Proposed Exemptions; Tenneco, Inc. Health Care Plan

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09878, et al.]

Proposed Exemptions; Tenneco, Inc. Health Care Plan

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

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

date of publication of this Federal Register Notice. Comments and

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

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

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

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

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

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

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

addressed and include a general description of the evidence to be

presented at the hearing.

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

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

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

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

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

Exemption. The applications for exemption and the comments received

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

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

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

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

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

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

Register. Such notice [[Page 27124]] 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.

Tenneco, Inc. Health Care Plan (the Plan) Located in Houston, Texas

[Application No. D-09878]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and in accordance with the

procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,

32847, August 10, 1990). If the exemption is granted, the restrictions

of sections 406(a), 406(b)(1) and (b)(2), and 407(a) of the Act shall

not apply to the proposed contribution to the Plan of common stock (the

Stock) of Tenneco, Inc. (Tenneco) by Tenneco or any of its

subsidiaries, provided the following conditions are satisfied: (a) The

Plan will dispose of the Stock received within 2 business days of

receipt, either by sale on the open market or by sale to Tenneco; (b)

any sale of the Stock from the Plan to Tenneco will comply with

conditions (1) and (2) of section 408(e) of the Act; and (c) Tenneco

will pay any and all transactional costs for any sales by the Plan on

the open market.

Summary of Facts and Representations

1. Tenneco is a Fortune 50 company, the Stock of which is traded on

the New York Stock Exchange (the NYSE). The major businesses of Tenneco

include the transportation and sale of natural gas, the manufacture and

sale of farm and construction equipment, and the manufacture and sale

of automotive exhaust system parts. Tenneco is a Delaware corporation

which has its principal office in Houston, Texas.

2. The Plan is a voluntary employees' beneficiary association as

described in section 501(c)(9) of the Code. The Plan pays for medical

and dental benefits for employees and former employees of Tenneco and

its participating domestic subsidiaries. The Plan has never accumulated

reserves; benefits are paid by Tenneco through the Plan on a pay-as-

you-go basis.

3. In 1992, Tenneco created the Tenneco Inc. Stock Employee

Compensation Trust (the SECT). The SECT is not subject to the Act. The

purpose of the SECT is to hold Stock which may be used to defray

compensation and benefit obligations of Tenneco and its subsidiaries,

including medical and dental benefits. The applicant represents that

shares of Stock available under the SECT exceed the number of shares

that Tenneco had anticipated would be needed for compensation and

benefit purposes. The applicant represents that, for reasons of

Delaware corporate law, the SECT may not sell more than 10% of the

shares of Stock originally held by it. However, this limit applies only

to sales, and there is no limit to the amount of Stock in the SECT

which may be used for compensation and benefit purposes. The applicant

represents that if the Stock is contributed to the Plan which, in turn,

sells the Stock to Tenneco or on the open market, such transactions do

not cause a violation of the 10% limit imposed on the SECT.

4. Tenneco proposes to contribute Stock from the SECT to the Plan.

Upon such contribution, the Plan will immediately sell the Stock on the

open market or to Tenneco. The applicant represents that the Plan will

dispose of the Stock received within 2 business days of receipt. In

fact, it is Tenneco's intention that the Plan will dispose of the Stock

as soon as possible, which the applicant anticipates will generally be

a matter of hours or perhaps overnight after receipt.

5. If the Plan sells the Stock to Tenneco, the applicant represents

that the sale will be at a sale price equal to the price prevailing on

the NYSE at the time of the sale to Tenneco. If the Plan sells the

Stock on the open market, Tenneco will pay any and all transactional

costs associated with such sales. The Plan will use the cash it

receives for the Stock to pay medical and dental benefits under the

Plan. This transaction may be done as often as needed to pay benefits.

The applicant represents that it anticipates using approximately

691,000 shares of Stock for Plan expenses in 1995. It is anticipated

that contributions would be made by the SECT to the Plan either weekly

or bi-weekly, based upon projected expenses. In 1994, the average daily

volume of trading of Tenneco Stock was approximately 540,000 shares per

day. Because the number of shares of Stock involved in the proposed

transaction is small compared to the general trading volume of Tenneco

shares, the applicant represents that it anticipates there should be no

effect on the market price of the Stock as a result of the proposed

transaction.

6. The applicant represents that any sale of Stock by the Plan to

Tenneco will comply with conditions (1) and (2) of Act section 408(e),

because the sale will be for adequate consideration, and no commissions

will be charged in connection with the sale. However, the applicant

represents that the exemption proposed herein is needed for the subject

transaction because the Stock being contributed to the Plan will

constitute more than 10% of the Plan's assets in violation of sections

406(a)(2) and 407(a) of the Act. Tenneco represents that it could

contribute a small amount of cash to the Plan and make a succession of

small contributions of Stock by the SECT immediately followed by sales

thereof in such a manner that the Stock would never represent more than

10% of the assets of the Plan. The applicant believes that this would

be in compliance with Act section 407(a). However, such a procedure

would be burdensome, and it would be advantageous for Tenneco to be

able to make contributions of Stock to the Plan under the safeguards

proposed without regard to the 10% limit of section 407(a) of the Act.

7. In summary, the applicant represents that the proposed exemption

satisfies the criteria contained in section 408(a) of the Act because:

(a) The Plan will dispose of the Stock received within 2 business days

of receipt either by sale on the open market or to Tenneco; (b) any

sale of Stock by the Plan to Tenneco will comply with conditions (1)

and (2) of section 408(e) of the Act; and (c) Tenneco will pay any and

all transactional costs for any sales by the Plan on the open market.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

[[Page 27125]]

Construction Laborers Pension Trust for Southern California (the Trust)

Located in El Monte, California

[Exemption Application No. D-09932]

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 section 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code by

reason of section 4975(c)(1) (A) through (D) of the Code, shall not

apply, effective December 22, 1989, to the leasing (the Lease) of space

in a commercial office building (the Property) owned by 4401 Santa

Anita Corporation (the Corporation), a corporation that is wholly-owned

by the Trust, to American Benefit Plan Administrators, Inc. (ABPA), a

party in interest with respect to the Trust.

This proposed exemption is conditioned on the following

requirements: (1) The terms of all such leasing arrangements have been,

and will remain, at least as favorable to the Trust as those obtainable

in an arm's length transaction with an unrelated party; (2) an

independent, qualified fiduciary determined, at the Lease's inception,

that it was in the best interests of the Trust and its participants and

beneficiaries; (3) An independent, qualified fiduciary has monitored

and will continue to monitor the Lease for the Trust and the terms and

conditions of the exemption; and (4) the rental charged by, and paid

to, the Corporation under the Lease has been, and will continue to be,

the fair market rental value of the premises as determined by an

independent, qualified appraiser.

EFFECTIVE DATE: If granted, this proposed exemption will be effective

December 22, 1989.

Summary of Facts and Representations

1. The Trust is a multiemployer plan that covers employees of

construction contractors in Southern California. Such contractors

include developers, builders, construction managers and owner-builders.

The Trust is jointly-administered by sixteen trustees (the Trustees),

eight of whom are appointed by multiemployer trade associations

representing employers contributing to the Trust and eight of whom are

designated by the Southern California District Council of Laborers (the

Union). Since 1989, various investment managers have had investment

discretion over the assets of the Trust.

2. As of December 31, 1990, the Trust had approximately 20,000

participants and total assets of $671,079,119. The Trust is one of four

affiliated Laborer Trusts for Southern California (the Laborer Trusts).

The other affiliated Laborer Trusts include the Laborer's Health and

Welfare Trust for Southern California, the Construction Laborer's

Vacation Trust for Southern California (the Vacation Trust), and the

Laborer's Training and Retraining Trust for Southern California.

3. In an effort to relocate the Trusts' operations, Mitchell

Hutchins Institutional Investors, Inc. (MHII), as investment manager,

executed a purchase and sale agreement, on behalf of the Trust, with an

unrelated party to acquire the Property in 1989.1 The Trust's

purchase of the Property coincided with the expiration of several

leases of potential tenants, including various parties-in-interest.

These potential tenants/parties-in-interest consisted of ABPA, which

serves as the Trust's plan administrator, the Collection Office of the

Laborers' Trust Funds for Southern California (the Collection Office)

and the Union.2 Prospective additional tenants included the Joint

Apprenticeship Committee of the Laborers Training and Retraining Trust

for Southern California (the Apprenticeship Committee), an operation

newly-created through collective bargaining in 1988 and set to begin

operations in 1989, and the Center for Contract Compliance (the

Center), a jointly-trusteed, labor-management cooperation committee

established through collective bargaining in 1988 for the purpose of

monitoring employer compliance with the prevailing wage laws for public

works in Southern California. The Trustees overlap to some extent with

the trustees of the other trusts.

\1\ The Department expresses no opinion in this proposed

exemption as to whether plan fiduciaries violated any of the

fiduciary responsibility provisions of Part 4 of Title I of the Act

in acquiring and holding the Property.

\2\ The Collection Office is a combined delinquency collection

operation of the Laborer Trusts. Even though the Collection Office

is operated under the auspices of the Vacation Trust, it is, in all

respects, a shared administrative operation with the Laborer Trusts

participating in its costs and management on a pro-rata basis.

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4. The Property, located within the Airport Business Park at 4399

and 4401 Santa Anita Avenue in El Monte, California, consists of two

identical, 32,196 square foot, wood and steel frame office buildings

and the underlying land. John J. Archer, ASA, a independent real estate

appraiser located in Pasadena, California, appraised the Property prior

to its purchase (the Appraisal). Mr. Archer has been involved in

appraising all types of residential, commercial and industrial

properties since 1953. Mr. Archer also placed the fair market value of

the Property, as of February 9, 1989, at $6,800,000. In determining the

fair market value of the Property, Mr. Archer gave considerable weight

to the income approach of valuation due to the fact that the Property

is income producing real estate. Mr. Archer also placed the fair market

rental value of the Property for a net lease at $1.15 per square foot

per month. At the time of the Appraisal, the Property did not have

finished interior rental space.

5. Upon its acquisition, the Property became an asset of the

Corporation, which is wholly-owned by the Trust. Due to the unfinished

interior of the rental space, the officers of the Corporation, each of

whom has extensive experience in the construction industry, interviewed

potential construction managers and retained Gibeon, Inc., an unrelated

party, to oversee and assist the Corporation in the build-out of the

Property.

6. In early 1989, John S. Miller, Jr., Eva Marie Herhusky and John

Berry (the Negotiators), all of Los Angeles, California, represented

the Corporation in a series of negotiations with ABPA concerning the

Lease. ABPA's space needs were primarily related to its servicing of

the administrative needs of the Trust. However, its personnel also

administer certain other client trusts in the Los Angeles area and its

computer facility services all of its clientele nationwide.

7. Prior to the Lease negotiations, ABPA had been actively

soliciting new space for its operations and had settled upon space in

the Equitable Plaza (Equitable Plaza) on mid-Wilshire in Los Angeles.

ABPA's professional leasing agent had negotiated the terms and

conditions of a ten-year gross lease on an arm's length basis with the

owner of Equitable Plaza to the point that a letter of intent was ready

for execution. Such terms and conditions included the rental of

approximately 41,000 to 42,000 square feet at a rate of $21.60 per

square foot per annum for the first five years (or $1.80 per square

foot per month) and $24.00 per square foot per annum for the final five

years (or $2.00 per square foot per month) with tenant improvements

provided by the landlord at $35.00 per square foot. Additionally, the

landlord offered to provide twenty-four months free rent from the

commencement of the lease. This proposed lease required ABPA to share

[[Page 27126]] in any increases in the actual operating costs of the

building on a pro-rata basis.

8. In the Lease negotiations, ABPA, on one hand, was attempting at

a minimum to match the lease terms it had negotiated with Equitable

Plaza. ABPA contended that it should receive better terms from the

Corporation because the Equitable Plaza, a 35-story Los Angeles high

rise, was a higher quality, more valuable leasehold for ABPA than a

leasehold in the Airport Business Park, a low-rise facility in a

residential suburb outside Los Angeles. The Negotiators, on the other

hand, were attempting to obtain a lease that was at ``market rates''

for the area in which the Airport Business Park is located.

9. In negotiating the terms of the Lease, the Negotiators relied on

the Appraisal and two reports prepared by Mr. Archer which discussed

the general concessions and improvements which landlords would

typically offer to prospective tenants in order to secure a lease. Such

reports included detailed discussions of the common practice of

offering free rent for a period of time, the payment of utilities,

tenant improvement allowances and probable normal expenses. By letter

dated April 12, 1989, Mr. Archer opines that a typical owner of a new

office building which was of good quality would expend $20 to $22 per

square foot to finish out the building for tenant occupancy depending

generally on the size of the area finished at one time. The applicants

represent that this $20 to $22 per square foot cost estimate represents

the expenditure that landlords would typically invest out of their own

pockets without increasing their normal ``market rate of rent'' to a

given tenant. The applicants further represent that once this number is

exceeded, the landlord is likely to increase the normal rate of rent in

order to recoup the higher costs of preparing the space.

By letter dated September 14, 1989, Mr. Archer estimates that the

total operating and fixed expenses per annum would be $401,400 or $6.51

per square foot per annum (or 54.3 cents per square foot per month).

Mr. Archer prepared such estimate based upon data for suburban office

buildings from 50,000 to 100,000 square feet from the 1989 Building

Office Management Association (BOMA) Experience Exchange Report, a

compilation of office building data and surveys done for BOMA's

members.

10. The Negotiators represent that, during the Lease negotiations,

they used the tenant improvement allowance estimate of $20 to $22 per

square foot as a bench mark to determine whether the rate of rent

negotiated was at least equal to the market rate of rent for similar

buildings in similar areas. In addition, ABPA was negotiating for a

full service, gross lease, a lease in which all operating and fixed

expenses are paid by the landlord and passed through to the tenants in

the form of a higher rate of rent per square foot. In order to ensure

that the increased cost to the Corporation had been passed on to ABPA

through an appropriately higher rate of rent, the Negotiators used the

$6.51 per square foot per annum estimate as a basis to calculate the

annual cost of the total operating and fixed expenses for which the

Corporation would be assuming responsibility. The applicant represents

that eventually the Lease terms and conditions were finalized at market

levels.3

\3\ The Department notes that no relief is proposed herein for

the provision of services by ABPA to the Trust. The provision of

services would be exempt from the prohibitions of section 406(a)

provided the conditions of section 408(b)(2) are met. In this

regard, the Department notes that the Trust renegotiated its

administrative services contract with ABPA at approximately the same

time as the negotiation of the Lease. The Department further wishes

to point out that the proposal limits relief to the Lease

transaction. Thus, no relief is proposed for any transaction that is

part of a broader agreement, arrangement or understanding involving

the Lease in which a fiduciary caused plan assets to be used in a

manner designed to benefit a party in interest.

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Once this was accomplished, similar lease proposals were made to

the Collection Office, the District Council, the Apprenticeship

Committee and the Center.4

\4\ The applicant represents that Prohibited Transaction

Exemption (PTE) 76-1 and PTE 77-10 provide relief from 406 (a) and

(b)(2) for leasing of office space from multiemployer plans to a

participating employee organization, a participating employer or

employer association, or another multiemployer plan with common

trustees. The Department expresses no opinion in this proposed

exemption on whether the leasing of such office space satisfies the

terms and conditions of such exemptions.

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11. The primary provisions of the Lease include the rental of

approximately 43,246 square feet at a rate of $2.045 per square foot

per month for a term of ten years (or $24.54 per square foot per

annum). As a full service gross lease, the landlord remains responsible

for all fixed and operating expenses. However, the terms of Lease

provide that ABPA is required to share in any increases in the actual

operating costs of the Property on a pro-rata basis. In addition, the

Lease provides that if the Trust and ABPA cancel their administrative

contract at the end of the fifth year of the Lease or thereafter,

either party has the right to terminate the Lease with six months

written notice. Upon such termination, ABPA is to reimburse the

Corporation for the unamortized value of ABPA's special improvements

but such amount is not to exceed the lesser of $500,000 or one-half of

the unamortized value of ABPA specific improvements.

The Lease does not provide for a tenant improvement allowance;

however, the Corporation is required to construct all tenant

improvements, including the tenant-specific improvements. The cost of

such improvements is included in the Lease payments at a capitalization

rate of 9.5 percent over the term of the Lease or 23.5 cents per square

foot per month (or $2.82 per square foot per annum).

12. Prior to 1988 and through May 1990, MHII served as the

independent, qualified fiduciary for the Trust with respect to the

Lease (MHII's Fiduciary Period). By letter dated December 30, 1993, C.

Gary Morris, Vice President of MHII, represents that MHII was an

investment manager with the meaning of Section 3(38) of the Act. Mr.

Morris represents that both he and MHII were unrelated to, and

independent of, ABPA during MHII's Fiduciary Period. Mr. Morris states

that MHII understood and acknowledged its duties, responsibilities, and

liabilities in acting as a fiduciary with respect to the Trust.

Mr. Morris represents that MHII was familiar with the terms of the

Lease and all of the documents and relevant information in connection

with the Lease, including the Appraisal. Mr. Morris states that the

terms of the Lease compared favorably with the terms of similar

transactions between unrelated parties and was an arm's length

transaction as evidenced by the Appraisal.

MHII reviewed the investment portfolio of the Trust as well as its

diversification and liquidity needs. Based on this analysis, Mr. Morris

represents that MHII believed that the Lease was in the best interests

of the Trust and its participants and beneficiaries. Mr. Morris states

MHII considered the Lease as an appropriate and desirable investment

for the Trust, based on the Lease's rate of return, the stability of

the tenant, the character and diversification of the Trust's other

assets, and the projected liquidity needs of the Trust.

MHII was responsible for monitoring the Lease throughout MHII's

Fiduciary Period and was willing to take any appropriate action

necessary to protect the interests of the Trust and its participants

and beneficiaries.

From July 1990 to July 1991, Am Cal served as the independent,

qualified fiduciary for the Trust with respect to the Lease (Am Cal's

Fiduciary Period). By letter dated April 1, 1993, James Mc

[[Page 27127]] Kenna, Executive Vice President of American Realty

Advisors, represents that prior to 1992, that he was the president and

a director of Am Cal, an independent real estate investment advisory

service. Mr. Mc Kenna further represents that Am Cal was an investment

manager with the meaning of Section 3(38) of the Act. Mr. Mc Kenna

represents that both he and Am Cal were unrelated to, and independent

of, ABPA during Am Cal's Fiduciary Period. Mr. Mc Kenna states that Am

Cal understood and acknowledged its duties, responsibilities and

liabilities in acting as a fiduciary with respect to the Trust.

Mr. Mc Kenna represents that once Am Cal became the investment

manager for the Trust, it reviewed all the assets and investments of

the Trust which included the Lease. Am Cal engaged Crane Realty

Services (Crane), local commercial property manager, who further

reviewed the terms of the Lease and other leases on the Property. Crane

advised Mr. Mc Kenna that all of the leases of the Property, including

the Lease, were ``at market.'' Additionally, Am Cal discussed the

Property, the Lease and the other leases with the Negotiators to

ascertain how the Property had been acquired and built out and how the

Lease terms and conditions had been negotiated. In addition, Am Cal

reviewed the Appraisal and the two reports prepared by Mr. Archer.

After obtaining the above information, Mr. Mc Kenna represents that

Am Cal reviewed the terms of the Lease and all of the documents and

relevant information in connection with the Lease. Mr. Mc Kenna states

that the terms of the Lease compared favorably with the terms of

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

length transaction as evidenced by the information provided by Crane,

the Negotiators, Am Cal's knowledge of commercial leasing conditions in

Los Angeles County, the Appraisal and the two reports prepared by Mr.

Archer.

Am Cal reviewed the investment portfolio of the Trust and

considered the diversification of the Trust's assets as well as the

liquidity needs of the Trust. Based on this analysis, Mr. Mc Kenna

represents that Am Cal determined that the Lease was in the best

interests of the Trust and its participants and beneficiaries. Mr. Mc

Kenna states that Am Cal considered the Lease an appropriate and

desirable investment for the Trust, based on the Lease's rate of

return, the stability of the tenant, the character and diversification

of the Trust's other assets, and the projected liquidity needs of the

Trust. Mr. Mc Kenna represents that Am Cal, with the aide of Crane,

monitored the Lease throughout Am Cal's Fiduciary Period.

During Am Cal's Fiduciary Period, Mr. Archer, by letter dated

October 15, 1991, reviewed the Lease and the draft report on the

factors considered in the Lease negotiations for Am Cal. Taking into

consideration not only the rental, but other terms of the Lease which

would typically be found in a lease entered into by unrelated parties

in arm's length negotiations, Mr. Archer opined that the Lease was at

fair market rent as of December of 1989, the commencement of the Lease.

Mr. Archer stated that although he did not directly participate in the

negotiation of the Lease or any of its particular terms, he did provide

advice to Mr. Berry and Mr. Miller concerning the calculation of rent

under a gross rental lease and on customary provisions and practices in

office space leases.

Since July 1991, TDA, Inc. (TDA) has served as the independent,

qualified fiduciary for the Trust with respect to the Lease. By letter

dated November 11, 1992, Wayne Turner, a principal in TDA, represents

that TDA is an investment manager with the meaning of Section 3(38) of

the Act. Mr. Turner represents that both he and TDA are unrelated to,

and independent of, ABPA. Mr. Turner states that TDA understands and

acknowledges its duties, responsibilities and liabilities in acting as

a fiduciary with respect to the Trust.

Mr. Turner represents that TDA has reviewed the terms of the Lease

and all of the documents and relevant information in connection with

the Lease. Mr. Turner states that the terms of the Lease compare

favorably with the terms of similar transactions between unrelated

parties and is an arm's length transaction as evidenced by the

negotiations.

TDA has reviewed the current investment portfolio of the Trust as

well as its diversification and liquidity needs. Based on this

analysis, Mr. Turner represents that TDA believes that the Lease is in

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

Mr. Turner states that TDA considers the Lease to be an appropriate and

desirable investment for the Trust.

Mr. Turner represents that TDA has monitored and will continue to

monitor the Lease throughout its entire duration and will take any

appropriate action necessary to protect the interests of the Trust and

its participants and beneficiaries.

13. In summary, it is represented that the Lease transaction

satisfies the statutory criteria for an exemption under section 408(a)

of the Act because: (a) The terms of the Lease have been, and will

remain, at least as favorable to the Trust as those obtainable in an

arm's length transaction with an unrelated party; (b) MHII, as

independent, qualified fiduciary believed, prior to its commencement,

that the Lease was in the best interests of the Trust and its

participants and beneficiaries; (c) MHII, Am Cal, and TDA as

independent, qualified fiduciaries have monitored and TDA will monitor

the Lease on behalf of the Trust as well as the terms and the

conditions of the exemption at all times; and (d) the rental charge by

the Corporation under the Lease has and continues to be based upon the

fair market rental value of the premises as determined by an

independent, qualified appraiser.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

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

United Food and Commercial Workers Union Local 789 and St. Paul Food

Employers Health Care Plan (the Plan) Located in Bloomington, Minnesota

[Application No. L-09933]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and in accordance with the

procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,

32847, August 10, 1990). If the exemption is granted, the restrictions

of section 406(a) of the Act shall not apply to the proposed purchase

of prescription drugs, at discount prices, by Plan participants and

beneficiaries, from Supervalu Pharmacies, Inc. (SPI) and Cub Foods

(Cub), parties in interest with respect to the Plan, provided the

following conditions are satisfied: (a) The terms of the transaction

are at least as favorable to the Plan as those the Plan could obtain in

a similar transaction with an unrelated party; (b) any decision by the

Plan to enter into agreements governing the subject purchases will be

made by Plan fiduciaries independent of SPI and Cub; and (c) at least

50% of the preferred providers participating in the Preferred Pharmacy

Network (PPN) which will be selling prescription drugs to the Plan's

participants and beneficiaries will be unrelated to SPI and Cub.

Summary of Facts and Representations

1. The Plan is a multiemployer welfare benefit plan which has been

in existence since 1966. The Plan was [[Page 27128]] established to

provide health and welfare benefits including life, sickness, accident

and other benefits for participants and their beneficiaries. The Plan

is directed by a joint board of trustees composed of five individuals

selected to represent the United Food and Commercial Workers Union

Local 789 (the Union) and five individuals selected to represent the

retail food employers. The Plan currently has approximately 3,135

participants and beneficiaries, and $2,209,380 in total assets.

2. SPI is a wholly owned subsidiary of Supervalu, Inc. (Supervalu),

a large retail grocer in Minnesota. Cub, another wholly owned

subsidiary of Supervalu, is also a large retail grocer with stores

located primarily throughout the Twin City Metropolitan Area. SPI's are

located in Cub stores. The applicant represents that Supervalu and Cub

are both parties in interest to the Plan because they make

contributions to the Plan on behalf of their employees that are

participants in the Plan.

3. Under the Plan, participants have two alternative ways to

receive the prescription drug benefit. One, a participant may have a

prescription filled at an out-of-network pharmacy, pay the pharmacy's

charge for the prescription at the time of dispensing, and submit a

reimbursement claim to the Plan Administrator. The Plan would then

reimburse the participant in full for the pharmacy's charge for the

prescription, less the $5.00 participant co-payment. Two, a participant

may have a prescription filled at a pharmacy within a preferred

network, and pay only the $5.00 co-payment. The pharmacy then submits

the claim for the remaining agreed-upon cost for the prescription

directly to the Plan Administrator.

4. Effective January 1, 1994, the trustees of the Plan implemented

the Plan's first prescription drug PPN in order to manage prescription

drug price and utilization, manage related costs, provide ready

participant access to courteous and reliable pharmacy services and

professional advice, and to minimize or eliminate eligibility policing

problems. The first Preferred Provider Agreement (the Agreement), the

result of arm's-length negotiations, is between the Plan and Snyder

Drug Stores, Inc. (Snyder). Snyder is not a party in interest with

respect to the Plan.

5. Under the Agreement, Snyder agrees to provide prescription drugs

to the Plan participants and their beneficiaries consistent with the

Plan document and the Agreement at a specified reduced cost in exchange

for the potential to realize an expanded customer base due to its

status as a preferred pharmacy with respect to the Plan. The material

elements of the Agreement are as follows:

(1) Snyder agrees to dispense covered prescription drugs, using

generic drugs when available, within prescribed dosage units for one

dispensing fee;

(2) The agreed upon dispensing fee is:

(a) The lesser of:

(i) The Usual and Customary charge for such prescription drug, or

(ii) The sum of the Drug Acquisition Cost plus the Professional

Dispensing Fee.

The Drug Acquisition Cost for each prescription drug provided by

the Pharmacy to an Eligible Person shall be defined to be the lesser of

the following amounts:

(a) 90% of the AWP (average wholesale price) for such prescription

drug; or

(b) The lowest stated maximum allowable cost (MAC) for such

prescription drug on the most recently published pharmaceutical

industry maximum allowable cost list, however, in no event will the MAC

price exceed the Federal Upper Limits (as published by the Federal

Government under the Federal Medical Entitlement Program).

The Professional Dispensing Fee shall equal $2.45 for each

dispensing of a prescription drug in accordance with the Plan and the

Agreement.

(3) Neither the Plan nor the participant is liable for the cost of

any prescription drug dispensed contrary to the Agreement;

(4) Snyder will provide eligibility identification cards, maintain

a current computerized eligibility list, and verify eligibility prior

to dispensation;

(5) The Plan receives 67\1/2\ percent of formulary rebates received

by Snyder based on the dispensing of each manufacturer's formulary

drugs under the Plan and the Agreement. The Plan also receives

quarterly formulary reports of formulary drugs dispensed and rebates

received;

(6) The Plan has the right to inspect Snyder's records to audit

claims and formulary rebates;

(7) Snyder must provide monthly prescription drug utilization

reports; and

(8) The Plan has the right to terminate the Agreement upon a

maximum of 60 days written notice.

6. The Plan's trustees have also negotiated an identical Agreement

with SPI, thereby significantly expanding the PPN by including the

pharmacies located in Cub stores. The terms of the SPI Agreement are

identical to those of the Snyder Agreement. The applicant represents

that the fees are determined by a combination of amounts objectively

established by reference to industry resources and beyond the control

or manipulation of SPI.

7. The applicant represents that the Plan wishes to enter the

Agreement with SPI to maximize the benefits that can be provided to

participants and their beneficiaries. Reducing the cost paid by the

Plan for prescription drugs will enable the Plan to maintain its

current level of benefits to the participants and their beneficiaries.

Expanding the PPN to include SPI, thereby increasing the utilization of

the PPN, will enable the Plan to obtain additional discounts on

prescriptions currently dispensed out-of-network. The Plan will be able

to receive even greater savings due to the negotiated fees rather than

the usual and customary billing of out-of-network pharmacies. The

applicant represents that it is projected that the Plan will realize an

additional 14% reduction of its prescription drug expenses over last

year by the addition of SPI to the PPN. The requested exemption is also

in the interest of the Plan because preferred pharmacies will be more

conveniently located as a result of the expanded PPN.

8. The applicant represents that the PPN will be at least 50%

composed of preferred providers that are not affiliated with Supervalu

or Cub. In addition, the applicant represents that one of the current

trustees of the Plan, Mr. Markwell, is an employee of Cub. The

applicant further represents that to address the potential conflict of

interest, Mr. Markwell has in the past and will continue in the future,

to recuse himself from all discussions and/or votes that relate to the

operation or maintenance of the PPN. Thus, all Plan decisions with

respect to the PPN, including any decision to enter into the Agreement

with SPI, will be made by Plan fiduciaries unrelated to Supervalu or

Cub.

9. In summary, the applicant represents that the proposed

transaction satisfies the criteria contained in section 408(a) of the

Act for the following reasons: (a) The terms of the transaction are at

least as favorable to the Plan as those the Plan could obtain in an

arm's-length transaction with an unrelated party; (b) any decision made

by the Plan with respect to the Agreement with SPI will be made by Plan

fiduciaries independent of SPI and Cub; and (c) at least 50% of the

preferred providers participating in the PPN which will be selling

prescription drugs to the Plan's participants and beneficiaries will be

unrelated to SPI and Cub.

[[Page 27129]] FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of

the Department, telephone (202) 219-8881. (This is not a toll-free

number.)

The General Motors Hourly-Rate Employees' Pension Plan (the GM Hourly

Plan); The General Motors Retirement Program for Salaried Employees

(the GM Salaried Plan); The Saturn Individual Retirement Plan for

Represented Team Members (the SIRP); The Saturn Personal Choices

Retirement Plan for Non-Represented Team Members (the SPCRP;) and The

Employees' Retirement Plan for GMAC Corporation (the GMAC Plan; all

Five Plans Collectively, the GM Plans); The AT&T Pension Plan; and the

AT&T Management Pension Plan (the AT&T Management Plan; Together, the

AT&T Plans; all Seven Plans Collectively, the Plans) Located in

Detroit, Michigan (the GM Plans), and in New York, New York (the AT&T

Plans)

[Application Nos. D-09964 through D-09968]

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 section 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1)(A) through (D) of the Code, shall not

apply to (1) the proposed granting to The Industrial Bank of Japan,

Limited, New York Branch (IBJ), as the representative of lenders (the

Lenders) participating in a credit facility (the Facility), of security

interests in limited partnership interests in The Morgan Stanley Real

Estate Fund II, L.P. (the Partnership) owned by the Plans with respect

to which some of the Lenders are parties in interest; and (2) the

proposed agreements by the Plans to honor capital calls made by IBJ in

lieu of the Partnership's general partner; provided that (a) the

proposed grants and agreements are on terms no less favorable to the

Plans than those which the Plans could obtain in arm's-length

transactions with unrelated parties; and (b) the decisions on behalf of

each Plan to invest in the Partnership and to execute such grants and

agreements in favor of IBJ are made by a fiduciary which is not

included among, and is independent of, the Lenders and IBJ.

Summary of Facts and Representations

1. The Partnership is a Delaware limited partnership the general

partner of which is MSREF II, L.P. (the General Partner), a Delaware

limited partnership the general partner of which is MSREF II, Inc., a

wholly owned subsidiary of Morgan Stanley Group, Inc. or one or more of

its affiliates. The Partnership is organized under an agreement (the

Agreement) dated December 29, 1994. The Partnership has a term expiring

on December 31, 2004, subject to extension by the General Partner for

up to three successive one-year terms. The Partnership has been

organized to make investments, including leveraged equity investments,

in undervalued or inappropriately capitalized real estate assets and

portfolios, and corporate real estate. Proceeds from the sale or

refinancing of properties generally will not be reinvested, but will be

distributed to the limited partners, so that the Partnership will be

self-liquidating.

2. After execution of the Agreement, the General Partner sought

capital commitments through private placement and has obtained, as a

result, irrevocable, unconditional capital commitments in excess of

$350,000,000 from 18 purchasers of limited partnership units (the

Limited Partners). The Agreement requires Limited Partners to make

capital contributions upon receipt of notice from the General Partner.

Under the Agreement, the General Partner may make a call for cash

contributions, also known as a ``drawdown'', up to the total amount of

the Limited Partner's capital commitment upon 15 days notice, with some

limitations. The Partners' capital commitments are structured as

irrevocable, unconditional and binding commitments to contribute equity

when capital calls are made by the General Partner. The obligation of

each Limited Partner to contribute the full amount of its capital

commitment is secured by a security interest granted to the Partnership

in the Limited Partner's partnership interest.

3. In the ordinary course of its business operations, it is

contemplated that the Partnership will incur indebtedness in connection

with many of its investments. This on-going need for credit will be

provided by the Facility, a three-year arrangement for $300 million in

revolving credit which will enable the Partnership to consummate

investments quickly without the delay of separate arrangements for

interim or permanent financing for each investment. The Facility is

funded by the Lenders, represented by IBJ, which is also a

participating Lender. IBJ serves as administrative agent for the

Facility. The Facility is a non-recourse obligation of the Partnership

which matures November 18, 1998 and which is secured by a security

interest in the Limited Partners' capital commitments, the General

Partner's right to make drawdowns and the Partnership's lien and

security interest in each Limited Partner's partnership interest. As

additional security, the Facility will require each Limited Partner to

execute an agreement (the Security Agreement) granting to IBJ, for the

benefit of each Lender, a security interest and lien in the Limited

Partner's partnership interest, and covenanting with IBJ, for the

benefit of the Lenders, that such Limited Partner will unconditionally

honor any drawdown made by IBJ in accordance with the Agreement in lieu

of the General Partner to the full extent of the Limited Partner's

unfunded capital commitment.

4. The trusts which hold assets of the Plans (the Trusts) own

limited partnership interests as Limited Partners in the Partnership.

Some of the Lenders may be parties in interest with respect to some of

the Plans in the Trusts by virtue of such Lenders' (or their

affiliates') provisions of fiduciary services to such Plans with

respect to Trust assets other than the Partnership interests. IBJ is

requesting an exemption to permit the Trusts to enter into the Security

Agreements under the terms and conditions described herein. The Plans

and the other Limited Partners with the largest interests in the

Partnership and the extent of their respective capital commitments to

the Partnership are described as follows:

(a) The GM Hourly Plan, a defined benefit plan with 599,262

participants as of September 30, 1993, and assets with a total value of

approximately 21.6 billion dollars on that date. Assets of the GM

Hourly Plan are held in the Third Plaza Trust (the TP Trust), of which

Mellon Bank, N.A. is the trustee. Assets of the SIRP (a defined benefit

plan with 7,178 participants as of September 30, 1993), the SPCRP (a

defined benefit plan with 1,435 participants as of September 30, 1993),

and the GMAC Plan (a defined benefit plan with 2,761 participants as of

June 21, 1994), are also held in the TP Trust. The TP Trust has

undertaken a total capital commitment of $75,000,000 to the

Partnership.

(b) The GM Salaried Plan, a defined benefit pension plan with

223,262 participants as of September 30, 1993, and assets with a total

value of approximately 20.8 billion dollars as of [[Page 27130]] that

date. Assets of the GM Salaried Plan are held in the Fourth Plaza Trust

(the FP Trust), of which Mellon Bank, N.A. is the trustee. The FP Trust

has undertaken a total capital commitment of $75,000,000 to the

Partnership. The fiduciary responsible for authorizing and overseeing

the GM Plans' investment in the Partnership and, subsequently, for

monitoring such investment, is the General Motors Investment Management

Corporation.

(c) The AT&T Pension Plan, a defined benefit pension plan with

261,788 participants as of December 31, 1993, and with assets of

approximately 18.21 billion dollars as of that date, and the AT&T

Management Plan, with 180,452 participants as of December 31, 1993 and

with assets of approximately 20.03 billion dollars as of that date.

Assets of the AT&T Plans are held in the AT&T Master Pension Trust (the

AT&T Trust), of which State Street Bank and Trust Company is the

trustee. The AT&T Trust has undertaken a total capital commitment of

$150,000,000 to the Partnership. The fiduciary responsible for

reviewing and authorizing the investment in the Partnership by the AT&T

Plans is David Feldman, Corporate Vice President, American Telephone &

Telegraph Company Investment Management Organization.

(d) Limited Partners which are not ERISA-covered plans include:

(i) Wells Fargo & Company, which has undertaken a total capital

commitment of $15,000,000.

(ii) Allstate Insurance Company, which has undertaken a total

capital commitment of $40,000,000.

(iii) Morstar Realty, N.V., which has undertaken a total capital

commitment of $15,000,000.

5. IBJ represents that the Partnership has obtained an opinion of

counsel that the Partnership will constitute an ``operating company''

under the Department's plan asset regulations [29 CFR 2510.3-101(c)] if

the Partnership is operated in accordance with the Agreement and the

offering memorandum (the Offering) distributed in connection with the

private placement of the limited partnership interests.5

\5\ The Department expresses no opinion herein as to whether the

Partnership will constitute an operating company under the

regulations at 29 CFR 2510.3-101.

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6. IBJ represents that the Security Agreement constitutes a form of

credit security which is customary among financing arrangements for

real estate limited partnerships, wherein the financing institutions do

not obtain security interests in the real property assets of the

partnership. IBJ also represents that the obligatory execution of the

Security Agreement by the Limited Partners for the benefit of the

Lenders was fully disclosed in the Offering as a requisite condition of

investment in the Partnership during the private placement of the

limited partnership interests. IBJ represents that the only direct

relationship between any of the Limited Partners and any of the Lenders

is the execution of the Security Agreements. All other aspects of the

transaction, including the negotiation of all terms of the Facility,

are exclusively between the Lenders and the Partnership. IBJ represents

that the proposed executions of the Security Agreements will not affect

the abilities of the Trusts to withdraw from investment and

participation in the Partnership. The only Plan assets to be affected

by the proposed transaction are each Plan's limited partnership

interests in the Partnership and the related Plan obligations as

Limited Partners to respond to drawdowns up to the total amount of each

Plan's capital commitment to the Partnership.

7. IBJ represents that neither it nor any Lender acts or has acted

in any fiduciary capacity with respect to any Trust's investment in the

Partnership and that IBJ is independent of and unrelated to those

fiduciaries (the Trust Fiduciaries) responsible for authorizing and

overseeing the Trusts' investments in the Partnership. Each Trust

Fiduciary represents independently that its authorization of Trust

investment in the Partnership was free of any influence, authority or

control by the Lenders. The Trust Fiduciaries represent that the

Trust's investments in and capital commitments to the Partnership were

made with the knowledge that each Limited Partner would be required

subsequently to grant a security interest in the Partnership to the

Lenders and to honor drawdowns made on behalf of the Lenders without

recourse to any defenses against the General Partner. Each Trust

Fiduciary individually represents that it is independent of and

unrelated to IBJ and the Lenders and that the investment by the Trust

for which that Trust Fiduciary is responsible continues to constitute a

favorable investment for the Plans participating in that Trust and that

the execution of the Security Agreement is in the best interests and

protective of the participants and beneficiaries of such Plans.

8. In summary, the applicants represent that the proposed

transactions satisfy the criteria of section 408(a) of the Act for the

following reasons: (1) The Plans' investments in the Partnership were

authorized and are overseen by the Trust Fiduciaries, which are

independent of the Lenders; (2) None of the Lenders have any influence,

authority or control with respect to the Plans' investments in the

Partnership or the Plans' executions of the Security Agreements; and

(3) The Trust Fiduciaries invested in the Partnership on behalf of the

Plans with the knowledge that the Security Agreements are required of

all Limited Partners investing in the Partnership.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

Eaton Corporation Share Purchase and Investment Plan (the Plan) Located

in Cleveland, Ohio

[Application No. D-09978]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

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

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

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

the Code, shall not apply to: (1) The proposed extension of credit by

Eaton Corporation (Eaton) to the Plan in the form of loans (the Loans)

with respect to certain guaranteed investment contracts (collectively,

the GICs); and (2) the repayment (the Repayments) by the Plan of all or

a portion of amounts advanced to the Plan by Eaton on the terms

described in the agreement governing such Loans, provided: (a) All

terms of such transactions are no less favorable to the Plan than those

which the Plan could obtain in arm's-length transactions with unrelated

parties; (b) no interest or other expenses will be incurred by the Plan

in connection with the Loans; (c) the Loans would be made only when,

and to the extent needed, to avoid penalties that would otherwise be

incurred if the liquidation of one or more of the GICs is required, as

determined by the Corporate Compensation Committee (the Plan

Committee); (d) Repayments will be made only from payments made to the

Plan as the GICs mature (the GIC Proceeds); (e) the Repayments will not

exceed the total amount of the Loans; and (f) the Repayments will be

waived to the extent that the Loans exceed the GIC Proceeds.

[[Page 27131]] EFFECTIVE DATE: If this proposed exemption is granted,

it will be effective July 5, 1995.

Summary of Facts and Representations

1. Eaton, an Ohio corporation headquartered in Cleveland, is the

Plan sponsor. The Plan is a defined contribution plan that had

approximately 23,500 participants and assets of $731,839,175 as of

December 30, 1993. The participants of the Plan are employees of Eaton

or its subsidiaries. Contributions to the Plan are made by Eaton and by

participants. Participant contributions are made pursuant to before-tax

salary reduction agreements and/or after-tax payroll deduction

agreements. Effective July 5, 1989, the portion of the Plan that is

attributable to Eaton contributions is designed to be invested

primarily in Eaton securities and constitutes an employee stock

ownership plan (ESOP) within the meaning of Act section 407(d)(6). The

Plan Committee is responsible for the general administration of the

Plan, and the Plan's Investment Committee (the Investment Committee)

has the exclusive authority to select the Plan's investment options and

the underlying investment vehicles.

2. The Plan allows individual investment direction for that portion

of participants' accounts which derives from participant contributions.

Participants may direct the investment of that portion of their

accounts into one or more of several investment funds maintained by the

Plan. Currently, the funds available include the Fixed Income Fund, the

Aggressive Growth Fund, the Balanced Fund, the Equity Fund, the

International Fund, the Stock Index Fund and the Eaton Common Shares

Fund (which invests primarily in Eaton securities). Participants may

transfer their account balances among the investment funds once every

30 days. The Fixed Income Fund has its assets invested primarily in

guaranteed investment contracts with insurance companies. The remainder

of the Fixed Income Fund's assets are invested in government securities

and corporate debt instruments. As of December 30, 1993, the Fixed

Income Fund had assets of $127,881,436 and comprised 17.47% of the

total assets of the Plan. Key Trust Company of Ohio, N.A. (Key Trust)

currently serves as the trustee holding all assets of the Plan. Key

Trust has been appointed by the Investment Committee as the Investment

Manager of the Fixed Income Fund and the Stock Index Fund.

3. Among the guaranteed investment contracts currently held by the

Fixed Income Fund are the GICs, which can be described as follows:

(a) Effective January 20, 1994, the Plan purchased Guaranteed

Investment Contract No. GA 322 GIC (GIC-1) from Life Insurance Company

of Georgia. The Plan purchased GIC-1 for $5 million. GIC-1 provides an

annual guaranteed interest rate of 5.0% and matures on January 20,

1998.

(b) Effective November 20, 1992, the Plan purchased Guaranteed

Investment Contract No. GA 299 GIC (GIC-2) from Life Insurance Company

of Georgia. The Plan purchased GIC-2 for $10 million. GIC-2 provides an

annual guaranteed interest rate of 6.15% and matures on November 20,

1996.

(c) Effective February 18, 1992, the Plan purchased Guaranteed

Investment Contract No. GA-5265 (GIC-3) from Allstate Life Insurance

Company. The Plan purchased GIC-3 for $10 million. GIC-3 provides an

annual guaranteed interest rate of 7.65% and matures on April 1, 1997.

(d) Effective August 13, 1990, the Plan purchased Guaranteed

Investment Contract No. GB 10020 (GIC-4) from Massachusetts Mutual Life

Insurance Company. The Plan purchased GIC-4 for $20 million. GIC-4

provides an annual guaranteed interest rate of 9.37% and matures on

August 16, 1995.

The GICs are valued at $47,605,741 and constitute 37.23% of the

Fixed Income Fund's $127,881,436 of assets.6 At maturity, the

current accumulated book value of the GICs (Accumulated Book Value),

defined as the initial deposit, plus interest at the contract rate,

less any withdrawals during the term of the GIC, is to be paid to the

Plan. All of the four GICs provide for a penalty upon early withdrawal.

Of the Fixed Income Fund's assets, $55,267,367 (43.22%) are invested in

other guaranteed investment contracts which do not impose penalties for

early withdrawal.

\6\ These valuation figures were calculated using the contract

value of the GICs, i.e., contributions made under the GICs plus

interest at the contracts' stated rates, less Plan expenses directly

attributable to the holding of the GICs. The figures were taken from

the December 30, 1993 audited financial statements and therefore do

not include the value of GIC-1, which was purchased effective

January 20, 1994.

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4. Eaton has determined that Plan participants should be provided

expanded investment options under the Plan. Eaton plans to allow each

participant to transfer all or a portion of his/her account balance

subject to participant direction into a new money market fund, the

Money Market Fixed Income Fund, to be selected by the Investment

Committee. The addition of this fund not only will provide participants

with an alternative to the Fixed Income Fund, but will provide a

mechanism for easing the transfer of account balances into and out of

other funds available under the Plan. There is concern, however, that

participants may be subject to adverse financial consequences if the

amount of Plan assets transferred from the Fixed Income Fund exceeds

the availability of assets in that Fund that can be liquidated without

penalty. If that situation arises, the Plan would be forced to

liquidate one or more of the GICs prior to maturity, thus triggering

financial penalties and causing potential losses to Plan participants.

5. Accordingly, Eaton proposes to advance funds to the Plan up to

the Accumulated Book Value of the GICs, as of July 5, 1995 (see rep. 7,

below), plus additional interest at the contract rate that accrues

through the date of any Loans that Eaton makes to the Plan. The Plan

proposes to accept such Loans in order to enable participants to

transfer their account balances currently invested in the Fixed Income

Fund into the Money Market Fund, or any other fund, without incurring a

penalty for premature liquidation of one or more of the GICs. The Loans

would be non-interest bearing and would be available under a line of

credit running from Eaton to the Plan. The Loans would be made only

when, and to the extent, needed to avoid penalties that would otherwise

be incurred if the liquidation of one or more of the GICs is required,

as determined by the Plan Committee. The Plan will agree to repay the

Loans to Eaton, without interest, only from the GIC Proceeds. No

collateral would be required or given, and no other Plan assets would

be used to make the Repayments.

6. To the extent that Eaton and the Plan ultimately recoup less

than the amount of the Loans, Repayment would be waived. If GIC

Proceeds remain after full Repayment of the Loans following maturity of

the affected GICs, those amounts will be allocated on a proportional

basis to any participant who then has an account in the Plan.

7. The Investment Committee proposes to add the Money Market Fund

effective July 5, 1995, and accordingly expects to receive a

significant quantity of participant requests to transfer into that fund

as of that date. The Loans may therefore be required as of July 5, 1995

to avoid adverse financial consequences to participants if the demand

for transfers out of the Fixed Income Fund for the period commencing

July 5, 1995 and ending January 20, 1998 (when the last GIC matures)

exceeds the Fixed [[Page 27132]] Income Fund's access to unrestricted

assets. Thus, Eaton has requested that the exemption proposed herein be

made effective July 5, 1995.

8. In summary, the applicant represents that the proposed

transactions satisfy the criteria contained in section 408(a) of the

Act because: (a) All terms of the transactions will be no less

favorable to the Plan than those obtainable in arm's-length terms with

unrelated parties; (b) the Plan will pay no interest or other expenses

in connection with the Loans; (c) the Loans will enable Plan

participants to transfer their account balances out of the Fixed Income

Fund without incurring penalties for premature liquidation of the GICs;

(d) Repayments will be made only from GIC Proceeds; (e) the Repayments

will not exceed the total amount of the Loans; and (f) the Repayments

will be made waived to the extent that the Loans exceed the GIC

Proceeds.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

Rothschild, Incorporated (Rothschild) Located in New York, New York

[Application No. D-09993]

Proposed Exemption

I. Transactions

A. 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.7

\7\ 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).

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B. 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.8 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;

\8\ 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.

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(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. 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.9

\9\ 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. 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

[[Page 27133]] 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; and

(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; 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

Internal Revenue Code of 1986; and

(b) that is issued by and is an obligation of a trust;

with respect to certificates defined in (1) and (2) above for which

Rothschild or any of its affiliates is either (i) the sole underwriter

or the manager or co-manager of the underwriting syndicate, or (ii) 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) Rothschild;

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

intermediaries, controlling, controlled by or under common control with

Rothschild; or

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

which Rothschild or a person described in (2) is a manager or co-

manager with respect to the certificates.

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. [[Page 27134]]

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 subservicer.

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 certificates 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:

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

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

under the equipment lease; and

(3) 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:

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

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

vehicle; and

(3) 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.

Summary of Facts and Representations

1. Rothschild and its affiliates provide a broad range of financial

services, including mergers and acquisitions, restructuring, asset

management and a variety of specialist financial services for both

domestic and international clients. Rothschild conducts operations from

its executive office in New York City. The applicant represents that

several of Rothschild's officers have had extensive experience in the

fields of mortgage-backed and asset-backed securities.

When acting as lead managing underwriter or placement agent,

Rothschild will conduct extensive due diligence with respect to each

offering of certificates. In general, Rothschild's due diligence

efforts will concern four basic areas: first, the originator's or

unrelated lender's underwriting policies and procedures for originating

or purchasing receivables; second, the validity and enforceability of

the secured claim or lien on the underlying collateral as represented

by the receivable; third, the originator's or unrelated lender's

recordkeeping systems; and fourth, the originator's or unrelated

lender's documents kept on file with respect to each receivable.

In general, Rothschild's procedures are as follows: Rothschild

conducts an extensive examination of the originator [[Page 27135]] or

unrelated lender's underwriting practices to ensure that they conform

with stated policies and procedures, and that there are periodic

reviews of those practices by the originator's or unrelated lender's

auditors. Rothschild's examination includes a review of written

materials and interviews with the officers in charge of administrating

the underwriting policies and procedures. Rothschild and/or its

attorneys will also review the legal documentation creating the

security interest in each underlying collateral asset. Rothschild's

analysts will examine the originator's or unrelated lenders

recordkeeping systems to verify, among other things, its capabilities

with respect to the collection of amounts due and payable for the

receivables sold to investors. In most cases, Rothschild also examines

receivable files, selected at random, to verify that files are complete

and the dates in the file conform to the recordkeeping systems.

Trust Assets

2. Rothschild seeks 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; 10 (2) motor vehicle

receivable investment trusts; (3) consumer or commercial receivables

investment trusts; and (4) guaranteed governmental mortgage pool

certificate investment trusts.11

\10\ 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. Rothschild requests relief for single-family residential

mortgages in this exemption because it would prefer one exemption

for all trusts of similar structure. However, Rothschild has stated

that it may still avail itself of the exemptive relief provided by

PTE 83-1.

\11\ Guaranteed 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 applicant is requesting exemptive

relief for trusts containing guaranteed governmental mortgage pool

certificates because the certificates in the trusts may be 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.12

\12\ Trust assets may also include obligations that are secured

by leasehold interests on residential real property. See PTE 90-32

involving Prudential-Bache Securities, Inc. (55 FR 23147, June 6,

1990 at 23150).

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Trust Structure

4. Each trust is established under a pooling and servicing

agreement between 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.

On or prior to 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. Rothschild, alone or together with other broker-dealers,

acts as underwriter or placement agent with respect to the sale of the

certificates. The majority of the public offerings of certificates made

to date have been underwritten on an agency basis. However, Rothschild

may in the future become involved in public offerings of certificates

underwritten on either a firm commitment or a best efforts basis. In

addition, Rothschild anticipates that it may privately place

certificates on both a firm commitment and an agency basis. Rothschild

may also act as the lead underwriter for a syndicate of securities

underwriters. Rothschild may also act as the servicer or seller to the

trust of the receivables or the trust sponsor.

Certificateholders are entitled to receive monthly, quarterly or

semi-annually 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.

Rothschild requests 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.13

\13\ It 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)(1)(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.

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

of certificates having different stated maturities or the same

maturities with different payment schedules. In certain transactions of

this type, 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,

[[Page 27136]] 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 a certificate 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.14

\14\ If a trust issues subordinated certificates, holders of

such subordinated certificates may not share in the amount

distributed on a pro rata basis with the senior certificateholders.

The Department notes that the exemption does not provide relief for

plan investment in such subordinated certificates.

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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 short 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 one of three entities: (i) A special-purpose

corporation unaffiliated with the servicer, (ii) a special-purpose or

other corporation affiliated with the servicer, or (iii) the servicer

itself. 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 Rothschild, the trust sponsor or the servicer. Rothschild

represents 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 servicer, sponsor or

the trust as specified in the pooling and servicing agreement. The

method of compensating the trustee which is specified in the pooling

and servicing agreement will be 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 some 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 Rothschild. In other

cases, however, affiliates of Rothschild may originate or service

receivables included in a trust, or may sponsor a trust.

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. 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 certificates for its own

account. In addition, in some transactions the originator may sell

receivables to a trust for cash. At the time of the sale, the trustee

would sell certificates to the public or to underwriters and use the

cash proceeds of the sale to pay the originator for receivables sold to

the trust. 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 [[Page 27137]] 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.15 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.

\15\ The 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.

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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 may be required to pay the

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

fee, out of its servicing compensation, or it may be reimbursed for all

or a portion of its expenses by the trust.

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 maintained with 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. Rothschild and any other participating underwriter will receive

a fee in connection with the securities underwriting or private

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

would normally consist of the difference between what Rothschild

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

sponsor for those certificates. In a private placement, the fee may

also take the form of an agency commission paid by the sponsor. Such

fees are negotiated at arm's-length with the sponsor, originator or

unrelated lender and are affected by fees in comparable offerings.

Purchase of Receivables by the Servicer

17. The applicant represents that as the principal amount of the

receivables in a trust is reduced by payments, 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 the receivables remaining in the trust when the aggregate

unpaid balance payable on the receivables is reduced to a specified

percentage (usually 5 to 10 percent) of the initial aggregate unpaid

balance.

The purchase price of a receivable is specified in the pooling and

servicing agreement and will be at least equal to: (1) The unpaid

principal balance on the receivable plus accrued interest, less any

unreimbursed advances of principal made by the servicer; or (2) the

greater of (a) the amount in (1) or (b) the fair market value of such

obligations in the case of a REMIC, or the fair market value of the

certificates in the case of a trust that is not a REMIC.

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 (such as surety bonds, letters of credit,

guarantees, or the creation of a class of certificates with

subordinated cash flow) 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). 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) out of liquidation proceeds, (c) from the

credit support provider (which may be itself) or, (d) 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. 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. In some

cases, 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.

However, a master servicer typically can recover advances either from

the provider of credit support or from future payments on the affected

assets.

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

the credit support mechanism to provide funds to cover delinquent

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

required and would be able to [[Page 27138]] 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) 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. Once the floor amount has been

reached, the servicer lacks an incentive to postpone the recognition of

credit losses because the credit support amount thereafter is 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, since 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, the

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 1934. Although some trusts that offer

certificates in a public offering will file quarterly reports on Form

10-Q and Annual Reports on Form 10-K, many trusts obtain, by

application to the Securities and Exchange Commission, a complete

exemption from the requirement to file quarterly reports on Form 10-Q

and a modification of the disclosure requirements for annual reports on

Form 10-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 1934.

23. At or about the time distributions are made to

certificateholders, a report [[Page 27139]] 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.

In addition, promptly after each distribution date,

certificateholders will receive a statement prepared by the servicer,

paying agent or trustee summarizing 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 and a breakdown of payments between principal and interest.

Secondary Market Transactions

24. It is Rothschild's normal policy to facilitate sales,

including, without limitation, sales made in accordance with Rule 144A

under the Securities Act of 1933, by investors who purchase

certificates if Rothschild has acted as agent or principal in the

original private placement of the certificates and if such investors

request Rothschild's assistance. In the case of a trust that offers and

sells certificates in a registered public offering, it is anticipated

that Rothschild would generally attempt to make a market for securities

for which it is lead or co-managing underwriter.

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 applicant 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.16

\16\ In 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).

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III. Limited Section 406(b) and Section 407(a) Relief for Sales

Rothschild represents 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.17 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 [[Page 27140]] the Act.18 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.

\17\ In this regard, we note that the exemptive relief proposed

herein is limited to certificates with respect to which Rothschild

or any of its affiliates is either (a) the sole underwriter or

manager or co-manager of the underwriting syndicate, or (b) a

selling or placement agent.

\18\ The applicant represents that where a trust sponsor is an

affiliate of Rothschild, 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 Rothschild is

not a fiduciary with respect to plan assets to be invested in

certificates.

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Additionally, Rothschild represents 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.

Rothschild represents 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, Rothschild represents 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.

NOTICE TO INTERESTED PERSONS: The applicant represents that because

those potentially interested participants and beneficiaries cannot all

be identified, the only practical means of notifying such participants

and beneficiaries of this proposed exemption is by the publication of

this notice in the Federal Register. Comments and requests for a

hearing must be received by the Department not later than 30 days from

the date of publication of this notice of proposed exemption in the

Federal Register.

FOR FURTHER INFORMATION CONTACT: Gary 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 that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 17th day of May, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-12502 Filed 5-19-95; 8:45 am]

BILLING CODE 4510-29-P