Proposed Exemptions; Richmond, Fredericksburg and Potomac Railway Company Employee Thrift and Investment Plan, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-9578, et al.]

Proposed Exemptions; Richmond, Fredericksburg and Potomac Railway

Company Employee Thrift and Investment Plan, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

-----------------------------------------------------------------------

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, NW., Washington, DC

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, NW., Washington, DC 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.

Richmond, Fredericksburg and Potomac Railway Company Employee Thrift

and Investment Plan (the Plan) Located in Richmond, Virginia

[Application No. D-9578]

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 sale by the Plan of a guaranteed

investment contract, No. GA-5250 (the GIC) issued by Mutual Benefit

Life Insurance Company of New Jersey (Mutual Benefit) to the Richmond,

Fredericksburg & Potomac Corporation (RFP), a party in interest with

respect to the Plan; provided the following conditions are satisfied:

(1) The sale is a one-time transaction for cash; (2) the Plan receives

no less than the fair market value of the GIC at the time of the sale;

(3) the Plan's trustee, acting as independent fiduciary for the Plan,

has determined that the proposed sale price is not less than the

current fair market value of the GIC; and (4) the Plan's trustee has

determined that the proposed transaction is appropriate for and in the

best interests of the Plan and its participants and beneficiaries.

Summary of Facts and Representations

1. The Plan is a defined contribution individual-account plan with

provisions for salary reduction contributions. As of June 30, 1993, the

Plan had total assets of approximately $10,796,703. The Plan had 130

participants as of December 31, 1992. The Plan is sponsored by the

Richmond, Fredericksburg and Potomac Railway Company (the Rail

Company), a Delaware Corporation with its principal place of business

in Richmond, Virginia. Investment decisions with respect to Plan assets

are made by the individual participants, who direct the investment of

their Plan accounts among investment options chosen by an investment

committee (the Committee) comprised of three employees of the Rail

Company. The custodial trustee of the Plan is NationsBank of Virginia,

N.A. (the Trustee).

2. RFP is a Virginia corporation with its principal place of

business in Richmond, Virginia. RFP formerly owned and operated a

railroad, which was sold to the Rail Company effective October 10,

1991. When RFP sold the railroad, most RFP employees engaged in the

railroad operations were hired by the Rail Company. In addition, the

section 401(k) profit sharing plan (the Previous Plan) which RFP had

maintained for its employees was adopted and renamed the Plan's current

name by the Rail Company when it bought the railroad.1

---------------------------------------------------------------------------

\1\The applicant has informed the Department that all

participants in the Previous Plan, including RFP employees who were

not hired by the Rail Company when it bought the railroad, became

participants in the Plan and all assets of the Previous Plan became

assets of the Plan when the Rail Company bought the railroad. RFP

has subsequently established a new 401(k) Plan for its employees.

Consequently, immediately following the purchase of the GIC by RFP,

the Plan will transfer to RFP's new 401(k) plan the amounts credited

to the accounts of participants who have continued in RFP's employ.

---------------------------------------------------------------------------

3. Under the Previous Plan, participants were offered several

options for the investment of the salary reduction contributions in

their accounts, including a ``guaranteed fund'' (the G Fund) which

invested primarily in guaranteed investment contracts issued by

insurance companies, as selected by the Committee. The assets in the G

Fund, now included among the assets of the Plan, included the GIC,

contract No. GA-5250 issued by Mutual Benefit on January 1, 1991. RFP

represents that the GIC is a guaranteed investment contract bearing

interest on deposits at the rate of 8% per annum for three years.

4. On July 16, 1991, Mutual Benefit was placed into rehabilitation

proceedings by the New Jersey Commissioner of Insurance. As a result of

these proceedings, payments on Mutual Benefits group annuity contracts,

including the GIC held by the Plan, have been suspended

indefinitely.2 On July 18, 1991, the Committee directed the

Trustee to discontinue deposits under the GIC. The Committee also

notified Plan participants that until further notice, withdrawals from

the G Fund are limited to the participants' interests in G Fund assets

other than the GIC. RFP represents that it is uncertain whether or to

what extent Mutual Benefit will be able to make any further payments or

honor any withdrawal requests pursuant to the terms of the GIC.

---------------------------------------------------------------------------

\2\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 Mutual Benefit.

---------------------------------------------------------------------------

RFP represents that it wishes to enter into the proposed

transaction in order to protect the accounts of Plan participants and

beneficiaries from the effects of a prolonged rehabilitation process

and from any potential loss if, as anticipated, the assets of Mutual

Benefit are not sufficient to meet its obligations under the GIC.3

RFP also represents that the proposed purchase of the GIC would make

funds available to the Plan which are currently due under the terms of

the contract. RFP represents that the Plan will not incur any expenses

with respect to the sale of the GIC.

---------------------------------------------------------------------------

\3\RFP previously applied for, and received, an administrative

exemption allowing for an extension of credit from RFP to the Plan

which would enable the Plan to make distributions to Plan

participants. RFP represents that the extension of credit never

occurred because RFP never received approval from the Internal

Revenue Service for the proposed loan.

---------------------------------------------------------------------------

5. RFP proposes to protect the interests of the affected

participants by purchasing the GIC from the Plan at its accumulated

book value. The accumulated book value is defined as the sum of all

amounts deposited under the terms of the GIC, plus accrued interest,

less any amounts withdrawn from the GIC by the Plan. Accrued interest

is calculated at the contract rate of 8% until December 31, 1993, the

maturity date. For the period beginning on January 1, 1994 and ending

on the purchase date, interest will be credited at a rate equal to

3.5%. The proposed rate of interest for periods after the maturity date

are the rates that would apply to the GIC for those periods according

to the proposed plan of rehabilitation set forth by the Superior Court

of New Jersey. RFP represents that a request for a closing agreement

has been filed with the Internal Revenue Service pursuant to Internal

Revenue Procedure 92-16.4

---------------------------------------------------------------------------

\4\Internal Revenue Procedure 92-16 provides for a temporary

closing agreement program to settle certain tax liabilities that

arise out of transactions between an employer-sponsor and the trust

of a qualified defined contribution plan.

---------------------------------------------------------------------------

6. The Trustee, acting as the Plan's independent fiduciary with

respect to this transaction, has reviewed the proposed transaction on

behalf of the Plan. The Trustee represents that it has determined that

the proposed purchase price for the GIC is at least equal to the fair

market value of the GIC. In addition, the Trustee represents that it

has determined that the proposed transaction is appropriate for the

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

Immediately prior to the actual sale of the GIC to RFP, the Trustee

will re-examine the appropriateness of the proposed transaction for the

Plan, including the fair market value of the GIC.

7. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) The Plan will receive cash for the GIC in the amount of

the accumulated book value of the Guaranteed Investment Contract, which

the Plan's independent fiduciary has determined to be not less than the

fair market value of the GIC; (2) the transaction will enable the Plan

and its participants and beneficiaries to avoid any risk associated

with the continued holding of the GIC, and to exercise all of their

rights under the Plan to request distributions, loans, withdrawals and

investment transfers with respect to amounts currently invested in the

GIC; (3) the Plan's Trustee, acting as the Plan's independent

fiduciary, has determined that the sale at the proposed price is in the

best interests of the participants and beneficiaries of the Plan; and

(4) immediately prior to the sale, the Trustee will determine if the

proposed transaction is appropriate for and in the best interests of

the Plan and its participants and beneficiaries.

Notice to Interested Persons

Notice of the proposed exemption will be provided to all interested

persons within 5 days of the publication of the notice of proposed

exemption in the Federal Register. The notice will include a copy of

the notice of proposed exemption as published in the Federal Register

and it will be provided to all participants and beneficiaries by first

class mail. The notice will inform interested persons of their right to

comment on and/or to request a hearing with respect to the proposed

exemption. Written comments and requests for a public hearing are due

within 35 days of publication of the notice of proposed exemption in

the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Virginia J. Miller of the

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

Stroh Brewery Company, Inc. Salaried Employees' Thrift Plan (the Plan)

Located in Detroit, Michigan

[Application No. D-9580]

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, August 10, 1990). If the exemption is

granted, the restrictions of section 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 cash sale (the Sale) of

certain pooled fund units from the Plan to Stroh Brewery Company, Inc.,

a party in interest with respect to the Plan.

This proposed exemption is conditioned upon the following

requirements: (1) All terms and conditions of the Sale are at least as

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

transaction; (2) the Sale is a one-time cash transaction; (3) the Plan

is not required to pay any commissions, costs or other expenses in

connection with this transaction; and (4) the Plan receives a sales

price equal to the fair market value of its residual interest in the

Convertibles Fund.

Effective Date: This exemption, if granted, would be effective as

of December 31, 1993.

Summary of Facts and Representations

1. The Plan is a 401(k) plan sponsored by the Stroh Brewery

Company, Inc., (the Employer), an Arizona corporation engaged in the

business of brewing beverages. As of July 31, 1993, the Plan had total

assets of $73,440,876 and 589 participants.

2. The Plan is comprised of three funds--the equity fund, the fixed

investment fund and the balanced fund. In 1973, the Plan's equity fund

commenced participation in the Morgan Guaranty Trust Company of New

York Convertibles Fund (the Convertibles Fund), which is a pooled asset

fund. The Convertible Fund has traditionally been comprised of limited

partnerships and convertible securities, principally debt instruments

convertible into equity. From 1973 until the current time, various

amounts have been invested in and withdrawn by the Plan from the

Convertible Fund. The cumulative annual rate of return for the

Convertibles Fund has been 10.96 percent.

In late 1990, three large investors (the Investors) in the

Convertibles Fund sought to withdraw their investment from the

Convertibles Fund. Because of the lack of new investors, the Investor's

withdrawal would have left virtually no liquidity in the Convertibles

Fund. Therefore, Morgan determined that all investors would be required

to remain in the Convertibles Fund until it could be completely

liquidated. In February 1991, Morgan Guaranty Trust Company of New York

(Morgan) commenced liquidation of the Convertibles Fund. At the current

time, Morgan has liquidated all of the Convertibles Fund's underlying

assets which were readily disposable on a recognized market. The

remaining assets in the Convertibles Fund include miscellaneous items

such as private placements and limited partnership interests which have

no readily discernable market. Morgan estimates that it will take three

to five years to liquidate these remaining assets in the Convertible

Fund.

Morgan values the Convertibles Fund monthly based upon: (1) Limited

partnerships: limited partnerships are valued based upon valuation

information obtained from the general partners; (2) public securities:

public securities are priced at market, with some discount taken for

liquidity; (3) bankrupt securities: bankrupt securities are currently

being carried and regularly priced at zero to ten percent of their

original value; and (4) private securities: private securities are

priced by determining the net present value of the projected stream of

cash flow, discounted for liquidity.

As of November 10, 1993, Morgan placed the fair market value of the

Convertibles Fund at $620.68 per unit. However in November of 1993,

Morgan split the Convertibles Fund's price per unit by ten. This was

done in an effort to facilitate an efficient liquidation of the

Convertibles Fund by allowing distributions of smaller amounts on a

more frequent basis. Therefore, the price per unit after the split was

$62.06 a unit. As of December 17, 1993, the Plan's residual investment

in the Convertibles Funds was 832 units (the Units). As of December 17,

1993, the applicant represents that Morgan valued the price per unit at

$64.63, making the total value of the Units equal to $53,772.

3. Effective January 1, 1994, Fidelity Management Trust Company

(Fidelity) will become the trustee of the Plan and intends to make the

Plan a section 404(c) plan within the meaning of regulation 29 CFR

2550.404(c)-1 of the Department and to comply with all the relevant

requirements of that regulation. However, this objective cannot be met

until the Units are converted into cash. Because Morgan cannot readily

liquidate the remaining units in the Convertibles Fund (see Paragraph

#2 above), the Plan proposes to sell the Units to the Employer for cash

for their fair market value. The Employer will then hold on to the

Units until the liquidation is completed. The fair market value will be

based on the most recent monthly valuation of the Convertibles Fund

provided by Morgan. The Sale will be a one-time cash transaction, and

the Plan will incur no expenses with respect to the transaction.

Accordingly, the Employer requests an administrative exemption from the

Department to permit the Sale from the Plan to the Employer under the

terms and conditions described herein.

5. 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: (1) The terms of the Sale will be at

least as favorable as those the Plan could obtain in an arm's-length

transaction; (2) the Sale will be a one-time cash transaction; (3) the

Plan will not be required to pay any commissions, costs or other

expenses in connection with this transaction; and (4) the Plan will

receive a sales price equal to the fair market value of its residual

interest in the Convertibles Fund.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

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

CS Holding and Affiliates Located in New York, New York

[Application No. D-9605]

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, CS Holding and each of its affiliates (collectively, CS

Holding), except Banque Leu Luxembourg (BLL), shall not be precluded

from functioning as a ``qualified professional asset manager'' pursuant

to Prohibited Transaction Exemption 84-14 (PTE 84-14, 49 FR 9494, March

13, 1984) solely because of a failure to satisfy Section I(g) of PTE

84-14, as a result of affiliation with BLL, including any current or

future affiliate of CS Holding, other than BLL, which in the future may

become eligible to serve as a QPAM under PTE 84-14.

Effective Date: This exemption, if granted, will be effective as of

December 17, 1993.

Summary of Facts and Representations

1. CS Holding is a publicly-owned holding company organized under

Swiss law and located in Zurich, Switzerland. Through the international

operations of its affiliated components, CS Holding provides a variety

of financial services. Its affiliates include BLL, a financial

institution organized under the laws of the Grand Duchy of Luxembourg.

Prior to July 10, 1990 BLL was not affiliated with CS Holding or any of

its affiliates. On that date, Leu Holding, a subsidiary of CS Holding,

acquired the parent of BLL. BLL became a wholly-owned subsidiary of Leu

Holding in December 1990 as a result of corporate restructuring. CS

Holding currently owns approximately 96.8 percent of Leu Holding. BLL

engages primarily in private banking, investment counseling, and

portfolio management. CS Holding represents that BLL has not in the

past acted, nor is it presently acting or intending in the future to

act, as a fiduciary with respect to any employee benefit plans subject

to the Act or the Code.

2. On December 17, 1993, BLL entered a plea of guilty (the Plea) in

the U.S. District Court for the Northern District of California in

response to an information filed by the U.S. Attorney's Office (the

Information) charging BLL with one count of money laundering in

violation of 18 U.S.C. section 1957. The Information charges that

between February 20, 1989 and February 28, 1990, a BLL account officer

(the Officer) engaged in monetary transactions involving criminally

derived property by transferring cashier's checks from BLL in

Luxembourg to certain U.S. banks, on behalf of two related BLL customer

bank accounts. The Information charges that the Officer, who is no

longer employed by BLL, acted knowingly or with conscious avoidance of

knowledge that the checks represented proceeds of illegal activity. CS

Holding represents that the Plea represents BLL's acceptance of

responsibility for the isolated actions of a former employee, and that

in connection with the Plea, BLL has entered into a plea agreement (the

Plea Agreement) with the U.S. Attorney's Office which filed the

Information, obligating BLL to certain sanctions and certain corrective

measures, described below.

CS Holding notes that the Plea relates solely to BLL, which was not

an affiliate of CS Holding at the time of the Officer's actions

involved in the Information. CS Holding states that all of the facts

forming the factual basis of the Information occurred prior to the date

that CS Holding acquired control of BLL, and that neither CS Holding

nor any of its affiliates was aware of such facts until after CS

Holding acquired control of BLL. The transaction through which CS

Holding acquired an indirect interest in BLL (the Acquisition) was

consummated in July 1990, several months after the last illegal check

transfer involved in the Information. CS Holding represents that prior

to the Acquisition BLL operated independently of CS Holding, and that

officials of CS Holding did not become aware of the conduct described

in the Information until more than one year after CS Holding acquired

control of BLL.

6. CS Holding represents that although the Officer's actions did

not involve any investment management activities of BLL or any assets

of plans covered by the Act, the plea of guilty to the criminal

activities described above would preclude each component of CS Holding,

as an affiliate of BLL, from serving as a ``qualified professional

asset manager'' (QPAM) pursuant to sections I(g) and V(d) of PTE 84-14.

Section I(g) of PTE 84-14 precludes a person who otherwise qualifies as

a QPAM from serving as a QPAM if such person or an affiliate\5\

thereof has within the 10 years immediately preceding the transaction

been either convicted or released from imprisonment as a result of

certain criminal activity. CS Holding requests an exemption to enable

CS Holding affiliates to function as QPAMs despite their failure to

satisfy section I(g) of PTE 84-14 due to affiliation with BLL and the

Pleas entered by BLL.

---------------------------------------------------------------------------

\5\For purposes of section I(g) of PTE 84-14, an ``affiliate''

of a person is defined, in relevant part, as ``any person directly

or indirectly, through one or more intermediaries, controlling,

controlled by, or under common control with the person * * *'' (PTE

84-14 section V(d)). As such, under this definition, CS Holding and

all its subsidiaries (collectively, CS Holding) would be considered

affiliates of BLL.

---------------------------------------------------------------------------

7. The proposed exemption is requested on behalf of CS Holding

affiliates that are banks, investment banking firms, or registered

investment advisers, which are, or may become, eligible to serve as

QPAMs. The proposed exemption would also apply to CS Holding affiliates

that are acquired in the future. CS Holding represents that the

requested exemption, to enable access to the exemptive relief afforded

by PTE 84-14, is needed for CS Holding affiliates to engage in the full

range of transactions that can be executed by investment managers who

qualify as QPAMs. CS Holding represents that PTE 84-14 is not relevant

for most transactions involving the purchase or sale of U.S. exchange-

traded securities, securities lending, investment in short-term

instruments, or certain residential mortgage pools, since these

transactions may be effected pursuant to other applicable class

exemptions. However, CS Holding represents that PTE 84-14 is necessary

where the CS Holding affiliates have discretion over investments by

plans covered by the Act in real estate, mortgages fixed income

securities, foreign securities, derivatives, foreign currency and other

commodities, since there is no other class exemption permitting an

investment manager to purchase property from, sell or lease property

to, borrow money from, or engage in principal transactions in fixed

income securities , foreign currency and commodities with parties-in-

interest with respect to the investing employee benefit plans.

8. CS Holding represents that various measures have been taken to

ensure that conduct such as that involved in the Plea will not recur.

Among the steps taken by CS Holding are the following:

(A) Promptly after BLL learned of the investigation into this

matter, in November 1991, BLL terminated the employment of the

Officer.

(B) In November and December 1991, BLL conducted an extensive

internal review of its private banking accounts to determine if

there were any other accounts indicative of suspicious activity. A

follow-up investigation was conducted in February 1992. CS Holding

represents that the reviews conducted by BLL's internal audit

department found no evidence that any other accounts were being used

for money laundering activities.

(C) In January 1992, BLL adopted additional internal auditing

procedures for private banking activities, requiring monthly audits

of all new accounts. In addition, in February 1992, BLL issued new

instructions regarding business relationships with private banking

customers, including procedures for acceptance of deposits and

expanded reporting responsibilities of account officers.

(D) In February 1992 BLL elected to adopt the Swiss Federal Bank

Commission's guidelines for the prevention of money laundering. In

March 1992, BLL instituted an electronic data processing system

which automatically records all incoming and outgoing payments with

the time and date, facilitating the early recognition of possible

money laundering activities.

(E) Effective May 1, 1992, BLL established a new management

position responsible for the implementation and enforcement of anti-

money laundering procedures. A new managerial position also was

created effective June 1, 1992 to oversee back-office control

procedures, including supervision and inspection of payment traffic

and securities transactions.

(F) At the time of the Plea, BLL agreed, under the terms of the

Plea Agreement, (1) to forfeit $2.3 million to the United States,

(2) to pay a fine of $60,000, and (3) to retain Price Waterhouse to

prepare, and file with the U.S. Attorney's Office, annual Special

Purpose Reports to be issued on April 15, 1994, April 15, 1995, and

April 15, 1996. In addition, the Plea Agreement requires BLL to

prepare a monograph with yearly updates providing information about

money laundering laws, currency regulations, forfeiture laws, laws

prohibiting the structuring of transactions to avoid reporting

requirements, and methods of detecting and preventing illegal money

laundering, to be distributed to employees of BLL involved in

servicing customer accounts, all correspondent banks of BLL, and

various European financial institutions and regulatory bodies.

9. CS Holding asserts that failure to grant the requested exemption

will prohibit employee benefit plans for which CS Holding affiliates

act as investment managers from engaging in transactions with parties

in interest that would otherwise be permitted under PTE 84-14, and will

cause the plans to forego attractive investment opportunities, due to

the large number of service providers engaged by client plans, and the

wide array of services offered by CS Holding affiliates to plans. CS

Holding states that many of its affiliates would be deprived of their

abilities to offer and render the full range of specialized investment

advisory services demanded by employee benefit plans covered by the

Act. CS Holding notes that the actions involved in the Information did

not involve the operations of any CS Holding affiliates, other than BLL

prior to its affiliation with CS Holding, and that, accordingly, such

actions should not impair or relate to the abilities of CS Holding

affiliates to serve as QPAMs. CS Holding represents that many of the

employee benefit plans which are clients of CS Holding affiliates are

plans with assets in excess of $50 million, with a significant portion

of such plans having assets in excess of $100 million, and that such

plans benefit from the investment sophistication and access to

resources necessary to properly and independently monitor the

performance of investment managers engaged on their behalf. CS Holding

represents that the CS Holding affiliates which are eligible to serve

as QPAMs are subject to regulation under U.S. securities or banking

laws, and that the CS Holding affiliates serving as investment advisers

registered under the Investment Advisers Act of 1940 are subject to

that Act's substantive requirements and the jurisdiction of the

Securities and Exchange Commission, including unannounced audits and

annual disclosure requirements.

10. In summary the applicant represents that the proposed exemption

satisfies the criteria of section 408(a) of the Act for the following

reasons: (A) The criminal activity involved in the Plea occurred prior

to CS Holding's acquisition of any interest in BLL, and did not involve

any criminal charges against any affiliates of CS Holding other than

BLL; (B) CS Holding has taken substantial measures to prevent any

recurrence of the criminal activity; (C) CS Holding affiliates will be

able to engage in a broader variety of investment services on behalf of

employee benefit plans which demand such services; (D) The criminal

acts in question were neither authorized nor condoned by BLL or any

other component of CS Holding; and (E) The other conditions of PTE 84-

14, combined with the measures taken by CS Holding, afford ample

protection of the interests of participants and beneficiaries of

employee benefit plans.

For Further Information Contact: Ronald Willett of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Residential Funding Corporation (RFC), Residential Funding Mortgage

Securities, Inc. (RFMSI), Residential Funding Mortgage Exchange

Corporation (RFMEC), Residential Funding Securities Corporation (RFSC),

GMAC Auto Receivables Corporation (GMAC Auto), General Motors

Acceptance Corporation (GMAC), GMAC Mortgage Corporation (GMAC

Mortgage) and GMAC Mortgage Securities II, Inc. (GMAC Mortgage

Securities; together, the Applicants) Located in Minneapolis, Minnesota

(RFC, RFMSI, RFMEC and RFSC), Wilmington, Delaware (GMAC Auto), New

York, New York (GMAC), and Elkins Park, Pennsylvania (GMAC Mortgage and

GMAC Mortgage Securities)

[Application Nos. D-9112 and D-9113]

Proposed Exemption

I. Transactions

A. Effective June 9, 1992, the restrictions of sections 406(a) and

407(a) of the Act and the taxes imposed by section 4975 (a) and (b) of

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

shall not apply to the following transactions involving trusts and

certificates evidencing interests therein:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and an employee benefit plan when the sponsor,

servicer, trustee or insurer of a trust, the underwriter of the

certificates representing an interest in the trust, or an obligor is a

party in interest with respect to such plan;

(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates;

and

(3) The continued holding of certificates acquired by a plan

pursuant to subsection I.A. (1) or (2).

Notwithstanding the foregoing, section I.A. does not provide an

exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and

407 for the acquisition or holding of a certificate on behalf of an

Excluded Plan by any person who has discretionary authority or renders

investment advice with respect to the assets of that Excluded

Plan.6

---------------------------------------------------------------------------

\6\Section I.A. provides no relief from sections 406(a)(1)(E),

406(a)(2) and 407 for any person rendering investment advice to an

Excluded Plan within the meaning of section 3(21)(A)(ii) and

regulation 29 CFR 2510.3-21(c).

---------------------------------------------------------------------------

B. Effective June 9, 1992, the restrictions of sections 406(b)(1)

and 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)(E) of the Code shall

not apply to:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and a plan when the person who has discretionary

authority or renders investment advice with respect to the investment

of plan assets in the certificates is (a) an obligor with respect to 5

percent or less of the fair market value of obligations or receivables

contained in the trust, or (b) an affiliate of a person described in

(a); if:

(i) The plan is not an Excluded Plan;

(ii) Solely in the case of an acquisition of certificates in

connection with the initial issuance of the certificates, at least 50

percent of each class of certificates in which plans have invested is

acquired by persons independent of the members of the Restricted Group

and at least 50 percent of the aggregate interest in the trust is

acquired by persons independent of the Restricted Group;

(iii) a plan's investment in each class of certificates does not

exceed 25 percent of all of the certificates of that class outstanding

at the time of the acquisition; and

(iv) immediately after the acquisition of the certificates, no more

than 25 percent of the assets of a plan with respect to which the

person has discretionary authority or renders investment advice are

invested in certificates representing an interest in a trust containing

assets sold or serviced by the same entity.7 For purposes of this

paragraph B.(1)(iv) only, an entity will not be considered to service

assets contained in a trust if it is merely a subservicer of that

trust;

---------------------------------------------------------------------------

\7\For purposes of this exemption, each plan participating in a

commingled fund (such as a bank collective trust fund or insurance

company pooled separate account) shall be considered to own the same

proportionate undivided interest in each asset of the commingled

fund as its proportionate interest in the total assets of the

commingled fund as calculated on the most recent preceding valuation

date of the fund.

---------------------------------------------------------------------------

(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates,

provided that the conditions set forth in paragraphs B.(1) (i), (iii),

and (iv) are met; and

(3) The continued holding of certificates acquired by a plan

pursuant to subsection I.B. (1) or (2).

C. Effective June 9, 1992, the restrictions of sections 406(a),

406(b) and 407(a) of the Act, and the taxes imposed by section 4975 (a)

and (b) of the Code by reason of section 4975(c) of the Code, shall not

apply to transactions in connection with the servicing, management and

operation of a trust, provided:

(1) such transactions are carried out in accordance with the terms

of a binding pooling and servicing arrangement; and

(2) the pooling and servicing agreement is provided to, or

described in all material respects in the prospectus or private

placement memorandum provided to, investing plans before they purchase

certificates issued by the trust.8

---------------------------------------------------------------------------

\8\In the case of a private placement memorandum, such

memorandum must contain substantially the same information that

would be disclosed in a prospectus if the offering of the

certificates were made in a registered public offering under the

Securities Act of 1933. In the Department's view, the private

placement memorandum must contain sufficient information to permit

plan fiduciaries to make informed investment decisions.

---------------------------------------------------------------------------

Notwithstanding the foregoing, section I.C. does not provide an

exemption from the restrictions of section 406(b) of the Act or from

the taxes imposed by reason of section 4975(c) of the Code for the

receipt of a fee by a servicer of the trust from a person other than

the trustee or sponsor, unless such fee constitutes a ``qualified

administrative fee'' as defined in section III.S.

D. Effective June 9, 1992, the restrictions of sections 406(a) and

407(a) of the Act, and the taxes imposed by sections 4975(a) and (b) of

the Code by reason of sections 4975(c)(1) (A) through (D) of the Code,

shall not apply to any transactions to which those restrictions or

taxes would otherwise apply merely because a person is deemed to be a

party in interest or disqualified person (including a fiduciary) with

respect to a plan by virtue of providing services to the plan (or by

virtue of having a relationship to such service provider described in

section 3(14) (F), (G), (H), or (I) of the Act or section 4975(e)(2)

(F), (G), (H), or (I) of the Code), solely because of the plan's

ownership of certificates.

II. General Conditions

A. The relief provided under Part I is available only if the

following conditions are met:

(1) The acquisition of certificates by a plan is on terms

(including the certificate price) that are at least as favorable to the

plan as they would be in an arm's-length transaction with an unrelated

party;

(2) The rights and interests evidenced by the certificates are not

subordinated to the rights and interests evidenced by other

certificates of the same trust;

(3) The certificates acquired by the plan have received a rating at

the time of such acquisition that is in one of the three highest

generic rating categories from either Standard & Poor's Corporation

(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc.

(D & P) or Fitch Investors Service, Inc. (Fitch);

(4) The trustee is not an affiliate of any member of the Restricted

Group. However, the trustee shall not be considered to be an affiliate

of a servicer solely because the trustee has succeeded to the rights

and responsibilities of the servicer pursuant to the terms of a pooling

and servicing agreement providing for such succession upon the

occurrence of one or more events of default by the servicer;

(5) The sum of all payments made to and retained by the

underwriters in connection with the distribution or placement of

certificates represents not more than reasonable compensation for

underwriting or placing the certificates; the sum of all payments made

to and retained by the sponsor pursuant to the assignment of

obligations (or interests therein) to the trust represents not more

than the fair market value of such obligations (or interests); and the

sum of all payments made to and retained by the servicer represents not

more than reasonable compensation for the servicer's services under the

pooling and servicing agreement and reimbursement of the servicer's

reasonable expenses in connection therewith; and

(6) The plan investing in such certificates is an ``accredited

investor'' as defined in Rule 501(a)(1) of Regulation D of the

Securities and Exchange Commission under the Securities Act of 1933.

B. Neither any underwriter, sponsor, trustee, servicer, insurer, or

any obligor, unless it or any of its affiliates has discretionary

authority or renders investment advice with respect to the plan assets

used by a plan to acquire certificates, shall be denied the relief

provided under Part I, if the provision of subsection II.A.(6) above is

not satisfied with respect to acquisition or holding by a plan of such

certificates, provided that (1) such condition is disclosed in the

prospectus or private placement memorandum; and (2) in the case of a

private placement of certificates, the trustee obtains a representation

from each initial purchaser which is a plan that it is in compliance

with such condition, and obtains a covenant from each initial purchaser

to the effect that, so long as such initial purchaser (or any

transferee of such initial purchaser's certificates) is required to

obtain from its transferee a representation regarding compliance with

the Securities Act of 1933, any such transferees will be required to

make a written representation regarding compliance with the condition

set forth in subsection II.A.(6) above.

III. Definitions

For purposes of this exemption:

A. ``Certificate'' means:

(1) a certificate

(a) that represents a beneficial ownership interest in the assets

of a trust;

(b) that entitles the holder to pass-through payments of principal,

interest, and/or other payments made with respect to the assets of such

trust; and

(c) with respect to which (i) one of the Applicants or any of their

affiliates is the sponsor, and an entity which has received from the

Department an individual prohibited transaction exemption relating to

certificates which is similar to this exemption is the sole underwriter

or the manager or co-manager of the underwriting syndicate or a selling

or placement agent; or (ii) one of the Applicants is the sole

underwriter or the manager or co-manager of the underwriting syndicate

or a selling or placement agent; or

(2) A certificate denominated as a debt instrument -

(a) That represents an interest in a Real Estate Mortgage

Investment Conduit (REMIC) within the meaning of section 860D(a) of the

Code; and

(b) That is issued by and is an obligation of a trust with respect

to which (i) one of the Applicants or any of its affiliates is the

sponsor, and an entity which has received from the Department an

individual prohibited transaction exemption relating to certificates

which is similar to this exemption is the sole underwriter or the

manager or co-manager of the underwriting syndicate or a selling or

placement agent or (ii) one of the Applicants is the sole underwriter

or the manager or co-manager of the underwriting syndicate, or a

selling or placement agent.

For purposes of this exemption, references to ``certificates

representing an interest in a trust'' include certificates denominated

as debt which are issued by a trust.

B. ``Trust'' means an investment pool, the corpus of which is held

in trust and consists solely of:

(1) either

(a) secured consumer receivables that bear interest or are

purchased at a discount (including, but not limited to, home equity

loans and obligations secured by shares issued by a cooperative housing

association);

(b) secured credit instruments that bear interest or are purchased

at a discount in transactions by or between business entities

(including, but not limited to, qualified equipment notes secured by

leases, as defined in section III.T);

(c) obligations that bear interest or are purchased at a discount

and which are secured by single-family residential, multi-family

residential and commercial real property, (including obligations

secured by leasehold interests on commercial real property);

(d) obligations that bear interest or are purchased at a discount

and which are secured by motor vehicles or equipment, or qualified

motor vehicle leases (as defined in section III.U);

(e) ``guaranteed governmental mortgage pool certificates,'' as

defined in 29 CFR 2510.3-101(i)(2);

(f) fractional undivided interests in any of the obligations

described in clauses (a)-(e) of this section B.(1);

(2) property which had secured any of the obligations described in

subsection B.(1);

(3) undistributed cash or temporary investments made therewith

maturing no later than the next date on which distributions are to made

to certificateholders; and

(4) rights of the trustee under the pooling and servicing

agreement, and rights under any insurance policies, third-party

guarantees, contracts of suretyship and other credit support

arrangements with respect to any obligations described in subsection

B.(1).

Notwithstanding the foregoing, the term ``trust'' does not include

any investment pool unless: (i) The investment pool consists only of

assets of the type which have been included in other investment pools,

(ii) certificates evidencing interests in such other investment pools

have been rated in one of the three highest generic rating categories

by S&P's, Moody's, D & P, or Fitch for at least one year prior to the

plan's acquisition of certificates pursuant to this exemption, and

(iii) certificates evidencing interests in such other investment pools

have been purchased by investors other than plans for at least one year

prior to the plan's acquisition of certificates pursuant to this

exemption.

C. ``Underwriter'' means:

(1) any of the Applicants;

(2) any person directly or indirectly, through one or more

intermediaries, controlling, controlled by or under common control with

any of the Applicants;

(3) any member of an underwriting syndicate or selling group of

which any of the Applicants or a person described in (2) is a manager

or co-manager with respect to the certificates; or

(4) an entity which has received from the Department an individual

prohibited transaction exemption relating to certificates which is

similar to this exemption.

D. ``Sponsor'' means the entity that organizes a trust by

depositing obligations therein in exchange for certificates.

E. ``Master Servicer'' means the entity that is a party to the

pooling and servicing agreement relating to trust assets and is fully

responsible for servicing, directly or through subservicers, the assets

of the trust.

F. ``Subservicer'' means an entity which, under the supervision of

and on behalf of the master servicer, services loans contained in the

trust, but is not a party to the pooling and servicing agreement.

G. ``Servicer'' means any entity which services loans contained in

the trust, including the master servicer and any sub-servicer.

H. ``Trustee'' means the trustee of the trust, and in the case of

certificates which are denominated as debt instruments, also means the

trustee of the indenture trust.

I. ``Insurer'' means the insurer or guarantor of, or provider of

other credit support for, a trust.

Notwithstanding the foregoing, a person is not an insurer solely

because it holds securities representing an interest in a trust which

are of a class subordinated to certificates representing an interest in

the same trust.

J. ``Obligor'' means any person, other than the insurer, that is

obligated to make payments with respect to any obligation or receivable

included in the trust. Where a trust contains qualified motor vehicle

leases or qualified equipment notes secured by leases, ``obligor''

shall also include any owner of property subject to any lease included

in the trust, or subject to any lease securing an obligation included

in the trust.

K. ``Excluded Plan'' means any plan with respect to which any

member of the Restricted Group is a ``plan sponsor'' within the meaning

of section 3(16)(B) of the Act.

L. ``Restricted Group'' with respect to a class of certificates

means:

(1) Each underwriter;

(2) Each insurer;

(3) The sponsor;

(4) The trustee;

(5) Each servicer;

(6) Any obligor with respect to obligations or receivables included

in the trust constituting more than 5 percent of the aggregate

unamortized principal balance of the assets in the trust, determined on

the date of the initial issuance of certificates by the trust; or

(7) Any affiliate of a person described in (1)-(6) above.

M. ``Affiliate'' of another person includes:

(1) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(2) Any officer, director, partner, employee, relative (as defined

in section 3(15) of the Act), a brother, a sister, or a spouse of a

brother or sister of such other person; and

(3) Any corporation or partnership of which such other person is an

officer, director or partner.

N. ``Control'' means the power to exercise a controlling influence

over the management or policies of a person other than an individual.

O. A person will be ``independent'' of another person only if:

(1) Such person is not an affiliate of that other person; and

(2) The other person, or an affiliate thereof, is not a fiduciary

who has investment management authority or renders investment advice

with respect to any assets of such person.

P. ``Sale'' includes the entrance into a forward delivery

commitment (as defined in section Q below), provided:

(1) The terms of the forward delivery commitment (including any fee

paid to the investing plan) are no less favorable to the plan than they

would be in an arm's length transaction with an unrelated party;

(2) The prospectus or private placement memorandum is provided to

an investing plan prior to the time the plan enters into the forward

delivery commitment; and

(3) At the time of the delivery, all conditions of this exemption

applicable to sales are met.

Q. ``Forward delivery commitment'' means a contract for the

purchase or sale of one or more certificates to be delivered at an

agreed future settlement date. The term includes both mandatory

contracts (which contemplate obligatory delivery and acceptance of the

certificates) and optional contracts (which give one party the right

but not the obligation to deliver certificates to, or demand delivery

of certificate from, the other party).

R. ``Reasonable compensation'' has the same meaning as that term is

defined in 29 CFR 2550.408c-2.

S. ``Qualified Administrative Fee'' means a fee which meets the

following criteria:

(1) The fee is triggered by an act or failure to act by the obligor

other than the normal timely payment of amounts owing in respect of the

obligations;

(2) The servicer may not charge the fee absent the act or failure

to act referred to in (1);

(3) The ability to charge the fee, the circumstances in which the

fee may be charged, and an explanation of how the fee is calculated are

set forth in the pooling and servicing agreement; and

(4) The amount paid to investors in the trust will not be reduced

by the amount of any such fee waived by the servicer.

T. ``Qualified Equipment Note Secured By A Lease'' means an

equipment note:

(a) Which is secured by equipment which is leased;

(b) Which is secured by the obligation of the lessee to pay rent

under the equipment lease; and

(c) With respect to which the trust's security interest in the

equipment is at least as protective of the rights of the trust as would

be the case if the equipment note were secured only by the equipment

and not the lease.

U. ``Qualified Motor Vehicle Lease'' means a lease of a motor

vehicle where:

(a) The trust holds a security interest in the lease;

(b) The trust holds a security interest in the leased motor

vehicle; and

(c) The trust's security interest in the leased motor vehicle is at

least as protective of the trust's rights as would be the case if the

trust consisted of motor vehicle installment loan contracts.

V. ``Pooling and Servicing Agreement'' means the agreement or

agreements among a sponsor, a servicer and the trustee establishing a

trust. In the case of certificates which are denominated as debt

instruments, ``Pooling and Servicing Agreement'' also includes the

indenture entered into by the trustee of the trust issuing such

certificates and the indenture trustee.

Effective Date: This exemption, if granted, will be effective for

transactions occurring on or after June 9, 1992.

II. Summary of Facts and Representations

1. The Applicants can be described as follows:

(a) RFC. RFC is owned indirectly by General Motors Corporation

through a chain of wholly owned subsidiaries. RFC is an indirect wholly

owned subsidiary of GMAC Mortgage, which is a wholly owned subsidiary

of GMAC, which in turn is a wholly owned subsidiary of General Motors

Corporation. RFC buys conventional mortgage loans under several loan

purchase programs from mortgage loan originators or sellers nationwide

that meet its seller eligibility requirements and sells certain of the

loans either directly or through RFMSI in the secondary market. RFC

conducts operations from its headquarters in Minneapolis and from

offices located in California, Georgia, New York, Texas and Rhode

Island. In 1986, RFC commenced the master servicing of loans purchased

under its modified loan purchase programs. At August 30, 1993, RFC was

master servicing a loan portfolio of approximately $21.7 billion.

(b) RFMSI. RFMSI is a wholly owned subsidiary of GMAC Mortgage,

which is a wholly owned subsidiary of GMAC. RFMSI was organized for the

purpose of serving as a private secondary mortgage market conduit.

RFMSI purchases loans from RFC or other sellers, or exchanges

certificates for loans from sellers. RFMSI issued approximately $10.8

billion in conduit mortgage pass-through certificates during 1992.

RFMSI does not have, nor is it expected in the future to have, any

significant assets.

(c) RFMEC. RFMEC is an indirect wholly owned subsidiary of GMAC

Mortgage and a wholly owned subsidiary of RFC. RFMEC maintains its

principal office in Minneapolis, Minnesota. RFMEC does not have, nor is

it expected to have, any significant assets.

(d) RFSC. RFSC is a wholly owned subsidiary of an indirect parent

of RFMSI. RFSC was first registered as a broker-dealer on April 23,

1990, and a principal function of RFSC will be to sell conduit-mortgage

pass-through certificates of RFMSI.

(e) GMAC Auto. GMAC Auto, a wholly owned subsidiary of GMAC, was

organized for the limited purpose of purchasing receivables from GMAC,

transferring such receivables to third parties, and any activities

incidental to and necessary or convenient for the accomplishment of

such purposes.

(f) GMAC. GMAC, a wholly owned subsidiary of General Motors

Corporation, was incorporated in 1919 under the New York Banking Law

relating to investment companies. Operating directly and through

subsidiaries and associated companies in which it has equity

investments, GMAC provides a wide variety of automotive-related

financial services to and through franchised General Motors dealers in

many countries throughout the world. Other financial services include

insurance, mortgage banking, marine financing and investment services.

As of December 31, 1992, on a consolidated basis, GMAC had total assets

of $93.6 billion and total shareholder's equity of $8 billion. For the

year ended December 31, 1992, on a consolidated basis, GMAC had gross

revenues of $13.6 billion and net income of $936 million.

(g) GMAC Mortgage. GMAC Mortgage is a wholly owned subsidiary of

GMAC. Mortgage banking operations are conducted in the United States

through GMAC Mortgage and its subsidiaries. The mortgage banking

activity involves the origination and marketing to investors of single-

family and commercial mortgage loans and the subsequent servicing of

these loans on behalf of investors. GMAC also offers home equity loans

in selected states. Typically, GMAC Mortgage funds loans for 60 to 90

days, pending assembly and delivery to investors. Thereafter, GMAC

Mortgage earns an on-going fee for loan services including billing,

collecting and forwarding payments to investors, taxing authorities and

insurance companies.

(h) GMAC Mortgage Securities. GMAC Mortgage Securities, a wholly

owned subsidiary of GMAC Mortgage, was organized for the purpose of

purchasing mortgage loans and depositing such mortgage assets into

trust, and selling certificates representing interests in such trusts,

as well as any other activities incidental to or necessary or

convenient for the accomplishment of such purposes.

Trust Assets

2. The Applicants seek exemptive relief to permit plans to invest

in pass-through certificates representing undivided interests in the

following categories of trusts: (1) single and multi-family residential

or commercial mortgage investment trusts;9 (2) motor vehicle

receivable investment trusts; (3) consumer or commercial receivables

investment trusts; and (4) guaranteed governmental mortgage pool

certificate investment trusts.10

---------------------------------------------------------------------------

\9\The Department notes that PTE 83-1 [48 FR 895, January 7,

1983], a class exemption for mortgage pool investment trusts, would

generally apply to trusts containing single-family residential

mortgages, provided that the applicable conditions of PTE 83-l are

met. The Applicants request relief for single-family residential

mortgages in this exemption because it would prefer one exemption

for all trusts of similar structure. However, the Applicants have

stated that they may still avail themselves of the exemptive relief

provided by PTE 83-1.

\1\0Guaranteed governmental mortgage pool certificates are

mortgage-backed securities with respect to which interest and

principal payable is guaranteed by the Government National Mortgage

Association (GNMA), the Federal Home Loan Mortgage Corporation

(FHLMC), or the Federal National Mortgage Association (FNMA). The

Department's regulation relating to the definition of plan assets

(29 CFR 2510.3-101(i)) provides that where a plan acquires a

guaranteed governmental mortgage pool certificate, the plan's assets

include the certificate and all of its rights with respect to such

certificate under applicable law, but do not, solely by reason of

the plan's holding of such certificate, include any of the mortgages

underlying such certificate. The applicants are requesting exemptive

relief for trusts containing guaranteed governmental mortgage pool

certificates because the certificates in the trusts are plan assets.

---------------------------------------------------------------------------

3. Commercial mortgage investment trusts may include mortgages on

ground leases of real property. Commercial mortgages are frequently

secured by ground leases on the underlying property, rather than by fee

simple interests. The separation of the fee simple interest and the

ground lease interest is generally done for tax reasons. Properly

structured, the pledge of the ground lease to secure a mortgage

provides a lender with the same level of security as would be provided

by a pledge of the related fee simple interest. The terms of the ground

leases pledged to secure leasehold mortgages will in all cases be at

least ten years longer than the term of such mortgages.

Trust Structure

4. Each trust is established under a pooling and servicing

agreement among a sponsor, a servicer and a trustee. The sponsor or

servicer of a trust selects assets to be included in the trust. These

assets are receivables which may have been originated by a sponsor or

servicer of the trust, an affiliate of the sponsor or servicer, or by

an unrelated lender and subsequently acquired by the trust sponsor or

servicer.

Prior to or concurrently with the closing date, the sponsor

acquires legal title to all assets selected for the trust, establishes

the trust and designates an independent entity as trustee. On the

closing date, the sponsor conveys to the trust legal title to the

assets, and the trustee issues certificates representing fractional

undivided interests in the trust assets. The certificates are either

publicly or privately offered. In certain cases, the certificates will

be represented by physical certificates registered in the name of a

depository entity or a nominee of the depository.

Certificateholders are entitled to receive monthly, quarterly or

semi-annual installments of principal and/or interest, or lease

payments due on the receivables, adjusted, in the case of payments of

interest, to a specified rate--the pass-through rate--which may be

fixed or variable.

When installments or payments are made on a semi-annual basis,

funds are not permitted to be commingled with the servicer's assets for

longer than would be permitted for a monthly-pay security. A segregated

account is established in the name of the trustee (on behalf of

certificateholders) to hold funds received between distribution dates.

The account is under the sole control of the trustee, who invests the

account's assets in short-term securities which have received a rating

comparable to the rating assigned to the certificates. In some cases,

the servicer may be permitted to make a single deposit into the account

once a month. When the servicer makes such monthly deposits, payments

received from obligors by the servicer may be commingled with the

servicer's assets during the month prior to deposit. Usually, the

period of time between receipt of funds by the servicer and deposit of

these funds in a segregated account does not exceed one month.

Furthermore, in those cases where distributions are made semi-annually,

the servicer will furnish a report on the operation of the trust to the

trustee on a monthly basis. At or about the time this report is

delivered to the trustee, it will be made available to

certificateholders and delivered to or made available to each rating

agency that has rated the certificates.

5. Some of the certificates will be multi-class certificates. The

Applicants request exemptive relief for two types of multi-class

certificates: ``strip'' certificates and ``fast-pay/ slow-pay''

certificates. Strip certificates are a type of security in which the

stream of interest payments on receivables is split from the flow of

principal payments and separate classes of certificates are

established, each representing rights to disproportionate payments of

principal and interest.11

---------------------------------------------------------------------------

\1\1It is the Department's understanding that where a plan

invests in REMIC ``residual'' interest certificates to which this

exemption applies, some of the income received by the plan as a

result of such investment may be considered unrelated business

taxable income to the plan, which is subject to income tax under the

Code. The Department emphasizes that the prudence requirement of

section 404(a)(l)(B) of the Act would require plan fiduciaries to

carefully consider this and other tax consequences prior to causing

plan assets to be invested in certificates pursuant to this

exemption.

---------------------------------------------------------------------------

``Fast-pay/slow-pay'' certificates involve the issuance of classes

of certificates having different stated maturities or the same

maturities with different payment schedules. Interest and/or principal

payments received on the underlying receivables are distributed first

to the class of certificates having the earliest stated maturity of

principal, and/or earlier payment schedule, and only when that class of

certificates has been paid in full (or has received a specified amount)

will distributions be made with respect to the second class of

certificates. Distributions on certificates having later stated

maturities will proceed in like manner until all the certificateholders

have been paid in full. The only difference between this multi-class

pass-through arrangement and a single-class pass-through arrangement is

the order in which distributions are made to certificateholders. In

each case, certificateholders will have a beneficial ownership interest

in the underlying assets. In neither case will the rights of a plan

purchasing certificates be subordinated to the rights of another

certificateholder in the event of default on any of the underlying

obligations. In particular, if the amount available for distribution to

certificateholders is less than the amount required to be so

distributed, all senior certificateholders then entitled to receive

distributions will share in the amount distributed on a pro rata

basis.12

---------------------------------------------------------------------------

\1\2If a trust issues subordinate certificates, holders of such

subordinate certificates may not share in the amount distributed on

a pro rata basis. The Department notes that the exemption does not

provide relief for plan investment in such subordinated

certificates.

---------------------------------------------------------------------------

6. For tax reasons, the trust must be maintained as an essentially

passive entity. Therefore, both the sponsor's discretion and the

servicer's discretion with respect to assets included in a trust are

severely limited. Pooling and servicing agreements provide for the

substitution of receivables by the sponsor only in the event of defects

in documentation discovered within a limited time after the issuance of

trust certificates. Any receivable so substituted is required to have

characteristics substantially similar to the replaced receivable and

will be at least as creditworthy as the replaced receivable.

In some cases, the affected receivable would be repurchased, with

the purchase price applied as a payment on the affected receivable and

passed through to certificateholders.

Parties to Transactions

7. The originator of a receivable is the entity that initially

lends money to a borrower (obligor), such as a homeowner or automobile

purchaser, or leases property to the lessee. The originator may either

retain a receivable in its portfolio or sell it to a purchaser, such as

a trust sponsor.

Originators of receivables included in the trusts will be entities

that originate receivables in the ordinary course of their business,

including finance companies, for whom such origination constitutes the

bulk of their operations, financial institutions for whom such

origination constitutes a substantial part of their operations, and any

kind of manufacturer, merchant, or service enterprise for whom such

origination is an incidental part of its operations. Each trust may

contain assets of one or more originators. The originator of the

receivables may also function as the trust sponsor or servicer.

8. The sponsor will be RFC, RFMSI, RFMEC, GMAC Auto, GMAC, GMAC

Mortgage, GMAC Mortgage Securities or one of their brother or sister

affiliates. The sponsor may be the servicer. Where the sponsor is not

also the servicer, the sponsor's role will generally be limited to

acquiring the receivables to be included in the trust, establishing the

trust, designating the trustee, and assigning the receivables to the

trust.

9. The trustee of a trust is the legal owner of the obligations in

the trust. The trustee is also a party to or beneficiary of all the

documents and instruments deposited in the trust, and as such is

responsible for enforcing all the rights created thereby in favor of

certificateholders.

The trustee will be an independent entity, and therefore will be

unrelated to the trust sponsor, the servicer or underwriter or

placement agent. The Applicants represent that the trustee will be a

substantial financial institution or trust company experienced in trust

activities. The trustee receives a fee for its services, which will be

paid by the sponsor, servicer or out of trust assets. The method of

compensating the trustee will be specified in the pooling and servicing

agreement and disclosed in the prospectus or private placement

memorandum relating to the offering of the certificates.

10. The servicer of a trust administers the receivables on behalf

of the certificateholders. The servicer's functions typically involve,

among other things, notifying borrowers of amounts due on receivables,

maintaining records of payments received on receivables and instituting

foreclosure or similar proceedings in the event of default. In cases

where a pool of receivables has been purchased from a number of

different originators and deposited in a trust, it is common for the

receivables to be ``subserviced'' by their respective originators and

for a single entity to ``master service'' the pool of receivables on

behalf of the owners of the related series of certificates. Where this

arrangement is adopted, a receivable continues to be serviced from the

perspective of the borrower by the local subservicer, while the

investor's perspective is that the entire pool of receivables is

serviced by a single, central master servicer who collects payments

from the local subservicers and passes them through to

certificateholders.

In most cases, the originator and servicer of receivables to be

included in a trust and the sponsor of the trust (though they

themselves may be related) will be unrelated to the underwriter or

placement agent, although in some cases they will be related to RFSC,

which will sell conduit-mortgage pass-through certificates of RFMSI. In

certain cases, a depositary entity or its nominee will have the

certificates registered in its name, and will maintain procedures for

distribution of notices, reports, distributions and statements to

certificateholders.

Certificate Price, Pass-Through Rate and Fees

11. Where the sponsor of a trust is not the originator of

receivables included in a trust, the sponsor generally purchases the

receivables in the secondary market, either directly from the

originator or from another secondary market participant. The price the

sponsor pays for a receivable is determined by competitive market

forces, taking into account payment terms, interest rate, quality, and

forecasts as to future interest rates.

As compensation for the receivables transferred to the trust, the

sponsor receives certificates representing the entire beneficial

interest in the trust, or the cash proceeds of the sale of such

certificates, or a combination of certificates and cash. If the sponsor

receives certificates from the trust, the sponsor sells all or a

portion of these certificates for cash to investors or securities

underwriters. In some transactions, the sponsor or an affiliate may

retain a portion of the certificate for its own account. The transfer

of the receivables to the trust by the sponsor, the sale of

certificates to investors, and the receipt of the cash proceeds by the

sponsor generally take place simultaneously.

12. The price of the certificates, both in the initial offering and

in the secondary market, is affected by market forces including

investor demand, the pass-through interest rate on the certificates in

relation to the rate payable on investments of similar types and

quality, expectations as to the effect on yield resulting from

prepayment of underlying receivables, and expectations as to the

likelihood of timely payment.

The pass-through rate for certificates is equal to the interest

rate on receivables included in the trust minus a specified servicing

fee.13 This rate is generally determined by the same market forces

that determine the price of a certificate. The price of a certificate

and its pass-through, or coupon, rate together determine the yield to

investors. If an investor purchases a certificate at less than par,

that discount augments the stated pass-through rate; conversely, a

certificate purchased at a premium yields less than the stated coupon.

---------------------------------------------------------------------------

\1\3The pass-through rate on certificates representing interests

in trusts holding leases is determined by breaking down lease

payments into ``principal'' and ``interest'' components based on an

implicit interest rate.

---------------------------------------------------------------------------

13. As compensation for performing its servicing duties, the

servicer (who may also be the sponsor, and receive fees for acting in

that capacity) will retain the difference between payments received on

the receivables in the trust and payments payable (at the pass-through

rate) to certificateholders, except that in some cases a portion of the

payments on receivables may be paid to a third party, such as a fee

paid to a provider of credit support. The servicer may receive

additional compensation by having the use of the amounts paid on the

receivables between the time they are received by the servicer and the

time they are due to the trust (which time is set forth in the pooling

and servicing agreement). The servicer will be required to pay the

administrative expenses of servicing the trust, including the trustee's

fee, out of its servicing compensation.

The servicer is also compensated to the extent it may provide

credit enhancement to the trust or otherwise arrange to obtain credit

support from another party. This ``credit support fee'' may be

aggregated with other servicing fees, and is either paid out of the

interest income received on the receivables in excess of the pass-

through rate or paid in a lump sum at the time the trust is

established.

14. The servicer may be entitled to retain certain administrative

fees paid by a third party, usually the obligor. These administrative

fees fall into three categories: (a) Prepayment fees; (b) late payment

and payment extension fees; and (c) fees and charges associated with

foreclosure or repossession, or other conversion of a secured position

into cash proceeds, upon default of an obligation.

Compensation payable to the servicer will be set forth or referred

to in the pooling and servicing agreement and described in reasonable

detail in the prospectus or private placement memorandum relating to

the certificates.

15. Payments on receivables may be made by obligors to the servicer

at various times during the period preceding any date on which pass-

through payments to the trust are due. In some cases, the pooling and

servicing agreement may permit the servicer to place these payments in

non-interest bearing accounts in itself or to commingle such payments

with its own funds prior to the distribution dates. In these cases, the

servicer would be entitled to the benefit derived from the use of the

funds between the date of payment on a receivable and the pass-through

date. Commingled payments may not be protected from the creditors of

the servicer in the event of the servicer's bankruptcy or receivership.

In those instances when payments on receivables are held in non-

interest bearing accounts or are commingled with the servicer's own

funds, the servicer is required to deposit these payments by a date

specified in the pooling and servicing agreement into an account from

which the trustee makes payments to certificateholders.

16. Participating underwriters or placement agents will receive a

fee in connection with the securities underwriting or private placement

of certificates. In a firm commitment underwriting, this fee would

consist of the difference between what such underwriter receives for

the certificates that it distributes and what it pays the sponsor for

those certificates. In a private placement, the fee normally takes the

form of an agency commission paid by the sponsor.

The arrangements among underwriters are typically set forth in an

``Agreement Among Underwriters'', which gives the managing underwriter,

as lead manager of the offering, the authority to act on behalf of all

the underwriters. This agreement also imposes customary restrictions on

the underwriters' dealings in the offered securities as are necessary

to comply with securities laws and to ensure the orderly distribution

of the offered securities.

Purchase of Receivables by the Servicer

17. The Applicants represent that as the principal amount of the

receivables in a trust is reduced by payment, the cost of administering

the trust generally increases, making the servicing of the trust

prohibitively expensive at some point. Consequently, the pooling and

servicing agreement generally provides that the servicer may purchase a

receivable included in the trust when the aggregate unpaid balance

payable on the receivables is reduced to a specified percentage

(usually between 5 and 10 percent) of the initial aggregate unpaid

balance. The terms of such repurchase are specified in the pooling and

servicing agreement and will be at least equal to the unpaid principal

balance on the receivables plus accrued interest, less any unreimbursed

advances of principal made by the servicer.

Certificate Ratings

18. The certificates will have received one of the three highest

ratings available from either S&P's, Moody's, D&P or Fitch. Insurance

or other credit support will be obtained by the trust sponsor to the

extent necessary for the certificates to attain the desired rating. The

amount of this credit support is set by the rating agencies at a level

that is a multiple of the worst historical net credit loss experience

for the type of obligations included in the issuing trust.

Provision of Credit Support

19. In some cases, the master servicer, or an affiliate of the

master servicer, may provide credit support to the trust (i.e. act as

an insurer). Typically, in these cases, the master servicer, in its

capacity as servicer, will first advance funds to the full extent that

it determines that such advances will be recoverable (a) out of late

payments by the obligors, (b) from the credit support provider (which

may be itself) or, (c) in the case of a trust that issues subordinated

certificates, from amounts otherwise distributable to holders of

subordinated certificates, and the master servicer will advance such

funds in a timely manner. In some transactions, however, the master

servicer may not be obligated to advance funds, but instead would be

called upon to provide funds to cover defaulted payments to the full

extent of its obligations as insurer. When the servicer is the provider

of the credit support and provides its own funds to cover defaulted

payments, it will do so either on the initiative of the trustee, or on

its own initiative on behalf of the trustee, but in either event it

will provide such funds to cover payments to the full extent of its

obligations under the credit support mechanism.

If the master servicer fails to advance funds, fails to call upon

the credit support mechanism to provide funds to cover defaulted

payments, or otherwise fails in its duties, the trustee would be

required and would be able to enforce the certificateholders' rights,

as both a party to the pooling and servicing agreement and the owner of

the trust estate, including rights under the credit support mechanism.

Therefore, the trustee, who is independent of the servicer, will have

the ultimate right to enforce the credit support arrangement.

When a master servicer advances funds, the amount so advanced is

recoverable by the servicer out of future payments on receivables held

by the trust to the extent not covered by credit support. However,

where the master servicer provides credit support to the trust, there

are protections in place to guard against a delay in calling upon the

credit support to take advantage of the fact that the credit support

declines proportionally with the decrease in the principal amount of

the obligations in the trust as payments on receivables are passed

through to investors. These safeguards include:

(a) There is often a disincentive to postponing credit losses

because the sooner repossession or foreclosure activities are

commenced, the more value that can be realized on the security for the

obligation;

(b) The master servicer has servicing guidelines which include a

general policy as to the allowable delinquency period after which an

obligation ordinarily will be deemed uncollectible. The pooling and

servicing agreement will require the master servicer to follow its

normal servicing guidelines and will set forth the master servicer's

general policy as to the period of time after which delinquent

obligations ordinarily will be considered uncollectible;

(c) As frequently as payments are due on the receivables included

in the trust (monthly, quarterly or semi-annually, as set forth in the

pooling and servicing agreement), the master servicer is required to

report to the independent trustee the amount of all past-due payments

and the amount of all servicer advances, along with other current

information as to collections on the receivables and draws upon the

credit support. Further, the master servicer is required to deliver to

the trustee annually a certificate of an executive officer of the

master servicer stating that a review of the servicing activities has

been made under such officer's supervision, and either stating that the

master servicer has fulfilled all of its obligations under the pooling

and servicing agreement or, if the master servicer has defaulted under

any of its obligations, specifying any such default. The master

servicer's reports are reviewed at least annually by independent

accountants to ensure that the master servicer is following its normal

servicing standards and that the master servicer's reports conform to

the master servicer's internal accounting records. The results of the

independent accountants' review are delivered to the trustee; and

(d) In cases where the master servicer and the insurer are

affiliated or the same entity, the credit support has a ``floor''

dollar amount that protects investors against the possibility that a

large number of credit losses might occur towards the end of the life

of the trust, whether due to servicer advances or any other cause. The

floor amount may be a fixed dollar amount or a multiple of the balance

of one or more of the largest obligations outstanding. Once the floor

amount has been reached, the servicer lacks an incentive to postpone

the recognition of credit losses because the credit support amount

becomes a fixed dollar amount, subject to reduction only for actual

draws. From the time that the floor amount is effective until the end

of the life of the trust, there are no proportionate reductions in the

credit support amount caused by reductions in the pool principal

balance. Indeed, where the floor is a fixed dollar amount, the amount

of credit support ordinarily increases as a percentage of the pool

principal balance during the period that the floor is in effect.

Disclosure

20. In connection with the original issuance of certificates, a

prospectus or private placement memorandum will be furnished to

investing plans. The prospectus or private placement memorandum will

contain information material to a fiduciary's decision to invest in the

certificates, including:

(a) Information concerning the payment terms of the certificates,

the rating of the certificates, and any material risk factors with

respect to the certificates;

(b) A description of the trust as a legal entity and a description

of how the trust was formed by the seller/servicer or other sponsor of

the transaction;

(c) Identification of the independent trustee for the trust;

(d) A description of the receivables contained in the trust,

including the types of receivables, the diversification of the

receivables, their principal terms, and their material legal aspects;

(e) A description of the sponsor and servicer;

(f) A description of the pooling and servicing agreement, including

a description of the seller's principal representations and warranties

as to the trust assets and the trustee's remedy for any breach thereof;

a description of the procedures for collection of payments on

receivables and for making distributions to investors, and a

description of the accounts into which such payments are deposited and

from which such distributions are made; identification of the servicing

compensation and any fees for credit enhancement that are deducted from

payments on receivables before distributions are made to investors; a

description of periodic statements provided to the trustee, and

provided to or made available to investors by the trustee; and a

description of the events that constitute events of default under the

pooling and servicing contract and a description of the trustee's and

the investors' remedies incident thereto;

(g) A description of the credit support;

(h) A general discussion of the principal federal income tax

consequences of the purchase, ownership and disposition of the pass-

through securities by a typical investor;

(i) A description of the underwriters' plan for distributing the

pass-through securities to investors; and

(j) Information about the scope and nature of the secondary market,

if any, for the certificates.

21. Reports indicating the amount of payments of principal and

interest are provided to certificateholders at least as frequently as

distributions are made to certificateholders. Certificateholders will

also be provided with periodic information statements setting forth

material information concerning the underlying assets, including, where

applicable, information as to the amount and number of delinquent and

defaulted loans or receivables.

22. In the case of a trust that offers and sells certificates in a

registered public offering, the trustee, the servicer or the sponsor

will file such periodic reports as may be required to be filed under

the Securities Exchange Act of l934. Although some trusts that offer

certificates in a public offering will file quarterly reports on Form

l0-Q and Annual Reports on Form l0-K, many trusts obtain, by

application to the Securities and Exchange Commission, a complete

exemption from the requirement to file quarterly reports on Form l0-Q

and a modification of the disclosure requirements for annual reports on

Form l0-K. If such an exemption is obtained, these trusts normally

would continue to have the obligation to file current reports on Form

8-K to report material developments concerning the trust and the

certificates. While the Securities and Exchange Commission's

interpretation of the periodic reporting requirements is subject to

change, periodic reports concerning a trust will be filed to the extent

required under the Securities Exchange Act of l934.

23. At or about the time distributions are made to

certificateholders, a report will be delivered to the trustee as to the

status of the trust and its assets, including underlying obligations.

Such report will typically contain information regarding the trust's

assets, payments received or collected by the servicer, the amount of

prepayments, delinquencies, servicer advances, defaults and

foreclosures, the amount of any payments made pursuant to any credit

support, and the amount of compensation payable to the servicer. Such

report also will be delivered to or made available to the rating agency

or agencies that have rated the trust's certificates. This report will

also provide to certificateholders (either by the trustee, the servicer

or, in certain cases, the depository of the certificates) a summary

statement of information regarding the trust and its assets. Such

statement will include information regarding the trust and its assets,

including underlying receivables. Such statement will typically contain

information regarding payments and prepayments, delinquencies, the

remaining amount of the guaranty or other credit support, a breakdown

of payments between principal and interest and other material

information concerning the underlying assets, including, where

applicable, information as to the number and amount of delinquent and

defaulted receivables. The summary statement provided to the

certificateholders will be part of the report to the trustee described

in this paragraph. If this information is to be furnished by the

depository of the certificates, the trustee and the servicer will have

no control over distribution to certificateholders.

Secondary Market Transactions

24. In general, it is the policy of many underwriters to attempt to

make a market for securities for which they are the lead or co-managing

underwriter. In general, it is also the policy of many placement agents

to facilitate sales by investors who purchase certificates if such

entity has acted as agent or principal in the original private

placement of the certificates and if such investors request such

entity's assistance.

Retroactive Relief

25. The Applicants do not believe that they have engaged in any

prohibited transactions that would be covered by the requested

exemption. However, it is possible that some transactions may have

occurred that would be prohibited. For example, because many

certificates are held in street or nominee name, it is not always

possible to identify whether the percentage interest of plans in a

trust is or is not ``significant'' for purposes of the Department's

regulation relating to the definition of plan assets (29 CFR 2510.3-

101(f)). These problems are compounded as transactions occur in the

secondary market. In addition, with respect to the ``publicly-offered

security'' exception contained in that regulation (29 CFR 2510.3-

101(b)), it is difficult to determine whether each purchaser of a

certificate is independent of all other purchasers. Therefore, the

relief requested herein is retroactive to June 9, 1992, which is the

date upon which the Applicants originally filed their exemption

application with the Department.

Summary

26. In summary, the Applicants represent that the transactions for

which exemptive relief is requested satisfy the statutory criteria of

section 408(a) of the Act due to the following:

(a) The trusts contain ``fixed pools'' of assets. There is little

discretion on the part of the trust sponsor to substitute receivables

contained in the trust once the trust has been formed;

(b) Certificates in which plans invest will have been rated in one

of the three highest rating categories by S&P's, Moody's, D&P or Fitch.

Credit support will be obtained to the extent necessary to attain the

desired rating;

(c) All transactions for which the Applicants and their affiliates

seek exemptive relief will be governed by the pooling and servicing

agreement, which is made available to, or described in the prospectus

or private placement memorandum made available to plan fiduciaries for

their review prior to the plan's investment in certificates;

(d) Exemptive relief from sections 406(b) and 407 for sales to

plans is substantially limited; and

(e) Many underwriters have made, and the Applicants anticipate that

such underwriters will continue to make, a secondary market in

certificates sponsored by RFC, RFMSI, RFMEC, GMAC Auto, GMAC, GMAC

Mortgage or GMAC Mortgage Securities.

Discussion of Proposed Exemption

I. Differences Between Proposed Exemption and Class Exemption PTE 83-1

The exemptive relief proposed herein is similar to that provided in

PTE 81-7 (46 FR 7520, January 23, 1981), Class Exemption for Certain

Transactions Involving Mortgage Pool Investment Trusts, amended and

restated as PTE 83-1 (48 FR 895, January 7, 1983).

PTE 83-1 applies to mortgage pool investment trusts consisting of

interest-bearing obligations secured by first or second mortgages or

deeds of trust on single-family residential property. The exemption

provides relief from sections 406(a) and 407 for the sale, exchange or

transfer in the initial issuance of mortgage pool certificates between

the trust sponsor and a plan, when the sponsor, trustee or insurer of

the trust is a party-in-interest with respect to the plan, and the

continued holding of such certificates, provided that the conditions

set forth in the exemption are met. PTE 83-1 also provides exemptive

relief from section 406(b)(1) and (b)(2) of the Act for the above-

described transactions when the sponsor, trustee or insurer of the

trust is a fiduciary with respect to the plan assets invested in such

certificates, provided that additional conditions set forth in the

exemption are met. In particular, section 406(b) relief is conditioned

upon the approval of the transaction by an independent fiduciary.

Moreover, the total value of certificates purchased by a plan must not

exceed 25 percent of the amount of the issue, and at least 50 percent

of the aggregate amount of the issue must be acquired by persons

independent of the trust sponsor, trustee or insurer. Finally, PTE 83-1

provides conditional exemptive relief from section 406(a) and (b) of

the Act for transactions in connection with the servicing and operation

of the mortgage trust.

Under PTE 83-1, exemptive relief for the above transactions is

conditioned upon the sponsor and the trustee of the mortgage trust

maintaining a system for insuring or otherwise protecting the pooled

mortgage loans and the property securing such loans, and for

indemnifying certificateholders against reductions in pass-through

payments due to defaults in loan payments or property damage. This

system must provide such protection and indemnification up to an amount

not less than the greater of one percent of the aggregate principal

balance of all trust mortgages or the principal balance of the largest

mortgage.

The exemptive relief proposed herein differs from that provided by

PTE 83-1 in the following major respects: (1) The proposed exemption

provides individual exemptive relief rather than class relief; (2) The

proposed exemption covers transactions involving trusts containing a

broader range of assets than single-family residential mortgages; (3)

Instead of requiring a system for insuring the pooled receivables, the

proposed exemption conditions relief upon the certificates having

received one of the three highest ratings available from S&P's,

Moody's, D&P or Fitch (insurance or other credit support would be

obtained only to the extent necessary for the certificates to attain

the desired rating); and (4) The proposed exemption provides more

limited section 406(b) and section 407 relief for sales transactions.

II. Ratings of Certificates

After consideration of the representations of the Applicants and

information provided by S&P's, Moody's, D&P and Fitch, the Department

has decided to condition exemptive relief upon the certificates having

attained a rating in one of the three highest generic rating categories

from S&P's, Moody's, D&P or Fitch. The Department believes that the

rating condition will permit the applicant flexibility in structuring

trusts containing a variety of mortgages and other receivables while

ensuring that the interests of plans investing in certificates are

protected. The Department also believes that the ratings are indicative

of the relative safety of investments in trusts containing secured

receivables. The Department is conditioning the proposed exemptive

relief upon each particular type of asset-backed security having been

rated in one of the three highest rating categories for at least one

year and having been sold to investors other than plans for at least

one year.14

---------------------------------------------------------------------------

\1\4In referring to different ``types'' of asset-backed

securities, the Department means certificates representing interests

in trusts containing different ``types'' of receivables, such as

single family residential mortgages, multi-family residential

mortgages, commercial mortgages, home equity loans, auto loan

receivables, installment obligations for consumer durables secured

by purchase money security interests, etc. The Department intends

this condition to require that certificates in which a plan invests

are of the type that have been rated (in one of the three highest

generic rating categories by S&P's, D&P, Fitch or Moody's) and

purchased by investors other than plans for at least one year prior

to the plan's investment pursuant to the proposed exemption. In this

regard, the Department does not intend to require that the

particular assets contained in a trust must have been ``seasoned''

(e.g., originated at least one year prior to the plan's investment

in the trust).

---------------------------------------------------------------------------

III. Limited Section 406(b) and Section 407(a) Relief for Sales

The Applicants represent that in some cases a trust sponsor,

trustee, servicer, insurer, and obligor with respect to receivables

contained in a trust, or an underwriter of certificates may be a pre-

existing party in interest with respect to an investing plan.15 In

these cases, a direct or indirect sale of certificates by that party in

interest to the plan would be a prohibited sale or exchange of property

under section 406(a)(1)(A) of the Act.16 Likewise, issues are

raised under section 406(a)(1)(D) of the Act where a plan fiduciary

causes a plan to purchase certificates where trust funds will be used

to benefit a party in interest.

---------------------------------------------------------------------------

\1\5In this regard, we note that the exemptive relief proposed

herein is limited to certificates with respect to which the

Applicants or any of their affiliates are either (a) the sole

underwriter or manager or co-manager of the underwriting syndicate,

(b) a selling or placement agent, or (c) the sponsor, in which case

an entity which has received from the Department an individual

prohibited transaction exemption relating to certificates which is

similar to this exemption is the sole underwriter or the manager or

co-manager of the underwriting syndicate or a selling or placement

agent.

\1\6The Applicants represent that where a trust sponsor is one

of the Applicants or its affiliate, sales to plans by the sponsor

may be exempt under PTE 75-1, Part II (relating to purchases and

sales of securities by broker-dealers and their affiliates), if none

of the Applicants is a fiduciary with respect to plan assets to be

invested in certificates.

---------------------------------------------------------------------------

Additionally, the Applicants represent that a trust sponsor,

servicer, trustee, insurer, and obligor with respect to receivables

contained in a trust, or an underwriter of certificates representing an

interest in a trust may be a fiduciary with respect to an investing

plan. The Applicants represent that the exercise of fiduciary authority

by any of these parties to cause the plan to invest in certificates

representing an interest in the trust would violate section 406(b)(1),

and in some cases section 406(b)(2), of the Act.

Moreover, the Applicants represent that to the extent there is a

plan asset ``look through'' to the underlying assets of a trust, the

investment in certificates by a plan covering employees of an obligor

under receivables contained in a trust may be prohibited by sections

406(a) and 407(a) of the Act.

After consideration of the issues involved, the Department has

determined to provide the limited sections 406(b) and 407(a) relief as

specified in the proposed exemption.

FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the

Department, telephone (202) 219-8881. (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 accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 3rd day of February, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-2912 Filed 2-8-94; 8:45 am]

BILLING CODE 4510-29-P