Proposed Exemptions; World Omni Financial Corporation

DEPARTMENT OF LABOR

[Application No. D-09840, et al.]

Proposed Exemptions; World Omni Financial Corporation

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

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

date of publication of this Federal Register Notice. Comments and

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

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

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

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

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

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

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

addressed and include a general description of the evidence to be

presented at the hearing.

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

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

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

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

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

Exemption. The applications for exemption and the comments received

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

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

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

Notice To Interested Persons

Notice of the proposed exemptions will be provided to all

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

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

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

exemption as published in the Federal Register and shall inform

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

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

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

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

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

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

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

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

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

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

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

statement of the facts and representations.

[[Page 58652]]

World Omni Financial Corporation and its Affiliates, Located in

Deerfield Beach, Florida

[Application No. D-09840]

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).

Section I--Transactions

A. Effective June 27, 1994, 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 Section 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, as defined in Section III.K. below, by any person who

has discretionary authority or renders investment advice with respect

to the assets of that Excluded Plan.1

\1\ 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. Effective June 27, 1994, 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,

as defined in Section III.L., 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.2 For purposes of this

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

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

trust;

\2\ 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 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 Section I.B.(1) or (2).

C. Effective June 27, 1994, the restrictions of sections 406(a),

(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.3

\3\ 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.

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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 the 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. below.

D. Effective June 27, 1994, 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 transaction 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 as 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.

Section II--General Conditions

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

following conditions are met:

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

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

plan as such terms 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 & Poors Corporation,

Moody's Investor Service,

[[Page 58653]]

Inc., Duff & Phelps Inc., or Fitch Investors Service, Inc.

(collectively, the Rating Agencies);

(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 or retained by the sponsor pursuant to the assignment of obligations

(or interest therein) to the trust represents not more than the fair

market value of such obligation (or interest); 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;

(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;

(7) To the extent that the pool of leases used to create a

portfolio for a trust is not closed at the time of the issuance of

certificates by the trust, additional leases may be added to the

portfolio for a period of no more than 15 consecutive months from the

cut-off date used for the initial allocation of leases that was made to

create such portfolio, provided that:

(a) all such additional leases meet the same terms and conditions

for eligibility as the original leases used to create the portfolio (as

described in the prospectus or private placement memorandum for such

certificates), which terms and conditions have been approved by the

Rating Agencies. Notwithstanding the foregoing, the terms and

conditions for an ``eligible lease'' (as defined in Section III.X

below) may be changed if such changes receive prior approval either by

a majority vote of the outstanding certificateholders or by the Rating

Agencies; and

(b) such additional leases do not result in the certificates

receiving a lower credit rating from the Rating Agencies, upon

termination of the period during which additional leases may be added

to the portfolio, than the rating that was obtained at the time of the

initial issuance of the certificates by the trust;

(8) Any additional period described in Section II.A.(7) shall be

described in the prospectus or private placement memorandum provided to

investing plans;

(9) The average annual percentage lease rate (the Average Lease

Rate) for the pool of leases in the portfolio for the trust, after the

additional period described in Section II.A.(7), shall not be more than

200 basis points greater than the Average Lease Rate for the original

pool of leases that was used to create such portfolio for the trust;

(10) For the duration of the additional period described in Section

II.A.(7), principal collections that are reinvested in additional

leases are first reinvested in the ``eligible lease contract'' (as

defined in Section III.X. below) with the earliest origination date,

then in the ``eligible lease contract'' with the next earliest

origination date, and so forth, beginning with any lease contracts that

have been reserved specifically for such purposes at the time of the

initial allocation of leases to the pool of leases used to create the

particular trust, but excluding those specific lease contracts reserved

for allocation to or allocated to other pools of leases used to create

other trusts; and

(11) The trustee of the trust is a substantial financial

institution or trust company experienced in trust activities and is

familiar with its duties, responsibilities, and liabilities as a

fiduciary under the Act. The trustee, as the legal owner of the

obligations in the trust, enforces all the rights created in favor of

certificateholders of such trust, including employee benefit plans

subject to the Act.

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 Section I, if the provision in Section II.A.(6) above is

not satisfied for the 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 shall be required to

make a written representation regarding compliance with the condition

set forth in Section II.A.(6).

C. World Omni and its Affiliates abide by all securities and other

laws applicable to any offering of interests in securitized assets,

such as certificates in a trust as described herein, including those

laws relating to disclosure of material litigation, investigations and

contingent liabilities.

Section III--Definitions

For purposes of this proposed 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

(except during the period described in Section II.A.(7), if any),

interest, and/or other payments made in connection with the assets of

such trust; or

(2) A certificate denominated as a debt instrument that is issued

by and is an obligation of a trust;

With respect to certificates defined in Section III.A. (1) and (2)

above, the underwriter shall be an entity which has received from the

Department an individual prohibited transaction exemption relating to

certificates which is substantially similar to this proposed exemption

(as noted below in Section III.C.) and shall be 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 proposed 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) Qualified motor vehicle leases (as defined in Section III.T.);

or

(b) Fractional undivided interests in a trust containing assets

described in paragraph (a) of this Section III.B.(1), where such

fractional interest is not subordinated to any other interest in the

same pool of qualified motor vehicle leases held by such trust; 4

\4\ It is the Department's view that the definition of

``Trust'' contained in Section III.B. includes a two-tier trust

structure under which certificates issued by the first trust, which

contains a pool of receivables described above, are transferred to a

second trust which issues certificates that are sold to plans.

However, the Department is of the further view that, since the

exemption provides relief for the direct or indirect acquisition or

disposition of certificates that are not subordinated, no relief

would be available if the certificates held by the second trust were

subordinated to the rights and interests evidenced by other

certificates issued by the first trust.

[[Page 58654]]

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(2) Property which has secured any of the obligations described in

Section III.B.(1);

(3) Undistributed cash or temporary investments made therewith

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

made to certificateholders, except during the period described in

Section II.A.(7) above when temporary investments are made until such

cash can be reinvested in additional leases described in paragraph (a)

of this Section III.B.(1); and

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

agreement, and rights under motor vehicle dealer agreements, any

insurance policies, third-party guarantees, contracts of suretyship and

other credit support arrangements for any obligations described in

Section III.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 categories by the Rating

Agencies 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 any investment banking firm that has

received an individual prohibited transaction exemption from the

Department that provides relief for so-called ``asset-backed''

securities that is substantially similar in format and structure to

this proposed exemption (the Underwriter Exemptions); 5 or any

person directly or indirectly, through one or more intermediaries,

controlling, controlled by or under common control with such investment

banking firm; and any member of an underwriting syndicate or selling

group of which such firm or person described above is a manager or co-

manager with respect to the certificates.

\5\ For a current listing of the Underwriter Exemptions, see

Section V(h) of Prohibited Transaction Exemption (PTE) 95-60 (60 FR

35925, July 12, 1995).

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D. ``Sponsor'' means an entity, independent of World Omni or

affiliated with World Omni, that organizes a trust by depositing

obligations therein in exchange for certificates provided that, if such

entity is independent of World Omni, the servicer of the trust is an

affiliate of World Omni.

E. ``Master Servicer'' means World Omni or an entity affiliated

with World Omni that is a party to the pooling and servicing agreement

relating to trust assets and is fully responsible for servicing,

directly or through subservicers, the assets of the trust.

F. ``Subservicer'' means World Omni or an entity affiliated with

World Omni which, under the supervision of and on behalf of the master

servicer, services leases contained in the trust, but is not a party to

the pooling and servicing agreement.

G. ``Servicer'' means World Omni or an entity affiliated with World

Omni which services leases contained in the trust, including the master

servicer and any subservicer.

H. ``Trustee'' means an entity that is independent of World Omni

and its affiliates which is the trustee of the trust. In the case of

certificates which are denominated as debt instruments, ``trustee''

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. In

addition, a person is not an insurer if such person merely provides:

(1) Property damage or liability insurance to an Obligor with respect

to a lease or leased vehicle; or (2) property damage, excess liability

or contingent liability insurance to any lessor, sponsor or servicer,

if such entities are included in the same insurance policy, with

respect to a lease or leased vehicle.

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

obligated to make payments for a lease in the trust. For any qualified

motor vehicle leases contained in a trust as described herein,

``obligor'' shall include any owner of property subject to a lease

included in the trust, or subject to a lease securing an obligation 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 and at

the end of the period described in Section II.A.(7); 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 shall 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 assets of such person.

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

commitment (as defined in Section III.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 proposed

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

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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 for 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 shall not be reduced

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

T. ``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 the trust would receive

under a motor vehicle installment loan contract.

U. ``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.

V. ``Lease Rate'' means an implicit rate in each lease calculated

as an annual percentage rate on a constant yield basis, based on the

capitalized cost of the leased vehicle as determined under the

particular lease contract for the vehicle. With respect to the

determination of a ``Lease Rate'', each lease will provide for equal

monthly payments such that at the end of the lease contract term the

capitalized cost will have been amortized to an amount equal to the

residual value of the leased vehicle established at the time of

origination of such contract. The amount to which the capitalized cost

has been amortized at any point in time will be the outstanding

principal balance for the lease.

W. ``Average Lease Rate'' means the average annual percentage lease

rate, as defined in Section III.V. above, for all leases included at

any particular time in a portfolio used to create a trust from which

certificates are issued.

X. ``Eligible Lease'' or ``Eligible Lease Contract'' means a

Qualified Motor Vehicle Lease, as defined in Section III.T. above,

which meets the eligibility criteria established for, among other

things, the term of the lease, place of origination, date of

origination, and provisions for default, as described in the particular

prospectus or private placement memorandum for the certificates

provided to investors, if such terms and conditions have been approved

by the Rating Agencies prior to the issuance of such certificates.

The Department notes that this proposed exemption, if granted, will

be included within the meaning of the term ``Underwriter Exemption'' as

it is defined in Section V(h) of the Grant of the Class Exemption for

Certain Transactions Involving Insurance Company General Accounts,

which was published in the Federal Register on July 12, 1995 (see PTE

95-60, 60 FR 35925).

EFFECTIVE DATE: This proposed exemption, if granted, will be effective

for all transactions described herein which occurred on or after June

27, 1994.

Summary of Facts and Representations

1. World Omni Financial Corporation (World Omni) is a Florida

corporation which is a wholly-owned subsidiary of J.M. Family

Enterprises, Inc. (JMFE). JMFE also owns Southeast Toyota Distributors,

Inc., which is the exclusive distributor of Toyota cars and light duty

trucks in Alabama, Florida, Georgia, North Carolina and South Carolina

(the Five-State Area). World Omni provides consumer lease and

installment contract financing to retail customers of, and floorplan

financing to, automobile and light-duty truck dealers located primarily

in the Five-State Area.

World Omni Lease Securitization L.P. is a Delaware limited

partnership, the sole general partner of which is World Omni Lease

Securitization, Inc., a Delaware corporation that is a wholly-owned

subsidiary of World Omni, and the sole limited partner of which is

World Omni.

Auto Lease Finance L.P. is a Delaware limited partnership, the sole

general partner of which is Auto Lease Finance, Inc., a Delaware

corporation that is a wholly-owned subsidiary of World Omni, and the

sole limited partner of which is World Omni.

2. World Omni and its Affiliates, including World Omni Lease

Securitization, L.P., and Auto Lease Finance L.P., seek an exemption to

permit employee benefit plans to invest in certificates indirectly

representing undivided interests in a trust which contains motor

vehicle leases and the motor vehicles related to those leases. The

exemption World Omni seeks is substantially similar to the Underwriter

Exemptions granted by the Department to various broker-dealers and

banks to permit investments in, among other things, motor vehicle

receivable investment trusts. In the exemption sought by World Omni,

the primary asset of the trust in which investors have beneficial

interests (i.e. the Securitization Trust) is a special unit of

beneficial interest (SUBI) in a separate trust that actually holds the

motor vehicle leases and related motor vehicles (i.e. the Origination

Trust). The Underwriter Exemptions may also include such a two-tier

trust structure (as noted above in Footnote 5). However, unlike the

trusts described in the Underwriter Exemptions, the Origination Trusts

established by World Omni do not contain fixed pools of assets (i.e.

qualified motor vehicle leases and related motor vehicles) for at least

a year, as discussed further below. World Omni states that the

Securitization Trusts meet all other requirements of the Underwriter

Exemptions. Such requirements include: (i) That investor certificates

covered by the exemption have one of the three highest ratings from the

Rating Agencies; (ii) that there be no subordination of investor

certificates purchased by employee benefit plans to the rights and

interests evidenced by other certificates of the same trust; and (iii)

that there be a pass-through of principal, interest and other payments

received by the trust relating to the receivables beneficially owned by

the trust, less certain specified servicing fees which are disclosed

and approved by the investors prior to the acquisition of any trust

certificates.

3. The Origination Trust is formed pursuant to a trust agreement

between the sponsor of the Origination Trust and its trustee (the

Origination Trustee). The sponsor of the Origination Trust is generally

a wholly-owned subsidiary of World Omni (or a limited partnership in

which such a wholly-owned subsidiary is the sole general partner), but

could be an entity independent of World Omni and its affiliates. The

Origination Trustee is a wholly-owned subsidiary of an independent

entity qualified to provide trust services, and in fact

[[Page 58656]]

provides such services to the Origination Trust under contract with its

subsidiary (i.e. the Trust Agent). Currently, the Trust Agent is Bank

of America Illinois (Bank of America). Bank of America is not

affiliated in any way with World Omni, other than as a service

provider. World Omni or an affiliate acts as servicer (the Servicer)

for all of the leases and leased vehicles owned by the Origination

Trust, pursuant to a servicing agreement with the Origination Trustee

(the Servicing Agreement).

4. The assets of the Origination Trust include retail closed-end

automobile and light-duty truck lease contracts assigned to the

Origination Trust by dealers in the World Omni family, the automobiles

and light duty trucks relating thereto, all proceeds thereof (including

any sale of such vehicles), and payments made under certain insurance

policies relating to such leases or the related lessees or leased

vehicles. World Omni is the initial holder of a sole beneficial

interest (i.e. the ``Undivided Trust Interest'' or ``UTI'') in the

Origination Trust.

The Origination Trusts are open-ended; that is, as leases are

originated, they and the related vehicles are assigned to the

Origination Trust by World Omni. When the aggregate dollar amount of

leases and leased vehicles in the Origination Trust grows large enough

to justify a securitization, World Omni, as holder of the UTI, may

direct the trustee of the Origination Trust to segregate from among all

the leases and leased vehicles within the Origination Trust a specified

portfolio of leases and related leased vehicles. The trustee then

issues to World Omni a separate certificate representing a ``Separate

Unit of Beneficial Interest'' or ``SUBI'' in that segregated portfolio.

It is this SUBI that becomes the basis for a securitization and the

creation of a separate Securitization Trust.

Any leases and leased vehicles held by the Origination Trust that

are not included in a SUBI portfolio at the time of such segregation,

as well as any new leases and related vehicles acquired subsequent to

the ``cut-off date'' on which the new SUBI portfolio is identified,

remain part of the UTI portfolio, and the original UTI continues to

represent a beneficial interest therein.

New leases and related leased vehicles are added to the SUBI's

segregated portfolio by World Omni in an aggregate amount approximately

equal to principal collections on the leases and leased vehicles

already allocated to the SUBI,6 for a fixed period (which will be

no more than fifteen consecutive months) after the cut-off date used

for the initial allocation of leases made to create the SUBI. (This

period is referred to hereafter as the ``revolving period''). The

applicant represents that this fixed ``revolving period'' for principal

collections on the leases and leased vehicles is established so that

the investor certificates issued by the Securitization Trust are

treated as debt for Federal and state income tax purposes, but does not

affect the characterization of those certificates as beneficial

interests in the Securitization Trust property for accounting and other

state law purposes.

\6\ World Omni represents that the aggregate amount of new

leases added to a SUBI portfolio is approximately equal, rather than

exactly equal, to principal collections on the existing leases

because, when additional leases are added, the outstanding principal

balance of the new leases is not always equal to the principal

collections available for reinvestment. The uninvested principal

amounts are held by the Securitization Trust in a cash account and

temporarily invested in short-term investments, with interest

thereon accruing to the Securitization Trust, until such amounts can

be reinvested in additional leases for the SUBI portfolio. World

Omni states that any uninvested principal amounts, and interest on

such amounts, held by the Securitization Trust are distributed to

the certificateholders once principal payments on the leases in the

SUBI portfolio are passed-through to investors.

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After the ``revolving period'', the pool of leases and leased

vehicles allocated to the SUBI (i.e. the SUBI portfolio) remains fixed.

Any leases which are added to the SUBI portfolio during the ``revolving

period'' must meet the same terms and conditions for eligibility as the

original leases in the portfolio, as described in the prospectus or

private placement memorandum, which terms and conditions have been

approved by the Rating Agencies prior to the ``revolving period''.

However, World Omni states that the terms and conditions for an

``eligible lease'' (as defined in Section III.X above) may be changed

if such changes receive prior approval either by a majority vote of the

outstanding certificateholders or by the Rating Agencies. Further,

under the conditions of the proposed exemption, World Omni must ensure

that the additional leases added to the SUBI portfolio do not result in

the certificates receiving a lower credit rating from the Rating

Agencies at the end of the ``revolving period'' than the rating that

was obtained at the time of the initial issuance of the certificates by

the trust (see Section II.A.(7)(b) above).

World Omni states that for the duration of the ``revolving

period'', principal collections that are reinvested in additional

leases are first reinvested in the ``eligible lease contract'' (as

defined in Section III.X. above) with the earliest origination date,

then in the ``eligible lease contract'' with the next earliest

origination date, and so forth (i.e. on a ``FIFO basis), beginning with

any lease contracts that have been reserved by World Omni specifically

for such purposes at the time of the initial allocation of leases to

the particular SUBI portfolio. However, those lease contracts reserved

for allocation to, or actually allocated to, other pools of leases

(i.e. other SUBI portfolios used to create different trusts) will be

excluded from the available additional leases to be added to the

particular SUBI portfolio. World Omni states that no adverse selection

procedures may be employed in selecting leases during the ``revolving

period''. Thus, World Omni represents that it will not be able to

manipulate the order in which leases are added to a particular SUBI

portfolio during the ``revolving period'' in order to improve its

economic position with respect to the assets held in a particular SUBI

portfolio. World Omni states further that at all times there will be a

clear identification within the Origination Trust of which leases and

leased vehicles belong in each SUBI portfolio and which belong in the

UTI or ``residual'' portfolio. The holders of beneficial interests in

each SUBI have also agreed in writing to rely solely upon the assets

contained within their respective portfolios to satisfy any payment

obligations.

This ``revolving period'' arrangement differs from the Underwriter

Exemptions wherein each trust contains a ``fixed pool'' of assets and

substitution of receivables by the trust sponsor is permitted only in

the event of defects in documentation discovered within a limited time

after the issuance of trust certificates. The applicant states that in

the present case, during the ``revolving period'', the outstanding

principal balance of the SUBI's portfolio of leases remains unchanged

and the certificateholders receive only interest payments with respect

to their certificates. Once the ``revolving period'' ends, principal

payments are no longer reinvested but rather are paid out to

certificateholders.

To the extent that leases added to the SUBI portfolio during the

``revolving period'' have a higher Lease Rate (as defined in Section

III.V. above) than do the original leases in the SUBI portfolio at the

time of the initial offering of the certificates to investors, total

returns on the ultimate lease pool in excess of that promised to

investors on the trust certificates may inure to affiliates of the

Servicer. However, the applicant states

[[Page 58657]]

that the Average Lease Rate (as defined in Section III.W. above) for

the pool of leases allocated to a SUBI portfolio owned by a particular

Securitization Trust, after accounting for all the leases added to the

SUBI portfolio during the ``revolving period'', shall not be more than

200 basis points (i.e. 2 percent) greater than the Average Lease Rate

for the leases in the SUBI portfolio on the cut-off date used for the

initial allocation of leases to the SUBI portfolio owned by the

Securitization Trust.

The Average Lease Rate for the leases in the trust at the time of

the initial offering of the certificates is described in the prospectus

or offering memorandum provided to investors. The applicant represents

that changes to the Average Lease Rate based on new leases added to a

trust during the ``revolving period'' depend on current interest rates

and market conditions as well as the amount of lessee prepayments and

repossessions on the leased vehicles. Thus, potential plan investors at

the time of the initial offering of trust certificates know the total

dollar amount of leases in the trust, the Average Lease Rate on those

leases, the fact that principal received by the trust during the

``revolving period'' is used to invest in additional leases, and the

length of the ``revolving period''. Under the terms of the proposed

exemption, potential plan investors shall also be provided with a

statement disclosing the fact that the relief provided by the exemption

shall be available to the Servicer and its affiliates only if the

additional leases do not cause the Average Lease Rate for the leases in

the pool after the ``revolving period'' to increase by more than 200

basis points.

5. Pursuant to a supplement to the Origination Trust Agreement and

a supplement to the Servicing Agreement, World Omni, acting as Servicer

on behalf of the Origination Trustee, selects the assets to be

represented by each SUBI (as discussed above). Certificates

representing the entire beneficial interest in each SUBI are issued to

the sponsor of the Securitization Trust. The sponsor is usually a

wholly-owned subsidiary of World Omni (or a partnership in which such a

subsidiary is the sole general partner), but in some cases could be an

entity that is independent of World Omni and its affiliates provided

that World Omni or an affiliate acts as the Servicer of the trust. The

sponsor creates the Securitization Trust and transfers a certificate

representing approximately a 99.8 percent beneficial interest in the

SUBI to the Securitization Trust, pursuant to a trust agreement between

the sponsor and the trustee of the Securitization Trust (the

Securitization Trustee).7 The Securitization Trustee is an

unrelated commercial institution with trust powers, meeting certain

specified requirements. Currently, the trustee of the Securitization

Trusts is the Bank of America. In addition, pursuant to the

Securitization Trust agreement, the Securitization Trust issues to its

sponsor investor certificates representing fractional undivided

interests in the assets of the Securitization Trust (i.e. the 99.8

percent interest in the SUBI, which itself represents a beneficial

interest in a portfolio of motor vehicle leases and related leased

motor vehicles held by the Origination Trust).

\7\ World Omni or an affiliate retains a de minimis interest in

each SUBI portfolio which represents a subordinated interest in the

portfolio, under requirements established by the Rating Agencies, in

order to meet certain Federal tax code objectives.

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6. The sponsor of the Securitization Trust sells approximately 96

percent of the certificates to various outside investors, including

employee benefit plans subject to the Act. World Omni retains a

subordinated interest in the Securitization Trust of approximately 4

percent, as required by the Rating Agencies, so that unanticipated

losses with the SUBI portfolio will first by borne by World Omni. With

respect to the certificates sold to outside investors, there may be two

or more classes of securities. The investor certificates are either

publicly or privately offered. In the public lease securitizations

completed by World Omni thus far, approximately 92.5 percent of the

certificates were sold to investors publicly and approximately 3.5

percent of the certificates were sold to investors privately. The

public investor certificates had a AAA/Aaa rating from the Rating

Agencies. The private investor certificates had a single ``A'' rating

from the Rating Agencies because such certificates were subordinated to

the public investor certificates.8 Except under rare

circumstances, physical certificates are not issued to investors in a

public senior class of certificates. Instead, the Securitization Trust

uses a book entry registration system through the Depository Trust

Company (DTC), a limited-purpose trust company organized under New York

law, which is a member of the Federal Reserve system, and a clearing

agency under Section 17A of the Securities Exchange Act of 1934.

\8\ The applicant is not requesting an exemption for the

purchase of any subordinated class of certificates by employee

benefit plans. However, the applicant is requesting relief for

prohibited transactions that may occur as a result of the

investments in a trust made by an insurance company's general

account which are considered to be ``plan assets'' under the recent

U.S. Supreme Court decision in John Hancock Mutual Life Insurance

Co. v. Harris Trust & Savings Bank, 114 S.Ct. 517 (1993) (Harris

Trust). As a result of the decision in Harris Trust and the

Department's plan assets regulation (see 29 CFR 2510.3-101), an

insurance company investing general account assets could be viewed

as a ``benefit plan investor'' for purposes of calculating the 25

percent significant participation test in section 2510.3- 101(f)(1)

of the regulation.

The Department notes that Section III of the Class Exemption for

Certain Transactions Involving Insurance Company General Accounts

(PTE 95-60, 60 FR 35925, July 12, 1995) provides an exemption for

transactions in connection with the operation of asset pool

investment trusts notwithstanding that the certificates acquired by

the general account are subordinated to the rights and interests

evidenced by other certificates of the same trust. In this regard,

the Department has included a paragraph at the end of the operative

language of the proposed exemption which states that this exemption,

if granted, will be included within the definition of the term

``Underwriter Exemption'' under Section V(h) of PTE 95-60.

Therefore, the exemptive relief provided by PTE 95-60 will be

available for subordinated investments in a trust described herein

by insurance company general accounts.

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Investors are entitled to receive monthly payments of interest at a

fixed certificate rate, and after the ``revolving period'' described

above, payments of principal. Principal payments are based on the

decline in the value of the pool of leases and vehicles allocated to

each SUBI, based on certain standard depreciation schedules for the

related motor vehicles. All net collections collected for the assets

underlying each SUBI, including all net proceeds from the sale of a

vehicle upon repossession, early lease termination or maturity of the

related lease, are available to make payments on the investor

certificates.

The price of the investor certificates, both in the initial

offering and in the secondary market, is affected by market forces

including investor demand and the Average Lease Rate for the leases

allocated to the particular SUBI. The applicant states that the Average

Lease Rate generally is determined by the same market forces that

determine the price of the investor certificates. Certificate interest

rates are set at the time of the pricing of each securitization. While

the Average Lease Rate for the particular lease portfolio is a factor

in the interest rates a Securitization Trust will be able to pay, the

actual interest rate set for the certificates issued is determined by a

combination of additional factors. Specifically, these factors include:

(a) the then-current yields on U.S. Treasury Notes with a remaining

term equivalent to the anticipated average life of the particular

Securitization Trust, and (b) the then-current ``spreads'' on

similarly-rated competitive investments available in the marketplace,

as determined by

[[Page 58658]]

the Rating Agencies. Once the certificate rate is set for the

certificates issued by the Securitization Trust, that rate remains

fixed for its duration, regardless of any changes to the Average Lease

Rate of the SUBI portfolio occurring during the ``revolving period''.

The price of an investor certificate and the certificate rate together

determine the yield to investors. If an investor purchases a

certificate at less than par, that discount augments the certificate

rate; conversely, a certificate purchased at a premium yields less than

the stated coupon.

7. The origination of the leases held by the Origination Trust

begins with World Omni, which enters into arrangements with its network

of dealers allowing it to cause the assignment of leases and related

vehicles originated by those dealers either directly to World Omni or

to any other specified entity, including the Origination Trust. Once

assigned to the Origination Trust for ultimate inclusion in a portfolio

of SUBI assets for securitization as described above, this mechanism

enables World Omni to go to the capital markets directly for financing

and thereby enhance its leasing capacity without outside financing.

World Omni and/or one or more wholly-owned subsidiaries of World

Omni, or partnerships in which such a wholly-owned subsidiary is the

sole general partner, are responsible for creating each SUBI, creating

the Origination Trust and each Securitization Trust, and designating

the Trust Agent and the Securitization Trustee.

The Trust Agent, its subsidiary the Origination Trustee, and the

Securitization Trustee, are each independent entities, unrelated to

World Omni, the underwriter or placement agent. The Origination Trustee

is the legal owner of the motor vehicle leases and related leased motor

vehicles allocated to a SUBI. The Securitization Trustee is the legal

owner of the obligations in the Securitization Trust and is responsible

for enforcing all the rights created thereby in favor of

certificateholders, whether independently or through the Origination

Trustee. The applicant represents that each Securitization Trustee and

Trust Agent are substantial financial institutions or trust companies

experienced in trust activities. The Trust Agent and Securitization

Trustee receive a fee for their services, which is paid out of assets

of the Origination Trust or the Securitization Trust, as applicable.

The method of compensating each for its service related to a SUBI is

specified in the Origination Trust Agreement or Securitization Trust

Agreement, as applicable, and disclosed in the prospectus or private

placement memorandum relating to the offering of the investor

certificates.

8. The Servicer administers the leases on behalf of the beneficial

owners of the Origination Trust, including the holders of SUBI

certificates and, indirectly, the holders of the investor certificates.

The Servicer's functions involve monitoring of leases, maintenance of

records, institution of proceedings in the event of default, and sale

of vehicles after lease maturity, as well as certain functions relating

to the qualifications and permits required to be obtained by the

Origination Trustee.9 The Servicer, the sponsor of the Origination

Trust, and the sponsor of the Securitization Trust are unrelated to the

underwriter and to DTC. DTC has public senior investor certificates

registered in its name (or that of its nominee) and maintains

procedures for the distribution of notices, reports, distributions and

statements to certificateholders.

\9\ World Omni states that these functions are necessary since,

as noted in Paragraph 4 above, the Origination Trust is the owner

of, and holds title to, the vehicle unless the lessee chooses to

purchase such vehicle under the terms of the lease.

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As compensation for performing its servicing duties for the

Origination Trust, the Servicer is paid a fee equal to a specified

percentage (usually no more than one percent) of the balance of the

leases it services, including those leases allocated to the SUBI. The

Servicer may receive additional compensation related to the SUBI in the

form of interest on various accounts of the Origination Trust and/or

the Securitization Trust containing proceeds of the leases and related

leased motor vehicles allocated to each SUBI as well as interest on

certain cash deposits. The Servicer is required to pay the

administrative expenses of servicing the Origination Trust out of its

servicing compensation.

The Servicer is also compensated to the extent it may provide

credit enhancement to the Securitization Trust or otherwise arranges to

obtain credit support from another party. This ``credit support fee''

may be aggregated with other servicing fees, and may be either paid out

of the income received on the leases in excess of the certificate rate

or paid in a lump sum at the time the Securitization Trust is

established. The Servicer may be entitled to retain certain

administrative fees paid by a third party, usually the obligor under a

lease, provided that such fees are ``qualified administrative fees'' as

defined under Section III.S. These administrative fees fall into three

categories: (a) prepayment processing fees; (b) late payment fees; and

(c) fees and charges associated with the purchase of a leased vehicle

by an obligor as well as any repossession of such vehicle, or other

conversion of a secured position into cash proceeds, upon default of an

obligation.

Payments on leases may be made by lessees to the Servicer at

various times during the period preceding any date on which payments to

the Origination Trust are due. In some cases, the Servicing Agreement

may permit the Servicer to place these payments in non-interest bearing

accounts in itself or to commingle such payments with its own funds

prior to the distribution dates. In these cases, the Servicer would be

entitled to the benefit derived from the use of the funds between the

date of payment on a lease and the date payment is due to the

Origination Trust. 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 leases are held in

non-interest bearing accounts or are commingled with the Servicer's own

funds, the Servicer is required to deposit these payments into an

Origination Trust account by a date specified in the Servicing

Agreement.

All compensation payable to the Servicer with regard to the leases

allocated to a SUBI is set forth or referred to in the Servicing

Agreement, and described in reasonable detail in the prospectus or

private placement memorandum relating to the investor certificates.

9. Participating underwriters or placement agents receive a fee in

connection with the securities underwriting or private placement of

investor certificates. In a firm commitment underwriting, this fee

would consist of the difference between what such underwriter receives

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

of the Securitization Trust for those certificates.10 In a private

placement, the fee normally takes the form of an agency commission paid

by the sponsor of the Securitization Trust.

\10\ World Omni represents that a ``best efforts'' underwriting

would not ordinarily be used for the investor certificates because

of their high credit ratings.

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The arrangements among underwriters typically are set forth in an

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

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

underwriters. This agreement also

[[Page 58659]]

imposes customary restrictions on the underwriters' dealings in the

offered securities as are necessary to comply with securities laws and

to ensure the orderly distribution of the offered securities.

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

leases allocated to a SUBI is reduced by payments thereon and

recoveries on the disposition of leased vehicles, the cost of

separately administering the assets allocated to that SUBI generally

increases, making the servicing of those assets prohibitively expensive

at some point. Consequently, the Securitization Trust Agreement

generally provides that the sponsor of the Securitization Trust may

repurchase the 99 percent interest in the SUBI when the aggregate

principal balance of the investor certificates is reduced to a

specified percentage (usually between 5 and 10 percent) of the initial

aggregate investor certificate balance. The terms of such repurchase

are specified therein and are at least equal to the unpaid principal

balance on the investor certificates plus accrued interest. The

supplement to the Origination Trust Agreement generally provides that

upon such a repurchase of the Securitization Trust's interest in the

SUBI by its sponsor, the Origination Trust may repurchase the entire

SUBI from the sponsor and thereby terminate the SUBI. The terms of such

repurchase are specified therein and generally are at least equal to

the value of the pool of leases and leased vehicles allocated to the

SUBI.

11. The senior class of investor certificates must receive one of

the three highest ratings available from the Rating Agencies. Insurance

or other credit support is obtained by the sponsor of the

Securitization Trust or the Origination Trust 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 expected to be

a multiple of the worst historical net credit loss experience for

leases of automobiles and light-duty trucks such as those allocated to

the SUBI.

World Omni states that the Rating Agencies, before granting AAA/Aaa

ratings for the publicly issued securitization certificates, review the

underlying portfolio of assets securing payment to the investors to

determine, among other things, if (a) The principal value of the assets

is sufficiently greater than the aggregate face amount of the investor

certificates as to provide protection against defaults or losses, and

(b) there is a sufficient ``spread'' between the overall yield, based

on the Average Lease Rate, being earned on the portfolio and the

certificate rate to cover servicing costs, expenses and losses. In the

case of World Omni's current public securitizations of leases, the

Rating Agencies have required that (i) The face value of public

investor senior certificates not exceed 92.5 percent of the principal

value of the underlying assets, and (ii) the ``spread'' (after the

discounting procedure described below) between the overall yield, based

on the Average Lease Rate, of the SUBI portfolio and the certificate

rate be approximately 200 basis points. Thus, for example, a SUBI

portfolio with a principal value of $100,000,000 would support the

issuance of certificates with a face value of only $92,500,000, and a

certificate rate of 6 percent per annum would require an overall yield,

based on the Average Lease Rate, for that SUBI portfolio of

approximately 8 percent per annum. World Omni states that the Rating

Agencies will always require a specific ``spread'' between the

certificate rate and the overall yield for leases in the particular

SUBI portfolio before providing their initial credit ratings for the

certificates. World Omni must maintain this ``spread'' when leases are

added to the SUBI portfolio during the ``revolving period'' or risk a

lower credit rating for the certificates (see Section II.A.(7)(b)

above).

For purposes of the securitization described above, World Omni

represents that each individual lease should yield a rate of return,

based on the Lease Rate (as defined in Section III.V. above), which is

at least equal to the certificate rate plus approximately 200 basis

points. However, where the spread required by the Rating Agencies is

not met as to any lease based solely on the Lease Rate, the Rating

Agencies require that World Omni ``discount'' the principal value of

that lease so that such lease is treated as having a ``net investment

value'' less than its actual outstanding principal balance. In such

instances, the lease is discounted to a level at which the actual lease

charges to be collected under the lease (including expected principal

payments) would yield, on a percentage basis, an overall rate of return

which exceeds the certificate rate by the amount specified by the

Rating Agencies. Thus, for each individual lease included in a

securitization, its principal value is either: (a) Its outstanding

principal balance, if its Lease Rate is equal to or greater than the

``spread'' required by the Rating Agencies; or (b) its discounted net

investment value, if its Lease Rate is less than the ``spread'' so

required.11 World Omni states that the use of discounted aggregate

net investment values in measuring the ratio of certificate face values

to the discounted principal balance of the SUBI portfolio can only

further assure that investors are paid interest and principal on their

certificates on a timely basis.

\11\ For example, if the certificate rate for a transaction were

8 percent, then, in determining the aggregate face value amount of

certificates that could be issued with respect to a given SUBI

portfolio, World Omni could include each lease with a Lease Rate of

10 percent or more at its current outstanding principal balance

without any discounting. However, if the portfolio included

individual leases each with outstanding principal balances of

$20,000 and Lease Rates of only 5 percent, then World Omni would

have to ``discount'' the value of each such lease for purposes of

the securitization to a low enough net investment value

(approximately $18,000) so that the same overall monthly lease

payment for each lease would now yield a Lease Rate of 10 percent.

World Omni notes that any ``discounting'' of leases added to the

SUBI portfolio during the ``revolving period'' will result in more

leases being added to the portfolio in order to maintain a constant

outstanding principal balance during such period. Thus, when

interest rates used to determine the Lease Rate for leases added to

a SUBI portfolio are declining, the ``discounting'' of leases adds

more ``collateral'' to secure payments of the certificate rate.

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12. In some cases, the Servicer may provide temporary or permanent

credit support to the trust (i.e. act as an insurer). As a temporary

provider of credit support, the Servicer typically would advance funds

to the full extent that it determines that such advances are

recoverable (a) Out of late payments by the lessees, (b) from a

permanent credit support provider (which may be itself) or, (c) in the

case of a trust that issues subordinated certificates, from amounts

otherwise distributable to holders of subordinated certificates. The

Servicer would advance such funds in a timely manner. When the Servicer

temporarily advances funds, the amount so advanced is recoverable by

the Servicer out of future payments on or for leases or leased vehicles

allocated to the SUBI to the extent that such amounts are not covered

by the other sources described above, including payments from a

permanent credit support provider.

In some cases, the Servicer may be called upon to provide permanent

credit support in the form of funds to cover defaulted payments to the

full extent of its obligations as insurer. When the Servicer is the

provider of permanent credit support and provides its own funds to

cover defaulted payments, it does so either on the initiative of the

Origination Trustee or Securitization Trustee, or on its own initiative

on behalf of such trustees. The applicant states that in either event

the Servicer

[[Page 58660]]

provides such funds to cover payments to the full extent of its

obligations under the credit support mechanism. If the Servicer fails

to advance funds, fails to call upon a credit support mechanism to

provide funds to cover defaulted payments, or otherwise fails in its

duties, the Securitization Trustee would be required to enforce the

investor certificateholders' rights, in its capacity as a third-party

beneficiary of the Servicing Agreement, as owner of the estate of the

Securitization Trust, and as an indirect beneficial owner of the

Origination Trust assets allocated to a SUBI (including rights under

any credit support mechanism). Therefore, the Securitization Trustee,

who is independent of the Servicer, ultimately has the right to enforce

any credit support arrangement.

13. The applicant represents that 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 leases allocated to a

SUBI as payments for these leases and the related vehicles are used to

make payments to the Securitization Trust, as holder of an interest in

the SUBI, and then to investors. These safeguards include the

following:

(a) There is a disincentive to postponing credit losses because the

sooner repossession or sale activities are commenced, the more value

generally will be realized on the leased vehicle.

(b) The Servicer has servicing guidelines which include a general

policy as to the allowable delinquency period after which a lessee's

obligations ordinarily are deemed uncollectible. The Servicing

Agreement requires the Servicer to follow its normal servicing

guidelines. In addition, a supplement to the Servicing Agreement sets

forth the 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 investor certificates

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

Securitization Trust Agreement), the Servicer is required to report to

the Securitization 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 leases, recoveries on the related leased

vehicles, and draws upon the credit support. Further, the Servicer is

required to deliver to the trustee annually a certificate from an

executive officer of the Servicer stating that a review of the

servicing activities has been made under such officer's supervision,

and either stating that the Servicer has fulfilled all of its

obligations under the Servicing Agreement or, if the Servicer has

defaulted under any of its obligations, specifying any such default.

The Servicer's reports are reviewed at least annually by independent

accountants to ensure that the Servicer is following its normal

servicing standards and that the reports conform to the Servicer's

internal account records. The results of the independent accountants'

review are delivered to the Securitization Trustee.

(d) In cases where the Servicer and an insurer providing credit

support are affiliated or are the same entity, the credit support has a

``floor'' dollar amount that protects investors against the possibility

that a large number of credit losses might occur towards the end of the

life of the SUBI, whether due to Servicer advances or any other cause.

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

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

floor amount has been reached, the Servicer lacks an incentive to

postpone the recognition of credit losses because the credit support

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

actual draws on such amount. 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 principal balance of the leases allocated to the

SUBI. The applicant states that where the floor is a fixed dollar

amount, the amount of credit support ordinarily would increase as a

percentage of the principal balance during the period that the floor is

in effect.

14. In connection with the original issuance of investor

certificates, a prospectus or private placement memorandum is furnished

to investing plans. The prospectus or private placement memorandum

contains information material to a plan 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 Origination Trust and Securitization Trust

as legal entities and a description of how they were formed by their

respective sponsors;

(c) Identification of the Trust Agent, Origination Trustee and

Securitization Trustee;

(d) A description of the leases and related leased vehicles

allocated to each SUBI, including the diversification of the leases and

vehicles, the principal terms of the leases, and their material legal

aspects;

(e) A description of the sponsors of the Origination Trust and the

Securitization Trust, and of the Servicer;

(f) A description of the servicing arrangements set forth in the

Servicing Agreement, and the agreements governing the Origination Trust

and the Securitization Trust, including a description of the Servicer's

principal representations and warranties as to the leases and leased

vehicles allocated to each SUBI and the remedies for any breach

thereof;

(g) A description of the procedures for collection of payments on

or for leases and related leased vehicles and for making distributions

to the Securitization Trust, as holder of an interest in the SUBI, and

then to investor certificateholders, and a description of the accounts

into which such payments are deposited and from which such

distributions are made;

(h) Identification of the servicing compensation and any fees for

credit support that are deducted from payments on or for leases or

related leased vehicles before distributions are made to investors;

(i) A description of periodic statements provided to the

Securitization Trustee, and such statements that are provided or made

available to investors by the Securitization Trustee;

(j) A description of the events that constitute events of default

under the Servicing Agreement and a description of the Securitization

Trustee's and the investors' remedies;

(k) A description of any credit support;

(l) A general discussion of the principal Federal income tax

consequences of the purchase, ownership and disposition of the investor

certificates by a typical investor;

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

certificates to investors; and

(n) Information about the scope and nature of the secondary market

for the certificates.

Reports indicating the amount of payments of principal and interest

are provided to investors at least as frequently as distributions are

made to investors. Investors are also provided with periodic

information statements setting forth material information concerning

the leases and related vehicles allocated to each SUBI, including

information as to the amount

[[Page 58661]]

and number of delinquent and defaulted leases.

15. In the case of the offer and sale of investor certificates in a

registered public offering, the Securitization Trustee, the Servicer or

the sponsor of the Securitization Trust will file periodic reports as

required by the Securities Exchange Act of 1934 (the 1934 Act).

Although some trusts that offer certificates in a public offering 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

(SEC), 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 or

available for the Securitization Trust, it normally would continue to

have the obligation to file current reports on Form 8-K to report

material developments concerning the Securitization Trust and the

investor certificates. World Omni states that while the SEC's

interpretation of the periodic reporting requirements is subject to

change, periodic reports concerning the Securitization Trust shall be

filed to the extent required under the 1934 Act.

At the time distributions are made to certificateholders, a report

is delivered to the trustee as to the status of the Securitization

Trust and each SUBI, including the assets allocated to the SUBI. Such

report contains information regarding, among other things, the leases

and related vehicles allocated to the SUBI, 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 is also delivered to

or made available to the Rating Agency or Agencies that have rated the

investor certificates. A statement based on this report is also

provided to certificateholders either by the Securitization Trustee,

the Servicer, or DTC as depository of the investor certificates,

including a summary statement regarding the Securitization Trust and

the assets allocated to the SUBI. The statement contains information

regarding payments and prepayments, delinquencies, the remaining amount

of credit support, a breakdown of payments between principal and

interest and other information concerning the leases and leased

vehicles allocated to the SUBI.

With respect to payments on the certificates, World Omni states

that such payments are legally obligated to be made by the

Securitization Trustee to DTC, the record owner of the certificates.

World Omni represents that DTC makes payments to the beneficial owners

of the certificates as required by New York Stock Exchange Regulations,

SEC Regulations and the rules of the U.S. Federal Reserve Board.

16. In general, it is the policy of many underwriters to make a

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

underwriter. It is also the policy of many placement agents to

facilitate sales by investors who purchase certificates if the

placement agent has acted as a principal or agent in the original

private placement of the certificates and if the investors request the

placement agent's assistance. In this regard, the applicant states that

many underwriters have made a secondary market in certificates

sponsored by World Omni and its Affiliates and that the wide range of

investors involved have made such certificates fairly liquid

investments.\12\

\12\ The Department notes that on April 3, 1995, World Omni and

a number of respondents involving some 55 Toyota dealers (the Toyota

Dealers) entered into an agreement with the State of Florida (the

Agreement) following an investigation by the State. The

investigation apparently resulted from allegations by Florida

consumers of unfair trade practices by various Florida dealers,

including but not limited to certain Toyota Dealers. Under the terms

of the Agreement, a restitution fund of up to $4.5 million (the

Restitution Fund) was created for consumers in connection with

certain leases originated by the Toyota Dealers from January 1, 1989

through December 31, 1994. Initial ``advance'' payments into the

Restitution Fund were made by an affiliate of World Omni. However,

the Toyota Dealers ultimately will be responsible for most of the

restitution payments made to consumers.

World Omni and its Affiliates represent that they will abide by

all securities and other laws applicable to any offering of

interests in securitized assets, such as certificates in a trust as

described herein, including those laws relating to disclosure of

material litigation, investigations and contingent liabilities.

World Omni represents that the Agreement did not require any

payment from or adjustment to any assets of a Securitization Trust

and, according to the applicant, is not material to World Omni as

Servicer or to any such trust.

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17. World Omni has requested that the relief proposed herein be

made retroactive to June 27, 1994, which is the date upon which World

Omni states that the conditions of this proposed exemption were

satisfied. World Omni does not believe that it has engaged in any

prohibited transactions that would be covered by the requested

exemption. However, since June 27, 1994, it is possible that some

transactions may have occurred that would be prohibited. For example,

because many certificates are held in street or nominee name, the

applicant states that it is not always possible to identify whether the

percentage interest of plans in a trust is or is not ``significant''

for purposes of the Department's ``plan asset'' regulation (see 29 CFR

2510.3-101(f)). These problems are compounded as transactions occur in

the secondary market. In addition, with respect to the ``publicly-

offered security'' exception contained in that regulation (29 CFR

2510.3-101(b)), the applicant states that it is difficult to determine

whether each purchaser of a certificate is independent of all other

purchasers. Thus, World Omni requests an exemption which would provide

the relief described herein as of June 27, 1994.

18. In summary, the applicant represents that the transactions for

which exemptive relief is requested satisfy the statutory criteria of

section 408(a) of the Act because:

(a) The Securitization Trust holds an interest in a SUBI, which

generally represents a ``fixed pool'' of leases and related leased

vehicles, other than the obligation to reinvest principal collections

on the leases and leased vehicles in additional qualifying leases and

leased vehicles during a fixed ``revolving period'' of no more than 15

months.

(b) The Average Lease Rate for the leases in the portfolio used to

create a trust, after accounting for all leases added to such portfolio

during the ``revolving period'', will not exceed by more than 200 basis

points the Average Lease Rate for the original portfolio of leases used

to create the trust.

(c) Certificates in which employee benefit plans invest have been

rated in one of the three highest rating categories by the Rating

Agencies. Credit support is obtained to the extent necessary to attain

the desired rating. In addition, leases added to a trust portfolio

during the ``revolving period'' will not result in the certificates

receiving a lower credit rating from the Rating Agencies, at the end of

the ``revolving period'', than the rating that was obtained at the time

of the initial issuance of the certificates by the trust.

(d) All transactions for which the applicant seeks exemptive relief

are governed by the Origination Trust Agreement, the Servicing

Agreement and any applicable supplements thereto, and the

Securitization Trust Agreement. These agreements as well as the

prospectus or private placement memorandum are made available to plan

fiduciaries for their review prior to the plan's investment in the

certificates.

(e) Exemptive relief from sections 406(b) and 407(a) of the Act for

sales to employee benefit plans is substantially limited.

[[Page 58662]]

(f) Many underwriters have made, and the applicant anticipates that

such underwriters will continue to make, a secondary market in investor

certificates sponsored by World Omni and its Affiliates.

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

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

General Motors Hourly-Rate Employes Pension Plan (the Hourly Plan),

General Motors Retirement Program for Salaried Employes, Saturn

Individual Retirement Plan for Represented Team Members and Saturn

Personal Choices Retirement Plan for Non-Represented Team Members (the

Saturn Plans), and Employees' Retirement Plan for GMAC Mortgage

Corporation (the GMAC Plan; collectively, the Plans) Located in New

York, New York

[Application Nos. D-09930 & D-09931]

Proposed Exemption

(a) General Exemption. The restrictions of section 406(a)(1)(A)

through (D) 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 any transaction arising in

connection with the acquisition, ownership, management, development,

leasing, financing, or sale of real property (including the

acquisition, ownership or sale of any joint venture or partnership

interest in such property) or the borrowing or lending of money in

connection therewith, between a party in interest and the Plans,

provided that the following conditions are satisfied:

(1) The terms of the transaction are negotiated on behalf of the

Plans by, or under the authority and general direction of, General

Motors Investment Management Corporation (GMIMCo), as described in the

summary of facts in the notice of proposed exemption, and GMIMCo makes

the decision to invest the assets of the Plans in such transaction.

Notwithstanding the foregoing, a transaction involving an amount of $20

million or more, which has been negotiated on behalf of a Plan by

GMIMCo will not fail to meet the requirements of this section (a)(1)

solely because General Motors Corporation or its designee retains the

right to veto or approve such transaction;

(2) Any such party in interest is not--

(i) GMIMCo or any person directly or indirectly controlling,

controlled by, or under common control with GMIMCo, any officer,

director or employee of GMIMCo or any of its subsidiaries, or any

partnership in which GMIMCo is a 10 percent or more (directly or

indirectly in capital or profits) partner;

(ii) General Motors Corporation (GM) or any of its subsidiaries,

any officer or director of GM or any of its subsidiaries;

(iii) any named fiduciary of any Plan, or any person who has

discretionary authority in the selection, supervision or operation of

GMIMCo or any of its officers, directors or employees;

(iv) a sponsor of any of the Plans (Plan Sponsor) or any subsidiary

of a Plan Sponsor, or a ten percent or more shareholder, partner, or

joint venturer of a Plan Sponsor, or any officer or director of any of

them;

(v) any person who exercises discretionary authority,

responsibility or control, or who provides investment advice [within

the meaning of 29 CFR 2510.3-21(c)], with respect to the investment of

Plan assets involved in the transaction;

(3) The transaction is not part of an agreement, arrangement or

understanding designed to benefit a party in interest;

(4) At the time the transaction is entered into, and at the time of

any subsequent renewal or modification thereof that requires the

consent of GMIMCo, the terms of the transaction are at least as

favorable to the Plans as the terms generally available in arm's-length

transactions between unrelated parties;

(4) GM or GMIMCo shall maintain for a period of six years from the

date of each transaction mentioned above the records necessary to

enable the persons described in subparagraph (5) of this section (a) to

determine whether the conditions of this exemption have been met,

except that: (i) A prohibited transaction will not be deemed to have

occurred if, due to circumstances beyond the control of GM and GMIMCo,

the records are lost or destroyed prior to the end of the six-year

period, and (ii) no party in interest except GM and GMIMCo shall be

subject to the civil penalty which may be assessed under section 502(i)

of the Act, or to the taxes imposed by section 4975(a) and (b) of the

Code, if the records are not maintained, or are not available for

examination as required by subparagraph (5) below;

(5)(i) Except as provided in subsection (ii) of this subparagraph

(5) and notwithstanding any provisions of subsections (a)(2) and (b) of

section 504 of the Act, the records referred to in subparagraph (4) of

this section (a) are unconditionally available at GM's headquarter

offices, or, upon prior arrangement with GM, at any other customary

location for the maintenance and/or retention of such records, for

examination during normal business hours by:

(A) Any duly authorized employee or representative of the

Department of Labor or the Internal Revenue Service,

(B) Any fiduciary of a Plan or any duly authorized employee or

representative of such fiduciary, and

(C) Any participant or beneficiary of any Plan or any duly

authorized representative of such participant or beneficiary.

(ii) None of the persons described in subdivisions (i)(B) and

(i)(C) of this subparagraph (5) shall be authorized to examine GM's

trade secrets or commercial or financial information which is

privileged, confidential or of a proprietary nature.

(b) Specific exemption. The restrictions of sections 406(a)(1) (A)

through (D) and sections 406(b) (1) and (2) of the Act and the

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

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

apply to the furnishing of services, facilities, and any goods

incidental thereto by a place of public accommodation which is or may

be considered an asset of a Plan if the services, facilities or

incidental goods are furnished on a comparable basis to the general

public, and if the requirements of subparagraphs (a) (4) and (5) of

this exemption are met.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

July 1, 1994.

TEMPORARY NATURE OF THE EXEMPTION: The exemption proposed herein, if

granted, will be temporary in nature and will expire on the date of

publication by the Department of the final class exemption for plan

asset transactions determined by in-house asset managers, which was

proposed by the Department on March 24, 1995 at 60 FR 15597

(application no. D-09602).

Summary of Facts and Representations

1. The Plans are defined benefit plans sponsored by the General

Motors Corporation (GM) and subsidiaries of GM. As of December 31,

1994, there were approximately 835,700 active participants in the

Plans, and the Plans held assets totaling approximately $44.2 billion.

Approximately 5.6 percent of the Plans' total assets is currently

invested, or committed for specific investment, in real estate or real

estate related investments.

2. The Plans are administered by the Finance Committee of GM's

board of directors (the Finance Committee) as the

[[Page 58663]]

named fiduciary with respect to each of the Plans, except for the

Employee's Retirement Plan for GMAC Mortgage Corporation (the GMAC

Plan), discussed below. The Finance Committee, among other functions,

is responsible for the direction and oversight of each Plan's

investment policy, monitors each Plan's performance, and adopts broad

investment policy guidelines. The Finance Committee receives assistance

from an Investment Policy Committee (IPC), which periodically reviews

and makes recommendations on investment policy guidelines. The IPC is

comprised of officers of GM and officers of the General Motors

Investment Management Corporation (GMIMCo), a wholly-owned subsidiary

of GM. Further, the Finance Committee has authorized the IPC to approve

all investment commitments involving more than one percent of the

assets of any Plan's trust. The Finance Committee has also appointed

GMIMCo to act as an investment manager with respect to the Plans. In

that regard, GMIMCo is actively involved in real estate transactions

undertaken by the Plans, including transactions under the direct

management of third party investment managers.

The named fiduciary of the GMAC Plan is the GMAC Mortgage

Corporation Pension Committee (GMAC Committee). The assets of the GMAC

Plan have been commingled with the assets of the Hourly Plan and Saturn

Plans for investment purposes. As a result, GMIMCo acts also as an

investment manager with respect to the GMAC Plan.

Real estate transactions involving the Plans' assets may be

undertaken directly by GMIMCo's real estate portfolio group (the R.E.

Group) or indirectly through a third party asset manager with the R.E.

Group's involvement. The R.E. Group's functions include the

identification and analysis of real estate investments. The R.E. Group

is comprised of six investment professionals, four attorneys and

administrative personnel.

3. GM requests an exemption to allow the Plans to engage in real

estate transactions which may otherwise be prohibited under the Act, as

described herein. GM represents that all prospective transactions will

be effected on behalf of the Plans by GMIMCo and will not involve

parties in interest who have fiduciary authority over the particular

investments of the Plans. GM represents that due to its size and

complexity, the normal operation of the Plans with respect to their

real estate investments may involve party in interest transactions. The

Department recognizes this situation and, to date, has proposed and

granted various individual exemptions on behalf of large plans for real

estate transactions involving parties in interest who maintain no

authority over the investments involved. GM is requesting similar

exemptive relief.

4. GM represents that the Plans' investments in real estate are

made in various forms. Such forms involve real estate partnerships,

joint ventures, leases, and mortgages. As a result of such real

property investment arrangements, prohibited transactions by and

between a Plan and party in interest lenders, lessees, joint venturers,

partnership partners, and service providers may occur. Such parties

would maintain no authority with respect to the Plan assets involved in

such transactions.

5. GM represents that the Plans' investments in real estate take on

various forms, including limited partnerships, joint ventures, leases,

mortgages, sale-leasebacks, and convertible mortgage arrangements. With

respect to each investment structure, the projects in question are

typically office buildings, shopping centers, hotels and other

commercial or multi-family residential projects. GM represents that the

owners/operators/developers with whom the Plan invests are carefully

chosen and are experienced in the evaluation, ownership, management,

financing and, in the case of new projects, development of real estate.

Parties in interest with respect to the Plans which may become involved

in these various types of real estate transactions include bank

lenders, lessees, joint venturers, and partnership partners. The

proposed exemption would not include transactions involving any parties

in interest with any authority with respect to the Plans' investment in

the subject transaction.

6. The applicant states that it is possible that the investment by

the Plans in places of public accommodation may result in the use of

such facilities by parties in interest. Therefore, such transactions

involving these places of public accommodation may constitute

prohibited transactions as described in the Act.

7. GM represents that regardless of the structure involved, each

potential real estate investment on behalf of the Plans receives

thorough and careful analysis by GMIMCo and by its professional staff.

The investment process operates as follows: potential real estate

investments are generally brought to the attention of one or more

members of GMIMCo's professional staff by real estate professionals,

brokers, or advisers. A staff of real estate professionals under the

direction of GMIMCo's managing director then inspects and appraises

prospective properties, considers existing and prospective tenants, and

evaluates numerous other financial and non-financial aspects such as

size, location, actual and potential use, financing, taxes, insurance,

title requirements and compliance with zoning and other applicable

laws. Sophisticated computer models are utilized as a tool to assist

the real estate professionals and to evaluate risk and reward

potential.

Upon completion of this analysis, the potential real estate

investment is either rejected or approved by a manager. If the manager

approves the proposed transaction, it is then presented to GMIMCo's

Pension Investment Review Team (PIRT). Approval by the PIRT is final as

to transactions involving $30 million or less. Transactions involving

more than $30 million are referred for further consideration by the

Chief Investment Funds Officer of GM, who retains the right to approve

or veto such transaction. Transactions involving more than 1% of the

assets of a Plan's trust are referred for further consideration to the

IPC, which retains approval and veto authority with respect to such

transactions. GMIMCo's investment professionals are aided in the review

process by GMIMCo's in-house legal staff.

8. GM represents that by means of the arrangements described above,

rigorous financial standards and procedures have been established to

ensure sound real estate investments with appropriate rates of return.

GM represents that any covered transactions will be on terms not less

favorable to the Plans than those available between the Plan and

unrelated parties. GM represents that given the size and scope of the

Plans and their investment, and GM's relationship to numerous financial

institutions, denial of the requested exemption would substantially

inhibit the Plans from investing in many prime quality real estate

projects of substantial size.

9. In summary, the applicant represents that the requested

exemption will satisfy the criteria of section 408(a) of the Act for

the following reasons: (a) All investments will be subject to the

discretion and control of GMIMCo and its professional staff, which have

extensive experience in real property investments and which will

conduct complete analyses with respect to potential Plan investments;

(b) The Plans will be able to enter into transactions which, although

prohibited, are necessary for the prudent conduct of the Plans'

operation;

[[Page 58664]]

(c) All transactions will involve parties who are independent from GM

and who have no discretion, authority or control with particular

transactions; and (d) All transactions will be conducted on an arm's-

length basis on terms not less favorable to the Plan than those

available in arm's-length transactions with unrelated parties.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

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

Ventura County National Bancorp 401(k) and Employee Stock Ownership

Plan (the Plan) Located in Oxnard, California

[Application No. D-10024]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

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

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

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

(E) of the Code, shall not apply for the period from May 12, 1995 until

June 21, 1995 (the Offering Period), to: (1) The receipt of certain

stock rights (the Rights) by the Plan, which is sponsored by Ventura

County National Bancorp (Ventura) and its affiliates, pursuant to a

stock rights offering (the Rights Offering) by Ventura to shareholders

of record of Ventura's common stock (the Employer Stock) as of May 10,

1995; (2) the holding of the Rights by the Plan during the Offering

Period; and (3) the exercise of the Rights by the Plan, provided the

following conditions were met:

(a) The Plan's acquisition and holding of the Rights resulted from

an independent act of Ventura as a corporate entity, and all holders of

the Employer Stock were treated in a like manner, including the Plan;

(b) With respect to the ``401(k) portion'' of the Plan, the Rights

were acquired, held and controlled by individual Plan participant

accounts pursuant to plan provisions for individually directed

investment of such accounts; and

(c) With respect to the ``ESOP portion'' of the Plan, the authority

for all decisions regarding the acquisition, holding and control of the

Rights was exercised by an independent fiduciary which made

determinations as to whether and how the Plan should exercise or sell

the Rights acquired through the Rights Offering.

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

will be effective for the period from May 12, 1995 until June 21, 1995.

Summary of Facts and Representations

1. Ventura is a registered bank holding company conducting business

in Southern California through its wholly-owned subsidiaries, Ventura

County National Bank (VCNB) and Frontier Bank (Frontier; together, the

Banks). The principal executive offices of Ventura are located at 500

Esplanade Drive, Oxnard, California.

2. The Employer Stock is registered under Section 12 of the

Securities Exchange Act of 1934. The Employer Stock is publicly traded

on the National Association of Securities Dealers Automated Quotation

National Market System (NASDAQ). The applicant states that the Employer

Stock is issued by Ventura, an employer of employees covered by the

Plan, and further represents that such stock is a ``qualifying employer

security'' under section 407(d)(5) of the Act and section 4975(e)(8) of

the Code.\13\

\13\ In the case of an employee benefit plan that is an

``eligible individual account plan'' (as defined under section

407(d)(3) of the Act), section 407(d)(5) of the Act states, in

pertinent part, that the term ``qualifying employer security'' means

an employer security which is stock. However, the Department is

providing no opinion in this proposed exemption as to whether the

Employer Stock is a ``qualifying employer security'' under section

407(d)(5) of the Act.

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3. The applicant represents that due to declining earnings

beginning in 1991, the Banks entered into Formal Agreements with the

Office of the Comptroller of the Currency (OCC) in 1992 and 1993 which

imposed higher minimum regulatory capital requirements than had

previously applied to the Banks. The deadline for reaching this goal

was June 30, 1995.

The applicant represents further that new management personnel

brought in by Ventura's Board of Directors in September 1993 instituted

a plan to restore core profitability to the Banks. Ventura states that

these efforts have been largely successful. However, as of May 1995,

VCNB had not yet reached the capital ratio required under the Formal

Agreement. Therefore, Ventura initiated the Rights Offering as a means

to raise capital necessary for VCNB to attain the requisite capital

ratio levels and reimburse interest in accordance with the Formal

Agreements.

4. The Plan comprises an employee stock ownership plan (the ``ESOP

portion'') with a cash or deferred arrangement (the ``401(k)

portion''). The trustee of the Plan is Dai-Ichi Kangyo Bank of

California (the Trustee). The Trustee is independent of, and does not

have any other business relationship with, Ventura and its

subsidiaries. The Trustee has investment authority over Plan assets

other than participants' individually directed 401(k) accounts in the

Plan.

The Plan is an individual account plan as described in section

3(34) of the Act. Participants' individual accounts are divided into

subaccounts, which include the following: (i) The Deferred Income

Account, which contains a participant's salary deferrals under the

401(k) portion of the Plan; (ii) the Employer Contribution Account,

which contains discretionary employer matching contributions that are

allocated to the participant's account; (iii) the Employer Stock

Account, which contains shares of employer securities allocated to the

participant under the ESOP portion of the Plan; and (iv) the Rollover

Account, containing distributions from other qualified retirement

plans.

As of May 10, 1995, the Plan had 134 participants and total assets

of approximately $1,182,254. On such date, the Plan was the record

holder of 415,854 shares of the Employer Stock, of which 236,860 shares

were allocated to participants' individual accounts, and 178,994

unallocated shares were held in a suspense account under the Plan as

collateral for a loan to the Plan.14

\14\ In this regard, the applicant states that there is a loan

outstanding between Ventura and the Plan which was made by Ventura

to enable the ESOP portion of the Plan to acquire Employer Stock

from Ventura (the ESOP Loan). Ventura represents that the ESOP Loan

met all of the requirements for a statutory exemption under section

408(b)(3) of the Act. However, the Department is providing no

opinion in this proposed exemption as to whether the ESOP Loan met

the conditions necessary for exemptive relief under section

408(b)(3) of the Act.

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Investment of Plan assets is different under the 401(k) and ESOP

portions of the Plan. The 401(k) portion of the Plan permits each Plan

participant to direct the investment of his or her Deferred Income

Account, containing participants' salary deferrals, and Employer

Contribution Account, which contains discretionary employer matching

contributions, by choosing among the different investment funds

available under the Section 401(k) portion of the Plan. Participants

may also invest a portion of these accounts in shares of the Employer

Stock. Participants who have elected to invest a portion of their

Deferred Income Account or Employer Contribution Account in shares of

the Employer

[[Page 58665]]

Stock are referred to herein as ``Invested Participants''.

With respect to the ESOP portion of the Plan, the Trustee exercises

exclusive investment authority over Plan assets, subject to the

requirement that Plan assets be primarily invested in the Employer

Stock. In this regard, the applicant states that the Trustee must take

into consideration its fiduciary duties to act prudently with respect

to Plan investments and to invest Plan assets in the best interests of

Plan participants and their beneficiaries.

5. Effective May 12, 1995, Ventura instituted a Rights Offering in

connection with the Employer Stock. The Rights Offering called for the

issuance to all holders of the Employer Stock as of the close of

business on May 10, 1995 (the Record Date) transferable subscription

rights (i.e. the Rights) in the ratio of one Right for each 3.17 shares

of the Employer Stock held. No fractional rights were issued. The

number of Rights issued to each shareholder was rounded up to the

nearest whole Right.

Each Right conferred upon its holder an entitlement (the Basic

Privilege) to purchase one share of the Employer Stock at $2.25 per

share (the Exercise Price).15 Each Right also conferred upon its

holder a second privilege (the Oversubscription Privilege) allowing

each Right holder exercising the Basic Privilege in full to subscribe

for an additional number of shares of the Employer Stock (Excess

Shares), also at the Exercise Price. Excess Shares were subject to

certain availability, proration and reduction restrictions imposed by

Ventura. The applicant states that where an insufficient number of

Excess Shares was available to satisfy fully all exercises of the

Oversubscription Privilege, the available Excess Shares were prorated

among shareholders who exercised their Oversubscription Privilege based

upon the respective number of shares of the Employer Stock owned as of

the Record Date.

\15\ The price per share of the Employer Stock, as quoted on

NASDAQ, was $2.37 as of the end of the day on May 11, 1995, and was

approximately the same price per share at the end of the Offering

Period on June 21, 1995.

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The Basic Privilege was freely transferable. The Oversubscription

Privilege was not transferable. The Rights were traded on NASDAQ under

the symbol ``VCNBR'' through the close of trading on June 20, 1995, the

date prior to the expiration of the Rights Offering on June 21, 1995.

The proceeds of any Rights that were sold were credited to the accounts

of the Invested Participants according to the investments and

percentages which had been specified in such accounts.

6. The applicant states that all Invested Participants received by

mail: (i) a copy of the Prospectus published by Ventura; (ii) a letter

from the Trustee describing the procedures for participant directions

with respect to the Rights Offering; and (iii) a direction form

(Direction Form). The Direction Forms enabled the Invested Participants

to direct the Trustee either to (i) exercise the Rights allocable to

their accounts, or (ii) sell such Rights on the open market. The

Direction Forms also permitted Invested Participants to elect not to

participate in the Rights Offering.

The date that notification of the Rights Offering was mailed to

Invested Participants was May 17, 1995 (the Notification Date), which

was the same date that such information was received by the other

shareholders of record. In addition, Direction Forms necessary to

participate in the Rights Offering were provided to Invested

Participants on May 18, 1995. A postage paid envelope addressed to the

Trustee was provided with each Direction Form. The applicant states

that an informational meeting about the Rights Offering was held for

employees on May 22, 1995.

Invested Participants had to return the Direction Forms to the

Trustee within fourteen (14) days after the Notification Date (i.e. May

31, 1995) because the Trustee needed approximately twenty-one (21) days

to process such forms (as noted in Paragraph 8 below). In order for the

Rights to be exercised, the Subscription Agent had to receive the

Direction Form, together with payment for the shares which were to be

purchased, by 5:00 p.m., Pacific Time, on June 21, 1995 (the Expiration

Time). Rights not exercised prior to the Expiration Time became

worthless.

7. The applicant represents that the Rights Offering was an

independent act of Ventura as a corporate entity, under which all

holders of the Employer Stock, including the Plan, were treated in a

like manner. With respect to the 401(k) portion of the Plan, the Rights

were acquired, held and controlled by Invested Participants' individual

Plan accounts pursuant to Plan provisions for individually-directed

investment of such accounts. With respect to the ESOP portion of the

Plan, the Trustee made all decisions regarding whether to exercise or

sell Rights allocated to shares of the Employer Stock held in the Plan.

8. For each Invested Participant who directed the Trustee to

exercise Rights attributable to his or her Deferred Income or Employer

Contribution Accounts in the 401(k) portion of the Plan, the funds

which were needed to pay the exercise price were obtained by selling

specific investments in the Invested Participant's accounts. The order

of withdrawal was made at the direction of the Invested Participant or,

if no direction was given, specific investments were sold pro-rata from

the funds in the Invested Participant's accounts.

The Plan provided that amounts sold from the investment funds prior

to the last day of the Rights Offering were deposited by the Trustee in

a special short-term investment account pending the Trustee's payment

to the Subscription Agent of the exercise price for the subscribed

shares of the Employer Stock. Rights were exercisable by an Invested

Participant only to the extent of funds available in his or her

accounts in the Plan. If amounts in an Invested Participant's accounts

were insufficient to pay the exercise price for all shares of the

Employer Stock subscribed for, the Plan provided that the Trustee would

sell any Rights not exercised. The proceeds of any Rights that were

sold and any income from the special short-term investment account were

credited to the accounts of the Invested Participants. In the case of

such sale proceeds, credits were made to the accounts of the Invested

Participants whose allocable Rights were sold. In the case of such

income, credits were made to the accounts of the Invested Participants

whose redemption proceeds were deposited in the special short-term

investment account. In either case, the credits were made to each

account according to the investments and percentages that were

currently specified for such account.

The Direction Forms containing the Invested Participants'

instructions for the Rights Offering had to be returned to the Trustee

within twenty-one (21) working days before the date of the Expiration

Time (the Filing Date),16 in order to give the Trustee sufficient

time to perform the administrative procedures required to review

participant Direction Forms and implement directions, including the

liquidation of other Plan investments. With respect to any Invested

Participant who failed to submit a Direction Form to the Trustee by the

Filing Date, or submitted an invalid Direction Form, the Plan provided

that the Trustee had to sell the Rights on the open market.

[[Page 58666]]

These possible consequences were disclosed in the information sent to

shareholders of the Employer Stock prior to the Rights Offering.

\16\ The Filing Date was June 1, 1995. The Filing Date was

supposed to be fourteen (14) days after the Notification Date (i.e.

May 17, 1995, as noted in Paragraph 6), but was extended one day

because May 31st was the Memorial Day holiday. Thus, Invested

Participants had approximately two weeks following notification to

provide their instructions to the Trustee.

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

In the event that the market price for the Employer Stock,

including the effect of any applicable brokerage commissions and other

expenses, at the time the Trustee submitted the Rights for exercise,

was less than the exercise price under the Offering, the Plan provided

that the Trustee would not automatically attempt to exercise such

Rights. In such situations, an Invested Participant was permitted to

direct the Trustee to either: (i) use the available funds to purchase

shares of the Employer Stock on the open market; or (ii) reinvest the

available funds pursuant to the investment elections and percentages

specified for the Invested Participant's accounts. In addition, the

Trustee could, at the direction of the Invested Participant, either:

(i) allow the Rights to expire, or (ii) attempt to sell the Rights on

the open market. If the latter option was chosen, the Trustee was

required, as directed by the Invested Participant, to either: (i) apply

the available funds toward the purchase of shares of the Employer Stock

on the open market, or (ii) reinvest the available funds pursuant to

the investment elections and percentages specified for the Investment

Participant's accounts.

9. With respect to the ESOP portion of the Plan, the Trustee had

exclusive authority to exercise or sell the Rights allocable to shares

of the Employer Stock held in the ESOP portion of the Plan. The Trustee

represents that it's decision to exercise or sell the Rights was made

in accordance with the fiduciary duty to act prudently with respect to

Plan investments and to invest Plan assets in the best interests of the

Plan's participants and beneficiaries.

In this regard, the Trustee decided to sell the Rights allocated to

the ESOP portion of the Plan on the open market. The applicant states

that the Trustee did not solicit the views of participants with respect

to this decision because investment decisions are not generally passed-

through under the ESOP portion of the Plan. The proceeds of the sale of

the Rights were allocated to each participant's ESOP Employer Stock

Account in the Plan in the same ratio as that particular Employer Stock

Account bore to all other Employer Stock Accounts in the Plan on the

record date.

Prior to making the decision on behalf of the ESOP portion of the

Plan to sell the Rights, the Trustee consulted with a financial

consulting firm, the Financial Valuation Group (FVG), whose consultants

were acquainted with ESOPs and regional banks such as Ventura. The

Trustee considered, with the assistance of FVG, a variety of factors

that it deemed relevant to whether the Plan should exercise or sell the

Rights. These factors included: (a) any transaction and financing costs

which may be involved in exercising the Rights; (b) future per share

value expectations of market analysts who follow the Employer Stock;

(c) the recent trading history of shares of the Employer Stock, and the

Rights, and how that trading compared to the trading of similar

offerings of comparable financial institutions; (d) the price/earnings

ratio of the Employer Stock; (e) a comparison of the Employer Stock's

price/earnings ratio and pro forma book value to that of other

financial institutions and the relation of such values to the

respective market values of those institutions; (f) the current market

price of the Employer Stock; and (g) the market price of the Rights.

The Trustee represents that it also considered the investment

objectives of the participants in the ESOP portion of the Plan, the

risks of each available alternative for the Rights, and the financial

resources of the ESOP portion of the Plan. After considering all these

factors, the Trustee determined that the sale of the Rights was

appropriate for the ESOP portion of the Plan and in the best interests

of the affected Plan participants.

10. The Trustee received a total of 131,185 Rights, of which 74,718

represented Rights attributable to allocated shares of Employer Stock

in the Plan and 56,467 represented Rights attributable to unallocated

shares. The Rights, as listed on NASDAQ, were initially valued at $.156

per Right on May 24, 1995.17 The Rights were valued at $.125 per

Right at the close of the Offering Period. The approximate volume of

trading in the Rights during the Rights Offering was as follows: (i)

32,127 Rights were traded between May 10 and May 31, 1995, and (ii)

816,417 Rights were traded between June 1 and June 21, 1995.

\17\ In this regard, the applicant states that the Rights were

not traded in sufficient volume prior to May 24, 1995 to be listed

on NASDAQ.

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

All of the Rights received by the Trustee in connection with the

Plan's ownership of the Employer Stock in the ESOP portion of the Plan,

as well as the Rights received for the 401(k) portion of the Plan which

Invested Participants elected to sell rather than exercise (as

discussed further below), were sold by the Trustee on the open market.

The Rights were sold in two separate transactions on June 13 and June

14, 1995 for $.093 per Right, which was the market price for the Rights

on the date of the transactions as quoted on NASDAQ. The Trustee states

that the sale of the Rights was executed by an unrelated party.

With respect to the 401(k) portion of the Plan, the applicant

states that there were 134 Invested Participants who collectively

received a total of 6,989 Rights as a result of the Rights Offering. As

noted above in Paragraph 8, Invested Participants who elected to sell

their Rights could make such an election up until the Filing Date (i.e.

June 1, 1995). For those Invested Participants who elected to sell

their Rights, the Trustee sold such Rights (along with the other Rights

received by the ESOP portion of the Plan) as part of the two separate

transactions on June 13 and 14, 1995. The Rights were sold for $.093

per Right, which was the market price on such dates. In this regard,

the Trustee believed that it would be more efficient and fair to all

affected Invested Participants in the Plan for the Rights to be sold at

about the same time, rather than gradually as the Direction Forms were

received. The proceeds from all such sales were allocated to the Plan

accounts of those Invested Participants who elected to sell their

Rights, in direct proportion to the number of Rights they elected to

sell. The applicant states that of the 6,989 Rights received by the

Plan on behalf of Invested Participants, a total of 1,024 Rights (with

rounding) were exercised, a total of 470 Oversubscription Privileges

were exercised, a total of 5,901 Rights were sold, and a total of 64

Rights were allowed to expire.

11. The total number of shares of Employer Stock outstanding prior

to the Rights Offering was 6,333,835, of which approximately 415,854

shares, or 6.56 percent, were held by the Plan. The total number of

shares of the Employer Stock outstanding after the Rights Offering was

9,226,723, an increase of 2,888,888 shares.18 Of these additional

shares, approximately 1,685,652 were sold to shareholders upon exercise

of the Rights, or to investors who purchased the Rights on the open

market, and the other 1,203,236 shares were sold to outside investors

pursuant to certain standby purchase agreements. The applicant

represents that following the Rights Offering, VCNB attained the

[[Page 58667]]

capital ratio required under the OCC Formal Agreements.

\18\ The applicant notes that the number used to show the

increase due to the Rights Offering does not include an additional

4,000 shares which were added to the post-Rights Offering total

following the exercise of a stock option by a former employee of

VCNB.

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

12. In summary, the applicant represents that the transactions

satisfied the statutory criteria of section 408(a) of the Act because,

among other things: (a) the Plan's acquisition of the Rights resulted

from an independent act of Ventura, an employer of employees covered by

the Plan; (b) with respect to all aspects of the Offering, all holders

of the Employer Stock were treated in the same manner, including the

Plan; (c) individual participants whose Deferred Income and Employer

Contribution Accounts under the 401(k) portion of the Plan held

interests in the Employer Stock were responsible for directing the

Trustee to exercise or sell Rights under the Rights Offering; and (d)

with respect to the ESOP portion of the Plan, investment decisions

regarding whether to sell or exercise the Rights received by the Plan

were made by a qualified, independent fiduciary acting for the Plan

(i.e. the Trustee).

Notice to Interested Persons

The applicant states that notice of the proposed exemption shall be

made by first class mail to all Plan participants within fifteen (15)

days following the publication of the proposed exemption in the Federal

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

exemption as published in the Federal Register and a supplemental

statement (see 29 CFR 2570.43(b)(2)) which informs interested persons

of their right to comment on and/or request a hearing with respect to

the proposed exemption. Comments and requests for a public hearing are

due within forty-five (45) days following the publication of the

proposed exemption in the Federal Register.

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

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

Life Insurance Corporation Retirement Savings Plan (The Plan) Located

in Dallas, Texas

[Application No. D-10048]

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

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

the Act and the sanctions resulting from the application of section

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

cash sale of 16 residential mortgage loans (the Loans) by the Life

Insurance Company of the Southwest Holding Corporation Retirement

Savings Plan (the Plan) to the Life Insurance Company of the Southwest

(the Employer), a party in interest with respect to the Plan, provided

the following conditions are satisfied:

(a) The Employer will pay on a Loan by Loan basis as of the date of

sale the greater of: (1) The outstanding principal balance plus any

accrued, unpaid interest on each of the Loans, or (2) the fair market

value of each of the Loans, as determined by a contemporaneous

independent appraisal;

(b) The proposed sale will be a one-time cash transaction; and

(c) The Plan will pay no costs or commissions as a result of this

transaction.

Summary of the Facts and Representations

1. The Plan, in effect since June 16, 1988, is a profit sharing

plan with a 401(k) feature providing for participant directed accounts.

The Plan covered 122 employees as of January 1, 1993. As of December

31, 1993, the Plan had $3,945,285 in total assets. The Employer is a

privately held Texas Corporation. The Trustee is the Texas Commerce

Trust Company, N.A.

2. It is represented that during the 1980's, the Plan Trustees

purchased the Loans for the Plan as a part of the Plan's General

Investment Fund. It is represented that during the mid 1980's the

percentage of Plan assets invested in mortgage loans (calculated based

on the outstanding loan balance of the mortgage loan portfolio (Loan

Portfolio)) approached 35%. Most of the Loans were purchased at various

times from Couch Mortgage, a mortgage banking firm in Houston, Texas.

Couch Mortgage is independent of the Plan and Employer. All Loans

purchased by the Plan were originated between August 17, 1973 and July

17, 1990, with various original durations and all were secured by first

lien positions on residential real properties located in Greater

Houston. All the Loans were purchased for their remaining principal

balance at the time of the purchase from Couch Mortgage. Eleven of the

16 Loans have fixed rates that range from 10.00% to 16.50%. The

remaining five Loans have variable rates that currently range between

7.560% and 10.625%. The borrowers were all independent of the Plan and

the Employer.

The Loans which are the subject of this application represent 100%

of the Loan Portfolio held by the Plan. As of June 2, 1995, the

percentage of the fair market value of the Plan assets invested in the

Loans was 8.53%. The Loans are residential real estate mortgage loans

and one land only loan.19

\19\ The Department notes that the decisions of the fiduciaries

on behalf of the Plan, in connection with the acquisition and

holding of the Loans are governed by the fiduciary responsibility

requirements of part 4, Subpart B, of Title I. The Department

expresses no opinion, herein, as to whether any of the relevant

provisions of part 4, Subpart B, of Title I have been violated

regarding the Plan's investment in and subsequent holding of the

Loans, and no exemption from such provisions is proposed herein.

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

3. Coopers & Lybrand L.L.P. (Coopers & Lybrand), an independent

third party appraiser estimated the fair market value for each of the

16 Loans held in the Loan Portfolio, and the outstanding principal

balance, as of March 31, 1995. The methodology used to determine the

fair market value of the Loans is more fully discussed in paragraph

number 6.

4. The Employer proposes to purchase each of the Loans held in the

Loan Portfolio from the Plan for cash. It is represented that the

Employer will pay on a Loan by Loan basis as of the date of sale the

greater of: (a) The outstanding principal balance plus any accrued,

unpaid interest on each of the Loans, or (b) the fair market value of

each of the Loans. It is represented that the Employer will compare the

principal balance plus accrued but unpaid interest on the loans with

the fair market value for each of the Loans. If this amount is higher

than the fair market value on the date of the sale, the Employer will

pay the higher amount. In the event that the fair market value of each

of the Loans is higher than the principal balance plus accrued but

unpaid interest, the Employer will pay the fair market value on the

date of the sale. In this regard, as of March 31, 1995, seven of the 16

Loans had a fair market value which was less than the outstanding

principal balance of the Loan, and nine of the Loans had a fair market

value which was greater than the outstanding principal balance of such

Loans. Based on calculations as of March 31, 1995, it is estimated that

the total amount the Plan will receive as a result of the sale will be

approximately $275,939.08.

5. The applicant represents that since 1988 the Plan has sought a

buyer for the total Loan Portfolio. Offers received have been deeply

discounted from the par value. Potential purchasers considered the

package expensive to administer due to the average size of the

outstanding loan balance, lack of uniformity in the loan terms (i.e.

interest rate, maturity date), and lack of

[[Page 58668]]

original background information from the original loan underwriting.

6. The applicant submitted an appraisal of the fair market value of

the Loans (the Appraisal) prepared on March 31, 1995, by Coopers &

Lybrand. Coopers & Lybrand is a member of Coopers & Lybrand

International, incorporated in Switzerland. It is represented that

Coopers & Lybrand has no relationship to the Employer or the Plans and

less than 1% of its annual income comes from business derived from the

Employer and its affiliates. The value of each of the Loans was

appraised using an Income Approach, specifically, the Discounted Free

Cash Flow Method. Employing this method, the net cash flow from each of

the Loans was forecast over the remaining life of each Loan and

discounted to the present value. Monthly principal and interest

payments received from each of the Loans were considered to be the

Loan's cash flow. For the purpose of determining this cash flow, the

following assumptions were made: the next set of payments was assumed

to occur on the date of the Appraisal, with the remaining payments made

monthly thereafter; rates on the five variable rate loans were assumed

constant at their current levels; and payments were assumed to occur on

their monthly due date, with no prepayments or late payments. The net

cash flow from each of the Loans was then discounted to present value

on a monthly basis.

The Market Approach was not utilized, as Coopers & Lybrand was

unable to locate institutions who would be desirous of a portfolio with

similar characteristics to the Plan's Loan Portfolio. In order to

determine the market's interest in this type of loan portfolio, Coopers

& Lybrand analyzed an attempt made by the Plan to market the Loan

Portfolio. Specifically, Coopers & Lybrand noted correspondence from

the Vice President of Institutional Sales for Meridian Capital Markets,

the firm which attempted to sell the Loan Portfolio for the Plan.

Meridian concluded that the Loans lacked marketability due to various

reasons including the Loan Portfolio's small size, varying maturities,

cost of servicing, location of the collateral, and the non-uniform

nature of the Loans.

Based on the valuation analysis, and the facts and circumstances as

of the valuation date, the aggregate fair market value and aggregate

outstanding principal balance of the 16 Loans held by the Plan, as of

March 31, 1995 was estimated to be $266,483.41 and $267,915.37,

respectively.

7. The best offer for purchase of these assets is from the

Employer. In this regard, if the Plan had sold the 16 Loans at the

aggregate outstanding principal on March 31, 1995, it would have

received $267,915.37, based on the Appraisal. If the Plan had sold the

16 Loans at the aggregate fair market value on March 31, 1995, it would

have received $266,483.41, based on the Appraisal. However, treating

each note as an individual asset and requiring the Employer to pay on a

Loan by Loan basis the greater of the fair market value or outstanding

principal balance on each Loan, then, as of March 31, 1995, the Plan

would have received an additional $8,023.71 when compared to the

aggregate principal balance and $267,915.37. When compared to the

aggregate fair market value of $266,483,41 the Plan will receive an

additional $9,455.67.

8. The Plan's Advisory Committee, which consists entirely of

employees and officers of the Employer, desires to offer participants a

new selection of nationally known investment funds and other features

such as daily valuation and 24-hour a day access to fund balances.

However, the Plan cannot do so while the Loans constitute a portion of

the General Investment Fund. The General Investment Fund and the other

investment options available to participants are presently managed by

the Trustees. The applicant represents that of the investment advisors

interviewed by the Advisory Committee, no firm would manage the Loan

Portfolio without charging the Plan a fee for such services. No

investment advisor interviewed could manage the Loans and offer daily

valuation, 24-hour access to fund balances, or daily investment changes

to the Participants. The Plan as drafted currently would permit

valuations as frequently as daily, but because of the existence of the

Loans, no nationally known investment advisor of which the Committee is

aware, is willing to offer daily valued funds for participant

direction. Therefore, the current Trustee-managed funds are valued on a

quarterly basis, and permit participant-directed trades only on a

quarterly basis. The applicant represents that daily valuations allows

the participants to make daily changes to their investment decisions

and better react to violative market conditions.

9. The applicant represents that the proposed transaction is in the

interest of and protective of the Plan. The applicant represents that

by granting the Plan this exemption, the Plan would be receiving at

least par value for the Loans which it has not been able to obtain on

the open market. The administrative burdens in record keeping for the

Plan would be reduced. Plan participants could be offered faster

service regarding account balances and options for changing investment

choices if they were participating in a Plan whose assets were wholly

managed and directed by the Trustee.

10. The applicant maintains that the proposed sale is

administratively feasible as the transaction will be a one-time cash

sale. The transaction is protective and in the interest of the Plan

because the Plan will pay no fees in connection with the sale and the

Employer will pay on a Loan by Loan basis as of the date of sale the

greater of: (1) The outstanding principal balance plus any accrued,

unpaid interest on each of the Loans; or (2) the fair market value of

each of the Loans, as determined by a contemporaneous independent

appraisal.

11. In summary, the applicant represents that the transaction

satisfies the statutory criteria of section 408(a) of the Act and

section 4975(c)(2) of the Code because:

(a) The Employer will pay on a Loan by Loan basis on the date of

sale the greater of: (1) The outstanding principal balance plus any

accrued, unpaid interest on each of the Loans; or (2) the fair market

value of each of the Loans, as determined by a contemporaneous

independent appraisal;

(b) The proposed sale will be a one-time cash transaction; and

(c) The Plan will pay no costs or commissions as a result of this

transaction.

FOR FURTHER INFORMATION CONTACT: Janet L. Schmidt of the Department,

telephone (202) 219-8883. (This is not a toll-free number.)

Fidelitone, Inc. Employees' Profit Sharing and Savings Plan & Trust

(the Plan) Located in Wauconda, Illinois

[Application No. D-10077]

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), 406 (b)(1) and (b)(2)

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

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

Code, shall not apply to the proposed sale by the Plan of certain

securities to Fidelitone, Inc. (Fidelitone), a party in interest with

respect to the Plan, provided that the following conditions are

satisfied: (1) the sale is a one-time

[[Page 58669]]

transaction for cash; (2) the Plan pays no commissions nor any other

expenses relating to the sale; and (3) the purchase price is the

greater of: (a) the fair market value of the securities as determined

by a qualified, independent appraiser, or (b) the Plan's initial

capital investment plus opportunity costs attributable to the

securities, less cash dividends received.

Summary of Facts and Representations

1. The Plan is a profit sharing plan sponsored by Fidelitone. As of

March 31, 1995, the Plan had approximately 185 participants and total

assets of approximately $2.3 million. The trustee of the Plan is Ronald

Comm, Chief Financial Officer of Fidelitone. Fidelitone, an Illinois

corporation, is a distributor of electronic repair parts and

accessories and is located in Wauconda, Illinois.

2. Among the assets of the Plan are shares in two real estate

investment trusts, the Krupp Government Income Trust (Krupp I) and the

Krupp Government Income Trust II (Krupp II), both of which invest

primarily in insured mortgage obligations. On November 14, 1990, the

Plan invested in 5000 Krupp I shares at a cost of $20/share, a total of

$100,000. On April 2, 1992, the Plan invested in 4500 Krupp II shares

at $20/share, a total of $90,000. The Krupp funds are both close-ended

trusts having a fixed number of outstanding shares and no unissued

shares. They were both set up to last approximately 10 to 12 years and

consequently have seven to eight years remaining. Barring any defaults

in the portfolios, the Krupp Co. reports that all remaining capital

will be paid to shareholders.

The Krupp Trusts have returned both income and principal to the

Plan. A portion of the dividends was used to acquire additional Krupp

shares through the dividend reinvestment plan. From November 1990 to

November 1993, the Plan purchased 1421.91 Krupp I shares at an average

price of $19.11 per share. From April 1992 through November 1993, the

Plan purchased 576.34 Krupp II shares at an average price of $19.30 per

share. From February 14, 1994 through October 1995, rather than

reinvesting the dividends, the Plan has received cash in the aggregate

amount of $25,677.28. Specifically, the cumulative cash dividends with

respect to the Krupp I shares have been $14,588.24, while the

cumulative cash dividends with respect to the Krupp II shares have been

$11,089.04

3. The applicant obtained an independent appraisal of the Krupp

investments from Mark S. Loftus, First Vice President, Investments, at

Dean Witter Reynolds' Rolling Meadows, Illinois office. The letter from

Mr. Loftus notes that neither Krupp fund trades on any public

exchange.20 However, each fund's own dividend reinvestment plan

buys back shares quarterly using a sealed bid auction method. As of

June 1, 1995, the dividend reinvestment plan was repurchasing Krupp I

shares at $14.40 per share, and Krupp II shares at $14.90 per share.

Mr. Loftus stated that the Krupp Co. also annually computes a net asset

value for ERISA purposes by marking securities to comparable Treasury

market securities. As of December 31, 1994, Krupp I shares had a net

asset value of $15.10 per share, while Krupp II shares had a net asset

value of $15.32 per share. Besides the dividend reinvestment plan, Mr.

Loftus notes the existence of a few third party companies not

affiliated with Dean Witter Reynolds, Inc. nor with the Krupp Co. who

attempt to match buyers and sellers on a secondary basis. Prices

obtained on such third party transactions are often at substantial

discounts to par value and net asset value prices.

\20\ The Department expresses no opinion herein on whether the

acquisition and holding of the Krupp shares by the Plan violated any

of the provisions of Part 4 of Title I in the Act.

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The applicant represents that the Plan trustee and Fidelitone have

attempted to sell the Krupp shares at the cost paid by the Plan. Mr.

Loftus, in his summary of the Plan's transaction history, indicates

that Fidelitone attempted on two different occasions in 1994 to sell

the Krupp shares using the sealed bid auction method but was

unsuccessful because average buy back prices had declined.

4. Because the Plan has been modified to permit the participants to

direct the investment of their respective individual accounts among six

mutual funds, all Plan assets have been liquidated, with the exception

of the Krupp shares. Fidelitone now proposes to purchase all the Krupp

shares in the Plan, including those purchased with reinvested

dividends, for the greater of: (a) the aggregate fair market value of

the Krupp shares as determined by a qualified, independent appraiser,

or (b) the Plan's initial capital investment plus opportunity costs

attributable to the Krupp shares, less cash dividends received. Because

the aggregate fair market value of the Krupp shares is less than the

Plan's initial capital investment, Fidelitone will purchase them from

the Plan for the latter amount. Accordingly, Fidelitone will pay the

Plan a total purchase price of $245,289.72. The purchase price was

calculated by taking the Plan's initial capital investment in the Krupp

shares (i.e., $190,000) and (i) adding to that amount an assumed 10%

annual return for each of the years since the Plan's initial investment

in the shares through October 14, 1995 (i.e., $80,967), and (ii)

subtracting from that amount the aggregate cash dividends received

(i.e., $25,677.28). The sale will be a one-time transaction for cash,

and the Plan will pay no commissions nor any other expenses relating to

the sale.

The applicant represents that the proposed transaction is in the

interests of the Plan because if the Plan is forced to attempt a sale

of the Krupp shares on the open market, the Plan will receive

substantially less than the amount the applicant is willing to pay. In

addition, the sale will enable the Plan to divest itself of illiquid

assets that are difficult to value and give participants the

opportunity to direct the investment of the total value of their

accounts, including that portion attributable to the Krupp shares.

5. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (1) the sale will

be a one-time transaction for cash; (2) the Plan will pay no

commissions nor any other expenses relating to the sale; (3) the sale

will enhance the liquidity of the assets of the Plan; and (4) the

purchase price will be the greater of: (a) the fair market value of the

Krupp shares as determined by a qualified, independent appraiser, or

(b) the Plan's initial capital investment plus opportunity costs

attributable to the Krupp shares, less cash dividends received.

Tax Consequences of Transaction

The Department of the Treasury has determined that if a transaction

between a qualified employee benefit plan and its sponsoring employer

(or affiliate thereof) results in the plan either paying less than or

receiving more than fair market value, such excess may be considered to

be a contribution by the sponsoring employer to the plan and therefore

must be examined under applicable provisions of the Code, including

sections 401(a)(4), 404 and 415.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all interested

persons by personal delivery and by first-class mail within 10 days of

the date of publication of the notice of pendency in the Federal

Register. Such notice shall

[[Page 58670]]

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/or to request a hearing with respect to the proposed

exemption. Comments and requests for a hearing are due within 40 days

of the date of publication of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Karin Weng of the Department,

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

Intrenet Employee Retirement Savings Plan (the Plan) Located in

Milford, OH

[Application No. D-10095]

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), 406(b)(1) and (b)(2) of

the Act and the sanctions resulting from the application of section

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

the Code, shall not apply to the proposed sale by the Plan of certain

units of limited partnership interests (the Units) to Intrenet Inc.

(Intrenet), a party in interest with respect to the Plan, provided that

the following conditions are satisfied: (a) the sale is a one-time

transaction for cash; (b) the Plan suffers no loss, taking into account

all cash distributions received as a result of owning the Units; (c)

the Plan pays no commissions nor any other expenses relating to the

sale; and (d) the purchase price is the greater of $48,850 or the fair

market value of the Units as of the date of the sale as determined by a

qualified, independent appraiser.

Summary of Facts and Representations

1. The Plan is a defined contribution, profit sharing plan with

approximately 1,821 participants and beneficiaries and total assets of

approximately $2,224,567 as of December 31, 1994. The trustee of the

Plan is the SBS Trust Company. Intrenet, the Plan sponsor, is a holding

company for six truckload carrier subsidiaries providing general and

specialized carrier services throughout the United States.

2. Among the assets of the Plan are investments in two limited

partnerships, the ML Venture Partners II, L.P. (the Venture Fund) and

the ML LEE Acquisition Fund, L.P. (the Acquisition Fund). In April

1987, the Plan purchased 50 Units of the Venture Fund at a cost of

$1000 per Unit. In October 1989, the Plan purchased 40 Units of the

Acquisition Fund at a cost of $1000 per Unit. The Venture Fund invests

primarily in securities of new and developing companies. The

Acquisition Fund invests primarily in subordinated debt and preferred

stock securities issued in connection with friendly leveraged

acquisitions, recapitalizations, and other leveraged financing. The

Units are not tradable on any public securities market.21

\21\ The Department expresses no opinion herein on whether the

acquisition and holding of the Units by the Plan violated any of the

Provisions of Part 4 of Title I in the Act.

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The Units have returned both income and principal to the Plan in

the form of cash distributions. With respect to the Venture Fund, the

Plan has received cumulative cash distributions of $790 per Unit

($39,500/50 Units), as of October 1995. With respect to the Acquisition

Fund, the Plan has received cumulative cash distributions of $950.31

per Unit ($38,012.40/40 Units), as of August 14, 1995.

3. An estimate of the value of the Units is provided to Merrill

Lynch by an independent valuation service on an annual basis. The most

recent statement, dated May 31, 1995, provided to the Plan by Merrill

Lynch, reports a value of $561 per Unit of the Venture Fund ($28,050/50

Units), and $520 per Unit of the Acquisition Fund ($20,800/40 Units), a

total of $48,850 for all the Units. The Merrill Lynch statement

indicates that these investments are generally illiquid and that

investors may not be able to sell them nor realize the amounts shown

above upon a sale or liquidation. Thus although there is no readily

available market for the Units, the valuation methodology used by the

independent valuation service determines the most probable price as of

a specified date that the Plan could expect to receive if it sold the

Units in an arm's length transaction in a competitive market.

4. In mid-1994, the Plan liquidated all of its assets, with the

exception of the Units, and permitted the participants to direct the

investment of their respective individual accounts among six mutual

funds. In order to enable participants to direct the investment of the

total value of their accounts, including that portion attributable to

the Units, and to facilitate any required distributions, Intrenet

proposes to purchase the Units from the Plan for the greater of $48,850

or the fair market value of the Units as of the date of the sale, as

reported in the then most recent Merrill Lynch statement. Taking into

account an assumed purchase price of $48,850, the original costs of the

Units, and all cash distributions received, the Plan will receive the

following rates of return on its original investment in the Units. The

applicant represents that the Plan will receive a simple average annual

return of 4.13% with respect to the Venture Fund for the period from

April 1987 to October 1995, and of 7.84% with respect to the

Acquisition Fund for the period from October 1989 to October 1995. The

sale will be a one-time transaction for cash, and the Plan will pay no

commissions nor any other expenses relating to the sale.

The applicant represents that the proposed transaction is in the

interests of the Plan because if the Units are sold to an unrelated

third party, the Plan will receive substantially less than the

appraised value of the Units, due to their lack of marketability. In

addition, the sale will enable the Plan to divest itself of illiquid

assets and facilitate any required distributions. Finally, the sale

will enhance the diversification of the assets of the Plan by providing

participants the opportunity to reinvest the value attributable to the

Units in their accounts.

5. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (a) the sale will

be a one-time transaction for cash; (b) the Plan will pay no

commissions nor any other expenses relating to the sale; (c) the price

paid by the applicant will be the greater of $48,850 or the fair market

value of the Units as of the date of the sale as determined by a

qualified, independent appraiser; and (d) the sale will enhance the

liquidity and diversification of the assets of the Plan.

Notice to Interested Persons

Notice of the proposed exemption will be given to all interested

persons by first-class mail within 10 days of the date of publication

of the notice of pendency in the Federal Register. Such notice will

include a copy of the notice of proposed exemption as published in the

Federal Register and inform interested persons of the right to comment

and/or to request a hearing. Comments with respect to the notice of the

proposed exemption are due within 40 days after the date of publication

of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Karin Weng of the Department,

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

[[Page 58671]]

ContiFinancial Services Corporation (ContiFinancial) Located in New

York, New York

[Application No. D-10102]

Proposed Exemption

Section 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.22

\22\ 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 assets

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.23 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;

\23\ 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.24 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.

\24\ 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.

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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.

Section II. General Conditions

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

following conditions are met:

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

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

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

party;

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

subordinated to the rights and interests evidenced by other

certificates of the same trust;

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

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

generic rating categories from either Standard & Poor's Corporation

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

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

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

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

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

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

and servicing agreement providing for such succession upon the

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

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

underwriters in

[[Page 58672]]

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 (the SEC) under the Securities Act

of 1933.

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

This text is long and has been trimmed here. Open the source document for the complete record.