Proposed Exemptions; Wells Fargo Bank, N.A., et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10014, et al.]

Proposed Exemptions; Wells Fargo Bank, N.A., et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

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

date of publication of this Federal Register Notice. Comments and

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

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

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

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

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

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

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

addressed and include a general description of the evidence to be

presented at the hearing.

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

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

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

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

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

Exemption. The applications for exemption and the comments received

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

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

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

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

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

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

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

exemption as published in the Federal Register and shall inform

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

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

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

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

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

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

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

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

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

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

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

statement of the facts and representations.

Wells Fargo Bank, N.A. (Wells Fargo) Located in San Francisco, CA;

Proposed Exemption

[Application No. D-10014]

Based on the facts and representations set forth in the

application, the Department is considering granting an exemption under

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

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

2570, Subpart B (55 FR 32836, August 10, 1990).1

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\1\ For purposes of this proposed exemption, reference to

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

also to the corresponding provisions of the Code.

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Section I. Covered Transactions

If the exemption is granted, the restrictions of section 406(a) of

the Act and the sanctions resulting from the application of section

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

the Code, shall not apply, effective October 1, 1995, to the

[[Page 64151]]

purchase or redemption of shares by an employee benefit plan (the

Plan), in certain mutual funds that are either affiliated with Wells

Fargo (the Affiliated Funds) or are unaffiliated with Wells Fargo (the

Third Party Funds),2 in connection with the participation by the

Plan in the Wells Fargo Portfolio Advisor Program (the Portfolio

Advisor Program).

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\2\ The Affiliated Funds and the Third Party Funds are

collectively referred to herein as the Funds.

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In addition, the restrictions of section 406(b) of the Act and the

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

by reason of section 4975(c)(1) (E) and (F) of the Code, shall not

apply, effective October 1, 1995, to the provision, by Wells Fargo, of

asset allocation services to an independent fiduciary of a

participating Plan (the Independent Fiduciary) or to a participant (the

Directing Participant) of a Plan covered under the provisions of

section 404(c) of the Act (the Section 404(c) Plan) which may result in

the selection of portfolios by the Independent Fiduciary or the

Directing Participant in the Portfolio Advisor Program for the

investment of Plan assets.

This proposed exemption is subject to the conditions set forth

below in Section II.

Section II. General Conditions

(a) The participation by each Plan in the Portfolio Advisor Program

is approved by an Independent Fiduciary or Directing Participant, in

the case of a Section 404(c) Plan, and no Plan investing therein is

sponsored or maintained by Wells Fargo and/or its affiliates.

(b) As to each Plan, the total fees that are paid to Wells Fargo

and its affiliates constitute no more than reasonable compensation for

the services provided.

(c) With the exception of distribution-related fees pursuant to

Rule 12b-1 (the 12b-1 Fees) of the Investment Company Act of 1940 (the

'40 Act) which are offset, no Plan pays a fee or commission by reason

of the acquisition or redemption of shares in the Funds.

(d) The terms of each purchase or redemption of shares in the Funds

remain at least as favorable to an investing Plan as those obtainable

in an arm's length transaction with an unrelated party.

(e) Wells Fargo provides written documentation to each Plan's

Independent Fiduciary or Directing Participant of its recommendations

or evaluations with respect to the Affiliated Funds or the Third Party

Funds based upon objective criteria.

(f) Any recommendation or evaluation made by Wells Fargo to an

Independent Fiduciary or Directing Participant is implemented only at

the express direction of such Independent Fiduciary or Directing

Participant.

(g) The quarterly fee that is paid by a Plan to Wells Fargo and its

affiliates for asset allocation and related services (the Outside Fee)

rendered to such Plan under the Portfolio Advisor Program is offset by

all gross investment management fees (the Advisory Fees) and

administrative fees (the Administrative Fees) received from the

Affiliated Funds by Wells Fargo, its affiliates, its former affiliates

and unrelated parties, including all 12b-1 Fees and Administrative Fees

that are paid by the Affiliated Funds to Stephens Inc. (Stephens) and

all 12b-1 Fees that Wells Fargo receives from the Third Party Funds,

such that the sum of the offset and the net Outside Fee (the Net

Outside Fee) will always equal the Outside Fee and the selection of

Affiliated or Third Party Funds will always be revenue neutral.

(h) With respect to its participation in the Portfolio Advisor

Program, prior to purchasing shares in the Affiliated Funds and the

Third Party Funds,

(1) Each Independent Fiduciary receives the following written or

oral disclosures from Wells Fargo:

(A) A brochure describing the Portfolio Advisor Program; a

Portfolio Advisor Program Account Agreement; a description of the

allocation models (the Allocation Models) as discussed in

Representation 1; and a reference guide/disclosure statement providing

details about the Portfolio Advisor Program, the fees charged

thereunder, the procedures for establishing, making additions to and

withdrawing from Portfolio Advisor Program Accounts (the Accounts); and

other related information.

(B) A risk tolerance and goal analysis questionnaire (the

Questionnaire) as described in Representation 11.

(C) Copies of applicable prospectuses (the Prospectuses) for the

Funds discussing the investment objectives of the Funds; the policies

employed to achieve these objectives; the corporate affiliation

existing between Wells Fargo and its affiliates; the compensation paid

to such entities; disclosures relating to rebalancing and reallocating

Allocation Models; and information explaining the risks attendant to

investing in the Affiliated Funds or the Third Party Funds.

(D) Upon written or oral request to Wells Fargo, a Statement of

Additional Information supplementing the applicable Prospectus, which

describes the types of securities and other instruments in which the

Funds may invest, the investment policies and strategies that the Funds

may utilize, including a description of the risks.

(E) A copy of the agreement between the Plan and Wells Fargo

relating to such Plan's participation in the Portfolio Advisor Program.

(F) A written recommendation of a specific Allocation Model

together with a copy of the Questionnaire and response.

(G) Upon written request to Wells Fargo, a copy of its investment

advisory agreement and sub-advisory agreement pertaining to the

Affiliated Funds as well as its distribution agreement pertaining to

the Third Party Funds.

(H) Copies of the proposed exemption and grant notice describing

the exemptive relief provided herein.

(I) Written disclosures of Wells Fargo's affiliation or

nonaffiliation with the parties who act as sponsors, distributors,

administrators, investment advisers and sub-advisers, custodians and

transfer agents of the Third Party Funds and the Affiliated Funds; and

(2) In the case of a Section 404(c) Plan,

(A) Wells Fargo provides each Directing Participant or Independent

Fiduciary (for dissemination to the Directing Participant) with copies

of the documents described above in paragraphs (h)(1)(A)-(I); and,

(B) In addition to the written disclosures, an explanation will be

provided to the Independent Fiduciary, upon request, by a Wells Fargo

Personal Financial Officer (the Personal Financial Officer) regarding

the services offered under the Portfolio Advisor Program, including the

operation and objectives of the Funds. Such information will be given

to either the Independent Fiduciary or the Directing Participant.

(3) If accepted as an investor in the Portfolio Advisor Program, an

Independent Fiduciary or Directing Participant is required to

acknowledge, in writing, to Wells Fargo, prior to purchasing shares of

the Funds that such Independent Fiduciary or Directing Participant has

received copies of the documents described in paragraph (h)(1) of this

Section II.

(4) With respect to a Title I Plan that does not permit

participant-directed investments as contemplated under section 404(c)

of the Act, written acknowledgement of the receipt of such documents is

provided by the Independent Fiduciary (i.e., the Plan administrator,

trustee, investment manager or named fiduciary, as the recordholder of

shares of the Funds.) Such Independent Fiduciary will be

[[Page 64152]]

required to represent in writing to Wells Fargo that such fiduciary

is--

(A) Independent of Wells Fargo and its affiliates;

(B) Capable of making independent decisions regarding the

investment of Plan assets;

(C) Knowledgeable with respect to the Plan in administrative

matters and funding matters related thereto; and

(D) Able to make an informed decision concerning participation in

the Portfolio Advisor Program.

(5) With respect to a Section 404(c) Plan or a Plan that is covered

under Title II of the Act, the Directing Participant or the Independent

Fiduciary is required to acknowledge, in writing, receipt of such

documents and represent to Wells Fargo that such individual is--

(A) Independent of Wells Fargo and its affiliates;

(B) Knowledgeable with respect to the Plan in administrative

matters and funding matters related thereto; and,

(C) Able to make an informed decision concerning participation in

the Portfolio Advisor Program.

(i) Subsequent to its participation in the Portfolio Advisor

Program, each Independent Fiduciary receives the following written or

oral disclosures from Wells Fargo with respect to ongoing participation

in the Portfolio Advisor Program:

(1) Written confirmations of each purchase or redemption

transaction involving shares of an Affiliated Fund or a Third Party

Fund (including transactions resulting from the realignment of assets

caused by a change in the Allocation Model's investment mix and from

periodic rebalancing of Account assets).

(2) Telephone quotations of such Independent Fiduciary's Plan

Account balance.

(3) A periodic, but not less frequently than quarterly, statement

of Account specifying the net asset value of the Plan's assets in such

Account, a summary of purchase, sale and exchange activity and

dividends received or reinvested and a summary of cumulative realized

gains and/or losses.

(4) Semiannual and annual reports that include financial statements

for the Affiliated Funds and the Third Party Funds as well as the fees

paid to Wells Fargo and its affiliates.

(5) A quarterly newsletter or other report pertaining to the

applicable Allocation Model which describes the Allocation Model's

performance during the preceding quarter, market conditions and

economic outlook and, if applicable, prospective changes in Affiliated

Fund and Third Party Fund allocations for the Allocation Model and the

reasons therefor.

(6) At least annually, a written or oral inquiry from Wells Fargo

to ascertain whether the information provided on the Questionnaire is

still accurate and to determine if such information should be updated.

(7) At least annually, a termination form (the Termination Form) as

described below in Section II(l) and (m).

(j) In the case of a Section 404(c) Plan, the Independent Fiduciary

will decide whether the information described in Section II(i) above is

to be distributed by Wells Fargo to the Directing Participants of such

Plan or whether the Independent Fiduciary will receive this information

and then provide it to the Directing Participants.

(k) If authorized in writing by the Independent Fiduciary or

Directing Participant, the Plan is automatically rebalanced on a

periodic basis by Wells Fargo to the Allocation Model previously

prescribed by the Independent Fiduciary or Directing Participant, if

one or more Fund allocations deviates from the Allocation Model

prescribed by the Independent Fiduciary or Directing Participant.

(l) In rebalancing a Plan,

(1) Wells Fargo is bound by the Allocation Model and is limited in

the degree of change that it can make to an Allocation Model's

investment mix.

(2) Wells Fargo is authorized to make changes in the mix of asset

classes in a Plan Account within a range of 0-15 percent (plus or

minus) for Stock and Bond Fund investments and within a range of 0-30

percent (plus or minus) for Money Market Fund investments without

obtaining the prior written approval of the Independent Fiduciary or

Directing Participant.

(3) Wells Fargo may not change the asset mix outside the authorized

limits unless it provides the Independent Fiduciary or Directing

Participant with 30 days' advance written notice of the proposed change

and gives the Independent Fiduciary or Directing Participant time to

elect not to have the change made.

(4) Wells Fargo may not divide a Fund sub-class unless it provides

30 days' advance written notice to the Independent Fiduciary or

Directing Participant of the proposed change and gives such individual

the opportunity to object to the change.

(5) Wells Fargo may not replace a Third Party Fund with an

Affiliated Fund.

(m) Although an Independent Fiduciary or Directing Participant may

withdraw from the Portfolio Advisor Program at any time, Wells Fargo

will provide such Independent Fiduciary or Directing Participant with

the Termination Form, at least annually during the first quarter of

each calendar year, but in all cases where Wells Fargo changes the

asset mix outside of the current Allocation Model, when a Fund sub-

class is to be divided, when Wells Fargo determines that it is in the

best interest of the Plan to use a Third Party Fund instead of an

Affiliated Fund and whenever the Outside Fee is increased. Wells Fargo

will provide such written notice to the Independent Fiduciary or

Directing Participant at least 30 days prior to the implementation of

the change.

(n) The instructions for the Termination Form must--

(1) State that the authorization is terminable at will by the

Independent Fiduciary or Directing Participant, without penalty to

such, upon receipt by Wells Fargo of written notice from the

Independent Fiduciary or Directing Participant; and

(2) Explain that any of the proposed changes noted above in

paragraph (m) of this Section, will go into effect if the Independent

Fiduciary or Directing Participant does not elect to withdraw by the

effective date.

(o) Wells Fargo maintains, for a period of six years, the records

necessary to enable the persons described in paragraph (p) of this

Section II to determine whether the conditions of this exemption have

been met, except that--

(1) A prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of Wells Fargo

and/or its affiliates, the records are lost or destroyed prior to the

end of the six year period; and

(2) No party in interest other than Wells Fargo shall be subject to

the civil penalty that may be assessed under section 502(i) of the Act,

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

records are not maintained, or are not available for examination as

required by paragraph (p) of this Section II below.

(p)(1) Except as provided in section (p)(2) of this paragraph and

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

504 of the Act, the records referred to in paragraph (o) of this

Section II are unconditionally available at their customary location

during normal business hours by:

(A) Any duly authorized employee or representative of the

Department, the Internal Revenue Service (the Service) or the

Securities and Exchange Commission (the SEC);

[[Page 64153]]

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

representative of such fiduciary;

(C) Any contributing employer to any participating Plan or any duly

authorized employee representative of such employer; and

(D) Any participant or beneficiary of any participating Plan, or

any duly authorized representative of such participant or beneficiary.

(p)(2) None of the persons described above in paragraphs (p)(1)(B)-

(p)(1)(D) of this paragraph (p) are authorized to examine the trade

secrets of Wells Fargo or commercial or financial information which is

privileged or confidential.

Section III. Definitions

For purposes of this proposed exemption:

(a) The term ``Wells Fargo'' means Wells Fargo Bank, N.A. and any

affiliate of Wells Fargo, as defined in paragraph (b) of this Section

III.

(b) An ``affiliate'' of Wells Fargo includes--

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

intermediaries, controlling, controlled by, or under common control

with Wells Fargo.

(2) Any officer, director or partner in such person, and

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

officer, director or a 5 percent partner or owner.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) The term ``Plan or Plans'' include Keogh plans, cash or

deferred compensation plans, profit sharing plans, pension and stock

bonus plans, individual retirement accounts (IRAs), salary reduction

simplified employee pension plans (SARSEPs), simplified employee

pension plans (SEP-IRAs) and, in the case of a Section 404(c) Plan, the

individual account of a Directing Participant.

(e) The term ``Independent Fiduciary'' means a Plan fiduciary which

is independent of Wells Fargo and its affiliates and is either--

(1) A Plan administrator, trustee, investment manager or named

fiduciary, as the recordholder of shares of the Funds of a Section

404(c) Plan;

(2) An individual covered by a Keogh Plan which invests in shares

of the Funds;

(3) An individual covered under a self-directed IRA, SEP-IRA or

SARSEP which invests in shares of the Funds;

(4) An employee, officer or director of Wells Fargo and/or its

affiliates covered by an IRA, a SEP-IRA or a SARSEP subject to Title I

of the Act; or

(5) A Plan administrator, trustee, investment manager or named

fiduciary responsible for investment decisions in the case of a Title I

Plan that does not permit individual direction as contemplated by

Section 404(c) of the Act.

(f) The term ``Directing Participant'' is a participant in a Plan,

such as a Section 404(c) Plan, who is permitted under the terms of the

Plan to direct, and who elects to so direct the investment of the

assets of his or her account in such Plan.

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

as of October 1, 1995.

Summary of Facts and Representations

Description of the Parties

1. The parties to the transactions are described as follows:

(a) Wells Fargo, a wholly owned subsidiary of Wells Fargo &

Company, is one of the sixteenth largest commercial banks in the United

States. Wells Fargo provides a full range of banking services to

commercial, agribusiness, real estate and small business customers

mainly in California. Its Investment Management Group manages personal

trust accounts, corporate 401(k) and other qualified plans and mutual

funds. Its holding company, Wells Fargo and Company, is a full-line

banking firm serving institutions, government and individual investors

in the United States. Wells Fargo & Company stock is publicly-traded on

the New York Stock Exchange. Wells Fargo maintains its corporate

headquarters in San Francisco, California.

In addition to serving as a custodian or trustee to employee

benefit plans, IRAs and SEP-IRAs, Wells Fargo sponsors and serves as a

mass submitter and identical adopter for master and prototype pension

and profit sharing plans, including Keogh plans, cash or deferred

plans, and pension and stock bonus plans. Wells Fargo sponsors

prototype IRAs, SEP-IRAs and SARSEPs. With respect to the subject

transactions, Wells Fargo serves as the investment adviser/manager,

transfer agent, selling agent and dividend disbursing agent to certain

Affiliated Funds.

(b) Wells Fargo Securities, Inc. (WFSI), a wholly owned broker-

dealer of Wells Fargo, is a full service broker-dealer registered with

the SEC and a member of the National Association of Securities Dealers.

WFSI provides a full range of brokerage services to retail and private

customers and is principally located in San Francisco, California.

(c) Stephens of Little Rock, Arkansas, is a full service broker-

dealer and investment advisory firm that is unrelated to Wells Fargo

and/or its affiliates. It is the clearing broker for WFSI and the

sponsor and administrator for the Affiliated Funds. Stephens also

serves as the principal underwriter or distributor of each Affiliated

Fund's shares.

(d) Wells Fargo Nikko Investment Advisors (WFNIA) is a general

partnership that was formerly 50 percent owned by a subsidiary of Wells

Fargo and 50 percent owned by a subsidiary of The Nikko Securities Co.,

Ltd., an unaffiliated Japanese securities firm. WFNIA is a registered

investment adviser and serves as a sub-adviser to certain of the

Affiliated Funds. WFNIA maintains its principal place of business in

San Francisco, California.

(e) Wells Fargo Institutional Trust Company, N.A. (WFITC) is a

trust company that was 99.9 percent owned by WFNIA and 0.1 percent

owned by Wells Fargo & Company. WFITC serves as the custodian for

certain of the Affiliated Funds. WFITC maintains its principal place of

business in San Francisco, California.

Pursuant to an agreement dated June 21, 1995, Wells Fargo & Company

and Wells Fargo agreed to effect the sale of all of their right, title

and interest in the capital stock of WFITC and the partnership interest

in WFNIA, respectively, to Barclays Bank PLC, Barclays California

Corporation and Barclays Bank of Canada (collectively, Barclays), all

of which are unrelated to Wells Fargo & Company, Wells Fargo or any of

their affiliates. After consummation of the sale, which occurred on

December 29, 1995, WFITC and WFNIA became a part of BZW Global

Investors, an indirect wholly owned subsidiary of Barclays Bank PLC.

The new entity is located in San Francisco, California.

(f) The Plans are qualified plans, IRAs, SARSEPs and SEP-IRAs for

which Wells Fargo acts as master or prototype plan sponsor, mass

submitter sponsor and identical adopter, custodian, directed trustee or

recordkeeper. None of the Plans are sponsored by Wells Fargo or its

affiliates.

Description of the Affiliated Funds

2. The Affiliated Funds consist of the Stagecoach Funds, Inc. (the

Stagecoach Funds) and the Overland Express Funds, Inc. (the Overland

Funds), which are open-end investment companies registered under the

'40 Act. The Stagecoach Funds were organized as a Maryland corporation

in September 1991 and currently offer sixteen separate portfolios. The

Overland Funds

[[Page 64154]]

were organized as a Maryland corporation in April 1987 and currently

offer shares in twelve separate portfolios. Each Affiliated Fund is

registered under the Securities Act of 1933, as amended (the '33 Act),

and the '40 Act.

Each Affiliated Fund is designed to provide a means of investing in

separate portfolios that are professionally managed by Wells Fargo or

sub-advised by WFNIA. These portfolios may be sold through WFSI or

Wells Fargo as selling agent on behalf of the Affiliated Funds. Shares

in the Stagecoach Funds and the Overland Funds are currently being

offered by Wells Fargo to Plan customers, at no load.

Overall management and supervision of each Affiliated Fund rests

with such Fund's Board of Directors (the Directors). The Directors

approve all significant agreements involving the appropriate Affiliated

Fund and the persons and companies that furnish services. At least 40

percent of the Directors are unrelated to Wells Fargo and its

affiliates, including Stephens.

Currently, fifteen Affiliated Funds are being offered to investors

under the Portfolio Advisor Program. These Fund portfolios range from

the Stagecoach Corporate Stock Fund to the Overland U.S. Treasury Money

Market Fund. The Affiliated Funds are further divided into eight asset

sub-classes which range from Growth and Income to Cash. A number of the

portfolios are sub-advised by WFNIA whose sub-advisory fees are paid by

Wells Fargo from its Advisory Fees.

3. Wells Fargo serves as each Affiliated Fund's investment manager

pursuant to an advisory agreement entered into with such Fund. In

addition, Wells Fargo serves as the transfer agent, selling agent and

dividend disbursing agent of each Affiliated Fund, as custodian of

certain of the Affiliated Funds and as shareholder servicing agent of

the Stagecoach Funds.

For services rendered to the Affiliated Funds by Wells Fargo, its

affiliates or Stephens, the underlying contracts entered thereunder

must be approved by the Directors of each Affiliated Fund, including a

majority of disinterested Directors. The contracts must be approved for

an initial period of up to two years and then reapproved by the

Directors or the shareholders of the Affiliated Funds and by the

disinterested Directors, at least annually thereafter. Subject to the

supervision and direction of the Directors, Wells Fargo manages the

investment and reinvestment of each Affiliated Fund's assets and

provides investment guidance and policy direction in connection with

the objectives of the Affiliated Funds.

Each Affiliated Fund portfolio pays Wells Fargo Advisory Fees that

are computed daily and paid monthly at an annual rate based on a

percentage of the value of the portfolio's average daily net assets.

Currently, the annualized Advisory Fees range from 0.05 percent to 0.70

percent depending upon the portfolio.

In addition to the Advisory Fees, Wells Fargo and WFTIC may receive

custody, portfolio accounting, transfer agency and shareholder

servicing expenses from the Affiliated Funds (i.e., the Administrative

Fees) which may be waived from time to time. For some portfolios, the

Administrative Fees are included in that portion of Wells Fargo's

Advisory Fee that is paid to the sub-adviser. If not included in the

Advisory Fee, the current fee for (a) custodial services is 0.0167

percent annually, (b) $2,000 per month plus 0.07 percent on the first

$50 million, 0.045 percent on the next $50 million and 0.02 percent on

the excess over $100 million for portfolio accounting services, (c) a

minimum of $3,000 monthly, plus various transaction charges for

transfer agency services, and (d) 0.00 percent to 0.30 percent for

shareholder servicing.

4. Stephens serves as each Affiliated Fund's sponsor and

administrator and as distributor of portfolio shares. In general,

Stephens manages all aspects of the administration and operation of the

portfolios of the Affiliated Funds. For services provided to the

portfolio, Stephens receives a fee that is computed daily and paid

monthly at an annual rate based on a percentage of the value of the

portfolio's average net assets. As distributor, Stephens is the

principal underwriter of the shares of each Affiliated Fund. Stephens

enters into selling agreements with broker-dealers and other financial

institutions (i.e., selling agents) which make such shares available to

their customers. Stephens receives 12b-1 Fees from certain of the

Affiliated Fund portfolios. These fees range from 0.05 percent of net

assets annually from the Stagecoach Funds to 0.75 percent of net assets

annually from certain Overland Funds. In addition, Stephens receives

Administrative Fees from each Affiliated Fund portfolio ranging from

0.03 percent to 0.15 percent annually of such portfolios' net assets.

5. WFSI has entered into selling agreements with Stephens and acts

as a selling agent for certain Affiliated Fund portfolios. However,

with respect to Plans investing in the Affiliated Funds, WFSI will not

receive a sales load or commission (in the form of a 12b-1 Fee) from

Stephens.

6. WFNIA acts as the sub-adviser for certain portfolios. For

services rendered, WFNIA is paid a fee that is computed daily and paid

monthly at an annual rate based on a percentage of the portfolio's

average daily net assets. As stated above, these sub-advisory fees are

paid by Wells Fargo out of its Advisory Fees. Although WFNIA may

provide investment advice to such portfolios, Wells Fargo retains final

investment discretion with respect to the management of the assets of

each portfolio.

7. WFTIC currently acts as the custodian of the assets of certain

of the Affiliated Funds and it receives a custodian fee for such

services. The amount of this expense, to the extent not included in the

Advisory Fees is 0.0167 percent of the daily net assets of the

applicable Affiliated Fund.

Description of the Third Party Funds

8. The Third Party Funds are open-end, diversified management

investment companies registered under the '40 Act whose sponsors,

administrators, distributors, investment advisers and sub-advisers are

not affiliated with Wells Fargo or its affiliates. The Third Party

Funds may be made available from time to time to Plans investing in the

Portfolio Advisor Program.

Description of the Portfolio Advisor Program

9. The Portfolio Advisor Program is an asset allocation program

that has been offered by Wells Fargo to Independent Fiduciaries of

Plans since October 1, 1995. It is designed to provide small- and

medium-sized Plans with access to the type of investment advice that is

typically available to larger investors. The Portfolio Advisor Program

is intended to provide a format for investment with the following

features--a unified account statement covering all investments,

automatic allocation of assets and contributions, a single asset

allocation fee and no sales charges on purchases, redemptions,

reinvestments or transfers between investments.3 The minimum

investment required to establish a Portfolio Advisor Program Account is

$10,000.4

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\3\ Although shares in the Affiliated Funds can be marketed

outside of the Portfolio Advisor Program, such shares would

generally carry load fees.

\4\ If an investor has already opened a Portfolio Advisor

Program Account with Wells Fargo with a minimum investment of

$10,000, that same investor may open a second Portfolio Advisor

Program Account with Wells Fargo with a minimum investment of

$2,000. An investor having other accounts with Wells Fargo of

$10,000 or more that are not Portfolio Advisor Program Accounts will

not be eligible for this lower investment minimum.

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[[Page 64155]]

With respect to a Section 404(c) Plan, Wells Fargo will offer the

Portfolio Advisor Program to the Plan's Independent Fiduciary as an

investment option for the Plan or a portion of the Plan. Alternatively,

the Plan's Independent Fiduciary may decide to utilize the Portfolio

Advisor Program for all of the Plan's investment needs. In either

situation, Wells Fargo will afford the Independent Fiduciary the

opportunity to decide whether Wells Fargo will interact directly with

the Plan's Directing Participants or exclusively with the Independent

Fiduciary.

Wells Fargo will provide each Independent Fiduciary contemplating

investing in the Portfolio Advisor Program with a brochure describing

the Program; an Account agreement; a description of the Allocation

Models; and a reference guide/disclosure document providing detailed

information about the Portfolio Advisor Program, the fees charged

thereunder, the procedures for establishing, making additions to and

withdrawing from Accounts, and other related information. In the case

of a Section 404(c) Plan, this information may be provided to either

the Directing Participants by Wells Fargo or to the Independent

Fiduciary depending upon the arrangement such Independent Fiduciary has

negotiated with Wells Fargo.5

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\5\ The Department wishes to point out that an Independent

Fiduciary has the responsibility to disseminate all information it

receives to each Directing Participant investing in the Portfolio

Advisor Program.

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10. Individual IRA, SEP-IRA and single participant Keogh plan

participants contemplating investing in the Portfolio Advisor Program

will open an Account with Wells Fargo. With respect to the Independent

Fiduciary of a Section 404(c) Plan, Wells Fargo will ask such fiduciary

to select the type of Account that is to be established. The

Independent Fiduciary of a Section 404(c) Plan may open a custody

Account for each individual Directing Participant or, in the

alternative, establish single custody Accounts in the name of the Plan

reflecting the grouping of Directing Participants by similar asset

Allocation Models.6

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\6\ If Wells Fargo establishes a single custody account in the

name of a Section 404(c) Plan, it is represented that Wells Fargo

will not keep track of the individual interests of the Directing

Participants. Instead, the Independent Fiduciary will maintain such

records or have a third party recordkeeper perform this service.

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11. After opening an Account, the Independent Fiduciary will obtain

and complete an Account Agreement and risk tolerance and goal analysis

Questionnaire (which may be in paper or electronic form). Then, the

Independent Fiduciary will present the completed Account Agreement and

Questionnaire to a Personal Financial Officer or other representative

of Wells Fargo. The Questionnaire will be scored to determine which one

of several Allocation Models is most appropriate given the financial

goals, objectives and risk tolerances identified by the Independent

Fiduciary in the Questionnaire.7

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\7\ Wells Fargo proposes to canvass each investor annually to

ascertain whether any of the answers to the Questionnaire have

changed from the previous year. If so, Wells Fargo will update the

Questionnaire. However, in the event an investor wishes to change

his or her Questionnaire during a quarter so that another Allocation

Model is called for, that new Allocation Model will be presented to

and approved by the investor and the change to the new Allocation

Model will be effected immediately.

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In the case of a Section 404(c) Plan, the Independent Fiduciary may

elect to have Wells Fargo meet with each Directing Participant. Then, a

Personal Financial Officer will provide information relating to the

Portfolio Advisor Program as noted above, have each Directing

Participant complete the Questionnaire, present the Directing

Participant with a recommended Allocation Model and provide the

Directing Participant with the relevant Prospectuses of the Funds in

the Allocation Model.

Alternatively, if the Independent Fiduciary chooses to have Wells

Fargo interact with it instead of the Directing Participants, the

Personal Financial Officer will meet with the Independent Fiduciary and

provide such fiduciary with a description of the Portfolio Advisor

Program for dissemination to the Directing Participants. The Personal

Financial Officer will also give the Independent Fiduciary

Questionnaires for completion by the Directing Participants. Based on

the results of the returned Questionnaires, Wells Fargo will then

recommend to the Independent Fiduciary, the appropriate Allocation

Models and provide such fiduciary with relevant Prospectuses of the

Funds in the recommended Allocation Models for distribution to the

Directing Participants.

12. The Allocation Models are designed to satisfy a variety of risk

tolerances and investment horizons. At the outset, there will be only

nine Allocation Models, some with growth-based investment objectives

and others with income-based investment objectives. In the future, more

Allocation Models may be added by Wells Fargo. Each Allocation Model

will have three asset classes and initially, nine asset sub-classes.

Table I shows the asset distribution for a sample Portfolio Advisor

Program Allocation Model.

Table I.--Portfolio Advisor Program Sample Allocation Model

[Moderate Medium-Term Model Allocation]

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

Min Norm Max Min Norm Max

Class (percent) (percent) (percent) Fund type Asset sub-class (percent) (percent) (percent)

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

Stock Funds......................... 45 60 75 Third party............ Growth................. 0 15 30

Third party............ Equity International... 0 5 20

Affiliated............. Growth & Income........ 0 15 30

Affiliated............. Equity Income.......... 0 15 30

Affiliated............. Asset Allocation....... 0 10 25

Bond Funds.......................... 25 40 55 Affiliated............. Total Return Bond...... 0 15 30

Affiliated............. Intermediate Bond...... 0 15 30

Affiliated............. Short-Term Bond........ 0 10 25

Money Market Funds.................. 0 0 30 Affiliated............. Cash................... 0 0 30

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

Note: A Third Party Fund will never be replaced by an Affiliated Fund whereas an Affiliated Fund may be replaced by a Third Party Fund. (See discussion

in Representation 15 regarding extraordinary changes that are outside the accepted percentage bands.)

[[Page 64156]]

13. The Allocation Models are developed and maintained by the Wells

Fargo Bank Asset Allocation Committee (the Allocation Committee) which

is comprised of senior investment officers of Wells Fargo's Investment

Management Group. The Allocation Committee is responsible for

determining the overall asset allocation of each Allocation Model among

the currently nine asset sub-class categories. The Allocation Committee

integrates both quantitative and fundamental analysis to determine

optimal Allocation Models that match risk and reward objectives. In

this regard, the Allocation Committee does not rely upon a software

program but rather examines current asset allocation strategies and

determines changes based on the present financial outlook, estimates of

expected returns, volatility in markets, asset class correlation,

economic trends and various securities valuation measures. These

criteria are provided by Wells Fargo to all Portfolio Advisor Program

investors in the disclosure materials.

14. The Allocation Models may be adjusted by the Allocation

Committee as changes in the economy and market conditions dictate

within the permissible ranges described below in Representation 15.

Such adjustments may include changing the investment mix of the

Allocation Models by altering the proportion of assets invested among

the asset sub-classes. However, such adjustments do not include the

Allocation Committee's adding to or deleting from Funds in an

Allocation Model without obtaining the written consent of the

Independent Fiduciary or the Directing Participant.

In addition, the Allocation Committee is subject to certain

limitations in changing the design of the Allocation Models. For

example, the Allocation Committee is required to design Allocation

Models that include the stock, bond and money market fund asset classes

and their respective sub-classes.

15. The Independent Fiduciary or Directing Participant will

authorize Wells Fargo to change the asset mix of a given Allocation

Model within a 15 percent range (i.e., 15 percent above or below the

normal position for the stock and bond asset sub-classes).8

Movement within each sub-class of assets will also be authorized within

a range of no more than 15 percent above or below the normal position.

The Independent Fiduciary or Directing Participant will also authorize

Wells Fargo to change the cash position in a given Allocation Model in

a range of 0-30 percent above or below the normal position to

accommodate extremes in the other two asset sub-classes.9 Wells

Fargo will make changes in the asset mix within these authorized limits

without seeking further approval from the Independent Fiduciary or the

Directing Participant. However, Wells Fargo will not change the asset

mix outside those limits unless it provides the Independent Fiduciary

or Directing Participant with 30 days' advance written notice of the

proposed change 10 and gives the Independent Fiduciary or

Directing Participant time to elect not to have the change made.11

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\8\ Movement within each sub-class will apply to the total

assets held in an Independent Fiduciary's or a Directing

Participant's Account.

\9\ For any Allocation Model, it is represented that not more

than 30 percent of an investor's assets can be placed in the Money

Market Funds. If the range for cash is exceeded on a rebalancing

date due to market forces, then the assets will be rebalanced to

achieve the targeted percentages established in the relevant

Allocation Model. The rebalancing will require a redemption of

shares in the Money Market Funds so that the percentage in cash will

be aligned with the relevant Allocation Model percentage. In

addition, a corresponding purchase of funds in the asset sub-classes

that are below the targeted range will be made. (See Representation

18 for a discussion of the rebalancing of Accounts.)

\10\ Changes outside these limits may take the form of an

extraordinary shift (such as the movement of a large percentage of

assets into cash if the Allocation Committee determines that such a

move is warranted by economic conditions) or a change in the normal

position for the allocation mix of a particular Allocation Model

which the Allocation Committee considers necessary because of a more

permanent shift in market or economic conditions. In either case,

Wells Fargo will notify each Independent Fiduciary whose Plan is

invested in the relevant model or Directing Participant of the

change and give such Independent Fiduciary or Directing Participant

time to elect not to have the change made. The change will then be

made for all Independent Fiduciaries or Directing Participants who

do not elect otherwise. If a change is made to the normal position

for the allocation mix of a particular Allocation Model, Wells Fargo

will be authorized to change the allocation of assets within a 15

percent range (30 percent in the case of cash) above or below the

newly established normal position without notifying the Independent

Fiduciary in advance. If, on the other hand, after first notifying

the Independent Fiduciary or Directing Participant, Wells Fargo

makes an extraordinary change to the asset allocation which moves it

outside the authorized limit, Wells Fargo will be authorized to

return the asset mix back within the authorized limit without

further notice, but any other change which will result in the asset

mix remaining outside the authorized limit will only be made after

giving 30 days' advance written notice and allowing the Independent

Fiduciary or Directing Participant the opportunity to elect not to

have such change made.

\11\ Assuming an Independent Fiduciary of a Section 404(c) Plan

establishes a single custody Account with Wells Fargo in the name of

the Plan, it is represented that if a Directing Participant does not

wish to have his or her assets reallocated in accordance with Wells

Fargo's recommendation, such Directing Participant may choose

another Allocation Model or leave the Portfolio Advisor Program.

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16. Wells Fargo's Investment Review Committee (the Review

Committee), which is comprised of senior Wells Fargo officers, is

responsible for selecting Affiliated Funds and Third Party Funds that

satisfy the asset allocations specified by the Allocation Committee for

each Allocation Model. With the exception of the Growth and Equity

International asset sub-classes, the Review Committee will select

portfolios of the Affiliated Funds for investment. The Review Committee

will always select Third Party Funds for investment to the extent an

Allocation Model calls for an allocation of assets in the Equity

International and Growth sub-classes. If, however, the Review Committee

determines that investment in an Affiliated Fund is imprudent (e.g.,

the Affiliated Fund does not meet the requirements of a necessary asset

sub-class), it will select a Third Party Fund in lieu of an Affiliated

Fund for a particular sub-class of assets.12 If a Third Party Fund

is substituted for an Affiliated Fund, the Review Committee must

thereafter use only a Third Party Fund (i.e., the same Third Party Fund

or another Third Party Fund). In the applicants' view, this precaution

will remove any conflicts of interest that may arise if the Review

Committee is faced with the prospect of selecting an Affiliated Fund

over a Third Party Fund.13

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\12\ Changes in the Affiliated Funds or Third Party Funds used

to satisfy the need for investment in a particular asset sub-class

will only be made after Wells Fargo has notified all of the affected

Independent Fiduciaries or Directing Participants in writing and has

explained that the proposed changes will go into effect if the

Independent Fiduciaries or Directing Participants do not elect to

withdraw by the effective date of such change. (See Representation

27.)

\13\ If the Allocation Committee should later divide the asset

sub-classes for an Allocation Model into one or more new sub-

classes, the Review Committee will select Affiliated Fund Portfolios

to satisfy the call for investment in the new sub-class unless (a)

there is no Affiliated Fund Portfolio which invests in the new sub-

class of assets; (b) Wells Fargo's Affiliated Fund is not performing

as well as a similar Third Party Fund based upon such measurable

criteria as performance, expense ratio, standard deviation and, in

the case of the Bond Funds, the SEC yield; or (c) a Third Party Fund

has been utilized initially for the asset sub-class that is being

divided.

For example, Wells Fargo represents that ``total return'' is a

recognized sub-class of the Bond Fund asset class that is set forth

in Table I. Assuming the industry begins distinguishing between U.S.

bonds and foreign bonds, Wells Fargo explains that it may do this

for the benefit of its investors. In this regard, if an Affiliated

Fund has been used as the Fund for the total return sub-class, and

Wells Fargo has available two Bond Funds, each of which is

appropriate for the new sub-classes, Wells Fargo explains that it

will utilize these Affiliated Funds. If an Affiliated Fund is being

used for the U.S. bond sub-class, but Wells Fargo does not have an

appropriate Affiliated Fund for the foreign bond sub-class, it will

select a Third Party Fund. Thus, when the original sub-class is

serviced by an Affiliated Fund and that sub-class is divided, Wells

Fargo states that it may use an Affiliated Fund, a Third Party Fund

or a combination of the two. If, on the other hand, a Third Party

Fund is being used for the total return sub-class, Wells Fargo must

utilize Third Party Funds for both the new divided sub-classes. In

any event, Wells Fargo represents that it will give all investors 30

days' notice and the ability to object before any sub-class is

divided.

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[[Page 64157]]

17. The asset allocation services provided by the Personal

Financial Officer will not be binding on the Independent Fiduciary or

Directing Participant. No action will be taken on the recommendation

unless and until the Independent Fiduciary or Directing Participant

accepts and approves in writing the particular Allocation Model and the

corresponding investment mix (i.e., the investment allocation)

recommended by the Personal Financial Officer. The Independent

Fiduciary or Directing Participant can add or withdraw Plan assets to

or from the respective Account at any time (subject to a $100 minimum

redemption and purchase requirement) and can also choose a different

Allocation Model if the Independent Fiduciary's or Directing

Participant's investment needs and goals have changed. Moreover, Wells

Fargo intends to ask Independent Fiduciaries or Directing Participants

annually whether any information provided in the Questionnaire should

be changed or updated.

Rebalancing and Reallocation of Plan Accounts

18. Once an Independent Fiduciary or Directing Participant has

directed Wells Fargo to invest Plan assets that are held in an Account

in a particular Allocation Model, Wells Fargo will invest the Account

in the Affiliated Funds and/or Third Party Funds that the Allocation

Committee has previously chosen to satisfy the asset allocation called

for by the Allocation Model. It is anticipated that, over time,

disproportionate earnings as between asset types will cause the

Account's investment mix to drift out of balance with the Allocation

Model originally chosen by the Independent Fiduciary or Directing

Participant.

For example, the Allocation Model chosen by the Independent

Fiduciary or Directing Participant may require that 60 percent of

Account assets be invested in the Stock Funds and 40 percent of Account

assets be invested in the Bond Funds. If the Stock Funds perform better

than the Bond Funds during a particular period of time, more than 60

percent of the Account's assets will be invested in the Stock Funds by

the end of the period.

To correct this imbalance, Wells Fargo will move assets among

investments by buying and selling shares of the Affiliated Funds and/or

Third Party Funds on the second to the last business day of each

calendar quarter. For purposes of rebalancing, Wells Fargo will use the

net asset values of the affected Funds as of close of business for the

preceding trading day.14 The applicants represent that the act of

rebalancing Accounts will not involve any exercise of investment

discretion on the part of Wells Fargo or its affiliates because the

rebalancing will be confined to bringing the Account into balance with

the Allocation Model chosen by the Independent Fiduciary or the

Directing Participant.

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\14\ It is represented that neither Wells Fargo nor its

affiliates will receive fees or commissions in connection with the

rebalancing. It is also represented that the current percentage

threshold for triggering rebalancing is a deviation of more than 5

percent above or below the targeted percentage for an asset sub-

class.

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Wells Fargo will also make periodic changes (or reallocations) to

the asset mix of the Allocation Models and to the mix and identity of

the Affiliated Funds and/or Third Party Funds that satisfy the

Allocation Models. Such changes will be made to take into account

changes in the economy and market conditions and will be made

independently of the selection of Funds. The changes will also be

confined to the percentage bands set forth above in Table I. When

changes are made to the Allocation Models, Wells Fargo will

automatically realign each Plan Account to make the Account's

investment mix match the new investment mix of the Allocation Model

selected by the Independent Fiduciary or Directing Participant.

Wells Fargo will realign the Accounts' assets by shifting assets

between Affiliated Funds and Third Party Funds according to changes in

the Allocation Model. This type of automatic realignment will take

place only within the percentage bands that have been authorized by the

Independent Fiduciary or Directing Participant. If an Allocation Model

changes such that assets would be allocated outside of the authorized

bands, Wells Fargo will notify the affected Independent Fiduciary or

Directing Participant of the proposed change and give each individual

an opportunity to elect not to permit such change.15

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15 In the preceding example, if the Allocation Model were to be

changed such that the new investment allocation is 55 percent in the

Stock Funds and 45 percent in the Bond Funds (a 5 percent change

that is within 15 percent of the normal position for that Allocation

Model), Wells Fargo would then sell sufficient shares in the Stock

Funds to reduce the percentage of assets invested in such fund to 55

percent and invest the proceeds in the Bond Funds. If, however, a

change of more than 15 percent is proposed, Wells Fargo will first

notify each Independent Fiduciary or Directing Participant affected

and make changes to the Accounts of the Independent Fiduciaries or

Directing Participants who did not elect otherwise.

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Disclosures

19. Aside from the Questionnaire described above, in order for a

Plan to participate in the Portfolio Advisor Program, Wells Fargo will

provide an Independent Fiduciary or Directing Participant, with the

following materials and/or oral disclosures: (a) A copy of the

agreement between the Plan and Wells Fargo relating to the Plan's

participation in the Portfolio Advisor Program; (b) upon written

request to Wells Fargo, a copy of its investment advisory agreement and

sub-advisory agreement pertaining to the Affiliated Funds as well as

its distribution agreement pertaining to the Third Party Funds; (c) a

written recommendation of a specific Allocation Model together with a

copy of the Independent Fiduciary's Questionnaire and answers; (d) a

written or oral explanation of the Portfolio Advisor Program and the

operation and objectives of the Allocation Models; (e) sufficient and

understandable disclosure relating to rebalancing and reallocating the

Allocation Models; (f) a copy of the proposed and final exemptions

granting the relief requested herein; (g) written disclosures of Wells

Fargo's affiliation or nonaffiliation with the parties who act as

sponsors, distributors, administrators, investment advisers and sub-

advisers, custodians and transfer agents of the Third Party Funds and

the Affiliated Funds; and (h) in the case of a Section 404(c) Plan, to

the extent requested by the Independent Fiduciary, an explanation by a

Personal Financial Officer to Directing Participants in such Plan of

the services offered under the Portfolio Advisor Program, the operation

and objectives of the Funds and copies of the documents described in

(a)-(g).

Wells Fargo will make available for inspection by the Independent

Fiduciary or Directing Participant at the time of enrollment in the

Portfolio Advisor Program, copies of Prospectuses of each Affiliated

Fund and Third Party Fund in which a Plan's assets are invested. The

Prospectuses will also be mailed to the Independent Fiduciary, or if

applicable, to the Directing Participant, after the initial investment

of assets under the Portfolio Advisor Program. These documents discuss

the investment objectives of the Affiliated Funds and the Third Party

Funds, the policies employed to achieve these objectives, the corporate

affiliation existing between Wells Fargo and its

[[Page 64158]]

affiliates, the compensation paid to such entities and any information

explaining the risks attendant to investing in the Affiliated Funds or

Third Party Funds. In addition, upon written or oral request, an

Independent Fiduciary or Directing Participant will be given a

Statement of Additional Information supplementing the applicable

Prospectus which describes the securities and other instruments in

which the Funds may invest, the investment policies and strategies that

the Affiliated Funds or Third Party Funds may utilize, including a

description of the risks.

20. If accepted as an investor in the Portfolio Advisor Program,

the Independent Fiduciary or Directing Participant will be required to

acknowledge in writing, prior to investing through the Program, that

such Independent Fiduciary or Directing Participant has received copies

of the aforementioned documents. With respect to a Title I Plan that

does not permit participant- directed investments as contemplated under

section 404(c) of the Act, written acknowledgement of the receipt of

such documents is provided by the Independent Fiduciary (i.e., the Plan

administrator, trustee, investment manager or named fiduciary, as the

recordholder of shares of the Funds.) Such Independent Fiduciary will

be required to represent in writing to Wells Fargo that such fiduciary

is (a) independent of Wells Fargo and its affiliates; (b) capable of

making independent decisions regarding the investment of Plan assets;

(c) knowledgeable with respect to the Plan in administrative matters

and funding matters related thereto; and (d) able to make an informed

decision concerning participation in the Portfolio Advisor Program.

With respect to a Section 404(c) Plan or a Plan that is covered

under Title II of the Act, the Directing Participant or the Independent

Fiduciary is required to acknowledge, in writing, receipt of such

documents and represent to Wells Fargo that such individual is (a)

independent of Wells Fargo and its affiliates; (b) knowledgeable with

respect to the Plan in administrative matters and funding matters

related thereto; and, (c) able to make an informed decision concerning

participation in the Portfolio Advisor Program.

21. On an ongoing basis, Wells Fargo will provide the Independent

Fiduciary with (a) written confirmations of each purchase and

redemption of shares of an Affiliated Fund or Third Party Fund

(including transactions resulting from the realignment of assets caused

by a change in an Allocation Model's investment mix and from periodic

rebalancing of Account assets); (b) telephone quotations of such

Independent Fiduciary's Account balance; (c) a periodic (but not less

frequently than quarterly) statement of Account specifying the net

asset value of a Plan's assets that are invested in such Account, a

summary of purchase, sale and exchange activity and dividends received

or reinvested and a summary of cumulative realized gains/losses; (d)

semiannual and annual reports which will include financial statements

for the Funds and the fees paid by the Funds to Wells Fargo and its

affiliates; (e) a quarterly newspaper or other report pertaining to the

applicable Allocation Model describing such Allocation Model's

performance during the preceding quarter, market conditions and

economic outlook and, if applicable, prospective changes in Affiliated

Fund and Third Party Fund allocations for the Allocation Model and the

reasons therefor; (f) a written or oral inquiry at least once annually

to determine if the information provided in the Questionnaire is still

accurate and to determine if such information should be updated; and

(g) at least annually, a Termination Form that the Independent

Fiduciary may use to withdraw from the Portfolio Advisor Program

together with instructions for using such form.

With respect to a Section 404(c) Plan, the Independent Fiduciary

will determine whether the aforementioned information is provided

directly to the Directing Participants by Wells Fargo or whether such

fiduciary will receive this information and disseminate it to the

Directing Participants. If custody accounts are established in the

names of the Directing Participants, such participants will receive

individualized information.

Fee Structure

22. As to each investing Plan, the total fees that are paid to

Wells Fargo and its affiliates will constitute no more than reasonable

compensation for the services provided.16 In this regard, for its

asset allocation and related services, Wells Fargo will charge each

participating Plan an annual Plan-level investment fee. The Outside Fee

will be based on total assets under management which are attributable

to such Plan's investment in both the Affiliated Funds and the Third

Party Funds. The annualized Outside Fee will be 1.95 percent (for

balances below $20,000), 1.85 percent (for balances of between $20,000

and $100,000, 1.65 percent (for balances between $100,000 and $250,000)

and 1.50 percent (for balances above $250,000).17 From time to

time, Wells Fargo may reduce the Outside Fee for promotional purposes.

The duration and promotional nature of such reductions will be

disclosed to investors. The Outside Fee will be computed quarterly on

the average daily value of assets in the Plan's Account during the

quarter and will be deducted directly from the Account on a quarterly

basis.

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16 The fact that certain transactions and fee arrangements

are the subject of an administrative exemption does not relieve the

fiduciaries of the Plans from the general fiduciary responsibility

provisions of section 404 of the Act. Thus, the Department cautions

Independent Fiduciaries of Plans investing in the Funds that they

have an ongoing duty under section 404 of the Act to monitor the

services provided to the Plans to assure that the services remain

appropriate and that the fees paid by the Plans for such services

are reasonable in relation to the value of the services provided. In

considering whether to enter into the arrangement for the provision

of asset allocation services, the Department emphasizes that it

expects the Independent Fiduciary to fully understand that the

selection or addition of Third Party Funds may result in a Plan

paying a larger overall aggregate fee for the package of services

than if the fiduciary had selected Affiliated Funds.

17 In the case of a Section 404(c) Plan, the computation

of the Outside Fee will be based on the average daily value of all

of the assets in the Accounts of Directing Participants who invest

in the Portfolio Advisor Program. In other words, the Outside Fee is

based on the aggregate asset value of the Plan's asset and not on

the value of each Directing Participant's Account in the Portfolio

Advisor Program. The result is that all Directing Participants in a

Section 404(c) Plan will be subject to the same Outside Fee as well

as the breakpoints.

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23. Wells Fargo will receive Advisory Fees from the Affiliated

Funds ranging from 0.05 percent to 0.70 percent, annually, depending

upon the applicable portfolio. A sub- advisory fee is paid by Wells

Fargo out of its investment advisory fee to WFNIA. Wells Fargo may also

receive Administrative Fees from the Affiliated Funds. As stated in

Representation 3, if such fees are not included in the Advisory Fee for

a portfolio, the current fee for (a) custodial services is 0.0167

percent annually, (b) $2,000 per month plus 0.07 percent on the first

$50 million, 0.045 percent on the next $50 million and 0.02 percent on

the excess over $100 million for portfolio accounting services, (c) a

minimum of $3,000 monthly, plus various transaction charges for

transfer agency services, and (d) 0.00 percent to 0.30 percent for

shareholder servicing. Further, Wells Fargo may receive 12b-1 fees in

the form of ``trailing'' commissions of 0.05 percent to 0.50 percent of

assets invested with respect to Third Party Funds in the Portfolio

Advisor Program.

24. With respect to the Affiliated Funds, Wells Fargo proposes to

offset,

[[Page 64159]]

quarterly, against its Outside Fee, (a) all Advisory Fees and

Administrative Fees that are paid by the Affiliated Funds to Wells

Fargo, its affiliated sub-advisers, its former affiliates, WFNIA and

WFITC, and to other unrelated parties and (b) all 12b-1 Fees and

Administrative Fees that are paid to Stephens.18 As stated in

Representation 3, the annualized Advisory Fees currently range from

0.05 percent to 0.70 percent of the portfolio's average daily net

assets. As stated in Representation 4, the annualized 12b-1 Fees that

are paid to Stephens range from 0.05 to 0.75 percent of the net assets

of the Affiliated Funds. In addition, the annualized Administrative

Fees that are paid to Stephens range from 0.03 percent to 0.15 percent

of the portfolio's net assets. With respect to the Third Party Funds,

Wells Fargo proposes to offset quarterly, against the Outside Fee, all

12b-1 Fees that it receives. As stated in Representation 23, these fees

currently range from 0.05 percent to 0.50 percent annually of net

assets invested.

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18 The Department notes that if the Advisory Fee that is

offset includes a fee that is paid by Wells Fargo to an unrelated

sub- adviser, no additional offsetting will be required with respect

to that portion of the fee that is actually paid by Wells Fargo to

such sub-adviser.

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All such Fees described above will be offset in accordance with the

crediting mechanism that is described in Prohibited Transaction

Exemption (PTE) 77-4 (42 FR 18732, April 8, 1977). After the offset,

Wells Fargo will be paid a Net Outside Fee that may be deducted from

Plan Accounts. The Net Outside Fee, together with the Advisory Fees,

the Administrative Fees and 12b- 1 Fees will equal the Outside Fee

prior to any offset. Wells Fargo believes that the offset will

eliminate any potential conflicts of interest that may exist as a

result of the fact that the investment in certain Funds would generate

higher overall fees to Wells Fargo and its affiliates. In addition, by

insuring that the sum of the offset and the Net Outside Fee always

equals the Outside Fee, Wells Fargo believes that the selection of

Affiliated or Third Party Funds will be revenue-neutral.

Table II illustrates the revenue-neutral result of the offset

arrangement. As Table II shows, if a Plan with an Account balance of

$10,000 is invested in a Portfolio in which 50 percent or $5,000 is

invested, respectively, in an Affiliated Fund and a Third Party Fund,

the Plan will be subject to an Outside Fee of $195 or 1.95 percent of

assets invested.

TABLE II.--Example of Revenue-Neutral Fee Offset

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

Percentage Offset (advisory,

of assets Amount administrative, 12b-1

Fund type allocated invested in fees) Net outside Outside fee

to fund fund -------------------------- fee (1.95%)

(percent) Percent Amount

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

Third Party....................... 0.50 5,000 0.25 12.50 85.00 97.50

Affiliated........................ 0.50 5,000 0.80 40.00 57.50 97.50

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

Total......................... 100.00 10,000 N/A 52.50 142.50 195.00

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

25. At the end of each quarter, Wells Fargo will calculate the

percentage of gross revenues that it has received during the quarter in

the form of Advisory Fees, Administrative Fees and 12b-1 Fees from the

applicable Affiliated Fund or Third Party Fund. Such percentage will

also include all 12b-1 Fees and Administrative Fees that are paid to

Stephens. These figures will be calculated as a percentage of the

average daily net asset value of assets in the appropriate Fund. The

weighted average of such revenues (the Offset Percentage) will then be

calculated for each Allocation Model. This will yield the amount of

Advisory Fees, Administrative Fees and 12b-1 Fees that are received.

This amount will be expressed as a percentage of the average daily net

value of Account assets. Wells Fargo proposes to reduce the Outside Fee

for the quarter for each Plan by subtracting from the Outside Fee the

Offset Percentage for the Allocation Model in which Plan assets were

invested during the quarter. Only after the Offset Percentage has been

subtracted will Wells Fargo deduct the Outside Fee from the Plan

Account in the Portfolio Advisor Program.

26. Table III shows the calculation of the Offset Percentage for a

sample Allocation Model. In this example, gross revenues for Wells

Fargo, its affiliates and where applicable, Stephens, as between the

Affiliated Funds and the Third Party Funds vary from 0.25 percent to

1.09 percent of the daily net asset value (annualized), depending on

which Affiliated Fund or Third Party Fund is selected. The weighted

average of these revenues for the entire Allocation Model is 0.83

percent (annualized), which is subtracted from the 1.95 percent Outside

Fee, thereby leaving a net Outside Fee of 1.12 percent (annualized) for

the quarter.

Table III.--Example of Fee Offset on Sample Allocation Model

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

Percentage

Total of assets Weighted

Fund type Sub-class revenues* allocated fee

(percent) to fund percentage

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

Third Party......................... Growth................. 0.50 x 15.00 = 7.50

Third Party......................... Equity Intn'tl......... 0.25 x 5.00 = 1.25

Affiliated.......................... Growth & Income........ 1.09 x 10.00 = 10.90

Affiliated.......................... Equity Income.......... 1.09 x 15.00 = 16.35

Affiliated.......................... Asset Allocation....... 0.80 x 10.00 = 8.00

Affiliated.......................... Total Return........... 1.03 x 15.00 = 15.45

Affiliated.......................... Intermediate........... 0.75 x 15.00 = 11.25

[[Page 64160]]

Affiliated.......................... Short-Term............. 0.80 x 10.00 = 8.00

Affiliated.......................... Cash................... 0.75 x 5.00 = 3.75

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

Total........................... 100.00 82.45

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

Outside Fee......................... 1.95

Weighted Average of Wells Fargo 0.83

Revenues (82.45 100).

Net Account Fee (Annual)--Would be 1.12

Calculated Quarterly.

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

* For the Affiliated Funds, total revenues include all fees that are paid to Wells Fargo, its affiliated sub-

advisers, its former affiliates, Stephens and to other unrelated parties. For the Third Party Funds, total

revenues include 12b-1 Fees. Any other fees that Wells Fargo may receive from the Third Party Funds are paid

from the 12b-1 Fees.

Use of the Termination Form

27. Although an Independent Fiduciary or Directing Participant may

withdraw from the Portfolio Advisor Program at any time, Wells Fargo

will provide each such individual with a Termination Form, at least

annually, but in all cases where Wells Fargo changes the asset mix

outside of the current Allocation Model, when Wells Fargo proposes to

divide a Fund sub-class, when Wells Fargo determines that it is in the

best interest of the Plan to use a Third Party Fund instead of an

Affiliated Fund and whenever the Outside Fee is increased. Wells Fargo

will provide such written notice to the Independent Fiduciary or

Directing Participant at least 30 days prior to the implementation of

the change. The written notification will include the Termination Form

that the Independent Fiduciary or Directing Participant may use to

withdraw from the Portfolio Advisor Program. The Termination Form will

be accompanied by instructions on its use. The instructions will

expressly (a) provide that the authorization is terminable at will and

without penalty, upon receipt by Wells Fargo of written notice from the

Independent Fiduciary or Directing Participant; and (b) explain that

the proposed change will go into effect if the Independent Fiduciary or

Directing Participant does not elect to withdraw by the effective date.

28. In summary, it is represented that the transactions have

satisfied or will satisfy the statutory criteria for an exemption under

section 408(a) of the Act because:

(a) The investment of a Plan's assets in the Portfolio Advisor

Program has been or will be made by a Plan fiduciary or Directing

Participant who is independent of Wells Fargo and its affiliates such

that the Independent Fiduciary or Directing Participant will maintain

complete discretion with respect to participating in the Portfolio

Advisor Program.

(b) No Plan has paid or will pay a fee or commission by reason of

the acquisition, redemption, reinvestment or transfer of shares in the

Funds.

(c) As to each Plan, the total fees that are paid to Wells Fargo

and its affiliates have constituted or will constitute no more than

reasonable compensation for the services provided.

(d) Prior to investing in the Portfolio Advisor Program, each

Independent Fiduciary or Directing Participant have received or will

receive offering materials and disclosures from Wells Fargo which set

forth all material facts concerning the purpose, fees, structure,

operation, Account rebalancing, risks and participation in such

program.

(e) Wells Fargo has provided or will provide written documentation

to an Independent Fiduciary or Directing Participant of its

recommendations or evaluations based upon objective criteria.

(f) The quarterly Outside Fee that is paid by a Plan to Wells Fargo

for asset allocation and related services rendered to such Plan under

the Portfolio Advisor Program will be offset by (i) all Advisory Fees

(including sub-advisory fees) and Administrative Fees received from the

Affiliated Funds by Wells Fargo, its affiliates, its former affiliates,

and unrelated parties, (ii) all 12b-1 Fees and Administrative Fees that

are paid by the Affiliated Funds to Stephens and (iii) all 12b-1 Fees

Wells Fargo receives from the Third Party Funds, such that the sum of

the offset and the Net Outside Fee will always equal the Outside Fee

and the selection of Affiliated or Third Party Funds will always be

revenue neutral.

(g) Although Wells Fargo will have discretion to change the

investment mix of an Allocation Model, it has been and will be bound by

the financial goals and risk tolerances that the model represents and

it will be limited in the degree of change that it can make to an

Allocation Model's investment mix.

(h) Any authorizations made by an Independent Fiduciary or

Directing Participant with respect to increases in the Outside Fee,

changes in the asset mix outside an Allocation Model, the division of a

Fund sub-class, or the substitution of a Third Party Fund for an

Affiliated Fund, have been and will be terminable at will and without

penalty to the Plan, upon receipt by Wells Fargo of written notice of

termination from the Independent Fiduciary or the Directing

Participant.

(i) Each Independent Fiduciary or Directing Participant has

received and will receive ongoing disclosures from Wells Fargo

regarding the continued participation in the Portfolio Advisor Program.

(j) All dealings between the Plans, the Funds and Wells Fargo have

been and will remain on a basis which is at least as favorable to the

Plans as such dealings are with other shareholders of the Funds.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

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

Cassemco, Inc. Retirement Plan and Trust Agreement Located in

Cookeville, Tennessee; Proposed Exemption

[Application No. D-10350]

The Department is considering granting an exemption under the

authority of section 408(a) of the Act

[[Page 64161]]

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) and 406 (b)(1) and (b)(2) of the Act and the

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

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

apply to the proposed cash sale (the Sale) by the Plan of certain

securities (the Securities) to Cassemco, Inc. the sponsoring employer

(the Employer) and party in interest with respect to the Plan; provided

(1) the Sale is a one-time transaction for cash, (2) the Plan pays no

commissions nor incurs any expenses in connection with the proposed

Sale, and (3) the Plan receives as consideration for the Sale no less

than the fair market value of the Securities as of the date of the

Sale.

Summary or Facts and Representations

1. The Employer, a Tennessee corporation organized October 19,

1978, is in the business of manufacturing protective sporting goods

equipment for sporting-goods dealers and supplying packaging materials

for ammunition to military prime contractors.

Mrs. Barbara Nipper Tetreault is the sole owner of the Employer,

succeeding her late husband in 1991, when also she became the trustee

and fiduciary of the Plan.

The Plan is a defined benefit pension plan with approximately

$137,921.50 in total assets and 31 participants, as of September 3,

1996. The Employer, because of financial problems, discontinued funding

the Plan in 1991. On July 3, 1996, the Plan submitted a formal notice

of termination to the Pension Benefit Guaranty Corporation, and now the

Plan is prepared to distribute the accrued vested benefits of the Plan

to its participants and beneficiaries.

2. The Securities, which the Plan proposes to sell to the Employer,

consist of 956 shares of common stock, and 956 warrants that are

exercisable at $10.50 and expire December 31, 1997. The Securities were

issued to the Plan, effective December 31, 1995, by AquaPro

Corporation, a Tennessee corporation, in an exchange for the limited

partnership holdings of the Plan in a catfish farm, Circle Creek

AquaCulture, L.P., a Tennessee limited partnership. The Plan acquired

its limited partnership holdings in the Circle Creek AquaCulture, L.P.

on May 1, 1989, from an unrelated party for investment purposes.

In a letter dated September 4, 1996, Mr. George S. Hastings, Jr.,

President of AquaPro Corporation determined that the current fair

market value of the Securities held by the Plan was $7.50 for each of

the 956 shares and $2.25 for each of the 956 warrants, or a total fair

market value of $9,321 for all the Securities held by the Plan.

Mr. Hastings represents, that although the Securities are not

currently registered or listed on a national securities exchange,

several million dollars have been invested in the shares of common

stock of AquaPro Corporation and acquired by outside investors, paying

$7.50 per share; also, Mr. Hastings determined that the automatic

conversion feature of the warrants, effective on the expiration date,

December 31, 1997,\19\ gave the warrants a fair market value of $2.25

per warrant.

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

\19\ The automatic conversion feature of the warrants provides

that upon their expiration each warrant converts to 3/10 share of

the common stock issued by AquaPro Corporation.

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

In addition, in a letter dated November 6, 1995, Bishop Crown

Investment Research, Inc. (Bishop), located in San Diego, California

determined the Securities value was $7.50 per share for the common

stock and the value of the warrants was $2.25 per warrant. The

determination by Bishop was made for determining the exchange values

when AquaPro Corporation acquired the limited partnership holdings of

the Plan, effective December 31, 1995, in Circle Creek AquaCulture,

L.P.

The applicant and Mr. Hastings represent that both Mr. Hastings and

Bishop are unrelated and independent of the Plan and the trustee or

sponsor of the Plan.

3. The applicant requests an administrative exemption from the

prohibited transaction provisions of the Act to enable the Plan to sell

for cash the Securities at their fair market value to the Employer.

Following the proposed Sale the applicant intends to complete the

termination of the Plan by distributing the accrued vested benefits to

the Plan participants and beneficiaries. The applicant represents that

an additional funding contribution will be made to the Plan so that on

the date of distribution the Plan will pay the participants and

beneficiaries all their accrued benefits due under the terms of the

Plan. The applicant also represents that because of the limited trading

activity of the Securities since they are not registered or listed on a

national securities exchange, the Plan has not been able to sell the

Securities to a non-party in interest with respect to the Plan.

The Sale is represented by the applicant to be in the best

interests of the Plan and its participants and beneficiaries because

the Plan will be able to distribute the accrued vested benefits and be

able to terminate and avoid additional costs and expenses.

Also, the applicant represents that the rights of the participants

and beneficiaries are protected by the independent determination of the

fair market value of the Securities by Mr. Hastings and Bishop.

4. In summary, the applicant represents that the proposed

transaction will satisfy the criteria of section 408(a) of the Act

because (a) the Sale of the Securities involves a one-time transaction

for cash; (b) the Plan will not incur any commission payments nor any

other expenses from the Sale; (c) the Plan will be able to distribute

the accrued vested benefits to Plan participants and beneficiaries and

terminate; (d) the Securities have been independently appraised by the

president of the issuing corporation; and (e) the Plan will receive as

consideration from the Sale an amount no less than the fair market

value of the Securities as of the date of the Sale.

FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,

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

PanAgora Asset Management, Inc. (PanAgora) Located in Boston,

Massachusetts; Proposed Exemption

[Application No. D-10351]

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, PanAgora shall not be precluded from functioning as a

``qualified professional asset manager'' pursuant to Prohibited

Transaction Exemption 84-14 (PTE 84-14, 49 FR 9494, March 13, 1984)

solely because of a failure to satisfy Section I(g) of PTE 84-14, as a

result of affiliation with E.F. Hutton & Company, Inc. (Hutton) and

Shearson Lehman Brothers, Inc. (Shearson), formerly Shearson Lehman

Hutton, Inc. (SLH).

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

September 22, 1989, the date on which PanAgora was formed.

Summary of Facts and Representations

1. PanAgora is a Delaware corporation that was formed on September

22, 1989.

[[Page 64162]]

PanAgora originally was a wholly-owned subsidiary of The Boston

Company, Inc. (TBC), which was in turn a subsidiary of SLH. On April

27, 1990, Nippon Life Insurance Company (NLI) obtained a 50% interest

in PanAgora; the remaining 50% interest was owned 25% by SLH and 25% by

TBC. On May 20, 1993, the ownership was changed so that NLI owned 50%

and SLH owned 50%. On July 31, 1993, as part of the reorganization

accompanying the sale of the Shearson retail brokerage business, the

ownership changed to 50% NLI and 50% Lehman Brothers, Inc.20

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

20 On March 13, 1993, Shearson entered into an asset purchase

agreement with Primerica Corporation and its wholly-owned

subsidiary, Smith Barney, providing for the sale to Smith Barney and

its designated affiliates of substantially all of the assets of the

Shearson Lehman Brothers Division of Shearson and the SLB Asset

Management Division of Shearson. The remaining business was renamed

Lehman Brothers, Inc.

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

PanAgora has a Board of Directors of 10 persons. Four are

designated by NLI, three are designated by Lehman and three are

PanAgora employees. PanAgora is a registered investment adviser under

the Investment Advisers Act of 1940 (the Advisers Act). As of December

31, 1995, PanAgora managed investments of $13,486,300,000 for 98

clients, including 73 clients which are plans subject to the Act, 5

foundations, 10 governmental plans, 7 mutual funds and 3 offshore

funds.

2. Shearson is a wholly-owned subsidiary of Shearson Lehman

Brothers Holdings Inc. (Shearson Holdings), 100 percent of the issued

and outstanding common stock of which is owned by American Express

Company (AMEX). AMEX is a publicly-owned company whose stock is traded

on the New York Stock Exchange. AMEX and its subsidiaries form a

diversified financial and travel services company.

On January 13, 1988, over 90 percent of the stock of E.F. Hutton

Group Inc. (Hutton Group), the parent company of Hutton, was tendered

to SLBP Acquisition Corporation (SLBP), a wholly-owned subsidiary of

Shearson Holdings, pursuant to an Agreement and Plan of Merger (Merger

Agreement) dated December 2, 1987, as amended on December 28, 1987,

entered into among Shearson Holdings, SLBP, and the Hutton Group. On

January 21, 1988, as permitted by the terms of the Merger Agreement,

SLBP assigned its right to purchase those shares so accepted to

Shearson and Shearson purchased the shares. As a result of the

acquisition of the Hutton Group stock, Shearson controls the Hutton

Group and indirectly controls Hutton.

3. On May 2, 1985, Hutton entered a plea of guilty (the Guilty

Plea) to an Information filed in the United States District Court for

the Middle District of Pennsylvania. The Information charged that

Hutton had violated the federal mail and wire fraud statutes in

connection with its handling of certain checking accounts it maintained

for the deposit of its own funds during the period from July 1, 1980 to

February 16, 1982. The applicant represents that as a result of the

Guilty Plea, Hutton agreed to pay, and has paid, a criminal fine of

$2,000,000 plus $750,000 to defray the costs of the government

investigation. Hutton further agreed to establish, and has established,

a restitution program for the benefit of commercial banks that may have

been damaged by its actions. None of the acts alleged in the

Information, however, involved funds or securities owned by any

investment advisory or brokerage clients of Hutton or any employee

benefit plan for which Hutton or any affiliate is a party in interest.

4. On May 16, 1988, Hutton entered a plea of guilty (the Providence

Plea) in the United States District Court for the District of Rhode

Island on two counts of violating the Bank Secrecy Act and one count of

conspiracy to violate that Act. The applicant represents that Hutton

agreed to pay, and has paid, an aggregate fine of $1,010,000 as a

result of the Providence Plea. The Information filed by the government

in connection with the Providence Plea alleges that the conduct of the

two brokers, formerly employed at Hutton-Providence, was in violation

of the Bank Secrecy Act. The Bank Secrecy Act requires the filing of a

Currency Transaction Report, under certain circumstances, if more than

$10,000 in cash is deposited with a financial institution. The

applicant represents that the brokers' unlawful conduct occurred

primarily in the period from 1982 to 1983, and no such conduct

transpired later than October 1984--more than three years before

Shearson acquired its majority interest in Hutton.

5. On March 3, 1989, George Inserra, a broker employed by Shearson,

pled guilty to charges of securities fraud, soliciting commissions in

connection with an employee benefit plan, and filing a false income tax

return. On the same date, John Inserra, also employed by Shearson as a

broker, pled guilty to securities fraud conspiracy. Further, on May 1,

1989, the Department filed a complaint in the U.S. District Court for

the Northern District of New York alleging that Shearson, among others,

and its agents, misused assets of three New York Teamsters Funds (the

Funds) to benefit themselves and others through a stock parking scheme

and indirect fee arrangements with banks, and that Shearson mishandled

the Funds' cash balances and manipulated stock purchases. On September

19, 1990, Shearson and the Department executed a settlement agreement

(the Settlement) regarding the Department's complaint. Without

admitting or denying the Department's allegations, Shearson agreed

pursuant to the Settlement to make a payment to the affected Funds.

6. The applicant states that the Inserras had left the employment

of Shearson in October 1985, long before the guilty pleas were entered

in March 1989. The applicant further represents that although the

Securities and Exchange Commission (SEC) instituted proceedings against

Shearson as a result of the Inserras' activities, Shearson was not

charged with any criminal offenses. Shearson settled the SEC

proceedings by accepting a censure by the SEC for failure to exercise

reasonable supervision of the Inserras. As part of the settlement with

the SEC, Shearson agreed to institute revised policies and procedures

recommended by an independent consultant to prevent the kinds of

defalcations engaged in by the Inserras. The applicant represents that

the independent consultant thoroughly analyzed Shearson's operations

and recommended systemic changes designed to preclude the types of

unsupervised actions committed by the Inserras.

7. AMEX has represented that although none of the unlawful conduct

involved Hutton's investment management activities or any plans covered

by the Act, the criminal activities described above could preclude each

component of AMEX, as an affiliate of Hutton, from serving as a

``qualified professional asset manager'' (QPAM) pursuant to sections

I(g) and V(d) of PTE 84-14. Similarly, AMEX has represented that the

guilty pleas of the Inserras could preclude each component of AMEX, as

an affiliate of Shearson, from serving as a QPAM, pursuant to sections

I(g) and V(d) of PTE 84-14. Section I(g) of PTE 84-14 precludes a

person who otherwise qualifies as a QPAM from serving as a QPAM if such

person or an affiliate 21 thereof has

[[Page 64163]]

within the 10 years immediately preceding the transaction been either

convicted or released from imprisonment as a result of certain criminal

activity. PanAgora requests an exemption to enable it to function as a

QPAM despite its failure to satisfy section I(g) of PTE 84-14 due to

affiliation with Hutton and Shearson and the pleas entered by Hutton

and the Inserras.22

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

\21\ For purposes of section I(g) of PTE 84-14, an ``affiliate''

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

or indirectly, through one or more intermediaries, controlling,

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

84-14 section V(d)). As such, under this definition, American

Express and all its subsidiaries (collectively, AMEX) would be

considered affiliates of Shearson and Hutton.

\22\ In Prohibited Transaction Exemption 94-34 (PTE 94-34, 59 FR

19247, April 22, 1994), AMEX obtained the relief proposed herein for

itself and its wholly owned subsidiaries, including Lehman Brothers,

Inc., the successor to SLH. Although PanAgora was then a subsidiary

of AMEX, PTE 94-34 provided no relief for PanAgora because it was

not a wholly owned subsidiary.

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

8. The transactions covered by this proposed exemption would

include the full range of transactions that can be executed by

investment managers who qualify as QPAMs pursuant to PTE 84-14. The

applicant represents that the requested exemption is not relevant to

most transactions involving the purchase/sale of securities, securities

lending, investment in short-term instruments (such as repurchase

agreements and bankers' acceptances) and certain residential mortgage

pools, since each such transaction is covered by other class

exemptions. However, the applicant represents that the requested

exemption, to enable access to the exemptive relief afforded by PTE 84-

14, is needed for PanAgora to engage in various transactions involving

investments in real estate, mortgages, and commodities, between plans

over which PanAgora has investment discretion and parties in interest

with respect to such plans.

9. AMEX has represented that various measures have been taken by

Hutton and Shearson, since the Hutton pleas and the Inserra pleas, to

ensure that conduct such as that involved in such pleas will not recur.

Among the steps taken to prevent such conduct in the future are the

following:

(A) Hutton has acted to recompense its depository banks for any

harm which may have been caused by the illegal acts involved in the

Guilty Plea and the Providence Plea.

(B) Hutton initiated changes in its organizational structure and

management practices: Realignment and centralization of financial

operations, computerized enhancement of Hutton's headquarters to

monitor activity at the branch and regional levels, and instruction of

all employees on the procedural revisions.

(C) Hutton adopted recommendations made by former Judge Griffin

Bell, U.S. Court of Appeals for the Fifth Circuit,23 who was

retained to conduct an independent inquiry into the cash management

practices to which Hutton pled guilty. The changes made pursuant to

Judge Bell's recommendation include restructuring of the financing,

financial control, operations and general counsel functions,

establishment of an independent audit committee with full access to

Hutton's chief executive officer and board of directors, and

development of a corporate code of ethics, supplemented by educational

and monitoring programs, in conjunction with the Ethics Resource Center

in Washington, D.C.

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

\23\ Judge Bell has also served as Attorney General of the

United States.

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

(D) In late December 1987, following the announcement of Shearson's

merger with Hutton Group, Shearson retained outside counsel to

investigate and advise with respect to Hutton's compliance with the

Bank Secrecy Act. The investigation revealed certain unreported

currency transactions at Hutton branch offices prior to Shearson's

acquisition of Hutton. AMEX has represented that the United States

Attorney for the Southern District of New York completed its inquiry

into possible legal violations at Hutton branch offices and indicated

it will take no further action.

(E) In connection with Shearson's application to the SEC for an

exemption from the provisions of section 9(a) of the Investment Company

Act of 1940, Shearson agreed to retain independent auditors: (i) To

confirm that the Shearson currency reporting procedures are in place in

each former Hutton branch office; (ii) to review the currency reporting

procedures to determine whether they are reasonably designed to ensure

compliance with the Bank Secrecy Act and whether changes are needed to

ensure ongoing compliance; and (iii) to report the results of the

review to Shearson. AMEX has represented that upon completion of the

auditor's review, Shearson submitted the report and recommendations to

the SEC, together with a report by Shearson setting forth the action

proposed for implementation of the recommendations. AMEX stated that

such proposed action has been taken.

(F) As of February 8, 1988, as part of the consolidation of the

Hutton branch offices into the Shearson branch office system, each

Hutton branch adopted the same internal procedures for processing

currency transactions as those followed by Shearson. AMEX has

represented that such procedures prevent the kind of irregularities

involved in the Providence Plea. AMEX stated that as additional

safeguards, the Shearson procedures forbid all Shearson employees from

taking possession of currency for a customer, escorting a customer to a

financial institution to convert currency, and/or advising a customer

as to how to ``structure'' a transaction with a financial institution

in order to avoid reporting requirements under the Currency Transaction

Reporting Act.

(G) Although the SEC instituted proceedings against Shearson as a

result of the Inserras' activities, Shearson was not charged with any

criminal offense, and Shearson expeditiously settled the SEC

proceedings by accepting a censure by the SEC for failure to reasonably

supervise the Inserras and the branch manager overseeing the Inserras.

As part of the settlement, Shearson committed to institute revised

policies and procedures recommended by an independent consultant and

designed to prevent the kinds of defalcations engaged in by the

Inserras.

10. The applicant asserts that failure to grant the requested

exemption will prohibit employee benefit plans for which PanAgora acts

as investment manager from engaging in transactions with parties in

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

cause the plans to forego attractive investment opportunities. The

applicant notes that it would be deprived of its abilities to offer and

render the full panoply of specialized investment advisory services

demanded by employee benefit plans covered by the Act. The applicant

represents that neither of the Hutton pleas involved PanAgora in any

way, and thus do not impair the abilities of PanAgora to serve as

independent investment manager.

With respect to the conduct and pleas of the Inserras, AMEX has

pointed out that the Inserras were not employees of Shearson at the

time they pled guilty to the charges against them, and Shearson was

never charged with any criminal offense in connection with their

activities. The applicant represents that the ability of PanAgora or

any other AMEX affiliate to act as a QPAM has not been affected by the

activities of the Inserras, which were neither authorized nor condoned

by Shearson or any other AMEX affiliate.

11. In summary the applicant represents that the proposed exemption

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

reasons: (A) Hutton's criminal activity occurred prior to acquisition

by Shearson, and the activities of the Inserras did not involve any

criminal charges against Shearson; (B) Both Hutton and Shearson have

undertaken substantial reforms

[[Page 64164]]

and put in place procedures designed to prevent any recurrence of the

criminal activity; (C) PanAgora will be able to engage in a broader

variety of investment services on behalf of employee benefit plans

which demand such services; (D) The ability of PanAgora to act as QPAM

has not been impaired by criminal acts that were neither authorized nor

condoned by Shearson or any other AMEX affiliate; and (E) The other

conditions of PTE 84-14, combined with the procedures adopted by Hutton

and Shearson, afford ample protection of the interests of participants

and beneficiaries of employee benefit plans.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department,

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

SouthTrust Securities, Inc. (ST) Located in Birmingham, Alabama;

Proposed Exemption

[Application No. D-10376]

I. Transactions

A. Effective October 25, 1996, 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.\24\

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\24\ 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 October 25, 1996, the restrictions of sections

406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section

4975 (a) and (b) of the Code by reason of section 4975(c)(1)(E) of the

Code shall not apply to:

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

certificates in the initial issuance of certificates between the

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

authority or renders investment advice with respect to the investment

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

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

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

(a); if:

(i) The plan is not an Excluded Plan;

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

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

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

acquired by persons independent of the members of the Restricted Group

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

acquired by persons independent of the Restricted Group;

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

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

at the time of the acquisition; and

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

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

person has discretionary authority or renders investment advice are

invested in certificates representing an interest in a trust containing

assets sold or serviced by the same entity.\25\ 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;

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\25\ 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. Effective October 25, 1996, 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.\26\

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\26\ In the case of a private placement memorandum, such

memorandum must contain substantially the same information that

would be disclosed in a prospectus if the offering of the

certificates were made in a registered public offering under the

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

placement memorandum must contain sufficient information to permit

plan fiduciaries to make informed investment decisions.

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

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

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

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

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

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

D. Effective October 25, 1996, the restrictions of sections 406(a)

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

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

Code, shall not apply to any transactions to which those restrictions

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

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

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

virtue of having a relationship to such service provider described in

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

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

ownership of certificates.

II. General Conditions

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

following conditions are met:

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

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

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

party;

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

subordinated

[[Page 64165]]

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 Ratings

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

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

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

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

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

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

and servicing agreement providing for such succession upon the

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

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

underwriters in connection with the distribution or placement of

certificates represents not more than reasonable compensation for

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

to and retained by the sponsor pursuant to the assignment of

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

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

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

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

pooling and servicing agreement and reimbursement of the servicer's

reasonable expenses in connection therewith; and

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

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

Securities and Exchange Commission under the Securities Act of 1933.

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

nor any obligor, unless it or any of its affiliates has discretionary

authority or renders investment advice with respect to the plan assets

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

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

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

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

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

private placement of certificates, the trustee obtains a representation

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

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

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

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

obtain from its transferee a representation regarding compliance with

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

make a written representation regarding compliance with the condition

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

III. Definitions

For purposes of this exemption:

A. ``Certificate'' means:

(1) a certificate--

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

of a trust; and

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

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

trust; or

(2) a certificate denominated as a debt instrument--

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

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

Internal Revenue Code of 1986; and

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

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

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

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

or placement agent.

For purposes of this exemption, references to ``certificates

representing an interest in a trust'' include certificates denominated

as debt which are issued by a trust.

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

in trust and consists solely of:

(1) either

(a) secured consumer receivables that bear interest or are

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

loans and obligations secured by shares issued by a cooperative housing

association);

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

at a discount in transactions by or between business entities

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

leases, as defined in section III.T);

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

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

residential and commercial real property (including obligations secured

by leasehold interests on commercial real property);

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

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

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

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

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

(f) fractional undivided interests in any of the obligations

described in clauses (a)-(e) of this section B.(1); \27\

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\27\ It is the Department's view that the definition of

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

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

subsection B.(1);

(3) undistributed cash or temporary investments made therewith

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

to certificateholders; and

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

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

guarantees, contracts of suretyship and other credit support

arrangements with respect to any obligations described in subsection

B.(1).

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

investment pool unless: (i) the investment pool consists only of assets

of the type which have been included in other investment pools, (ii)

certificates evidencing interests in such other investment pools have

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

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

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

(iii) certificates evidencing interests in such other investment pools

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

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

exemption.

C. ``Underwriter'' means:

(1) ST;

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

intermediaries, controlling, controlled by or under common control with

ST; or

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

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

respect to the certificates.

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

depositing

[[Page 64166]]

obligations therein in exchange for certificates.

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

pooling and servicing agreement relating to trust assets and is fully

responsible for servicing, directly or through subservicers, the assets

of the trust.

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

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

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

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

the trust, including the master servicer and any subservicer.

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

certificates which are denominated as debt instruments, also means the

trustee of the indenture trust.

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

other credit support for, a trust. Notwithstanding the foregoing, a

person is not an insurer solely because it holds securities

representing an interest in a trust which are of a class subordinated

to certificates representing an interest in the same trust.

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

obligated to make payments with respect to any obligation or receivable

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

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

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

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

in the trust.

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

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

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

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

means:

(1) each underwriter;

(2) each insurer;

(3) the sponsor;

(4) the trustee;

(5) each servicer;

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

in the trust constituting more than 5 percent of the aggregate

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

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

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

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

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

intermediaries, controlling, controlled by, or under common control

with such other person;

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

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

brother or sister of such other person; and

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

officer, director or partner.

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

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

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

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

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

who has investment management authority or renders investment advice

with respect to any assets of such person.

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

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

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

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

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

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

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

delivery commitment; and

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

applicable to sales are met.

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

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

agreed future settlement date. The term includes both mandatory

contracts (which contemplate obligatory delivery and acceptance of the

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

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

of certificates from, the other party).

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

defined in 29 CFR 2550.408c-2.

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

following criteria:

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

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

obligations;

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

to act referred to in (1);

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

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

set forth in the pooling and servicing agreement; and

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

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

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

equipment note:

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

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

under the equipment lease; and

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

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

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

and not the lease.

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

vehicle where:

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

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

vehicle; and

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

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

trust consisted of motor vehicle installment loan contracts.

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

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

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

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

indenture entered into by the trustee of the trust issuing such

certificates and the indenture trustee.

W. ``ST'' means SouthTrust Securities, Inc. and its affiliates.

The Department notes that this proposed exemption is included

within the meaning of the term ``Underwriter Exemption'' as it is

defined in section V(h) of Prohibited Transaction Exemption 95-60 (60

FR 35925, July 12, 1995), the Class Exemption for Certain Transactions

Involving Insurance Company General Accounts at 35932.

Summary of Facts and Representations

1. ST is the wholly-owned, separately capitalized investment

banking subsidiary of South Trust Corporation (the Bank), a Birmingham,

Alabama based bank holding company which had assets of $24.8 billion as

of September 30, 1996 and operates eight affiliate banks with more than

500 offices in Alabama, Florida, Georgia, Mississippi, North Carolina,

South Carolina and Tennessee. The Bank also owns and operates

subsidiaries that engage in data processing, trust, leasing, mortgage

[[Page 64167]]

banking, and investment and brokerage services.

ST was originally incorporated as SouthTrust Brokerage Services in

1985. In 1989, the investment division of SouthTrust Bank of Alabama

was merged into SouthTrust Brokerage Services, Inc., and the name of

the corporation was changed to SouthTrust Securities, Inc. ST maintains

its principal place in Birmingham, Alabama. ST is a registered broker-

dealer with the Securities and Exchange Commission. As a member of the

National Association of Securities Dealers, ST maintains a fixed income

securities brokerage service for the initial placement and remarketing

of offerings originated by the firm as well as other issues traded in

the secondary market.

Pursuant to a July 10, 1989 order of the Board of Governors of the

Federal Reserve System, ST is authorized to engage, to a limited

extent, in underwriting and dealing in certain securities through a

bank holding company subsidiary. The underwriting activities include

one- to four-family mortgage-related securities, municipal revenue

bonds, commercial paper, and consumer receivable-related securities.

Pursuant to this order, ST may also provide full service brokerage

services and investment advice and buy and sell securities solely as

agent for the account of customers. This order is subject to the

condition that ST does not derive more than 10% of its average gross

revenues from such activities during any two year rolling period.

Affiliates of ST began securitizing assets in 1993. Since that time

ST's affiliates have securitized nursing home loans and multi-family

conduit loans. The professionals of ST have also been active

participants in the area of tax-exempt financing, including housing,

public finance and industrial development issues. ST itself began

securitizing assets in 1996 when it completed a securitization of

mobile home loans in a private placement. It is anticipated that ST

will be involved as an underwriter or placement agent in the future in

asset securitizations.

Trust Assets

2. ST seeks exemptive relief to permit plans to invest in pass-

through certificates representing undivided interests in the following

categories of trusts: (1) Single and multi-family residential or

commercial mortgage investment trusts; 28 (2) motor vehicle

receivable investment trusts; (3) consumer or commercial receivables

investment trusts; and (4) guaranteed governmental mortgage pool

certificate investment trusts.29

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\28\ The Department notes that PTE 83-1 [48 FR 895, January 7,

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

generally apply to trusts containing single-family residential

mortgages, provided that the applicable conditions of PTE 83-1 are

met. ST requests relief for single-family residential mortgages in

this exemption because it would prefer one exemption for all trusts

of similar structure. However, ST has stated that it may still avail

itself of the exemptive relief provided by PTE 83-1.

\29\ Guaranteed governmental mortgage pool certificates are

mortgage-backed securities with respect to which interest and

principal payable is guaranteed by the Government National Mortgage

Association (GNMA), the Federal Home Loan Mortgage Corporation

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

Department's regulation relating to the definition of plan assets

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

guaranteed governmental mortgage pool certificate, the plan's assets

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

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

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

underlying such certificate. The applicant is requesting exemptive

relief for trusts containing guaranteed governmental mortgage pool

certificates because the certificates in the trusts may be plan

assets.

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3. Commercial mortgage investment trusts may include mortgages on

ground leases of real property. Commercial mortgages are frequently

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

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

ground lease interest is generally done for tax reasons. Properly

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

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

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

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

least ten years longer than the term of such mortgages.30

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\30\ Trust assets may also include obligations that are secured

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

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

1990 at 23150).

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Trust Structure

4. Each trust is established under a pooling and servicing

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

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

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

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

an unrelated lender and subsequently acquired by the trust sponsor or

servicer.31

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\31\ It is the view of the Department that section III.B.(4)

includes within the definition of the term ``trust'' rights under

any yield supplement or similar arrangement which obligates the

sponsor or master servicer, or another party specified in the

relevant pooling and servicing agreement, to supplement the interest

rates otherwise payable on the obligations described in section

III.B.(1), in accordance with the terms of a yield supplement

arrangement described in the pooling and servicing agreement,

provided that such arrangements do not involve swap agreement or

other notional principal contracts.

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On or prior to the closing date, the sponsor acquires legal title

to all assets selected for the trust, establishes the trust and

designates an independent entity as trustee. On the closing date, the

sponsor conveys to the trust legal title to the assets, and the trustee

issues certificates representing fractional undivided interests in the

trust assets. ST, alone or together with other broker-dealers, acts as

underwriter or placement agent with respect to the sale of the

certificates. All of the public offerings of certificates presently

contemplated are to be underwritten by ST on a firm commitment basis.

In addition, ST anticipates that it may privately place certificates on

both a firm commitment and an agency basis. ST may also act as the lead

underwriter for a syndicate of securities underwriters.

Certificateholders will be entitled to receive monthly, quarterly

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

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

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

fixed or variable.

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

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

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

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

certificateholders) to hold funds received between distribution dates.

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

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

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

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

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

received from obligors by the servicer may be commingled with the

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

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

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

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

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

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

delivered to the trustee, it will be made available to

[[Page 64168]]

certificateholders and delivered to or made available to each rating

agency that has rated the certificates.

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

requests exemptive relief for two types of multi-class certificates:

``strip'' certificates and ``fast-pay/slow-pay'' certificates. Strip

certificates are a type of security in which the stream of interest

payments on receivables is split from the flow of principal payments

and separate classes of certificates are established, each representing

rights to disproportionate payments of principal and interest.32

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\32\ It is the Department's understanding that where a plan

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

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

result of such investment may be considered unrelated business

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

Code. The Department emphasizes that the prudence requirement of

section 404(a)(1)(B) of the Act would require plan fiduciaries to

carefully consider this and other tax consequences prior to causing

plan assets to be invested in certificates pursuant to this

exemption.

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

of certificates having different stated maturities or the same

maturities with different payment schedules. Interest and/or principal

payments received on the underlying receivables are distributed first

to the class of certificates having the earliest stated maturity of

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

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

will distributions be made with respect to the second class of

certificates. Distributions on certificates having later stated

maturities will proceed in like manner until all the certificateholders

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

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

is the order in which distributions are made to certificateholders. In

each case, certificateholders will have a beneficial ownership interest

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

purchasing a certificate be subordinated to the rights of another

certificateholder in the event of default on any of the underlying

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

certificateholders is less than the amount required to be so

distributed, all senior certificateholders then entitled to receive

distributions will share in the amount distributed on a pro rata

basis.33

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\33\ If a trust issues subordinated certificates, holders of

such subordinated certificates may not share in the amount

distributed on a pro rata basis with the senior certificateholders.

The Department notes that the exemption does not provide relief for

plan investment in such subordinated certificates.

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

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

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

severely limited. Pooling and servicing agreements provide for the

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

in documentation discovered within a short time after the issuance of

trust certificates (within 120 days, except in the case of obligations

having an original term of 30 years, in which case the period will not

exceed two years). Any receivable so substituted is required to have

characteristics substantially similar to the replaced receivable and

will be at least as creditworthy as the replaced receivable.

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

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

passed through to certificateholders.

Parties to Transactions

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

lends money to a borrower (obligor), such as a home- owner or

automobile purchaser, or leases property to a lessee. The originator

may either retain a receivable in its portfolio or sell it to a

purchaser, such as a trust sponsor.

Originators of receivables included in the trusts will be entities

that originate receivables in the ordinary course of their business,

including finance companies for whom such origination constitutes the

bulk of their operations, financial institutions for whom such

origination constitutes a substantial part of their operations, and any

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

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

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

receivables may also function as the trust sponsor or servicer.

8. The sponsor will be one of three entities: (i) A special-purpose

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

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

servicer itself. Where the sponsor is not also the servicer, the

sponsor's role will generally be limited to acquiring the receivables

to be included in the trust, establishing the trust, designating the

trustee, and assigning the receivables to the trust.

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

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

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

responsible for enforcing all the rights created thereby in favor of

certificateholders.

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

unrelated to ST, the trust sponsor or the servicer. ST represents that

the trustee will be a substantial financial institution or trust

company experienced in trust activities. The trustee receives a fee for

its services, which will be paid by the servicer or sponsor. The method

of compensating the trustee which is specified in the pooling and

servicing agreement will be disclosed in the prospectus or private

placement memorandum relating to the offering of the certificates.

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

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

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

maintaining records of payments received on receivables and instituting

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

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

different originators and deposited in a trust, the receivables may be

``subserviced'' by their respective originators and a single entity may

``master service'' the pool of receivables on behalf of the owners of

the related series of certificates. Where this arrangement is adopted,

a receivable continues to be serviced from the perspective of the

borrower by the local subservicer, while the investor's perspective is

that the entire pool of receivables is serviced by a single, central

master servicer who collects payments from the local subservicers and

passes them through to certificateholders.

Receivables of the type suitable for inclusion in a trust

invariably are serviced with the assistance of a computer. After the

sale, the servicer keeps the sold receivables on the computer system in

order to continue monitoring the accounts. Although the records

relating to sold receivables are kept in the same master file as

receivables retained by the originator, the sold receivables are

flagged as having been sold. To protect the investor's interest, the

servicer ordinarily covenants that this ``sold flag'' will be included

in all records relating to the sold receivables, including the master

file, archives, tape extracts and printouts.

The sold flags are invisible to the obligor and do not affect the

manner in which the servicer performs the billing,

[[Page 64169]]

posting and collection procedures related to the sold receivables.

However, the servicer uses the sold flag to identify the receivables

for the purpose of reporting all activity on those receivables after

their sale to investors.

Depending on the type of receivable and the details of the

servicer's computer system, in some cases the servicer's internal

reports can be adapted for investor reporting with little or no

modification. In other cases, the servicer may have to perform special

calculations to fulfill the investor reporting responsibilities. These

calculations can be performed on the servicer's main computer, or on a

small computer with data supplied by the main system. In all cases, the

numbers produced for the investors are reconciled to the servicer's

books and reviewed by public accountants.

The underwriter will be a registered broker-dealer that acts as

underwriter or placement agent with respect to the sale of the

certificates. Public offerings of certificates are generally made on a

firm commitment basis. Private placement of certificates may be made on

a firm commitment or agency basis. The lead or co-managing underwriters

may make a market in certificates offered to the public.

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

included in a trust and the sponsor of the trust (although they may

themselves be related) will be unrelated to ST. In other cases,

however, affiliates of ST may originate or service receivables included

in a trust or may sponsor a trust.

Certificate Price, Pass-Through Rate and Fees

11. In some cases, the sponsor will obtain the receivables from

various originators pursuant to existing contracts with such

originators under which the sponsor continually buys receivables. In

other cases, the sponsor will purchase the receivables at fair market

value from the originator or a third party pursuant to a purchase and

sale agreement related to the specific offering of certificates. In

other cases, the sponsor will originate the receivables itself.

As compensation for the receivables transferred to the trust, the

sponsor receives certificates representing the entire beneficial

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

certificates. If the sponsor receives certificates from the trust, the

sponsor sells all or a portion of these certificates for cash to

investors or securities underwriters.

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

in the secondary market, is affected by market forces, including

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

relation to the rate payable on investments of similar types and

quality, expectations as to the effect on yield resulting from

prepayment of underlying receivables, and expectations as to the

likelihood of timely payment.

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

rate on receivables included in the trust minus a specified servicing

fee.34 This rate is generally determined by the same market forces

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

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

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

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

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

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\34\ The pass-through rate on certificates representing

interests in trusts holding leases is determined by breaking down

lease payments into ``principal'' and ``interest'' components based

on an implicit interest rate.

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13. As compensation for performing its servicing duties, the

servicer (who may also be the sponsor or an affiliate thereof, and

receive fees for acting in that capacity) will retain the difference

between payments received on the receivables in the trust and payments

payable (at the pass-through rate) to certificateholders, except that

in some cases a portion of the payments on receivables may be paid to a

third party, such as a fee paid to a provider of credit support. The

servicer may receive additional compensation by having the use of the

amounts paid on the receivables between the time they are received by

the servicer and the time they are due to the trust (which time is set

forth in the pooling and servicing agreement). The servicer typically

will be required to pay the administrative expenses of servicing the

trust, including in some cases the trustee's fee, out of its servicing

compensation.

The servicer is also compensated to the extent it may provide

credit enhancement to the trust or otherwise arrange to obtain credit

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

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

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

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

established.

14. The servicer may be entitled to retain certain administrative

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

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

and payment extension fees; and (c) expenses, fees and charges

associated with foreclosure or repossession, or other conversion of a

secured position into cash proceeds, upon default of an obligation.

Compensation payable to the servicer will be set forth or referred

to in the pooling and servicing agreement and described in reasonable

detail in the prospectus or private placement memorandum relating to

the certificates.

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

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

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

servicing agreement may permit the servicer to place these payments in

non-interest bearing accounts maintained with itself or to commingle

such payments with its own funds prior to the distribution dates. In

these cases, the servicer would be entitled to the benefit derived from

the use of the funds between the date of payment on a receivable and

the pass-through date. Commingled payments may not be protected from

the creditors of the servicer in the event of the servicer's bankruptcy

or receivership. In those instances when payments on receivables are

held in non-interest bearing accounts or are commingled with the

servicer's own funds, the servicer is required to deposit these

payments by a date specified in the pooling and servicing agreement

into an account from which the trustee makes payments to

certificateholders.

16. The underwriter will receive a fee in connection with the

securities underwriting or private placement of certificates. In a firm

commitment underwriting, this fee would consist of the difference

between what the underwriter receives for the certificates that it

distributes and what it pays the sponsor for those certificates. In a

private placement, the fee normally takes the form of an agency

commission paid by the sponsor. In a best efforts underwriting in which

the underwriter would sell certificates in a public offering on an

agency basis, the underwriter would receive an agency commission rather

than a fee based on the difference between the price at which the

certificates are sold to the public and what it pays the sponsor. In

some private placements, the underwriter may buy certificates as

principal, in which case its compensation would be the difference

between what it receives for the certificates that it sells and what it

pays the sponsor for these certificates.

[[Page 64170]]

Purchase of Receivables by the Servicer

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

receivables in a trust is reduced by payments, the cost of

administering the trust generally increases, making the servicing of

the trust prohibitively expensive at some point. Consequently, the

pooling and servicing agreement generally provides that the servicer

may purchase the receivables remaining in the trust when the aggregate

unpaid balance payable on the receivables is reduced to a specified

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

balance.

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

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

principal balance on the receivable plus accrued interest, less any

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

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

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

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

Certificate Ratings

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

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

or other credit support (such as surety bonds, letters of credit,

guarantees, or overcollateralization) will be obtained by the trust

sponsor to the extent necessary for the certificates to attain the

desired rating. The amount of this credit support is set by the rating

agencies at a level that is a multiple of the worst historical net

credit loss experience for the type of obligations included in the

issuing trust.

Provision of Credit Support

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

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

an insurer). In these cases, the master servicer, in its capacity as

servicer, will first advance funds to the full extent that it

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

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

may be the master servicer or an affiliate thereof) or, (c) in the case

of a trust that issues subordinated certificates, from amounts

otherwise distributable to holders of subordinated certificates, and

the master servicer will advance such funds in a timely manner. When

the servicer is the provider of the credit support and provides its own

funds to cover defaulted payments, it will do so either on the

initiative of the trustee, or on its own initiative on behalf of the

trustee, but in either event it will provide such funds to cover

payments to the full extent of its obligations under the credit support

mechanism. In some cases, however, the master servicer may not be

obligated to advance funds but instead would be called upon to provide

funds to cover defaulted payments to the full extent of its obligations

as insurer. Moreover, a master servicer typically can recover advances

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

the affected assets.

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

the credit support mechanism to provide funds to cover delinquent

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

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

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

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

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

the ultimate right to enforce the credit support arrangement.

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

recoverable by the master servicer out of future payments on

receivables held by the trust to the extent not covered by credit

support. However, where the master servicer provides credit support to

the trust, there are protections in place to guard against a delay in

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

credit support declines proportionally with the decrease in the

principal amount of the obligations in the trust as payments on

receivables are passed through to investors. These safeguards include:

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

because the sooner repossession or foreclosure activities are

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

obligation;

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

general policy as to the allowable delinquency period after which an

obligation ordinarily will be deemed uncollectible. The pooling and

servicing agreement will require the master servicer to follow its

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

general policy as to the period of time after which delinquent

obligations ordinarily will be considered uncollectible;

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

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

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

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

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

information as to collections on the receivables and draws upon the

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

the trustee annually a certificate of an executive officer of the

master servicer stating that a review of the servicing activities has

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

master servicer has fulfilled all of its obligations under the pooling

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

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

servicer's reports are reviewed at least annually by independent

accountants to ensure that the master servicer is following its normal

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

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

independent accountants' review are delivered to the trustee; and

(d) The credit support has a ``floor'' dollar amount that protects

investors against the possibility that a large number of credit losses

might occur towards the end of the life of the trust, whether due to

servicer advances or any other cause. Once the floor amount has been

reached, the servicer l

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