Appaluccio, in a letter dated October 14, 1994, stated that the

fact that the Property is subject to a long term lease does not warrant

a discount on the Property's fair market value because several types of

investors would be willing to purchase the Property at its full fair

market value. By letter dated October 21, 1994, Mr. Kilpatrick

concurred with Mr. Appaluccio's position regarding such discount.

7. Milgrom, Galuskin, Rosner & Company (MGR&C), an accounting firm

located in Edison, New Jersey, will serve as the independent, qualified

fiduciary for the Plan with respect to the Loan. Paul D. Milgrom of

MGR&C represents that MGR&C has extensive experience in business and

loan transactions. Mr. Milgrom represents that both he and MGR&C are

independent of, and unrelated to, both the Ross Trust and Allied. Mr.

Milgrom states that MGR&C understands and acknowledges their duties,

responsibilities, and liabilities in acting as a fiduciary with respect

to the Plan based upon consultation with counsel experienced with the

fiduciary responsibility provisions of the Act.

Mr. Milgrom represents that MGR&C has reviewed the terms of the

Loan and all of the documents and relevant information in connection

with the Loan, including the appraisal. Mr. Milgrom states that the

terms of the Loan compare favorably with the terms of similar

transactions between unrelated parties and would be an arm's length

transaction as evidenced by the terms offered by CoreStates (see Item

#5 above). Mr. Milgrom represents that MGR&C believes that the Loan is

in the best interests of the Plan and its participants and

beneficiaries as an investment for the Plan's portfolio. Mr. Milgrom

states that MGR&C believes that the Loan would be an appropriate and

desirable investment for the Plan, based on the Loan's rate of return,

the collateral securing the Loan, the character and diversification of

the Plan's other assets and the projected liquidity needs of the Plan.

MGR&C has reviewed the financial condition of the Ross Trust in

order to establish its ability to repay the Loan. In this regard, MGR&C

has reviewed the Ross Trust's financial statements as well as Allied's

financial statements. MGR&C concludes that the Ross Trust is credit

worthy and, based upon its available monthly cash flow, the Ross Trust

is financially capable of making the monthly Loan payments without such

payments having an adverse impact on its cash flow.

Mr. Milgrom represents that MGR&C will monitor the Loan throughout

its entire duration and will take any appropriate action necessary to

protect the interests of the Plan and its participants and

beneficiaries, including a foreclosure on the Property in the event of

default. MGR&C will monitor the Property to ensure that the Loan

remains secured by collateral worth at least 150 percent of the Loan at

all times. Finally, MGR&C will monitor the conditions of the exemption

and will ensure that such conditions are met.

8. In summary, the applicant represents that the proposed

transaction will satisfy the statutory criteria for an exemption under

section 408(a) of the Act because: (a) The terms of the Loan will be at

least as favorable to the Plan as those obtainable in an arm's length

transaction with an unrelated party; (b) the Loan will not exceed

twenty-five percent of the assets of the Plan at any time during the

duration of the Loan; (c) the Loan will be secured by a first deed of

trust on certain real property (the Property) which has been appraised

by an independent, qualified appraiser to ensure that the fair market

value of the Property is at least 150 percent of the amount of the

Loan; (d) the fair market value of the Property will remain at least

equal to 150 percent of the outstanding balance of the Loan throughout

the duration of the Loan; (e) MGR&C, as the Plan's independent,

qualified fiduciary, determined on behalf of the Plan that the Loan is

in the best interest of the Plan and protective of the Plan's

participants and beneficiaries; and (f) MGR&C will monitor compliance

with the terms of the Loan and the conditions of the exemption

throughout the duration of the transaction, taking any action necessary

to safeguard the Plan's interest, including foreclosure on the Property

in the event of default.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

telephone (202) 219-8971. (This is not a toll-free number.

Westinghouse Pension Plan (The Plan)

Located in Pittsburgh, Pennsylvania [Application No. D-9519]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR 2570,

Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption is

granted, the restrictions of sections 406(a)(1)(A) through (D),

406(b)(1) and (b)(2) of the Act and the sanctions resulting from the

application of section 4975 of the Code, by reason of section

4975(c)(1)(A) through (E) of the Code, shall not apply to the

contribution of certain securities (the Securities) to the Plan on

September 14, 1993 and October 29, 1993 by Westinghouse Electric

Corporation (WEC), the Plan's sponsor and as such a party in interest

with respect to the Plan, provided the following conditions are met:

(a) The Securities were valued at an amount which was no greater

than their fair market value at the time of contribution, as

established by an independent, qualified appraiser;

(b) The terms and conditions of the contributions were at least as

favorable to the Plan as terms and conditions which the Plan could have

obtained in a purchase of similar securities from an unrelated party;

(c) The Plan did not pay any commissions or other expenses with

respect to the contributions;

(d) The fair market value of the Securities represents at all times

an amount of the Plan's total assets which is consistent with the

Plan's investment guidelines and objectives;

(e) Mellon Bank N.A. (Mellon), as an independent, qualified

fiduciary for the Plan, determined that each contribution of the

Securities to the Plan was in the best interests and protective of the

Plan and its participants and beneficiaries at the time of the

transactions;

(f) Mellon monitored each contribution made to the Plan and took

all appropriate actions necessary to protect the interests of the Plan

and its participants and beneficiaries;

(g) Mellon monitors the performance of the Securities as an

investment for the Plan and takes whatever action is necessary to

protect the interests of the Plan and its participants and

beneficiaries;

(h) On the third anniversary of the date of the first contribution

made to the Plan (i.e. September 14, 1996), WEC shall contribute to the

Plan the difference between the sum of:

(1) The sales proceeds received by the Plan on the disposition of

any of the Securities, plus

(2) The current fair market value of the Securities remaining in

the Plan, plus

(3) Interest accrued and interest and dividends received on the

Securities, and the aggregate value of the Securities on the date that

they were originally contributed to the Plan (i.e. $188,882,694), plus

any adjustments to such aggregate value requested by Mellon to reflect

changes in the Consumer Price Index (CPI) during the period that the

Securities were held by the Plan, upon demand by Mellon as the Plan's

independent fiduciary under the terms of a ``makewhole agreement'' with

the Plan (the Makewhole Agreement). Mellon shall have sole authority to

determine the current fair market value of the Securities remaining in

the Plan under the Makewhole Agreement through either appointment of

one or more independent appraisers or by its own appraisal of the

Securities at the time of the transaction;

(i) No later than December 31, 1994, WEC makes a cash contribution

to the Plan in the amount of $25 million to support any amounts that

may become due under the Makewhole Agreement, provided that this cash

contribution is held as a separate credit balance in the Plan's funding

standard account until September 14, 1996 (the termination date of the

Makewhole Agreement) and is not used to offset any other funding

obligation owed by WEC to the Plan until such date. Mellon, as the

Plan's independent fiduciary, shall be responsible for investing the

$25 million and ensuring that the Plan receives all interest and other

income earned on the $25 million; and

(j) Mellon monitors the compliance by all parties with the terms

and conditions of the exemption.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption

will be effective for each contribution as of September 14 and October

29, 1993, respectively.

Summary of Facts and Representations

1. The Plan is a defined benefit plan which had 135,969

participants and total assets of approximately $3.7 billion, as of

December 31, 1992. The Plan is maintained by WEC, a diversified, global

technology-based corporation with its headquarters in Pittsburgh,

Pennsylvania. The trustee of the Plan is Mellon. As of September 15,

1993, the Plan was funded above the required minimum funding level and

WEC had no minimum funding obligation.

2. The named fiduciary of the Plan is the WEC Pension Plan

Administration Committee (the Committee). The Committee has the general

authority to control and manage the operation and administration of the

Plan, including the authority to appoint, direct, and monitor the

trustee and investment managers. The Committee also has the authority

to employ attorneys, consultants and other advisers in furtherance of

its duties.

The Committee retained The Frank Russell Company (Russell) in 1990

as a consultant to review the Plan's asset allocation guidelines. The

purpose of these guidelines is to establish percentage goals for the

allocation of Plan assets among various categories of investments to

enable the Plan to meet targeted returns, achieve diversification, and

satisfy projected liquidity needs.

Pursuant to this review, Russell concluded that a target of

approximately 5.2 percent of total Plan assets would be an appropriate

asset allocation goal for so-called ``alternative investments'' that

would be consistent with the Plan's investment needs and objectives.

Alternative investments generally are relatively illiquid investments

in an asset class other than traditional classes of cash, stock, fixed

income securities and real estate. Alternative investments typically

include venture capital, buyout funds, distressed companies, mezzanine

financing, oil and gas programs, timberland or farmland, and

economically targeted investments addressing certain social policies.

Russell states that allocation of a small portion of assets to

alternative investments is common among large corporate pension plans,

such as the Plan.

3. As the result of a corporate reorganization in 1992, WEC held

the investments of its former subsidiary, Westinghouse Credit

Corporation (WCC). These assets included a portfolio of corporate

securities which contained numerous alternative investments of the type

described above. These assets had a value of approximately $1 billion.

WEC had determined to liquidate all assets of WCC pursuant to the

corporate restructuring. However, upon internal review of these assets,

WEC concluded that some of the assets were high quality alternative

investments possessing a significant potential for strong investment

returns. In view of the fact that the Plan had an unsatisfied asset

allocation target for such alternative investments, WEC began

considering the possibility of contributing some of these assets to the

Plan.

4. The process leading to the subject contribution of the

Securities involved a number of steps. First, Westinghouse Pension

Investment Corporation (WPIC), a wholly-owned subsidiary of WEC that

managed the Plan's existing alternative investment portfolio, examined

the entire $1 billion portfolio of available securities and identified

$300 million in securities that were suitable for contribution to the

Plan. Second, once WPIC had completed its initial review, the Plan

retained Mellon to act as its independent fiduciary to examine the

remaining securities for purposes of the proposed contribution of some

of these securities to the Plan. Mellon was vested with full authority

to act on behalf of the Plan and to determine whether accepting the

contribution of any of the securities identified by WPIC would be in

the best interests of the Plan and its participants and beneficiaries.

As a result, Mellon had the authority either to refuse to accept any

contribution, to accept the entire contribution identified by WPIC, or

to further choose among the $1 billion portfolio of offered securities.

Mellon reviewed the $300 million of securities identified by WPIC

and concluded that the contribution of four specific securities (i.e.

the Securities) valued at approximately $188 million would be in the

best interests of the Plan.

5. The Securities, all of which were issued by entities unrelated

to WEC and its affiliates as well as Mellon, represent equity and debt

interests that are within the asset category of alternative investments

because the Securities are fairly illiquid and high risk investments.

KPMG Peat Marwick (Peat Marwick) of Chicago, Illinois, and Stern

Brothers & Company (Stern Brothers) of Kansas City, Missouri, were

engaged as qualified, independent appraisers to value the Securities

for purposes of the contribution.

The Securities are described as follows: (i) 35.1% of the

outstanding shares of common stock of Topps Appliance City Inc. (the

Topps Securities), appraised by Peat Marwick as having a fair market

value of approximately $32,804,694; (ii) a senior revolving loan,

subordinated notes, and 100% of the class A cumulative preferred stock

of Tele-Media Company of Western Connecticut (the Tele-Media

Securities), appraised by Peat Marwick as having a fair market value of

approximately $62,000,000; (iii) 12% of the outstanding shares of class

B common stock of Federated Investors (the Federated Securities),

appraised by Stern Brothers as having a fair market value of

approximately $20,100,000;1 and (iv) 2% of the senior debt, 37.4%

of the subordinated debt, 37.9% of the preferred stock and 31.6% of the

common stock of First Britannia Mezzanine N.V. (the First Britannia

Securities), appraised by Peat Marwick as having a fair market value of

approximately $73,978,000.

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\1\The applicant states that Mellon agreed to have the

Securities valued by Peat Marwick because of its expertise in the

field of valuing alternative investment securities. However, Peat

Marwick determined that as a result of a pre-existing relationship

with Federated Investors, it would be unable to evaluate the

Federated Securities. Therefore, at Peat Marwick's suggestion with

the approval of Mellon, Stern Brothers was chosen to value these

Securities.

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The total fair market value of the Securities established by Peat

Marwick and Stern Brothers (together, the Appraisers) was approximately

$188,882,694. The Appraisers' reports state that certain discount rates

were used to value each of the Securities to reflect their lack of

marketability and the rate of return which investors would require to

compensate for the risks involved.

The Topps Securities, the Tele-Media Securities, and the Federated

Securities were contributed by WEC to the Plan on September 14, 1993.

The First Britannia Securities were contributed by WEC to the Plan on

October 29, 1993 (for reasons discussed in Item 6 below). The

Securities represented approximately 5.1% of the Plan's total assets as

of the date of the last contribution.

6. Mellon represents that it thoroughly reviewed, prior to the

subject contributions, both the Appraisers' reports and the Securities

themselves in order to determine whether and at what amount to accept

the Securities on behalf of the Plan. Mellon had access to all

information relating to the Securities in the possession of WEC, WCC

and WPIC, including legal documentation of the Securities, various

financial statements, and annual reports on the issuers of the

Securities. Mellon reviewed and approved the valuation methodologies

contained in the Appraisers' reports, which utilized both independent,

market-based data as well as information provided by the issuers of the

Securities. Mellon concluded that the Appraisers used accepted

valuation methods and relied on information that was reliable and

consistent with the information developed by Mellon during its review

of the contribution of the Securities.

With respect to the Topps Securities, the investment consists of

2,523,438 shares of common stock of Topps Appliance City Inc. (Topps),

a NASDAQ listed retailer of home appliances and consumer electronics in

the New York City area. Mellon states that the shares, although

publicly traded, are unregistered and subject to certain sale

restrictions under Rule 144 of the Securities and Exchange Commission

(SEC). Thus, Mellon notes that the Topps Securities can be disposed of

only in a private placement or in the public market over a period of

approximately 8-10 years under the timing and volume restrictions of

SEC Rule 144. However, Mellon states that the valuation of the Topps

Securities by Peat Marwick analyzed the price volatility and trading

volume of the common stock of Topps as well as the discounts at which

private placements of such stock occur in the market. Peat Marwick's

valuation of the Topps Securities reflected a 20% discount off the

traded share price of $16.25 as of September 13, 1993, to account for

the lack of liquidity. Mellon believed that this discount and the

potential for significant returns over a long term made the Topps

Securities an appropriate alternative investment for the Plan.

With respect to the Tele-Media Securities, the investment consists

of a senior revolving loan, subordinated debt and 100% of the

cumulative preferred stock of Tele-Media Company of Western Connecticut

(Tele-Media), a cable television and video production studio operator

in Naugatuck Valley, Connecticut. Tele-Media is a privately-held

company. WEC was the sole lender under the senior revolving loan, sole

holder of Tele-Media's subordinated debt, and sole owner of the Tele-

Media preferred stock prior to the subject contribution to the Plan.

Peat Marwick's valuation of the Tele-Media Securities utilized in part

a discounted cash flow analysis of the company. The discounted cash

flow method attempts to measure what a buyer is willing to pay

currently for the future cash generating potential of an entity. The

estimate of the present value of future cash flows of Tele-Media, using

an average of management's best and worst case scenarios for a five-

year earnings forecast and a discount rate of 14.5%, suggested a value

for Tele-Media's total capital of approximately $70 million. However,

Peat Marwick's valuation also utilized a market approach analysis

involving trades of similar securities by companies within the

industry. This approach was given more weight because of uncertainty

regarding the potential impact of new cable regulations on Tele-Media's

future cash flow. Under this approach, the fair market value of senior

and subordinated debt was determined by computing the present value of

the expected principal and interest payments at rates which reflected

current market rates for similar debt instruments. Peat Marwick

concluded that the value of the Tele-Media Securities under the market

approach was $62 million.\2\ Mellon states that Peat Marwick's

valuation of the Tele-Media Securities appropriately reflected the risk

of holding such a position in a private company. Mellon believed that

the potential for significant returns over the long term made the Tele-

Media Securities an appropriate alternative investment for the Plan.

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\2\In this regard, a current market rate of 9% per annum was

assumed for Tele-Media's $51 million senior debt outstanding and a

current market rate of 20% per annum was assumed for Tele-Media's

$12 million subordinated debt outstanding as of June 30, 1993. Thus,

the estimated present value of the senior and subordinated debt

totalled approximately $59 million as of such date. Peat Marwick

states that, based on a total invested capital value for Tele-Media

of $62 million, $3 million was allocated to Tele-Media's preferred

stock. Peat Marwick made no further adjustments to its valuation of

the Tele-Media Securities at the time of the contribution (i.e.

September 14, 1993).

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The applicant states that on June 16, 1994, the Tele-Media

Securities were sold by the Plan to Tele-Media for $66,050,000. Thus,

based on Peat Marwick's determination that the Tele-Media Securities

had a fair market value of $62 million as of September 14, 1993, the

applicant represents that the Plan has realized a net gain of

$4,050,000 as a result of the contribution and sale of these

securities.

With respect to the Federated Securities, the investment consists

of 1,200,000 shares of class B common stock of Federated Investors

(Federated), a nationwide mutual fund sponsor and service-provider

based in Pittsburgh, Pennsylvania. The Federated Securities represent a

minority interest (i.e. approximately 12%) in a privately-held company.

Stern Brothers' valuation of the Federated Securities utilized a

capitalization of earnings approach, which considered the market value

of Federated's invested capital as a multiple of projected earnings,

and a discounted cash flow approach. Stern Brothers used these

approaches to arrive at a $20.87 per share value, on a publicly traded

equivalent basis, for the Federated Securities. In addition, Stern

Brothers applied a 20% discount to this amount to account for the lack

of marketability of the Federated Securities. Mellon believed that this

discount and the potential for significant returns over the long term

made the Federated Securities an appropriate alternative investment for

the Plan. With respect to the First Britannia Securities, the

investment consists of 2% of the outstanding senior debt, 37.39% of the

subordinated debt, 37.96% of the preferred stock (i.e. 873,140 shares)

and 31.61% of the common stock (i.e. 4,425,322 shares) of First

Britannia Mezzanine N.V. (First Britannia), an investment fund based in

London, England, whose purpose is to invest in high yield, subordinated

debt with associated equity securities focusing primarily on companies

in the United Kingdom. First Britannia's portfolio consisted of

investments in 16 diversified operating companies at the time of Peat

Marwick's valuation. Peat Marwick selected the adjusted net asset value

approach to determine the fair market value of First Britannia's equity

interests. In this regard, Peat Marwick relied on a current valuation

of the equity investments in First Britannia's portfolio by Coopers &

Lybrand, an independent qualified appraiser. Peat Marwick assumed that

the fair market value of First Britannia's debt interests was equal to

book value since all portfolio loans were current and had adjustable

interest rates based on the London Interbank Offered Rate (LIBOR).

Mellon states that the valuation of the First Britannia Securities

reflected appropriate investment company, minority ownership and

marketability discounts. Mellon believed that these discounts and the

potential for significant returns over the long term made the First

Britannia Securities an appropriate alternative investment for the

Plan. However, Mellon withheld final approval of the Plan accepting the

First Britannia Securities on September 14, 1993, the contribution date

for the other Securities, because First Britannia was in the process at

that time of refinancing its senior debt. The refinancing was completed

on October 25, 1993, with terms which were more favorable to senior

debtholders, including an increase in the interest rate.\3\ Mellon,

upon review of the terms of First Britannia's new senior debt,

determined that the contribution of the First Britannia Securities was

in the best interest of the Plan and accepted those Securities on

October 29, 1993. Peat Marwick established the fair market value of the

First Britannia Securities to be 49,733,000 pounds sterling on the date

of contribution, which equated to $73,978,000 based on exchange rates

as of close of business on October 28, 1993.

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\3\First Britannia's new senior debt has interest payable semi-

annually at a rate equal to LIBOR plus 200 basis points, an increase

of 35 basis points over the original senior debt which paid semi-

annual interest equal to LIBOR plus 165 basis points. First

Britannia's subordinated debt pays interest semi-annually at a rate

equal to LIBOR plus 300 basis points.

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7. As the Plan's independent fiduciary, Mellon represents that it

also: (i) Reviewed the Plan's investment allocation policy and

guidelines relating to alternative investments; (ii) confirmed that

such investment guidelines were independently reviewed by Russell who

had worked with WPIC to assure that the guidelines were designed to

meet appropriate investment return and diversification needs of the

Plan; (iii) determined that it was proper to rely on the investment

guidelines with respect to the need for alternative investments and the

percentage to be committed to such investments; (iv) determined the

value of Plan assets currently committed to alternative investments;

and (v) determined that the Plan could accept the Securities without

exceeding the guidelines relating to alternative investments. Mellon

concluded, prior to each contribution of the Securities to the Plan,

that the Plan's allocation policy and investment guidelines relating to

alternative investments were appropriate and that acceptance of the

Securities would be within these guidelines and would not adversely

affect the Plan's liquidity needs. Accordingly, Mellon represents that

the contribution of the Securities was in the best interests and

protective of the Plan and its participants and beneficiaries at the

time of the subject transactions.\4\

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\4\The Department expresses no opinion in this proposed

exemption as to whether the contribution and subsequent holding of

the Securities by the Plan would violate section 404(a) of the Act.

Section 404(a) of the Act requires, among other things, that a

fiduciary of a plan act prudently, solely in the interest of the

plan's participants and beneficiaries, and for the exclusive purpose

of providing benefits to participants and beneficiaries when making

investment decisions on behalf of a plan.

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8. Mellon states that it monitored the contributions of the

Securities on behalf of the Plan and took all appropriate actions

necessary to protect the interests of the Plan and its participants and

beneficiaries. Mellon represented the Plan in the preparation and

review of all documentation necessary to effect the transfer of the

Securities from WEC to the Plan. In addition to reviewing and approving

the valuation methodologies utilized by the Appraisers, Mellon ensured

that the valuation of each of the Securities was adjusted to reflect

the current fair market value on the date of contribution to the Plan.

In this regard, Mellon requested that the Appraisers provide updated

valuations of the Securities as of the date of the contributions. Where

market forces resulted in changes in the valuations of the Securities,

Mellon states that it reviewed the stated causes for these changes and

was satisfied that the changes were accurately reflected in the

valuations.

9. Mellon agreed to act as the Plan's independent investment

manager for the holding of the Securities. Mellon has full authority

for decisions relating to whether to hold or dispose of the Securities

on behalf of the Plan. Mellon states that it has and will continue to

monitor the performance of the Securities as an investment for the Plan

and will take whatever action is necessary to protect the interests of

the Plan and its participants and beneficiaries.

10. WEC has entered into the Makewhole Agreement with the Plan for

the Securities in order to provide additional protections to the Plan.

Under the Makewhole Agreement, the parties agree that on the third

anniversary of the date of the first contribution made to the Plan (the

Exercise Date), WEC shall contribute to the Plan the difference between

the sum of:

(i) The sales proceeds received by the Plan on the disposition of

any of the Securities, plus

(ii) The current fair market value of the Securities remaining in

the Plan, plus

(iii) Interest accrued and interest and dividends received on the

Securities, and the aggregate value of the Securities on the date that

they were originally contributed to the Plan (i.e. $188,882,694), if

such amount is greater, plus any adjustments to such aggregate value

requested by Mellon to reflect changes in the CPI during the period

that the Securities were held by the Plan (referred to below as ``the

Makewhole Amount''), upon demand by Mellon as the Plan's independent

fiduciary. Mellon will exercise the rights under the Makewhole

Agreement on behalf of the Plan by delivery of a notice (the Notice of

Exercise) to WEC no later than the sixtieth (60th) day after the

Exercise Date. Mellon represents that it has full authority regarding

whether and when to deliver the Notice of Exercise. In the event Mellon

determines to exercise the rights under the Makewhole Agreement, it

will have sole authority to determine the current fair market value of

the Securities remaining in the Plan, for purposes of establishing the

Makewhole Amount, through either appointment of one or more independent

appraisers or by its own appraisal of the Securities at the time of the

transaction.

Mellon states that the terms of the Makewhole Agreement are in the

best interests of the Plan. The Makewhole Agreement is designed to

guarantee the full value of the Securities as a contribution to the

Plan, based on their fair market value at the time of each

contribution, even though WEC was under no legal obligation to make a

cash contribution at the time of the transactions. Under the Makewhole

Agreement, WEC will guarantee the value of the Securities as an

investment for the Plan during a three-year time period in order to

ensure that the Plan will be protected from any losses that may result

from holding the Securities during this period. Thus, the Makewhole

Agreement ensures that the Plan will be in at least as favorable a

position at the end of this period as it would have been had it

received a cash contribution of the amount given in-kind through the

contribution of the Securities and used the cash to purchase similar

alternative investments. WEC states that the Plan incurred significant

transaction cost savings in acquiring the Securities from WEC because

no commissions or other expenses were paid by the Plan for the

Securities.

11. WEC states that it will adhere to all minimum funding

obligations that will otherwise accrue to the Plan during the three

year period covered by the Makewhole Agreement.\5\ In addition, as

support for the Makewhole Amount, the applicant has agreed to the

following arrangement:

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\5\The applicant represents that the Securities became plan

assets upon contribution to the Plan, and the value of the

Securities was included in the Plan's funding standard account.

However, WEC states that it has no minimum funding payments that

must be made to the Plan until 1995. The value of the Securities

(including the proceeds from the sale of any of the Securities and

the dividends, interest and other income generated by the

Securities), along with certain other contributions made by WEC,

will be included in the basis for the calculation of the amount of

minimum funding payments due to the Plan in 1995. In this regard,

WEC made a cash contribution of $75 million to the Plan on June 30,

1994. WEC states that, as in the case of the contribution of the

Securities, this cash contribution was not a required minimum

funding payment but was made as part of WEC's ongoing efforts to

improve the funding status of the Plan.

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(a) WEC will make a cash contribution to the Plan in the amount of

$25 million. This amount represents at least 20 percent of the

difference between the original value of the Securities at the time of

contribution and the proceeds of the sale of the Tele-Media Securities

($188,882,694-$66,050,000 = $122,832,694).

(b) This $25 million contribution will not alter the terms of the

Makewhole Agreement or any obligation WEC may have as a result of the

operation of the Makewhole Agreement.

(c) This contribution will be made no later than December 31, 1994.

(d) WEC will make this contribution solely as the result of and in

connection with the requested exemption. WEC has no currently

outstanding annual minimum funding obligation that would otherwise be

satisfied by this contribution.

(e) This $25 million contribution will be held as a separate credit

balance in the Plan's funding standard account until September 14, 1996

(the termination date of the Makewhole Agreement). Until that date,

this $25 million credit balance will not be used to offset any other

funding obligation owed by WEC to the Plan, and will not be used in

calculating the amount of any other funding payment or contribution

made by WEC to the Plan.

(f) This $25 million will be managed by Mellon (as investment

manager for the Plan) and all interest and other income produced by

this contribution will be credited to the Plan.

12. In summary, the applicant represents that the contributions of

the Securities met the statutory criteria of section 408(a) of the Act

and section 4975(c)(2) of the Code because: (a) The Securities were

valued at an amount which was no greater than their fair market value

at the time of the transactions, as established by independent,

qualified appraisers; (b) Mellon analyzed the Securities as an

investment for the Plan, prior to the contributions, and concluded that

the acquisition of the Securities would be in the best interests of the

Plan and its participants and beneficiaries; (c) the Securities were

contributed under terms and conditions which were at least as favorable

to the Plan as a purchase of similar securities on the open market; (d)

the fair market value of the Securities represented an amount of the

Plan's total assets which was consistent with the Plan's investment

guidelines and objectives, as reviewed and approved by Russell and

Mellon; (e) WEC will contribute, on the third anniversary of the date

of the first contribution made to the Plan, the difference between the

sum of (i) the sales proceeds received by the Plan on the disposition

of any of the Securities, plus (ii) the current fair market value of

the Securities remaining in the Plan, plus (iii) interest accrued and

interest and dividends received on the Securities, and the aggregate

value of the Securities on the date that they were originally

contributed to the Plan (plus any adjustments to such aggregate value

requested by Mellon to reflect changes in the CPI during the period

that the Securities were held by the Plan), upon demand by Mellon as

the Plan's independent fiduciary under the terms of the Makewhole

Agreement; (f) WEC will make an additional cash contribution to the

Plan in the amount of $25 million as support for the Makewhole Amount;

and (g) Mellon will monitor the holding of the Securities by the Plan,

as well as the conditions of the exemption, and will take whatever

action is necessary to protect the interests of the Plan and its

participants and beneficiaries.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,

telephone (202) 219-8194. (This is not a toll-free number.)

General Motors Hourly-Rate Employes Pension Plan (The Plan)

Located in Detroit, Michigan

[Application No. D-9734]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption

is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2),

and 407(a) of the Act and the sanctions resulting from the application

of section 4975 of the Code, by reason of section 4975(c)(1) (A)

through (E) of the Code6 shall not apply to:

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\6\For purposes of this exemption, references to specific

provisions of Title I of the Act, unless otherwise specified, refer

also to the corresponding provisions of the Code.

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(1) The transfer of shares of Class E common stock (the Class E

stock) of General Motors Corporation (GM) to the Plan through the in-

kind contribution of such shares by GM, a party in interest with

respect to such Plan;

(2) The holding of the Class E stock by the Plan;

(3) The sale for cash of shares of Class E stock by the Plan to GM

or its affiliates or to certain defined contribution plans sponsored by

GM or its affiliates;

(4) The exchange of shares of Class E stock for publicly-traded

securities between the Plan and GM or its affiliates under the same

terms and conditions as are made available to all shareholders of Class

E stock; and

(5) The acquisition, holding, and exercise by the Plan of a put

option granted by GM which permits the Plan to sell the Class E stock

or a successor security for which the Class E stock has been exchanged

to GM.

This exemption is conditioned upon adherence to the material facts

and representations described herein and upon the satisfaction of the

following requirements:

(a) GM contributes to the Plan at least 177 million shares of Class

E stock but no more than 186 million shares plus $4 billion in cash,

with at least $2 billion contributed in conjunction with or prior to

the contribution of the Class E stock, and the remaining $2 billion

contributed no later than September 30, 1995;

(b) If less than 177 million shares of Class E stock are

contributed, GM will contribute additional cash in an amount equal to

the difference between 177 million and the number of shares of Class E

stock contributed times the per-share value of such stock at the time

of contribution, or a weighted average price if such stock is not

contributed on a single date;

(c) United States Trust (UST), an independent qualified fiduciary,

or a successor independent fiduciary acceptable to the Pension Benefit

Guaranty Corporation (PBGC) represents the Plan's interests for all

purposes with respect to the Class E stock and determines, prior to

entering into any of the transactions described herein, that each such

transaction, including the contribution of the Class E stock, is in the

interest of the Plan;

(d) UST negotiates and approves the terms of any of the

transactions between the Plan and GM or its affiliates or certain

defined contribution plans sponsored by GM or its affiliates;

(e) UST manages the holding and disposition of the Class E stock

and takes whatever action it deems necessary to protect the rights of

the Plan;

(f) The terms of any of the transactions between the Plan and

parties in interest are no less favorable to such Plan than terms

negotiated at arm's length under similar circumstances with unrelated

third parties;

(g) A credit balance reserve is maintained in the Plan consisting

of the cash credit balance or cash generated from stock that has been

sold in an amount equal to at least 25 percent (25%) of the contributed

value7 of the Class E stock which remains unsold in the Plan, for

so long as such stock or any securities received in exchange exceeds

the percentage limitations described in sections 407(a) and 407(f) of

the Act (the ERISA Limits);

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\7\Contributed value means the value of the Class E stock when

contributed to the Plan, as determined by Duff & Phelps Capital

Markets Co. (formerly Duff & Phelps Financial Consulting Co.) (Duff

& Phelps).

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(h) An independent qualified appraiser determines the fair market

value of the Class E stock contributed to the Plan as of the date of

such contribution, and determines the fair market value of the Class E

stock at various other times as required under the agreement between GM

and the PBGC (the PBGC agreement);

(i) With respect to any sale or exchange of Class E stock by the

Plan to GM or its affiliates or to any defined contribution plans

sponsored by GM or its affiliates, no commission will be charged to or

paid by the Plan;

(j) Any sale or exchange of Class E stock between the Plan and GM

or its affiliates will be for no less than ``adequate consideration''

within the meaning set forth in section 3(18) of the Act, and any sale

of Class E stock by the Plan to a defined contribution plan sponsored

by GM or its affiliates will be at the prevailing price for such stock

on the New York Stock Exchange (NYSE); and

(k) The Plan incurs no fees, costs, or other charges or expenses as

a result of its participation in any of the transactions.

EFFECTIVE DATE: If this proposed exemption is granted, it will be

effective on the later of the date on which the final exemption appears

in the Federal Register or the date on which the PBGC Agreement is

executed.

Summary of Facts and Representations

1. GM, the applicant, is a Delaware corporation, headquartered at

3044 West Grand Boulevard, Detroit, Michigan. GM is best known as a

full-line vehicle manufacturer and supplier of automotive components

and systems to other major manufacturers. In this regard, GM makes and

sells cars, trucks, locomotives, and automotive components worldwide.

It is represented that, as of December 31, 1993, GM had net sales and

revenues of $138.2 billion and employed an average of 448,000

individuals. GM's other substantial business interests include three

wholly-owned subsidiaries: (1) GM Hughes Electronics Corporation

(GMHE); (2) General Motors Acceptance Corporation (GMAC); and (3)

Electronic Data Systems Corporation (EDS). GMHE was organized in 1985

as a holding company for Hughes Aircraft Company and Delco Electronics

Corporation and is involved in telecommunications systems, satellite

systems, automotive electronic components, and other electronic

products for commercial, aviation, and defense applications. GMAC and

its affiliates provide financing and insurance to GM customers and

dealers. EDS, acquired by GM in 1984, and operated as an independent

and autonomous unit of GM, provides customers worldwide with

information systems management and development, telecommunications,

data processing, and other technological consulting services.

2. The Plan is a non-contributory defined benefit pension plan

covering substantially all of the hourly employees of GM in the United

States. The Plan uses an October 1-September 30 plan year. For the 1992

Plan year which ended September 30, 1993, the Plan covered a total of

599,262 participants and beneficiaries. Of these, 274,257 were fully

vested active participants, 280,633 were retirees or their

beneficiaries in pay status, and 44,372 were terminated vested

participants. The GM hourly employees are represented by eleven

different unions. In this regard, more than 500,000 of the participants

of the Plan are members of the International Union, United Automobile,

Aerospace, and Agricultural Implement Workers of America.

The named fiduciary of the Plan is the Finance Committee of the

Board of Directors of GM (the Board). A majority of the members of the

Finance Committee are outside directors. Acting in its fiduciary

capacity, GM appointed a wholly-owned subsidiary, the General Motors

Investment Management Corporation (GMIMCO), to serve as the primary

investment manager for the Plan. GMIMCO is a registered investment

advisor under the Investment Advisers Act of 1940 and has acknowledged

that it is a fiduciary with respect to the Plan. It is represented that

EDS began providing administrative services in January 1994 to the Plan

and to another plan sponsored by GM, after being chosen in competitive

bidding to do so. In this regard, it is represented that the Plan pays

only direct costs for the provision of such services.8

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\8\The Department expresses no opinion, herein, as to whether

the provision of services by EDS to the Plan and the compensation

received therefor satisfy the terms and conditions as set forth in

section 408(b)(2) of the Act.

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As of September 30, 1993, the Plan had assets of $19.6 billion. In

this regard, the Plan's investments were held in two master trusts (the

Master Trusts), the General Motors Hourly-Rate Employes Pension Trust

(the Hourly Trust) and the General Motors Global Pension Trust (the

Global Trust). The Master Trusts permit commingling of the assets of

one or more GM employee benefit plans for investment and administrative

purposes. The Plan has an undivided interest in the net assets of the

Master Trusts, and allocations are made monthly.

The Global Trust invests primarily in foreign equities, and for

reporting purposes its investments are translated into U.S. dollar

equivalents. The Hourly Trust invests principally in U.S. equity and

fixed income securities, real estate mortgages, and commingled pension

trust funds. As of September 30, 1992, the Hourly Trust and the Global

Trust had net assets of $13,791,304,000 and $6,881,072,000,

respectively. Banker's Trust Company (Banker's Trust), Mellon Bank,

N.A. (Mellon Bank), and Chase Manhattan Bank, N.A. (Chase Bank)

administer the Hourly Trust, and Chase Bank administers the Global

Trust. Effective December 31, 1991, the Hourly Trust became a master

trust by amendment of the provisions of existing trust agreements

between GM and Banker's Trust, Mellon Bank, and Chase Bank.

It is represented that the Plan owns land and buildings in sixteen

(16) separate sites dispersed throughout the United States that are

leased to GM and on which are located GM training centers (the Training

Centers). As of March 31, 1994, the aggregate fair market value of the

Training Centers was $2,266,000 which represented a small fraction

(approximately one one-hundredth of one percent) of the total assets of

the Plan, as of that date. It is represented that each of the Training

Centers constitutes ``qualifying employer real property,'' as defined

in section 407(d)(4) of the Act, such that the acquisition by the Plan

of such centers and the leaseback to GM were exempt from the prohibited

transaction provisions under section 408(e) of the Act.9

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\9\The Department, herein, expresses no opinion as to whether

the Training Centers constitute ``qualifying employer real

property,'' as defined in section 407(d)(4) of the Act or whether

the acquisition and leaseback of the Training Centers satisfy the

conditions, as set forth under section 408(e) of the Act.

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As of March 31, 1994,11 the Plan also held the following securities

issued by GM: (1) 17,306,532 million shares of Class E stock with a

market value of $592.7 million; (2) 516,425 shares of GM $1\2/3\ common

stock with a market value of $27.8 million; (3) GM Corp Series C

Depositary Shares with a market value of $6.2 million, and (4) debt

securities of GMAC with a market value of $3,798,000. It is further

represented that these securities constitute ``qualifying employer

securities,'' as defined in section 407(d)(5) of the Act, such that the

acquisition and holding by the Plan of such securities were exempt from

the prohibited transaction provisions under section 408(e) of the

Act.10

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\1\0The Department, herein, expresses no opinion as to whether

these securities constitute ``qualifying employer securities,'' as

defined in section 407(d)(5) of the Act, or whether the acquisition

and holding by the Plan of such securities satisfy the conditions,

as set forth under section 408(e) of the Act.

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3. The Plan was established October 1, 1950, to provide normal

retirement, early retirement, disability retirement, death and survivor

benefits, and other benefits to participants and beneficiaries.

Effective October 1, 1990, the Plan was amended to provide for

increases in basic, temporary, and certain supplemental benefit rates

for retirees. It is represented that the Plan, as amended in October

1990, meets the Code requirements for a qualified pension plan.

Subsequent to September 30, 1992, the Plan was amended to provide

unreduced retirement benefits for certain employees who elected

voluntary early retirement.

Benefits provided under the Plan are based generally on an

employee's credited service and vest generally after five years.

Contributions by GM to the Plan are determined on the basis of

actuarial cost methods and include amortization of prior service cost.

It is represented that such contributions are made periodically by GM

within the limits set by the Act. As of September 30, 1991 and 1992,

the net assets of the Plan available for benefits totaled

$17,953,494,000 and $18,399,015,000 respectively.

4. With regard to the net assets of the Plan available to pay

benefits, it is represented that the Plan is significantly underfunded,

even though GM has never failed to make any funding payment required by

the Act. For purposes of financial accounting, GM reports the

liabilities of the Plan in accordance with the Statement of Financial

Accounting Standards No. 87 (SFAS No. 87) issued by the Financial

Accounting Standards Board. Although the Plan was overfunded on an SFAS

No. 87 basis as recently as 1987, it is represented that the

liabilities of the Plan have doubled over the last six (6) years. As of

December 31, 1993, the Plan was underfunded by $18.3 billion. It is

represented that the unfunded liabilities of the Plan rose 60 percent

(60%) from year end 1992 to year end 1993, from $11.4 billion to $18.3

billion.11 It is represented that the major factors contributing

to this increase were: (1) The decline in interest rates which resulted

in lower discount rates that GM uses to calculate the actuarial present

value of the liabilities of the Plan; (2) pension benefit increases as

a result of labor negotiations; and (3) the cost of a 1993 early

retirement program for certain GM employees.

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\1\1It is represented that the SFAS No. 87 calculations use the

same dates as those for plan years, but serve as proxy for calendar

year reporting purposes, as permitted under the accounting standard.

GM's liability shortfall on an SFAS No. 87 basis for its pension

plans worldwide was $22.3 billion at year-end 1993. GM maintains

that the Plan's $18.3 billion in underfunding accounts for the vast

bulk (82%) of GM's pension underfunding. The remaining underfunded

liabilities are primarily attributable to two non-U.S. pension

programs. It is represented that GM's other domestic qualified

defined benefit plans are each fully or nearly fully funded on an

SFAS No. 87 basis.

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5. It is represented that reducing the underfunding of the Plan is

a key objective of GM. In this regard, GM believes that it is

imperative to accelerate the pace at which this goal will be

accomplished before the next cyclical downturn in the automobile

industry anticipated for 1997. In the opinion of GM, a significant

reduction in the underfunding of the Plan will improve the security of

pension benefits for the participants and beneficiaries. In addition,

GM believes that such action would strengthen its long-term financial

soundness, its credit ratings, and decrease the cost of debt and

improve access to equity capital both for GM and GMAC.12

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\1\2GM believes that accelerating the funding of the Plan will

also help reduce the exposure of the PBGC to liability for certain

benefits of the Plan which are guaranteed.

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Generally, in order to correct the unfunded liability of its main

U.S. plans, GM has revised the mortality assumptions in such plans to

more closely reflect recent actual experience. Further, effective for

1993, GM has lowered the asset earnings rate assumption for its main

U.S. plans. With regard to funding, GM's Board decided in 1992 to

substantially improve the funded status of GM's pension plans by the

end of the decade. In this regard, during 1992 and 1993, GM contributed

more to such plans than was required by law and will continue to

contribute additional amounts above those required in 1994 and future

years. Specifically, given current estimates GM anticipates that

contributions of over $20 billion will be required to sufficiently fund

the Plan which is the subject of this exemption request. GM maintains

that it has significant competing cash needs and that not all cash

generated by its operations can be used to fund the Plan.

Contributions of Cash and Class E Stock

6. In order to help correct the Plan's unfunded liability, GM

proposes to contribute in kind to the Plan shares of Class E stock and

$4 billion dollars in cash. In this regard, it is proposed that the

Plan receive all of the remaining 222 million unissued shares of Class

E stock, less approximately 45 million shares reserved for conversion

of GM's Series C Preference Stock, or approximately 177 million

shares.13 If the number of shares available for contribution to

the Plan falls below 177 million, GM has agreed to increase the cash

contributed by an amount equal to the shortfall (the difference between

177 million and the number of shares actually contributed times the per

share value of the contributed stock at the time of contribution or a

weighted average price if the stock is not contributed on a single

date)14. GM estimates that, based on the per share market price as

of June 9, 1994, the value of the cash and Class E stock proposed to be

contributed is approximately $10 billion. It is represented that the

contribution of cash and the Class E stock will in the aggregate

immediately reduce the underfunding of the Plan by over 40 percent

(40%) on the basis of SFAS No. 87.

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\1\3It is represented that GM regularly issues Class E stock to

certain 401(k) and stock option plans maintained for employees of GM

and its affiliates. As a result, it is possible that at the time of

the contribution the remaining number of unissued nonreserved shares

of Class E stock will be less than the 177 million shares

specifically referenced in the PBGC Agreement, discussed below. GM

or EDS contemplates purchase of approximately 9 million shares of

Class E stock currently held by the General Motors Retirement

Program for Salaried Employes. In the event such sale is

consummated, GM may use some or all such shares to bring the number

of shares contributed to the Plan up to 177 million. Any remaining

shares may then be added to the stock portion of the contribution up

to a total of 186 million. It is represented that the additional

contributed shares of Class E stock will be treated in the same

manner as the 177 million shares under the PBGC Agreement.

\1\4The weighted average price will be determined by Duff &

Phelps which has been engaged by UST, independent fiduciary.

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7. GM has issued three classes of publicly-held common stock with

the following number of shares issued and outstanding, as of December

31, 1993: (a) 718,652,709 shares of $1\2/3\ par value common stock; (b)

89,930,845 shares of Class H common stock; and (c) 255,763,512 shares

of Class E stock. Each class of common stock has dividend, voting, and

liquidation rights, as provided in GM's Restated Certificate of

Incorporation, as amended. No class has any rights to preferential or

cumulative dividends, nor is the amount of dividends payable with

respect to any class limited by either contract law or to any

predetermined amount. The Certificate of Incorporation authorizes the

Board under certain terms to exchange every outstanding share of Class

E stock for shares of GM $1\2/3\ par value stock in a specified ratio

if various circumstances arise.

8. While the Class E stock which will be contributed to the Plan

will be unregistered, Class E stock which is registered and issued has

been widely-held and actively traded on the NYSE for nearly ten (10)

years under the symbol GME. Holders of GM Class E common stock have no

direct equity interest in EDS nor a priority claim on the assets of

EDS, but rather have liquidation rights in the aggregate equity and

assets of GM, which include 100 percent (100%) of the common stock of

EDS. In the event of the liquidation, dissolution, or winding up of the

business of GM, assets remaining after payments to creditors or to

preferred or preference stockholders, if any, will be distributed to

holders of Class E stock, as well as to holders of $1\2/3\ par value

common stock, and Class H common stock, on a per share basis in

proportion to the respective per share liquidation units of such

classes of stock.

9. For almost thirty (30) years, EDS has provided, both in the

United States and in thirty (30) other countries, applications of

information technology to small business, governments, and large

corporations, including GM and the Plan. EDS is headquartered in

Dallas, Texas and employs approximately 70,500 individuals to provide

information technology at customer sites or at one of EDS' nineteen

(19) information processing centers worldwide.

As of December 31, 1993, EDS had revenues totaling $8.6 billion,

and a net income of $724 million. It is represented that EDS has

experienced rapid and consistent growth. In this regard, since 1988,

total revenues have increased by 12 percent (12%) annually, and net

income has averaged 14 percent (14%) annual growth. Although 39 percent

(39%) of the revenues of EDS in 1993 were attributable to business with

GM and its affiliates, it is represented that increasingly EDS'

business has become independent of GM. In this regard, during the last

five (5) years, EDS' revenues from non-GM sources have increased from

40 percent (40%) to 61 percent (61%) of all revenues.

10. Dividends on Class E stock are linked to the earnings

performance of EDS. In this regard, under GM's Certificate of

Incorporation, dividends on Class E stock may be declared and paid out

of assets of GM only to the extent of the paid-in surplus attributable

to Class E stock, plus the ``Available Separate Consolidated Net Income

of EDS'' earned since the date GM acquired EDS.15 Under the

dividend policy in effect since 1989, but subject to alteration by the

Board, the aggregate annual dividend on a share of Class E stock is

equal to approximately 30 percent (30%) of the prior year's Available

Separate Consolidated Net Income of EDS. It is represented that

stockholders' equity with respect to Class E stock has climbed from

$1.4 billion in 1988 to $3.6 billion in 1993, while dividends have

increased from $.17 per share to $.40 per share over the same six-year

period. Further, the earnings per share attributable to GM Class E

stock increased by a compound 14 percent (14%) per annum from 1988 to

1993 when earnings per share equaled $1.51, as of December 31,

1993.16

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\1\5The Available Separate Consolidated Net Income of EDS is

defined so as to require GM to make quarterly allocations of the

portion of its consolidated net income earned during that quarter

that is attributable to EDS. Such allocations are made between (a)

amounts that are available for the payment of dividends on Class E

stock and (b) amounts that are available for the payment of

dividends on $1\2/3\ par value common stock. For each quarterly

accounting period, the proportion of GM's net income attributable to

EDS allocated to amounts available for the payment of dividends on

Class E stock is equal to that proportion of such earnings that can

be derived by multiplying those earnings by a fraction--the

numerator of which is the weighted average number of shares of GM

Class E stock outstanding during the period, and the denominator of

which is a number initially established by the GM Certificate of

Incorporation. At the discretion of the Board, as appropriate, the

number in the denominator from time to time decreases as shares of

Class E stock are purchased and increases as shares are needed in

order to meet certain requirements of GM's employee benefit plans.

As of December 1991, 1992, and 1993, the denominator was 478

million, 479.3 million, and 480.9 million shares.

\1\6It is represented that the acquisition by the Plan of the

177 million shares of Class E stock will not have any dilutive

effect on the dividends paid on or the earnings per share reported

for Class E stock, because the increase in the number of shares of

Class E stock outstanding that occurs in the numerator of the

fraction discussed in footnote 10 without an adjustment to the

denominator of such fraction will simply reallocate among existing

GM common shareholder groups the amounts of GM earnings available

for payment of dividends.

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11. With respect to the stock portion of the contribution, GM

requests exemptive relief from the prohibitions of sections 406 and 407

of the Act because of its belief, more fully discussed below, that the

contribution would not meet the requirements for the acquisition of

``employer securities'' under section 408(e) of the Act. In this

regard, section 408(e) provides, in part, that sections 406 and 407 of

the Act shall not apply to the acquisition or sale by a plan of

``qualifying employer securities,'' as defined in section 407(d)(5) of

the Act, if such acquisition or sale is for adequate consideration, no

commission is charged, and, in the case of a plan other than an

eligible individual account plan, such as a defined benefit plan, such

acquisition does not exceed 10 percent (10%) of the fair market value

of the assets of such plan. Under section 407(d)(5) stock is a

``qualifying employer security,'' if such stock is issued by an

employer of employees covered by the plan or by an affiliate of such

employer. Section 407(d)(5) further provides that in the case of a plan

other than an eligible individual account plan, such as a defined

benefit plan, an employer security shall be considered a ``qualifying

employer security,'' only if such employer security satisfies the

requirements of section 407(f)(1). Section 407(f)(1) provides that

stock satisfies the requirements of this paragraph if no more than 25

percent (25%) of the aggregate issued and outstanding shares of stock

of the same class is held by the plan and at least 50 percent (50%) of

the aggregate amount of such shares is held by persons independent of

the issuer.

GM believes that some portion of the Class E Stock to be

contributed to the Plan may be viewed as ``qualifying employer

securities'' under the Act because, up to a certain level, the

contribution would not violate the ERISA Limits. GM represents that the

Plan already owns 17 million shares of Class E stock. Assuming receipt

of the cash portion of the contribution, GM maintains that the Plan

could acquire additional shares of Class E stock without violating the

10 percent (10%) limitation under section 407(a) of the Act. However,

GM desires to contribute a far larger amount of Class E stock to the

Plan, with the result that immediately after the transaction the Class

E stock held by the Plan would exceed the 10 percent (10%) limitation.

In this regard, the fair market value of the total assets of the

Plan, as of March 31, 1994, was approximately $20.7 billion. The fair

market value of the ``employer securities'' and ``employer real

property'' held by the Plan, as of that date, including the Class E

stock the Plan already owns, constitutes approximately 3.1 percent

(3.1%) of the fair market value of the assets of the Plan. GM estimates

that, assuming the Plan receives the cash portion of the contribution

and a discount on the Class E stock as a result of certain restrictions

applicable to such stock, the aggregate value of ``employer

securities'' and ``employer real property'' held by the Plan

immediately after the contribution will constitute approximately 21

percent (21%) of the value of the total assets of the Plan.

The applicant further notes that the number of shares of Class E

stock which GM intends to contribute to the Plan may violate the 25

percent (25%) limitation under section 407(f) of the Act. It is

represented that there were 255,763,512 shares of Class E stock issued

and outstanding, as of December 31, 1993. If GM contributes 177 million

shares of Class E stock, those shares plus the 17 million shares the

Plan already owns would boost the Plan's holding to approximately 194

million shares. Accordingly, it is anticipated that immediately after

the transaction, the Plan would hold approximately 45 percent (45%) of

all the then issued and outstanding shares of Class E stock.

Further, it is represented that several other plans sponsored by GM

or its affiliates held, as of January 31, 1994, in the aggregate, some

47.1 million shares of Class E stock. If the contribution was made

pursuant to an exemption granted by the Department, it is estimated

that the shares of Class E stock held by other GM plans would equal

approximately 11 percent (11%) of the then issued and outstanding

shares. GM believes an issue exists as to whether such plans are

independent of the issuer, within the meaning of section 407(f)(1)(B)

of the Act. If the other plans are not independent of the issuer, the

Plan's acquisition of Class E stock would violate the 50 percent (50%)

limitation under section 407(f).

Following the contribution of the Class E stock, the Plan will hold

such stock for some period of time in amounts exceeding the ERISA

Limits discussed above. Accordingly, GM requests exemptive relief from

sections 406(a)(2) and 407 of the Act for the continued holding of the

Class E stock until UST determines that it is appropriate to dispose of

such stock on behalf of the Plan.

Agreement With PBGC and Use of Credit Balance

12. Pursuant to an agreement in principle executed on May 9, 1994,

GM and the PBGC agreed upon terms respecting both the timing and use of

credit balances in the Plan's funding standard account that will result

from the contribution. Under the general terms of this agreement, the

contribution of the approximately $10 billion combined value of cash

and Class E stock will be credited to the Plan's funding standard

account. A cash and stock credit balance would be established for the

Plan representing the value of such cash and Class E stock. It is

represented that the actual contribution of the cash and Class E stock

may not occur all at one time but will be completed by September 30,

1995. In this regard, GM contributed on July 27, 1994, $2.5 billion in

cash to the Plan and on September 19, 1994, GM contributed an

additional $750 million. It is anticipated that before the end of 1994,

GM, at its election, may contribute another $750 million to the Plan.

If this exemption is granted, GM has the option to consider such cash

contributions as part of the proposed $4 billion contribution in cash

to the Plan required under the PBGC Agreement, or, at its discretion,

GM may elect to make an additional payment of $4 billion in cash to the

Plan.

This contribution will be in excess of the minimum funding

requirements of the Act and the Code. Under the normal operation of the

minimum funding account, the credited value of such contribution would

reduce in the year contributed the amount that GM is otherwise required

to contribute to the Plan. Further, if the credits were not utilized in

any given year, GM ordinarily would be able to use the resulting credit

balance, with interest thereon, in succeeding years because the

contribution had not previously been applied to meet its minimum

funding obligations.

However, pursuant to the agreement between GM and the PBGC, GM has

agreed to defer for two (2) years the use of the credit balance arising

from the contribution and, thereafter, to phase in full access by GM to

the credit balance in the Plan's funding standard account. This

approach is designed to assure that the Plan will continue to receive

contributions substantially in excess of those to which it would

otherwise be entitled.

The terms of the PBGC Agreement contemplate that the contribution

of cash and shares of the Class E stock to be made in 1994\17\ and 1995

would be in addition to the satisfaction by GM of its statutory funding

requirements to the Plan. For 1994, GM could not credit any of the

amounts contributed pursuant to the PBGC Agreement towards satisfying

its statutory funding requirements. Before 1997, GM could use only the

interest generated by the cash portion of the contribution to offset

its funding requirements. Starting in 1997 and continuing forward, GM

could use all of this cash credit balance subject to one limitation. A

credit balance reserve is maintained in the Plan consisting of the cash

credit balance or cash generated from stock that has been sold in an

amount equal to at least 25 percent (25%) of the contributed value of

any remaining unsold, contributed Class E stock for so long as the then

current value of Class E stock or other shares (``employer securities''

or non-employer securities exchanged for Class E stock) exceeds the

ERISA Limits. This restriction will expire on October 1, 2003, if the

Class E stock has been exchanged for non-employer securities. The

balance of available credits without regard to this limitation could be

used by GM without restriction starting in 2004 and continuing in later

years.

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\1\7Because the reporting year for the Plan runs from October

1st through the following September 30th, reference to year (e.g.)

1994 means Plan year 1993; 1995 means Plan year 1994, etc.

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Beginning in 1999 and continuing until 2004, GM will have access

annually to an amount of up to $1.5 billion of the stock credit balance

generated by the stock which has been sold. Any unused portion of this

$1.5 billion can be carried forward with interest to future years and

could be used in addition to amounts otherwise allowed.

There are two exceptional circumstances which if they arise will

permit GM access to greater amounts of the cash and stock credit

balances than the amounts described above. First, if a new law is

passed which increases GM's funding obligations, then GM will have

access to an additional amount of the cash and stock credit balances

each year to satisfy such increase generated by the legislation. From

1996 through 2000, the additional amounts from the cash and stock

balances available would be the lesser of $750 million per year or the

amount of the legislative increase in the minimum funding account.

Thereafter, GM would have access to the lesser of $950 million per year

or the amount of the legislative increase in the minimum funding

account.

Second, starting in 1997, if GM experiences a ``bad'' year in which

losses from its North American Operations exceed $1.5 billion and its

cash18 falls below $3 billion, GM can access up to an additional

$1 billion of the credit balances that year; subject to a cap of no

more than $2 billion in any five (5) year period. In any subsequent

``good'' year in which GM's profits from its North American Operations

exceeds $1 billion, the available credit balances would be reduced by

the additional amount used in the prior ``bad'' year. In effect, GM

would be able to access the available credit balances from a future

``good'' year to use in a ``bad'' year. In addition, within five (5)

years after GM takes any credits in a ``bad'' year, the remaining

credit balances will be reduced by a corresponding amount.

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\1\8``Cash'' is defined as U.S. Automotive cash and marketable

securities (excluding EDS and GMHE) as currently defined by U.S.

GAAP as measured on December 31 of that year.

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Subject to these annual caps, the actual amount of the stock credit

balance available to GM will depend on whether the Plan continues to

hold contributed Class E stock (or other ``employer securities''

exchanged for such stock) above the ERISA Limits. For purposes of this

determination, the contributed Class E stock (or other ``employer

securities'' exchanged for such stock) would be valued at the lesser of

the contributed value (plus interest)19 or the then current fair

market value of such stock.

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\1\9It is represented that interest will be computed at the

Plan's funding standard account rate, currently 9%.

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In this regard, for as long as the value of the Class E stock in

the Plan (or other ``employer securities'' exchanged for such stock)

exceeds the ERISA Limits, GM's access to the stock credit balance will

be limited to an amount equal to the value of the contributed Class E

stock that has been sold. For purposes of this provision, the value of

Class E stock that has been sold is defined to mean the lesser of the

contributed value of the sold Class E stock (plus interest) or the

actual proceeds received upon sale of such stock.

When the lesser of the contributed value (plus interest) or the

then current fair market value of the ``employer securities'' held by

the Plan constitutes less than the ERISA Limits, the maximum amount of

the stock credit balance GM will have access to would be the value of

the Class E stock that has been sold, plus 75 percent (75%) of the

value of the Class E stock (or ``employer securities'' exchanged for

such Class E stock) still held in the Plan.

In the event the Class E stock contributed to the Plan has been

exchanged for non-employer securities, the amount of the stock credit

balance available to GM will be 75 percent (75%) of the value of the

unsold shares plus the value of the stock sold with a further

limitation that the total amount of the credit balance related to

unsold securities that can be used by GM may not exceed 10 percent

(10%) of the then fair market value of the assets of the Plan.

When Class E stock (or any shares exchanged for Class E stock) are

sold, the amount of the stock credit balance related to such shares

shall be adjusted to the value actually received for such shares if the

value received is less than the contributed value of the shares plus

interest. If the Class E stock (or any shares exchanged for Class E

stock) are sold for more than the contributed value plus interest, any

excess proceeds will be amortized as actuarial gain. If GM uses any

amount of the stock credit balance related to unsold shares, such

amount shall be adjusted to reflect the lower of (i) contributed value

plus interest thereon or (ii) the then current fair market value as of

the date GM accessed the stock credit balance. If the value ultimately

received for the shares with respect to which the related portion of

the credit balance has previously been used is less than the credit

balance utilized, then the amount of the remaining credit balance

related to the contribution of Class E stock shall be reduced by the

amount of any loss (offset by unamortized gains) which has not been

previously amortized.

Under the terms of the PBGC Agreement, PBGC will have

responsibility for monitoring GM's compliance with the terms of such

agreement. The enrolled actuary for the Plan will calculate GM's

statutory funding requirements and certify GM's use of the contribution

credit balances. GM will also provide the PBGC with a copy of the

actuarial valuation reports for the Plan and information concerning

GM's use of the contribution credit balances, including the

distribution of the stock credit balance between sold and unsold Class

E stock. GM's independent auditor will provide a statement to PBGC once

GM utilizes the financial flexibility provisions described above.

UST has engaged Duff & Phelps to determine the fair market value of

the shares of Class E stock as of the date of the contribution of such

shares to the Plan. As requested by UST, Duff & Phelps will also

determine the fair market value of the Class E stock at various times

required under the PBGC Agreement.

Future Transfers and Other Dispositions of Class E Stock

13. UST, the independent fiduciary acting on behalf of the Plan,

has negotiated registration and other rights attendant to the Plan's

ownership of the Class E stock. These rights are reflected in the terms

and conditions as set forth in two agreements--the Registration Rights

Agreement and the Transfer Agreement (the RRA and the Transfer

Agreement) and give the Plan the ability to sell its Class E stock at

such times and in such amounts so as to balance the objectives of

diversification and maximization of the value of such stock to the

Plan, including maintenance of an orderly market.

It is proposed that these registration and transfer rights20

will apply to all Class E stock held by the Plan whether acquired

pursuant to the proposed contribution in-kind or otherwise held by the

Plan at the time the exemption is granted. In this regard, the 17

million shares of Class E stock held by the Plan prior to the

contribution will be surrendered to GM so that restrictions may be

placed on such shares. At the same time, a registration rights

agreement to which the 17 million shares of Class E stock held by the

Plan are now subject will be cancelled. UST represents that the

substitution of the RRA for the current registration rights agreement

to which the 17 million shares are subject will not devalue such

shares.

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\2\0For purposes of the RRA and the Transfer Agreement, the

term, ``transfer'' means any offer, sale, transfer, or other

disposition of the Class E stock held by the Plan.

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The RRA contains various provisions regarding registration

procedures, including selection of underwriters, GM and Plan holdbacks

in connection with securities offerings effected by each other, payment

of registration expenses and indemnification for disclosure-related

liability. If the Class E stock is converted or exchanged into

securities of any issuer other than GM in connection with a transaction

to which GM is a party, GM will cause the issuer of such securities to

be bound by all the provisions of the RRA, and such issuer will succeed

to the rights and obligations of GM, other than those relating solely

to GM's contribution of the shares to the Plan. Upon reduction of the

Plan's ownership to less than 2 percent (2%) of the outstanding Class E

stock the registration rights will terminate. Under the RRA, as long as

the Plan owns more than 2 percent (2%) of the outstanding Class E

stock, the Plan may transfer such stock only under certain terms and

conditions summarized in the paragraphs below.

Pursuant to the RRA, the Plan may make two ``demand'' transfers in

any twelve (12) month period. Such transfers may, at UST's discretion,

be effected pursuant to either underwritten public offerings registered

under the Securities Act of 1933 or negotiated transactions, whether

registered or not. The RRA requires GM to prepare and file the

appropriate registration statements with the Securities and Exchange

Commission (SEC) upon the Plan's ``demand'' registration and to

cooperate with the Plan and the underwriters in the registration and

selling process.

It is represented that there will be no limit, except for market

considerations, on the amount of Class E stock that can be sold

pursuant to a ``demand'' transfer by the Plan. However, in any public

offering the lead underwriters must agree to use their best efforts to

assure that no more than 2 percent (2%) of the outstanding Class E

stock is transferred to any person or related group. In addition, in a

negotiated transaction, the Plan may not transfer more than 2 percent

(2%) of the outstanding Class E stock to any person or related group or

may not transfer at all to any person or related group required to file

a Schedule 13D under the Securities Exchange Act of 1934.

The RRA permits GM to postpone any ``demand'' transfer by the Plan

in order that such transfer not interfere with certain corporate

transactions or if such transfer would require disclosure of previously

non-public information. The Plan has also agreed not to make any

transfer of Class E stock until ninety (90) days after the completion

of any underwritten public offering of such stock or any securities

convertible into or exchangeable or exercisable for such stock. If, as

a result of such postponements or such market holdbacks, the Plan is

not able to effect a ``demand'' transfer for a period of thirteen (13)

months, GM must terminate the postponement within sixty (60) days of

the Plan's notification to GM of such fact and take all reasonable

actions necessary to effect such transfer.

The RRA contains provisions for coordinating the registration

rights of the Plan with the registration rights granted by GM to other

investors, including a strategic partner (the Strategic Partner). A

Strategic Partner is an investor acting in concert with respect to an

investment in GM and designated by the Board of GM, that acquires more

than 10 percent (10%) of the outstanding Class E stock in a transaction

intended to achieve a strategic objective. In this regard, until the

earlier of the date the Plan reduces its holdings to less than 100

million shares of Class E stock or the fifth anniversary of the

contribution of such stock to the Plan by GM, the Plan's right to a

``demand'' transfer will take priority over any ``demand'' registration

rights granted to the Strategic Partner. In addition, until the Plan

reduces its holdings to less than 25 million shares of Class E stock,

the Plan may elect to participate in any ``demand'' registration

requested by the Strategic Partner on an equal basis. After the Plan

has reduced its holdings of Class E stock to less than 25 million

shares, it may participate in any Strategic Partner ``demand''

registration. However, if there is a limit on the number shares of

Class E stock included in such registration, those of the Strategic

Partner will be included first, but the Plan's shares will have

priority over all other holders of registration rights from GM.

The Plan may participate in ``piggyback'' registrations in

connection with underwritten public offerings initiated by GM or any

other holder of Class E stock with registration rights, subject to

customary cutback provisions and coordination with such other holders.

In a ``piggyback'' registration, if the Plan expects to include at

least 25 percent (25%) of the total number of shares of Class E stock

in the offering, the Plan may select a co-manager reasonably acceptable

to GM. The number of shares that the Plan may include in a

``piggyback'' registration may be limited, if the lead underwriter or

co-managers determine that the total number of shares of Class E stock

proposed to be sold will adversely affect the marketability of the

offering. In this regard, the shares that GM proposes to sell will take

priority. Until the earlier of the date the Plan reduces its holdings

of Class E stock to less than 100 million shares or the seventh

anniversary date of the initial contribution, the Plan's shares will

take priority over those of any other holder of registration rights,

including the Strategic Partner. Until the Plan reduces its holdings of

Class E stock to less than 25 million shares, the Plan's shares and

those held by the Strategic Partner (who owns at least 25 million

shares) will be included in the offering on a pro rata basis after the

shares of GM and before the shares proposed to be sold by other holders

of registration rights.

If the Plan has reduced its ownership of Class E stock to below 7.5

percent (7.5%) on a fully diluted basis, excluding employee stock

options and similar rights, the Plan may tender into third-party tender

offers for such stock. However, at any time while the Plan holds more

than 7.5 percent (7.5%) of the Class E stock, it may tender or ``put''

such stock only under certain conditions. Those conditions center

around whether GM has in effect a stockholders rights plan. If a

stockholders rights plan has not been adopted the Plan may tender its

shares of Class E stock. Generally, however, if a stockholder's rights

plan has been adopted and remains in effect during the offering

(assuming the rights have not been redeemed or revoked), the Plan may

not tender into the offer unless other conditions are met, including

GM's consent to the tender.

In the event GM withholds its consent and prevents the Plan from

tendering into a third-party tender offer and the tender results in the

purchase of more than 50% of the total combined voting power of all

outstanding securities of GM, the Plan will have the option to put to

GM the same number of shares that would have been tendered for a

purchase price in cash equal to the price per share offered in the

tender. In the event the consideration offered in the tender was

payable in a form other than cash, the RRA provides procedures for

valuing such consideration for purposes of the Plan's put option.

In addition to the transfers described in the paragraphs above, the

Plan under the RRA is also permitted to transfer Class E stock: (1)

Pursuant to Rule 144 under the Securities Act of 1933 after the Plan

has reduced its ownership to less than 50 million shares of such stock,

subject to certain volume limitations; (2) pursuant to Rule 144 of the

Securities Act of 1933 after the Plan has reduced its holdings of Class

E stock to less than 25 million shares, subject to certain volume

limitations only if the Plan is then an affiliate of GM; (3) to GM or

any of its subsidiaries or to any employee benefit plan sponsored by GM

or its affiliates;21 and (4) pursuant to mergers or consolidations

in which GM or a subsidiary is a constituent corporation.

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\2\1GM represents that only defined contribution plans

maintained by GM or its affiliates will be involved in such

transfers and that the purchase price paid will be at the prevailing

price for such stock on the NYSE. In this regard, the Department

notes that no relief is proposed herein for the acquisition of Class

E stock by defined contribution plans maintained by GM. However,

relief for such transactions may be provided by section 408(e) of

the Act.

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14. Certain additional restrictions will be imposed on the Plan's

ability to transfer the Class E stock under the terms of the Transfer

Agreement. Unlike the RRA, restrictions on transfer contained in the

Transfer Agreement are only effective between GM and the Plan. These

restrictions will be modified or terminated at various times depending

on the occurrence of certain events.

In this regard, until the Class E stock is converted into or

exchanged for shares of capital stock of EDS in a transaction that

results in GM no longer controlling EDS (the Split-Off), the Plan will

not be permitted to transfer more than 5 percent (5%) of the total

value of Class E stock then outstanding to any foreign person, as

defined in the Code. Further, until 185 days after the effective date

of the Split-Off, the Plan may not transfer Class E stock to any person

or related group that would, as a result of such transfer, own 40

percent (40%) or more of the outstanding Class E stock. Under certain

circumstances after the Split-Off, the Plan may not transfer any Class

E stock if, as a result, the Plan would own less than 50 percent (50%)

of the Class E stock that it owned immediately after it received notice

from GM of the Split-Off. From the date of the initial contribution

until the second anniversary of the Split-Off, unless EDS announces a

merger with one or more corporations, the Plan may not transfer Class E

stock to any person or related group, if, as a result, such person or

group would own 5 percent (5%) or more of the Class E stock then

outstanding.

15. In managing the Class E stock, UST anticipates liquidating such

shares over time in a prudent and orderly fashion in accordance with

the terms of the RRA and the Transfer Rights Agreement. Such

dispositions may result from sales or exchanges of the Class E stock

between the Plan and GM or its affiliates, or certain defined

contributions plans sponsored by GM or its affiliates, or the exercise

of the put option held by the Plan pursuant to the terms of the RRA. It

is represented that the amount received by the Plan upon any sale or

exchange of Class E stock with GM or its affiliates will be for no less

than ``adequate consideration'' within the meaning set forth in section

3(18) of the Act, and the amount received by the Plan upon any sale of

Class E stock to a defined contribution plan maintained by GM or its

affiliates will be the prevailing price for such stock on the NYSE. GM

requests relief under section 406 of the Act in connection with such

transactions.

In the case of dispositions to defined contribution plans

maintained by GM, it is represented that the trustee of such plan will

acquire Class E stock only for the purposes of satisfying demand

created by the plan's participants. Any Class E stock so acquired by

the defined contribution plan will be allocated to participants

accounts. The transactions in which plan participants acquire Class E

stock will be registered under SEC form S-8 and, thus, the ability to

resell such shares will not be restricted in any way.

16. The Class E stock to be contributed by GM will be acquired and

managed on behalf of the Plan by UST. UST has been appointed to serve

as independent fiduciary on behalf of the Plan with respect to the

acquisition of the Class E stock and will also serve as trustee of the

Plan with sole discretion respecting the management and disposition of

the Class E stock after the acquisition.

It is represented that neither GM nor any of its subsidiaries has

any ownership interest in UST or in any of its affiliates. Further, it

is represented that UST is independent of GM in that neither UST nor

any of its affiliates performed any services for GM, as of the date the

application was filed.

UST represents that it is qualified to serve as independent

fiduciary and trustee on behalf of the Plan with respect to the

proposed transactions. In this regard, UST represents that it has

provided investment management and trust services to plans,

institutions, endowments, foundations, and individuals for the past 150

years. In addition to its investment management expertise, UST has

extensive experience in providing asset allocation, trading strategy,

investment advisory, and broker-dealer services. In this regard, UST

represents that it currently has under discretionary management more

than $30.5 billion in assets and more than $241 billion in assets under

non-discretionary custodianship. It is represented that UST has

extensive experience with the prudent acquisition and management of

``employer securities,'' pursuant to the provisions of Act. It is

further represented that UST employs a staff of professionals who have

actually managed ``employer securities'' for plans in diverse

situations, including ESOP-financed leveraged buy-outs, proxy voting,

and other matters.

Under the terms of its engagement, UST has sole and exclusive

authority and responsibility to act on behalf of the Plan to: (1)

Negotiate with GM the terms and conditions, including registration

rights, under which the Class E stock may be acquired and held by the

Plan; (2) determine whether the Plan should acquire the Class E stock

on such terms and conditions; (3) prepare and issue to the Plan a

report containing its reasoning and conclusions as to the propriety

under the Act of acquiring and holding the Class E stock; and (4)

determine, with the assistance of Duff & Phelps, the fair market value

of the Class E stock contributed to the Plan and determine the fair

market value of such stock at various times pursuant to the terms of

the PBGC Agreement.

It is represented that, after the contribution of the Class E stock

by GM to the Plan, such contributed stock together with any other

shares of Class E stock owned by the Plan, will be held in a separate

trust for which UST has agreed to serve as trustee. As trustee, it is

represented that UST will have sole discretionary control respecting

the management and disposition of all the Class E stock in such trust

and will exercise all voting and other rights attendant to ownership of

the shares. With regard to disposition of the Class E stock, UST may

need to retain a broker or other service provider. It is represented

that such service provider will not be an affiliate of UST or GM or its

affiliates.\22\

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\22\The applicant represents that it will rely in this regard on

section 408(b)(2) of the Act.

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UST is authorized to engage outside advisors to assist in the

performance of its duties. In this regard, UST has engaged the law firm

of Jones, Day, Reavis & Pogue to advise it and to serve as legal

counsel. UST has engaged the services of Goldman, Sachs & Company

(Goldman) as its financial advisor to aid in: (1) Evaluating market-

related issues with respect to the Class E stock; (2) assisting UST in

negotiating the terms and conditions of the acquisition of the Class E

stock; and (3) providing background information to UST to facilitate

the determination of the value of Class E stock at the time of the

initial acquisition by the Plan. UST has also retained Duff & Phelps to

furnish at the time of each contribution of shares of Class E stock its

opinion as to the value of such shares which will reflect an

appropriate discount from the trading price in light of: (a) The number

of shares being contributed, (b) the Class E stock already owned by the

Plan, and (c) the terms and conditions in certain agreements with GM,

relating to the transfer of such shares. The dollar amount of the 25

percent (25%) credit balance reserve maintained in the Plan will be

based on the value of the Class E stock as determined by Duff & Phelps

at the request of UST at the time of the contribution. UST also

represents that it will engage a financial advisor to assist it in

planning for and timing the disposition of Class E stock held by the

Plan. It is further represented that GM and its affiliates have no

ownership interest in Goldman or Duff & Phelps, and neither party

currently serves in any capacity for GM.

Because the marketability and dividends of Class E stock are based

on the earnings and financial performance of EDS, UST has reviewed the

business of EDS, as well as that of GM. In this regard, UST has

reviewed historical financial information, equity research views, and

rating agency views with respect to both GM and EDS.

In evaluating the proposed transaction, UST along with its

financial advisor and legal counsel, have reviewed those documents

which it deemed relevant to the proposed contribution of cash and Class

E stock, including but not limited to: (a) the Certificate of

Incorporation of GM and of EDS; (b) the RRA currently in effect between

GM and the Plan; (c) the prior acquisitions of GM securities by other

plans; (d) the trust agreements pursuant to the Master Trusts; (e) the

audited financial statements of the Plan for 1991 and 1992; (f) the

Plan's annual reports on Forms 5500 for 1991 and 1992; (g) other

information provided by GMIMCO regarding the Plan's assets held at

various times in 1993 and 1994; (h) an analysis of the liquidity needs

to pay benefits and administrative expenses over the next five (5)

years prepared by the actuaries of the Plan; and (i) the sources of

funds, other than the Class E stock, available to meet such liquidity

needs. In addition, UST attended meetings and participated in numerous

telephone conversations with officers and other representatives of GM

and EDS and has also met with representatives of the PBGC and the

Department.

With respect to securities issued by GM, UST has reviewed the

price, trading volume history, and trading patterns of both the Class E

stock and GM's $1\2/3\ par value common stock. Specifically with regard

to the Class E stock, it is represented that UST has analyzed the

voting, liquidity, and conversion rights features of such stock and has

considered possible scenarios which could result in alternative

securities being substituted for the Class E stock. Further, UST

represents that it has considered the impact on the Plan and has

analyzed various holding, disposition, and risk management strategies,

under each of these scenarios.

It is represented that UST has on several occasions met with the

named fiduciary of the Plan to consider the impact of the contribution

of cash and Class E stock on the Plan's diversification and to address

strategies to assure prudent diversification of the Plan's entire asset

holding, including making adjustments to the asset allocation

guidelines of the Plan that are appropriate in light of the acquisition

of the shares.

17. It is the opinion of UST that it is prudent to accept the

contribution of cash and shares of Class E stock and that such shares

can be prudently managed consistent with the diversification

requirements of the Act. Further, for the reasons set forth below, UST

has concluded that the proposed contribution of cash and shares is not

only in the interest of the Plan and its participants and beneficiaries

but is also protective of such interests. In this regard, (a) the

contribution of cash and shares of Class E stock will cause an

immediate and significant reduction in the amount of the Plan's

underfunded liabilities and will enhance the Plan's long term ability

to pay benefits to participants and beneficiaries; (b) under the terms

of the PBGC agreement, GM will continue to make regular cash

contributions to the Plan during the next several years; (c) as EDS has

demonstrated consistent growth in revenue, income, and shareholder

value and has potential to continue such success, the Plan's holding of

the Class E stock over the long term will add to the value of the

assets of the Plan; (d) UST has determined that the acquisition by the

Plan of the Class E stock will not violate the diversification

requirements of section 404(a)(1) of the Act, even though such stock

will represent more than 20 percent (20%) of the total value of the

assets of the Plan and will constitute approximately 40 percent (40%)

of the outstanding Class E stock; (e) UST has determined that the

Plan's ability to pay benefits and expenses when due will not be

impaired by the receipt of the Class E stock; (f) the Class E stock is

widely held and actively traded on an established securities market;

(g) UST has negotiated various transfer rights which will give the Plan

sufficient access to the capital markets to permit UST to prudently

manage the Plan's holdings of the Class E stock consistent with the

maintenance of an orderly market, so as to minimize the risk of the

Plan's continued holding of the Class E stock, diversify the Plan's

assets by decreasing its investment in such stock, and maximize the

value such investment; and (h) to the extent the Plan's receipt of the

Class E stock improves GM's financial strength, the proposed

contribution of stock will also improve GM's long term ability to

reduce the Plan's remaining underfunding over a reasonable period of

time.

18. In summary, GM represents that the proposed transactions meet

the statutory criteria of section 408(a) of the Act because:

(a) GM will contribute to the Plan at least 177 million shares of

Class E stock but no more than 186 million shares plus $4 billion in

cash, with at least $2 billion contributed in conjunction with or prior

to the contribution of the Class E stock, and the remaining $2 billion

contributed no later than September 30, 1995;

(b) If less than 177 million shares of Class E stock are

contributed, GM will contribute additional cash in an amount equal to

the difference between 177 million and the number of shares of Class E

stock contributed times the per-share value of such stock at the time

of contribution, or a weighted average price if such stock is not

contributed on a single date;

(c) UST, an independent qualified fiduciary, or a successor

independent fiduciary acceptable to the PBGC represents the Plan's

interests for all purposes with respect to the Class E stock and will

determine prior to entering into any of the transactions, that each

such transaction, including the contribution of the Class E stock, is

in the interest of the Plan;

(d) UST will negotiate and approve the terms of any of the

transactions between the Plan and GM or its affiliates or certain

defined contribution plans sponsored by GM or its affiliates;

(e) UST will manage the holding and disposition of the Class E

stock and will take whatever action it deems necessary to protect the

rights of the Plan;

(f) The terms of any of the transactions between the Plan and

parties in interest will be no less favorable to such Plan than terms

negotiated at arm's length under similar circumstances with unrelated

third parties;

(g) A credit balance reserve is maintained in the Plan consisting

of the cash credit balance or cash generated from stock that has been

sold in an amount equal to at least 25 percent (25%) of the contributed

value of the Class E stock which remains unsold in the Plan, for so

long as such stock or any securities received in exchange exceeds the

percentage limitations described in section 407(a) and 407(f) of the

Act;

(h) An independent qualified appraiser will determine the fair

market value of the Class E stock contributed to the Plan, as of the

date such shares are contributed, and will determine the fair market

value of the Class E stock at various times as required under the PBGC

agreement;

(i) With respect to any sale or exchange of Class E stock by the

Plan to GM or its affiliates or to any defined contribution plans

sponsored by GM or its affiliates, no commission or fee will be charged

to or paid by the Plan;

(j) Any sale or exchange of Class E stock between the Plan and GM

or its affiliates will be for no less than ``adequate consideration''

within the meaning set forth in section 3(18) of the Act, and any sale

of Class E stock by the Plan to a defined contribution plan sponsored

by GM or its affiliates will be at the prevailing price for such stock

on the NYSE;

(k) The Plan will incur no fees, costs, or other charges or

expenses as a result of its participation in any of the transactions;

(l) In the opinion of UST, the contribution of cash and shares of

Class E stock will cause an immediate and significant reduction in the

amount of the Plan's underfunded liabilities and will enhance the

Plan's long term ability to pay benefits to participants and

beneficiaries;

(m) The Plan's holding of the Class E stock over the long term will

add to the value of the assets of the Plan;

(n) UST has determined that the acquisition by the Plan of the

Class E stock will not violate the diversification requirements of the

Act, and the Plan's ability to pay benefits and expenses when due will

not be impaired by the receipt of the Class E stock;

(o) The Class E stock is widely held and actively traded on an

established securities market; and

(p) The Plan will have sufficient access to the capital markets to

permit UST to prudently manage the Plan's holdings of the Class E stock

in order to maximize the value of such investment.

Notice to Interested Persons

Included among those persons who may be interested in the pendency

of the requested exemption are all active GM employees participating in

the Plan, all retired or separated participants either receiving or

entitled to receive benefits from the Plan, all beneficiaries of

deceased participants of the Plan who are receiving or are entitled to

receive benefits, and all unions representing active GM employees who

participate in the Plan.

It is represented that these various classes of interested persons

will be notified within fifteen (15) calendar days of publication of

the Notice of Proposed Exemption (the Notice) in the Federal Register,

either by mailing first class or by posting a photocopy of the Notice,

plus a copy of the supplemental statement (Supplemental Statement), as

required, pursuant to 29 CFR 2570.43(b)(2). Notification will be

provided to all retired or separated participants and to all

beneficiaries by first-class mail at their last known mailing address.

Notification will be provided to active participants by posting at all

GM locations, in areas that are customarily used for notices to

employees with regard to employee benefits or labor relations matters.

GM shall also seek to post a copy of the Notice and a copy of the

Supplemental Statement at the offices of the unions that represent GM

active employees who participate in the Plan.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the

Department, telephone (202) 219-8776 (This is not a toll-free number.)

Wilson Sporting Goods Co. 401(k) Savings Plan (The Plan)

Located in Chicago, Illinois

[Application No. D-9803]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)

of the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the

Code shall not apply to (1) the past interest-free loan to the Plan

(the Loan) by Wilson Sporting Goods Co. (the Employer), a party in

interest with respect to the Plan, and (2) the Plan's potential

repayment of the Loan upon the receipt by the Plan of payments under

Guaranteed Investment Contract No. CG01314A3A (the GIC) issued by

Executive Life Insurance Company (Executive Life); provided the

following conditions are satisfied:

(A) No interest or expenses are paid by the Plan in connection with

the transaction;

(B) The Loan will be repaid only out of amounts paid to the Plan by

Executive Life, its successors, or any other responsible third party;

and

(C) Repayment of the Loan is waived with respect to the amount by

which the Loan exceeds GIC proceeds.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

April 1, 1994.

Summary of Facts and Representations

1. The Employer, a Delaware Corporation which is headquartered in

Chicago, Illinois, is a wholly owned subsidiary of Amer Group Ltd., a

Helsinki, Finland Corporation. The Plan is a defined contribution plan

which includes a cash or deferred arrangement under section 401(k) of

the Code. The Plan provides for Employer matching contributions and

additional Employer discretionary contributions. As of December 31,

1993, the Plan had total assets of approximately $32,150,000.

Currently, there are approximately 1700 participants. Participants are

entitled to direct the investment of their account balances among

various funds established under the Plan's trust agreement: The Bond

Fund, the Balanced Fund, the Equity Index Fund, and the Fixed Income

Fund. In April, 1989, The American National Bank and Trust Company of

Chicago,\23\ as trustee for the Plan and at the direction of the Plan's

Employee Benefits Committee, purchased the GIC on behalf of the Plan's

Fixed Income Fund. The GIC provided a rate of return of 9.93% per annum

and a maturity date of March 31, 1994.

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\23\The Northern Trust Company succeeded The American Bank and

Trust Company of Chicago as the Plan's trustee in April, 1992.

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2. On April 11, 1991, Executive Life was placed into

conservatorship by the Insurance Commissioner of the State of

California. The Employer represents that Executive Life was required to

cease payments on certain of its insurance products, including the GIC,

upon commencement of the conservatorship. The effect of the

conservatorship has been to freeze all assets invested in the GIC.\24\

This freeze has prevented Plan participants from exercising the rights

they would normally have to change investments upon the maturity of a

guaranteed investment contract under the Plan.\25\ The Employer

represents that the Loan was made in order to preserve the Plan's

rights with respect to the GIC, and to give participants and

beneficiaries the ability to exercise their right to request investment

transfers. Since the Loan was not made for the purpose of enabling the

Plan to make participant distributions, it is not covered by PTE 80-26.

The Loan, which was made on April 7, 1994, was in the amount of

$3,184,792.57, which represents the maturity value\26\ of the GIC,

adjusted for any amounts previously withdrawn from the GIC by the Plan,

minus the $1.2 million in periodic advances already made to the Plan.

The Employer represents that the Loan is non-interest bearing and the

Plan has not and will not incur any expenses in connection with the

transaction.

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\24\The Department notes that the decisions to acquire and hold

the GIC are governed by the fiduciary responsibility requirements of

Part 4, Subtitle B, Title I of the Act. In this regard, the

Department is not herein proposing relief for any violations of Part

4 which may have arisen as a result of the acquisition and holding

of the GIC issued by Executive Life.

\25\Following the cessation of payments by Executive Life with

respect to the GIC, the Employer made the decision to make periodic

advances to the Plan as and when necessary to permit the Plan to

make distributions to participants and beneficiaries entitled to

distributions as a consequence of termination of employment or the

hardship distribution provisions of the Plan. The applicant

represents that, as of February, 1994, the periodic advances to the

Plan totaled approximately $1.2 million. The applicant also

represents that the terms of those periodic advances satisfy the

conditions of PTE 80-26 (45 FR 28545, April 29, 1980). This

conditional class exemption permits a party in interest to make an

interest-free loan to an employee benefit plan, and the repayment of

such loan. Specifically, the exemption states, in relevant part,

that effective January 1, 1975, the restrictions of section

406(a)(1)(B) and (D) and section 406(b)(2) of the Act and the taxes

imposed by section 4975(a) and (b) of the Code by reason of section

4975(c)(1)(B) and (D) of the Code, shall not apply to the lending of

money from a party in interest to an employee benefit plan, nor to

the repayment of such loan in accordance with its terms, if no

interest or other fee is charged to the plan, the loan is unsecured,

and the loan proceeds are used only for the payment of ordinary

operating expenses of the plan, including the payment of benefits in

accordance with the terms of the plan.

In this proposed exemption the Department expresses no opinion

as to whether the periodic advances satisfy the provisions of PTE

80-26.

\26\The maturity value is defined as the total amount deposited

under the GIC, plus interest at the guaranteed interest rate,

through the date of maturity.

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3. Repayment of the Loan is limited to payments made to the Plan by

or on behalf of Executive Life, or its successor, or any other

responsible third parties. No other assets of the Plan will be

available for repayment of the Loan. If the payments by or on behalf of

Executive Life are not sufficient to fully repay the Loan, the Employer

will have no recourse against the Plan, or against any participants or

beneficiaries of the Plan, for the unpaid amount.

4. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) The transaction has preserved the Plan's ability to allow

participant-directed investment re-allocations; (2) The Plan has not

and will not incur any expenses with respect to the transaction; (3)

Repayment of the Loan will be made only from amounts paid to the Plan

by Executive Life, its successor, or any other third party; (4) If the

payments by or on behalf of Executive Life are not sufficient to fully

repay the Loan, the Employer will have no recourse against the Plan, or

against any participants or beneficiaries of the Plan, for the unpaid

amount; and (5) Repayment of the Loan will be waived with respect to

the amount by which the Loan exceeds the amount the Plan receives from

GIC proceeds.

FOR FURTHER INFORMATION CONTACT: Virginia J. Miller of the Department,

telephone (202) 219-8971. (This is not a toll-free number.)

Peoples Security Life Insurance Company (Peoples)

Located in Durham, North Carolina

Commonwealth Life Insurance Company (Commonwealth)

Located in Louisville, Kentucky

[Application Nos. D-9462 and D-9463]

Proposed Exemption

Section I. Covered Transactions

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of section 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1) (A) through (D) of the Code, shall not

apply to: (1) The extension of credit by Peoples or Commonwealth (the

Applicants), the sponsors of an investment product (the Group Annuity

Contract or GAC) in connection with a plan's investment in the GAC; and

(2) the reimbursement of Peoples or Commonwealth for benefit payments

made to investing plans from the cashflow generated by the investments

in the plans' Custodian Accounts which are set up by a plan pursuant to

the GAC, or (3) the reimbursement of Peoples or Commonwealth for

benefit payments made to investing plans from the proceeds generated by

liquidation of investments in the Custodial Accounts upon termination

of the Group Annuity Contract.

The proposed exemption is subject to the following conditions which

are set forth below in Section II.

Section II. General Conditions

The relief provided under Section I is available only if the

following conditions are met:

1. The decision to enter into the Group Annuity Contract will be

made by a plan fiduciary who is independent of Peoples and Commonwealth

and any affiliates of such entities (the Independent Fiduciary).

2. Prior to a plan's investment in the Group Annuity Contract, the

Independent Fiduciary for such plan receives full and detailed written

disclosures of all features of the Group Annuity Contract including all

applicable premium charges.

3. Neither Peoples nor Commonwealth or any of their affiliates has

discretionary authority or control with respect to the decision to

invest plan assets in the investment product described herein or

renders investment advice (within the meaning of 29 CFR 2510.3-21(a))

with respect to those assets.

4. Neither Peoples nor Commonwealth or any of their affiliates

exercises any discretion or renders investment advice on behalf of a

plan with respect to the ongoing acquisition, management or disposition

of Custodian Account assets.

5. Peoples and Commonwealth provide copies of the proposed and

final exemption as published in the Federal Register to each plan which

invests in a Group Annuity Contract.

6. The premiums charged by Peoples and Commonwealth for the GAC

(including early termination charges assessed in the event of early

contract termination) will not be in excess of ``reasonable

compensation'' within the meaning of section 408(b)(2) of the Act and

will constitute the only fees charged by Peoples or Commonwealth in

connection with such contract other than accrued interest on

unreimbursed benefit payments.

7. Peoples and Commonwealth maintain or cause to be maintained, for

a period of six years, the records necessary to enable the persons

described in paragraph (7) of this section to determine whether the

conditions of this exemption have been met, except that (a) a

prohibited transaction will not be considered to have occurred if, due

to circumstances beyond the control of Peoples or Commonwealth or its

agents, the records are lost or destroyed prior to the end of the six

year period, and (b) no party in interest other than Peoples or

Commonwealth shall be subject to the civil penalty that may be assessed

under section 502(i) of the Act, or to the taxes imposed by section

4975(a) and (b) of the Code, if the records are not maintained, or are

not available for examination as required by paragraph (7) below.

8(a) Except as provided in section (b) of the paragraph and

notwithstanding any provisions of subsections (a)(2) and (b) of section

504 of the Act, the records referred to in paragraph 6 of this section

shall be unconditionally available at their customary location during

normal business hours by:

(1) Any duly authorized employee or representative of the

Department or the Internal Revenue Service (the Service);

(2) Any fiduciary of an investing Plan or any duly authorized

representative of such fiduciary;

(3) Any contributing employer to an investing Plan or any duly

authorized employee or representative of such employee; and

(4) Any participant or beneficiary of an investing Plan, or any

duly authorized representative of such participant or beneficiary.

(b) None of the persons described above in subparagraph (2)-(4) of

this paragraph 8 shall be authorized to examine the trade secrets of

Peoples or Commonwealth or its affiliates or commercial or financial

information which is privileged or confidential.

For purposes of this exemption, affiliate means:

(a) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(b) Any officer, director or partner, in such other person; and

(c) Any corporation or partnership of which such other person is an

officer, director or partner.

Control means the power to exercise a controlling influence over

the management or policies of a person other than an individual.

The availability of this exemption is subject to the express

condition that the material facts and representations contained in the

application are true and complete, and that the application accurately

describes all material facts which are the subject of this exemption.

Summary of Facts and Representations

1. Peoples is a North Carolina company which is licensed to conduct

a life insurance business in 20 states and in the District of Columbia.

All of its outstanding shares are owned by Providian Corporation, a

Delaware holding company with its principle place of business in

Louisville, Kentucky. As of December 31, 1992 Peoples had statutory

assets of approximately $3.3 billion and statutory and capital surplus

of approximately $288 million.

2. Commonwealth is a Kentucky company which is licensed to conduct

life insurance business in 37 states and the District of Columbia. All

of its outstanding shares are owned by Providian Corporation. As of

December 31, 1992, Commonwealth had statutory assets of approximately

$4.5 billion and statutory and capital surplus of approximately $273

million.

3. The Applicants represent that they have developed and designed a

new group annuity product to respond to plan demand for new product

alternatives to traditional guaranteed investment contracts (GICs).

They state that traditional GICs provide for a guarantee of a face

amount and the crediting of a guaranteed rate of return on contract

deposits and provide that such deposits may be withdrawn upon request

at book value to pay participant benefits. With a traditional GIC, a

plan is exposed to the credit risk that the insurer issuing the GIC may

be unable to meet its obligations to repay contract deposits and

credited interest.

The Applicants represent that their new group annuity product, the

Group Annuity Contract, allows a plan to retain title to investments

underlying a plan's obligations to participants and provides assurances

that benefits can be paid by the Applicant at any time in an amount up

to the book value of such investments.

4. The Applicants represent that the Group Annuity Contracts will

operate as follows:

The decision to invest in a Group Annuity Contract will be made by

a plan fiduciary who is independent of Peoples, Commonwealth and any

affiliate thereof.\27\ The plan will establish a Custodian Account to

hold title in the name of the plan to a portfolio of assets contributed

to the Account by the plan. The plan's trustee acting as a custodian,

or a sub-custodian, appointed by such trustee, will perform custodial

services in connection with the assets including the safekeeping of

securities, the settlement of securities transactions, recordkeeping

and the disbursement of cashflow. Neither Peoples, Commonwealth nor any

affiliate thereof will perform administrative services in connection

with a Custodian Account.

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\27\The Group Annuity Contracts will be offered to employee

benefit plans which are subject to Title I of the Act other than any

plan established by Peoples or Commonwealth or any affiliate thereof

for their own employees.

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Selection and management of the assets held in the Custodian

Account will be the responsibility of an investing plan subject to

investment guidelines established by the plan and agreed to by Peoples

or Commonwealth and incorporated in the Group Annuity Contract.\28\ The

Applicants represent that they will not provide any investment advice

to a plan in connection with the composition of the investment

portfolio held in the Custodian Account. The Applicants further

represent that they will not exercise any discretion on behalf of a

plan with respect to the ongoing acquisition, management or disposition

of Custodian Account assets.

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\28\Permissible investments are those which are rated by at

least one of the following rating agencies: S&P, Moody's or Duff &

Phelps. At point of purchase of a security, its rating must be at

least Aa3 or AA-A by all those who rate the security. Portfolios

will be constructed and maintained as ``buy and hold'' portfolios.

Upon written mutual consent of the plans and the Applicants

additional securities may be purchased or substituted by the plans.

Accounts will invest only in U.S. dollar denominated, fixed-income

securities.

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5. The Applicants represent that the Group Annuity Contract

obligates Peoples or Commonwealth to make ``benefit payments'' at the

request of the contracting plan from its general account in an amount

not to exceed the book value of the investment portfolio owned by the

plan. The term ``benefit payments'' is defined in the Group Annuity

Contract to include benefits resulting from a plan participant's

retirement, death, disability or termination of employment, and

payments resulting from a participant's election to withdraw, borrow or

transfer an amount from the participant's account in accordance with

the terms of the plan. Unless a special contract option is elected,

``benefit payments'' do not include benefit payments resulting from

employer initiated events such as mergers, layoffs or early retirement

programs. Each Contract further provides for Peoples or Commonwealth to

provide annuities to participants in lieu of such benefit payments at

the request of the plan. At the plan's option, it may fund benefit

payments directly from the cashflow\29\ of the Custodian Account or

from other plan investments in lieu of requesting benefit payments from

Peoples or Commonwealth, and it is anticipated that the Contract will

only be used by a plan to fund benefits when the Plan's normal sources

of funding are insufficient. Benefits payments are made as follows: If

a Plan participant desires money, he submits a request to the Plan. If

the benefit payment will be made by Peoples or Commonwealth, the Plan

sends Peoples or Commonwealth, as applicable, a notice and Peoples or

Commonwealth makes a payment. The payment from Peoples or Commonwealth

to the plan is an extension of credit. Cashflows are then used to

reimburse Peoples or Commonwealth for the extension of credit for

benefit payments.

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\29\As used herein and as defined in the Contract, the term

``cashflow'' means the principal (repayment of the face amount of

the security by the issuer of the security), interest, dividends,

and other monies received, other than liquidation proceeds, with

respect to the securities held in the Custodian Account.

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The maximum amount of benefit payments that Peoples or Commonwealth

is obligated to make is an amount equal to the ``book value'' of the

Custodian Account established by a plan in connection with the Group

Annuity Contract. The term ``book value'' is generally defined at any

time as the (i) initial amount of cash and book value of securities

contributed by the plan to the Custodian Account, plus (ii) additional

deposits and (iii) interest credited for the period based on the

crediting rate, less cash-flow from the Account used to pay any

outstanding benefit payments and additional benefit requests or used to

pay premiums due either Peoples or Commonwealth.

In addition, three separate events may trigger adjustments to

reported book value, including:

(i) If outstanding benefit payments are excessive (e.g., more than

20% of the book value balance), then securities in the Account may be

liquidated with proceeds used in support of Peoples or Commonwealth

making benefit payments;\30\

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\30\If outstanding benefit payments are excessive, Peoples or

Commonwealth has the right to send a Notification to the Custodian

to liquidate specified securities or a portion thereof pursuant to

the liquidation method stated in the contract.

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(ii) If a security becomes an impaired security, it does not

conform to the Contract's guidelines, and must be sold and substituted

within a given period, or an adjustment is made to remove the security

from the account;\31\ and

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\31\If a security becomes impaired, and no substitution is made,

the book value will be reduced by the carrying value of the

security. For an additional premium, Peoples or Commonwealth will

assume the risk of securities becoming impaired by continuing to

value such securities at book value for purposes of determining the

``book value'' of the Custodian Account. It is anticipated that most

plans which do not elect this option will structure the investment

portfolio of assets held in the Custodian Account to consist solely

or primarily of securities having little or no default risk such as

government and government-guaranteed securities.

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(iii) If requested payments are not for bona fide benefits at book

value, then termination payments are requested and an adjustment to

book value reflects the partial termination amounts.

6. Prior to termination of a Contract, Peoples and Commonwealth are

entitled to reimbursement from a plan for any outstanding benefit

payments. Such reimbursement will come primarily from the cashflow of

investments in the Custodian Account. The Group Annuity Contract

provides that cashflow from the assets held in a Custodian Account will

be first directed to pay Peoples or Commonwealth for the balance of any

outstanding benefit payments (and outstanding contract premiums) before

any remaining cashflow may be applied by the plan for other purposes.

Under certain Group Annuity Contracts, Peoples or Commonwealth may

require a plan to liquidate securities held in the Custodian Account

(pursuant to a liquidation methodology set forth in the Contract) to

reimburse the insurer for outstanding benefit payments if such

outstanding payments exceed a level specified in the Contract. A plan

is not obligated to remit cashflow to Peoples or Commonwealth for

outstanding benefit payments from any source other than the assets held

in the Custodian Account. Peoples or Commonwealth bear the risk that

such assets will be sufficient to repay any outstanding benefit

payments on a timely basis. In some circumstances, as set forth in the

Group Annuity Contracts, a plan may choose, but is not required, to

make other sources of cash available in an effort to reduce the amount

of outstanding benefit payments. If a plan chooses to make other

sources of cash available, the plan will receive a book value credit.

Interest accrues on outstanding benefit payments made by Peoples or

Commonwealth on a pre-determined basis. Interest accrues on a daily

compounded basis at a rate set forth in the Group Annuity Contract from

the day that benefit payments are remitted by the insurer to the plan,

through, but not including, the day of reimbursement of the payments.

Under certain Group Annuity Contracts, the interest rate is equal to

the crediting rate used to calculate the ``book value'' of the

Custodian Account. This rate is based on the expected internal rate of

return on the securities held in the Custodian Account as that rate may

be amended (generally, the rate will not be reset more than quarterly),

based on the then current securities in the Account.\32\ Under other

Group Annuity Contracts, the interest rate is calculated at the

beginning of each month and is based on the average of the closing one-

month London Inter-Bank Offering rate (``LIBOR'') for the last five

business days of the prior calendar month. Plans may select a form of

the Group Annuity Contract offering the interest rate (i.e., LIBOR or

internal rate of return) which they prefer at the time the Group

Annuity Contract is issued.

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\32\Internal rate of return is based on cashflows of the

underlying securities. Some securities have cashflows that change

over time based on market conditions. As a result, they affect the

internal rate of return. Cashflow information and assumptions are

provided by independent information sources such as broker-dealers

who make a market in the securities or systems such as Bloomberg or

Telerate which carry current information about securities. Peoples

and Commonwealth do not exercise discretion in amending the internal

rate of return.

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7. The Group Annuity Contract automatically terminates on the

Contract's ``Maturity Date.'' The Maturity Date is specified in the

Contract and generally coincides with the anticipated point in time

when all investments initially held in the Custodian Account have

matured and cashflow paid out. The Group Annuity Contract also can be

terminated at the election of the contractholder upon advance

notification (generally 30 days) to the insurer or by the insurer in

the event that the plan ceases to meet the requirements for

qualification under the Internal Revenue Code, breaches its material

obligations under the Contract or any related agreement that affects

the Contract, or assigns the Contract without the insurer's consent.

Upon termination of the Group Annuity Contract, Peoples or

Commonwealth's obligation to pay benefits ceases and the insurer is

entitled to receive (to the extent that the liquidation value of the

securities in the Custodian Account are sufficient) the balance of any

outstanding benefit payments (including accrued interest) and

premiums.\33\ If the Contract is terminated prior to its maturity by

the plan or by Peoples or Commonwealth under the circumstances

described above, either Peoples or Commonwealth is also entitled to an

early termination charge equal to the estimated amount of any premiums

that would have been paid from the termination date to the earlier of

(i) the Maturity Date or (ii) the date two years from the termination

date. In calculating the early termination charge, Peoples or

Commonwealth will estimate premiums based on book value at the date of

termination and where book value would have been two years from the

effective date of the contract if it has not been terminated.

Calculation of the early termination charge is exact and Peoples and

Commonwealth do not exercise discretion in the process.

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\33\Under certain Group Annuity Contracts, Peoples or

Commonwealth also may terminate the Contract if the book value of

the assets in the Custodian Account reach a specified de minimis

level but only if the liquidation value of the non-impaired

securities in the Custodian Account exceeds book value. No early

termination charge is assessed under these circumstances.

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8. The Applicants charge an annualized premium at a fixed rate set

forth in the Group Annuity Contract. The rate is a percentage of the

book value of the securities in a plan's portfolio. The premium and

interest which accrues on outstanding benefit payments and early

termination charges, if any, are the only consideration received by the

Applicant in connection with the Group Annuity Contracts.

9. In summary, the Applicants represent that the proposed

transactions will meet the statutory criteria under section 408(a)

because:

(a). The decision to enter into the Group Annuity Contract will be

made by an independent plan fiduciary who is independent of Peoples and

Commonwealth and any affiliates of such entities.

(b). Prior to a plan's investment in the Group Annuity Contract,

the Independent Fiduciary for such plan receives full and detailed

written disclosures of all features of the Group Annuity Contract

including all applicable premium charges.

(c). Neither Peoples nor Commonwealth or any of their affiliates

has discretionary authority or control with respect to the decision to

invest plan assets in the investment product described herein or

renders investment advice (within the meaning of 29 CFR 2510.3-21(a))

with respect to those assets.

(d). Neither Peoples nor Commonwealth or any of their affiliates

exercises any discretion or renders investment advice on behalf of a

plan with respect to the ongoing acquisition, management or disposition

of Custodian Account assets.

(e). The premiums charged by Peoples and Commonwealth for the GAC

(including early termination charges assessed in the event of early

contract termination) will not be in excess of ``reasonable

compensation'' within the meaning of section 408(b)(2) of the Act and

will constitute the only fees charged by Peoples or Commonwealth in

connection with such contract other than accrued interest on

unreimbursed benefit payments.

For Further Information Contact: Lyssa E. Hall of the Department,

telephone (202) 219-8971. This is not a toll-free number.

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete, and that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 8th day of November 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 94-28059 Filed 11-10-94; 8:45 am]

BILLING CODE 4510-29-P