FULBRIGHT JAwoRsKI

1301 McKINNEY SuITE 5100

HOuSTONTExAS 77010-3095 wsoc AUSTIN

SAN ANTONIO

DALLAS

TELC$4ONE 713/651-5151 NEW YORK

TELEX76-2S29 LOS ANGELES

FACSIMILE7I3/65I-5246 LONDON

ZURICH

WRITERS DIRECT DIAL NUNUER HONG KONG

Section 3c

of the Investment

Company Act of 1940

June 17 1991

Mr Thomas Harman

Chief Counsel

Division of Investment Management

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street N.W

Washington D.C 20549

Dear Mr Harman

On behalf of National Asset Bank bank in liquidation the Bank and its

wholly owned subsidiary NAB Asset Corporation Texas corporation the Company

we are writing to request advice to the effect that the Division of Investment

Management will not recommend that the Securities and Exchange Commission take

any enforcement action if without registration under the Investment Company Act of

1940 as amended the 1940 Act the Company conducts its business and operations

in the manner described below in reliance upon the exception to the definition of an

investment company set forth in Section 3c5C of the 1940 Act This letter is

supplemental to and restates our prior letters to you dated March 18 1991 and

June 1991 and reflects those additional matters which were discussed in various

telephone conferences between Curtis Huff and Katie-Pat Vietas of this firm and

Dorothy Donohue Julia Ulstrup and you

Description of Transaction

Background and Summary

The Bank was created in connection with the merger of Allied Bancshares Inc

Allied with and into First Interstate Bancorp of Texas Inc First Interstate
Mr Thomas Harman

June 17 1991

Page

Immediately prior to the merger the holders of Allieds common stock as of the close

of business on January 28 1988 received one share of the Banks common stock $.O1

par value for each share of common stock of Allied held by them on that date On

January 28 1988 Allied contributed to the Bank as capital contribution

approximately $250 million in book value before any applicable reserves as reflected

on the books of Allied prior to the transfer of Allieds and its subsidiaries

non-performing loans real estate and other assets Effective January 29 1988 the

Bank adopted Plan of Voluntary Complete Liquidation the Plan of Liquidation and

made various changes to its Articles of Association and By-laws primarily to effect the

Plan of Liquidation

Since the Banks adoption of the Plan of Liquidation the business of the Bank

has consisted solely of collecting or otherwise realizing on its assets and distributing

the net proceeds therefrom not necessary for the continued operations of the Bank to

the holders of its common stock pursuant to the Plan of Liquidation Prior to April 16

1990 an affiliate of First Interstate acted as the Banks exclusive agent for the

management and servicing of the Banks loan and other assets in exchange for fee

On April 16 1990 such arrangement was terminated in an attempt to reduce the cost

of the liquidation of the Banks assets and the Bank assumed the management and

servicing of its own assets

Management of the Bank believes that the net cost of managing its assets could

be further reduced if the Bank were able to spread its cost by providing similar services

to other parties for fee utilizing the Banks existing expertise and personnel

However because the management of other entities assets is not specifically authorized

under the Banks Articles of Association or the Plan of Liquidation and may not be

permitted under applicable regulations and policies of the Office of the Comptroller of

the Currency the 0CC which has primary regulatory authority over the Bank the

Bank is proposing transaction pursuant to which the Bank would sell substantially

all of its assets to the Company and the Company would assume all of the Banks

liabilities and continue the ownership management operation and liquidation of the

Banks current assets all in accordance with the terms of an Acquisition Agreement

and Plan of Reorganization to be entered into between the Company and the Bank the

Acquisition Agreement and proposed amendment to the Plan of Liquidation The

proposed transaction would also involve the issuance by the Company to the Bank of

shares the Companys common stock $.01 par value the Common Stock of which

shares would be distributed by the Bank to its stockholders promptly following the

amendment to the Plan of Liquidation as final liquidating distribution

Subject to unforeseen events the Bank anticipates that the final liquidation of

the Bank would occur within six to nine months following the effective date of the

transaction but such date could be delayed to the extent the Bank is subject to any

litigation not resolved by such date or there exists an asset that was unable to be
Mr Thomas Harman

June 17 1991

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transferred to the Company or liquidated by such date During this period the

Company would seek to satisfSr alLof the Banks remaining liabilities and the Bank

would seek to transfer to the Company all of its assets that have not theretofore been

transferred to the Company To facilitate the final liquidation of the Bank and the

satisfaction of its liabilities an amount of cash equal to the estimated amount of the

current liabilities of the Bank at the time of the transaction would be retained by the

Bank for period of six months for the payment of such liabilities and other liabilities

of the Bank after which time period any funds not theretofore expended would be paid

to the Company

To the extent the transfer of any assets to the Company would result in

material violation or default or the loss of material benefit thereunder such assets

would continue to be held by the Bank until such time that such assets could be

transferred and any collections or realizations by the Bank with respect to such assets

prior to such transfer would be required to be remitted by the Bank to the Company

The Bank does not currently expect that any material amount of assets would be

required to be retained by it pursuant to the above described arrangement The

Company would also be given an irrevocable power of attorney from the Bank with

respect to its assets subject to certain rights of liquidating committee and the Board

of Directors of the Bank to oversee the actions of the Company and to take certain

actions in the event of failure by the Company to comply with its material obligations

under the Acquisition Agreement

The proposed transaction is subject to the approval of the Banks stockholders

which will be solicited by the Board of Directors of the Bank in connection with its

Annual Meeting of Stockholders scheduled to be held in July of this year proxy

statement with respect to such solicitation has been filed with the 0CC pursuant to the

provisions of the Securities Exchange Act of 1934 the Exchange Act The proposed

transaction is also subject to the consent of the 0CC to the proposed amendment to the

Plan of Liquidation request for such approval has been filed with the 0CC and

obtained

The Company has filed registration statement on Form S-4 registering under

the Securities Act of 1933 the shares of Common Stock to be distributed to the Banks

stockholders Following the registration and distribution of such shares the Company

will be subject to the reporting obligations under the Exchange Act copy of the

Companys registration statement as filed with the Commission has previously been

provided to you The proposed amendment to the Plan of Liquidation and the

Acquisition Agreement are included as Annexes to the Proxy Statement/Prospectus

included in such registration statement

-I 
Mr Thomas Harman

June 17 1991

Page

Proposed Businesses of the Company

The Company is corporation incorporated under the laws of the State of Texas

Upon the distribution of the Common Stock by the Bank to its stockholders the

stockholders of the Bank will become shareholders of the Company

Except for 68500 shares of Common Stock that would be issued to the officers

and directors of the Company as restricted stock subject to vesting and other

conditions the current stockholders of the Bank would hold all of the outstanding stock

of the Company upon the consummation of the proposed transaction The Company

estimates that approximately 49% of the outstanding shares of Common Stock upon the

completion of the transaction will be held by financial and other institutional investors

with the remainder of the shares being held by individuals and other shareholders

many of whom were shareholders of Allied prior to the merger with First Interstate

It is anticipated that like the common stock of the Bank the Common Stock will be

authorized for quotation on the National Association of Securities Dealers Inc

Automated Quotation System and that market for the Common Stock will exist

The primary business of the Company will be the management of and realization

on the loans and real estate to be acquired from the Bank The Company however

will also seek to manage and service loans and real estate on fee basis for other

parties such as The Resolution Trust Corporation the RTC and potential purchasers

of loans and real estate from the RTC and the Federal Deposit Insurance Corporation

the FDIC The Bank believes that revenues from such activities would help to

spread the cost of collections with respect to the loans and real estate to be acquired

from the Bank and any income from such activities would be available for distribution

to the Companys shareholders For purposes of this request and unless otherwise

indicated all references to real estate shall include fee or leasehold interests in real

estate or improvements thereon

The Company may also seek to acquire loans and real estate from the RTC and

the FDIC The types of real estate that may be acquired by the Company may consist

of either developed or undeveloped commercial or residential properties It is

anticipated by the Company that any additional loans acquired would generally be fully

or primarily secured by real estate Such real estate and loans may be acquired either

directly by the Company or by wholly owned or majority owned subsidiary or through

general partnership with third party To the extent that any loans and real estate

are acquired through general partnership the Company would expect that it or

wholly owned subsidiary would be general partner and be active in the management

and operation of the partnership and that the agreement of the Company or such

subsidiary would be required for all major decisions affecting the partnership and that

the Company or such subsidiary would have the unilateral right to foreclose on

defaulted loans in accordance with the terms thereof The Company anticipates that
Mr Thomas Harman

June 17 1991

Page

any partnerships involving the acquisition of loans and real estate would be with no

more than five other partners

Although the Company will be authorized to engage in activities other than the

ownership and liquidation of the assets to be acquired from the Bank such other

activities will be subject to various restrictions until the earlier of December 31

1996 ii such time that the Company shall have made distributions with respect to the

Common Stock aggregating $11.00 per share of Common Stock and iiisuch date on

which the book value of the Bank Assets hereinafter defined is equal to or less than

$250000 such date referred to as the Final Operational Limitation Date Such

restrictions are designed to minimize the investment risk of the stockholders from

activities to be conducted by the Company other than the management ownership

operation and liquidation of the assets to be received from the Bank

Under the Companys Articles of Incorporation until the Final Operational

Limitation Date the business of the Company will essentially be limited to the

ownership operation improvement management disposition collection and realization

of the loan real estate and other assets to be received from the Bank pursuant to the

Acquisition Agreement and any other assets received by the Company in exchange for

or in connection with the disposition or collection of such assets all such assets

collectively referred to as the Bank Assets ii the management and servicing of loans

and other assets of third parties through contractual relationships joint ventures

partnerships or other similararrangements and the provision of consulting and other

advisory services relating to the management and servicing of loans real estate and

other assets Management Services iii the acquisition ownership improvement

management disposition collection and realization of loan real estate and other assets

other than the Bank Assets for the account of the Company iv the purchase or

acquisition of the Companys own shares the ownership of stock or other interests

in other entities the activities described in clauses iii and iv above and this

clause being referred to as Permitted Investment Activities and vi such other

activities as may be necessary or desirable to facilitate the foregoing activities or to

conduct the general operations of the Company It is contemplated that the Companys

ownership of stock or other interests in other entities will be primarily limited to

general partnerships and the stock of wholly or majority owned subsidiaries that would

not be subject to registration under the 1940 Act

The Articles of Incorporation of the Company will also substantially limit the

amount of funds that the Company may expend or commit to expend and the amount

of indebtedness that it may incur prior to the Final Operational Limitation Date in

connection with any Permitted Investment Activity as well as limit the Companys

ability to issue prior to the Final Operational Limitation Date additional shares of

Common Stock or any other stock that would be equal or senior to the Common Stock

with respect to dividends or distributions or amounts otherwise received from the Bank

Assets in the event of liquidation or winding up of the Company The Companys
Mr Thomas Harman

June 17 1991

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ability to enter into contracts for Management Services will also be subject to

restrictions prior to the Final Operational Limitation Date The Company however

will have broad authority with respect to the activities that may be conducted by it with

respect to the Bank Assets copy<f the Companys Articles of Incorporation which

sets forth the various restrictions on the business and operations of the Company

through the Final Operational Limitation Date is attached as Annex to the Proxy

Statement/Prospectus included in the Companys registration statement

Assets to be Held by the Company

The assets to be held by the Company will initially consist solely of the assets

of the Bank to be acquired by the Company pursuant to the terms of the Acquisition

Agreement At December 31 1990 the composition of the Banks assets was as follows

approximately $29.3 million in real estate ii approximately $6.6 million in loans

secured by real estate including loans classified as in substance foreclosures

iiiapproximately $7.4 million in other loans primarily secured by assets other than

real estate primarily vessels used in connection with offshore oil and gas exploration

iv approximately $482000 in assets other than cash and cash equivalents such as

equipment and machinery and approximately $7.2 million in cash and cash

equivalents

Assuming all of the Banks assets were to be transferred to the Company at the

book values thereof at December 31 1990 which values generally reflect the appraised

values of the Banks assets less estimated holding and disposition costs the Bank were

to retain approximately $1.4 million in cash for the payment of certain liabilities as

required by the Acquisition Agreement and the Company were to acquire $4.3 million

in whole pooi mortgage-backed securities in the manner described below the book

value of the Companys assets would have consisted of approximately59.1% real estate

13.3% loans fully or primarily secured by real estate 14.9% of other loans 8.7% in

whole pooi mortgage-backed securities 3.0% cash and cash equivalents and 1.0% other

assets

With respect to the Banks real estate loans at December 31 1990 such loans

consisted of loans that were either originated by Allied or one of its affiliates or that

were the result of restructuring by the Bank of such loan or iiby the Bank in

connection with the sale or disposition of its assets Based on information available to

the Bank all of its real estate loans were originally made for the purpose of acquiring

holding developing or improving real estate and the appraised collateral value of real

estate securing the payment of the loans was generally in excess of 100% of the original

principal amount of the loan at the time of origination Although the Bank originally

acquired its interest in its loans through 100% participations with the actual loan being

held by Fl all of the Banks loans are currently held directly by the Bank or in the

case of one loan wholly owned subsidiary of the Bank and the Bank has the
Mr Thomas Harman

June 17 1991

Page

unilateral right to take all action including foreclosure that is available to the holder

of the loan

Although the credit files of Fl with respect to the Banks real estate loans

indicate that the appraised value of the real estate collateral for such loans was in

excess of the original principal amount thereof at the time of origination except for

those loans that were made by the Bank to finance the sale of its real estate the

current appraised value of the real estate securing the Banks real estate loans is

generally substantially less than the original principal amount of such loans due to

subsequent declines in real estate values and the absence of payments on the loans

This circumstance is particularly the case for those loans that were originated by Allied

and have not yet been foreclosed on or restructured This circumstance is also the case

with respect to many of the Banks restructured loans due to the Banks desire to

maximize the potential recoveries on such loans and benefit from any increase in the

value of the collateral securing the loan Although the collateral value of many of the

Banks real estate loans is less than the current remaining balance of the loans the

Bank has advised us that the appraised value of the real estate collateral securing such

loans is generally in excess of the fair market value of such loans

The real estate collateral for the repayment of the real estate loans held by the

Bank consists of both developed and undeveloped properties and commercial and

residential properties The Banks security interests in the real estate securing its

loans are evidenced by mortgages or deeds of trust on such properties In certain

circumstances the real estate loans held by the Bank are also collateralized by assets

other than real estate Such additional collateral generally consists of the guaranty

of proprietor or corporate parent or iiequipment located on the real estate premises

Although equipment is common type of collateral where there exists collateral other

than mortgages on real estate in some instances the additional collateral consists of

other assets suh as stock or security interest in receivables In no case with respect

to such real estate loans is the additional collateral considered by the Bank to be

principal source of repayment of the loan Such collateral however is included in the

collateral for the repayment of the loan and is desirable in that the holding of such

ancillary collateral is considered prudent by the Bank

For purposes of this request the Bank and the Company have classified the

types of loans held by the Bank and the types of loans that will be acquired by the

Company as Class Real Estate Loans Class II Real Estate Loans and Other

Loans The criteria for including loan as Class Real Estate Loan are the loan

must be secured by mortgage or deed of trust on one or more tracts or parcels of real

estate ii 100% of the principal amount of the loan as indicated in the credit files of

the originating bank must have been secured by real estate at the time of origination

and iii 100% of the fair market value of the loan must be secured by real estate at the

time the loan is received by the Company loan will qualifr as Class II Real Estate

Loan if it does not qualify as Class Real Estate Loan but at least 55% of the fair

OO23
Mr Thomas Harman

June 17 1991

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market value of the loan is secured by real estate at the time the loan is acquired by

the Company Other Loans consist of all other loans held by the Company To the

extent that any Class Real Estate Loan or Class Real Estate Loan may be held by

the Company through general partnership in which it or wholly owned subsidiary

acts as general partner the Companys interest in the loan will be determined based

on percentage of its or its subsidiarys capital contribution to the partnership

However if the Company or such subsidiary does not exercise the right to be active in

the management and operation of the partnership and in all major decisions affecting

the partnership and have the unilateral right to foreclose such loan will be considered

an Other Loan To the extent loan is owned by wholly owned or majority owned

subsidiary of the Company such loan will be classified as Class Real Estate Loan

Class II Real Estate Loan or Other Loan on the same basis as such loan would be

classified if it were held by the Company and the Companys interest in the loan will

be determined by the percentage ownership interest of the Company in the subsidiary

Class Real Estate Loans and Class II Real Estate Loans held by minority owned

subsidiaries will not be considered to be Class Real Estate Loans or Class II Real

Estate Loans held by the Company The value of the real estate securing the loans to

be acquired by the Company will be determined by recent independent third party

appraisals and the fair market value of the loans will be determined in the case of the

loans to be initially acquired by the Company at the book value thereof on the books

of the Bank which the Company believes reflects the best estimate of the fair market

value of the loans today The fair market value of real estate loans to be acquired by

the Company in the future will be based on the acquisition price of such loans The

Company believes that the book value of the Banks loans represents the best estimate

of the fair market value of the loans given the fact the Banks assets are primarily

recorded on its books at the amounts the Bank estimates in good faith would be

received if they were to be sold for or converted into cash within 12 month period

In making the foregoing classifications the Company has taken into account the

fact that many of the Banks loans were not originated by it that there have been

declines in the value of the real estate collateral securing the Banks loans and that the

nature of such loans may have changed from the time the loans were originated to the

date on which the Company is to acquire them For example it is possible that the

Company could acquire loan from the Bank the original principal amount thereof was

at the date of its origination fully secured by real estate but as result of declines in

the real estate market the outstanding principal amount is no longer fully secured

Under these circumstances it is likely the fair market value of the loan will also have

declined reflecting both decline in the collateral value of the real estate securing the

loan and the financial condition of the borrower In such case as long as the

appraised value of the real estate collateral exceeds the fair market value of the loan

at the time it is acquired by the Company the loan should be considered fully secured

real estate loan from the standpoint of the Company in that the appraised value of the

real estate will equal or exceed the original purchase price of the loan by the

Company Similarly if the Company were to acquire real estate loan that is secured
Mr Thomas Harman

June 17 1991

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by real estate having an appraised value in excess of 55% of the fair market value of

the loan on the date of acquisition that loan in the hands of the Company should be

considered loan primarily secured by real estate regardless of the percentage of the

original principal amount that the �ollateral value of the real estate represented at the

time of origination in that such percentage is immaterial to the question of whether

that loan was acquired by the Company as real estate loan Accordingly the

Company believes that such loan should be considered loan primarily secured by

real estate

It is contemplated by the Company that in the course of the Companys business

the Company may have portion of its assets in cash or cash equivalents Pending the

use or distribution of such funds such funds may be invested by the Company in

United States government securities and may be used to purchase whole pooi

mortgage-backed securities such as Government National Mortgage Association

GNMA certificates secured by particular underlying pooi of mortgages and

certificates issued by the Federal Home Loan Mortgage Corporation and the Federal

National Mortgage Association backed by specific pools of mortgages

II Legal Analysis

Section 3a3 of the 1940 Act defines an investment company as any issuer

which is engaged in the business of owning holding or trading in securities

and owns or proposes to acquire investment securities having value exceeding 40%

of the value of such issuers total assets exclusive of Government securities and cash

items Based upon the composition of the Banks assets at December 31 1990 had

the proposed transaction occurred as of such date the investment securities of the

Company as of such date would have represented less than 40% of the total assets of

the Company excluding cash and cash equivalents and assuming that such cash

equivalents had been invested in United States government securities Accordingly

under such circumstances the Company would not have fallen within the definition of

an investment company under the 1940 Act

The composition of the Companys assets however has since changed and is

expected to change over time and it is possible that during the course of collecting and

realizing on its assets the Company could hold more than 40% of its total assets

excluding cash and government securities in investment securities as defined under

the 1940 Act Such circumstance could occur through decline in the values of the

Companys real estate or through the sale of an item of real estate either for cash or

in consideration of promissory note secured by the real estate to be sold In that

regard and by way of example the Bank recently sold an item of real estate having

book value of approximately $6400000 for which the Bank received secured

non-recourse promissory note for approximately 90% of the purchase price thereof

This transaction resulted in decrease in the Banks real estate and an increase in its

real estate loans Although there have also been some reductions in the Banks loans
Mr Thomas Harman

June 17 1991

Page 10

and increases in the Banks real estate through collections and foreclosures since

December 31 1990 it is possible that the investment securities that will be held by the

Company as of the closing of the proposed transaction will constitute more than 40%

of the total assets of the Company exclusive of cash and cash equivalents Accordingly

absent an exception from the definition of an investment company under the 1940 Act

the Company could either at the time of the closing of the transaction or at any time

during the course of its future operations be considered an investment company within

the meaning of the 1940 Act

The primary exception from the definition of an investment company which

would apply to the Company is set forth in Section 3c5C of the 1940 Act That

section provides an exception for

person who is not engaged in the business of issuing redeemable

securities face-amount securities of the installment type or periodic plan

certificates and who is primarily engaged in purchasing or otherwise

acquiring mortgages and other liens on and interests in real estate

As indicated above the primary business of the Company will at least until the

Final Operational Limitation Date be the ownership and management of the real

estate loan and other assets of the Bank The outstanding securities of the Company

upon the consummation of the proposed transaction will consist solely of the Common

Stock to be distributed to the Banks stockholders and to its directors and certain

officers as restricted stock which stock will be non-redeemable Further the Company

has no current intent of issuing shares of preferred stock or debt obligations in the

future the terms of which would provide for right of redemption in the holders

thereof or call for any payments by the holders thereof that might bring such securities

within the definition of face-amount certificates of the installment type or periodic

plan certificates Any dividends or distributions on the Common Stock or preferred

stock will be paid if as and when declared by the Companys board of directors in its

sole discretion Thus the Company will not be engaged in the business of issuing

redeemable securities face-amount certificates of the installment type or periodic plan

certificates as those terms are defined in Sections 2a32 15 and 27 respectively

of the 1940 Act

Although the specific amount of real estate and loans secured by real estate that

the Company may hold from time to time is expected to vary as the Company collects

and realizes on its assets the Company anticipates that at any time during which it

may hold investment securities having value in excess of 40% of the value of its total

assets excluding cash and government securities at least 55% by value of the

Companys total assets would consist of real estate Class Real Estate Loans and

whole pool mortgage-backed securities In addition the Company anticipates that

during all such times at least 25% by value of the Companys assets would consist of

Class II Real Estate Loans subject to reduction below 25% to the extent the value of
Mr Thomas Harman

June 17 1991

Page 11

the real estate the Class Real Estate Loans and the whole pool mortgage-backed

securities held by the Company exceeds 55% of the total value of the assets of the

Company The remaining assets of the Company would consist of Other Loans cash

and government securities investments in partnerships or other businesses not

qualifying as Class Real Estat Loan or Class II Real Estate Loan

For purposes of the foregoing classifications the Companysinterests in any real

estate that is owned by wholly owned or majority owned subsidiary of the Company

or by general partnership in which the Company or wholly owned subsidiary owns

an interest will be determined by the percentage ownership interest of the Company

in the subsidiary or the general partnership Real estate owned by minority owned

subsidiary or by general partnership in which the Company or wholly owned

subsidiary is not actively involved in the management and operation of the general

partnership or in which the agreement of the Company or wholly owned subsidiary

for all major decisions affecting the general partnership will not be required will be

considered by the Company to be miscellaneous investment and will not be included

in the 55% Test as real estate

In prior no-action letters the Staff has taken the view that company may be

excepted from the definition of an investment company pursuant to the provisions of

Section 3c5C of the 1940 Act ifat least 55% of its assets consist of mortgages and

other liens on and interests in real estate the 55% Test and the remaining 45% of

its assets consist primarily of real estate-type interests the 45% Test See e.g

Citytrust available December 19 1990 United Bankers Inc available March 23

1988 Prudential-Bac he Securities Inc available August 19 1985 Salomon Brothers

Inc available June 17 1985 The Staff has also stated in recent no-action letters that

to meet the 45% Test company must invest at least 25% of its total assets in real

estate-type interests subject to reduction to the extent that it invests more than 55%

of its total assets in assets meeting the 55% Test and may invest no more than 20%

of its total assets in miscellaneous investments See e.g Citytrust United Bankers Inc

available March 23 1988 La Quinta Motor Inns Inc available May 23 1988

The Staff has also addressed on various occasions when loan secured by real

estate would be considered exclusively or primarily secured by real estate and real

estate-type interests In Citytrust available December 19 1990 the Staff allowed the

inclusion of loans partially secured by non-real estate assets in the 55% Test if the

original principal amount of the loan did not exceed 100% of the value of its real estate

collateral when the loan was made ii the value of the real estate collateral was

confirmed by an appraisal prepared in connection with the original loan by qualified

independent third party appraiser iii the same underwriting criteria was used for

such loans as for loans secured exclusively by real estate and iv any loan benefitting

from non-real estate collateral would be disqualified from the 55% Test if in connection

with default thereon the amount recovered from the non-real estate collateral

including guarantees exceeded 40% of the original principal amount of the loan The
Mr Thomas Harman

June 17 1991

Page 12

type of additional collateral involved in the Citytrust no-action letter included

equipment guarantees certificates of deposit and receivables

In the Companys circumstances most of the loans to be held by it will not have

been originated by it or the Bank Further any future loans that may be held by the

Company are not expected to be originated by the Company except in connection with

the sale or disposition of its real estate and other assets As such the Company is not

in position and will not be in position to confirm or represent that the

underwriting criteria applied by the originating bank with respect to real estate loans

with some non-real estate collateral is the same as that applied by such bank for loans

that were originally fully secured by real estate The Company however will generally

be able to ascertain but not independently confirm from the credit files for its real

estate loans that the value of the real estate collateral at the time of origination was

in excess of the principal amount of the loan and that such value was confirmed by an

outside appraisal If such determination cannot be ascertained the loan would not be

considered Class Real Estate Loan

Because the loans that will be held by the Company will not have been originated

by it the Company believes that modification to the Citytrust criteria would be

appropriate to reflect the distinction between loans originated by company such as

Citytrust and the acquisition by company like the Company of an existing loan In

the situation involving the acquisition of an existing loan we believe that the criteria

should not focus on the relationship between the original principal amount of the loan

and the appraised value of the real estate securing the loan at the time of origination

but rather on the relationship between the fair market value of the loan at the time of

acquisition and the appraised value of the real estate collateral at such time Where

the appraised value of the real estate collateral securing an existing loan at the time of

acquisition is greater than the fair market value of the loan at such time the loan in

the hands of the purchaser is loan fully secured by real estate and should therefore

be included in the 55% Test Similarly an existing loan that is secured by real estate

which has an appraised value of at least 55% of the fair market value of the loan at the

time of acquisition by purchaser of such loan should be considered primarily secured

by real estate and included in the 45% test in that such loan is primarily secured by

real estate when compared to the cost of the loan to the purchaser We believe that the

foregoing distinction is consistent with Citytrust and recognizes the economic realities

of situation where there are declining real estate values and where many loans in the

market have fair market values that are substantially less than their outstanding

principal amounts

The inclusion in the 55% Test of whole pool GNMA certificates comprising the

whole issue of certificates secured by pool of mortgage loans and other

mortgage-backed securities is also consistent with prior no-action letters The Staff has

on numerous occasions taken no-action response with respect to exceptions under

Section 3c5C of the 1940 Act where at least 55% of the assets of the issuer have

0023363
Mr Thomas Harman

June 17 1991

Page 13

at all times consisted exclusively of such whole pool mortgage-backed securities See

Ray Ellison Mortgage Acceptance Corp available January 17 1985 MSA Realty Corp

available March 19 1984 and Guaranteed Mortgage Corp II available January

1984 The inclusion of such whole pool mortgage-backed securities with other

qualifying assets should not change the fundamental nature of such securities as

mortgages and other liens on and interests in real estate

Finally in our view the general partnership arrangements in which the

Company and its subsidiaries may be engaged should be functional equivalents of direct

ownership in the real estate and loans held by the partnerships and not be securities

for securities law purposes Because the Companys and its subsidiaries partnership

investments in real estate and loans will involve not more than five other partners

ii actively involve the Company or wholly owned subsidiary in the management and

operation of the partnership and iii require the agreement of the Company or

wholly owned subsidiary for all major decisions affecting the partnership these

partnerships should satisfy the conditions described in the Staffs no-action letter issued

to United States Property Investments N.y available May 1989 and other letters

described therein Further because the Companys and its subsidiaries partnerships

will involve the right of the Company or wholly owned subsidiary to unilaterally

foreclose on the mortgage loans held by the partnerships in the event of default

iithe ownership of loans that are primarily Class Real Estate Loans and Class II

Real Estate Loans and iiipermit the Company or wholly owned subsidiary to make

fundamental decisions involving the partnerships such partnerships should satisfy the

conditions established in United States Property Investments as well as the Staffs

no-action letters issued to Dayton Area Building Construction Industry Foundation

available May 1987 Baton Rouge Building Construction Industry Foundation

available August 31 1984 Northwestern Ohio Building Construction Trades

Foundation ayailable May 21 1984 and MGIC Mortgage Corporation available

August 1974

III No Action Request

Based on the foregoing we believe that the Company should be regarded as being

primarily engaged in purchasing or otherwise acquiring mortgages and other liens on

real estate and therefore should fall within the exception provided in Section 3c5C

of the 1940 Act as long as the Company conducts its business in the manner described

above and at least 55% in value of its total assets consists of real estate Class Real

Estate Loans and whole pool mortgage-backed securities ii at least 25% in value of

its assets consists of Class Real Estate Loans subject to reduction below 25% to the

extent that the value of the assets described in clause above exceeds 55% of the value

of the Companys total assets and iii not more than 20% in value of the Companys

total assets consists of miscellaneous investments We believe that none of the other

aspects of the proposed transaction gives rise to concerns resulting in regulation

appropriate under the 1940 Act We therefore respectfully request the Staff to indicate
Mr Thomas Harman

June 17 1991

Page 14

that it will not recommend any enforcement action to the Commission if the Company

does not register under the 1940 Act based on the foregoing facts

Because the Bank and the Company are anxious to mail the Banks proxy

materials to the Banks stockholders we would appreciate response to the request

made hereby as promptly as practicable If for any reason the Staff is disposed not to

grant the requested no-action positions we request an opportunity to discuss this

situation with the Staff prior to the issuance of any formal letter

We thank you for your attention to this matter If any member of the

Commissions Staff has any questions or desires clarification as to the matters set forth

herein he or she should telephone either Curtis Huff 713 651-5657 or Katie-Pat

Vietas 713 651-5131 of this Firm

Very truly yours

Fuibright Jaw ski

cc Ms Dorothy Donohue

Ms Julia Ulstrup

Mr Michael Hrebenar
EPIUIILi11 20 JUN1991

Our Ref No 91-265-CC

RESPONSE OF THE OFFICE OF CHIEF COUNSEL NAB Asset Corporation

DIVISION OF INVESTMENT MANAGEMENT File No 33-39488

By letter of June 17 1991 you request that we not

recommend any enforcement action to the Commission if NAB Asset

Corporation the Company conducts its business and operations

in the manner described in your letter without registering under

the Investment Company Act of 1940 1940 Act in reliance on

Section 3c5C of the 1940 Act

The Company is wholly-owned subsidiary of National Asset

Bank the Bank Since the Banks adoption of Plan of

Voluntary Complete Liquidation effective January 29 1988 the

Bank has only collected or otherwise realized on its assets and

distributed the net proceeds therefrom not necessary for the

continued operations of the Bank to the holders of its common

stock The Bank proposes to sell substantially all of its assets

to the Company in exchange for shares of the Companys common

stock the Common Stock The Company would assume all of the

Banks liabilities and continue the ownership management

operation and liquidation of the Banks current assets

The Companys primary business initially will be the

management of and realization on the loans and real estate 1/

to be acquired from the Bank The Company will however also be

.J Section 3c5C of the 1940 Act excepts from the

definition of an investment company any person that is not

engaged in the business of issuing redeemable securities and

is primarily engaged in purchasing or otherwise acquiring

mortgages and other liens on and interests in real estate

You represent that the Company will not issue redeemable

securities

21 Your letter indicates that some of the real estate loans to

be acquired by the Company from the Bank are also

collateralized by assets other than real estate generally

the guaranty of proprietor or corporate parent or

equipment located on real estate premises and in some

instances stock or security interest in receivables

You state however that in no case with respect to such

real estate loans does the Bank consider the additional

collateral to be principal source of repayment of the

loan

Your letter states that for purposes of your request and

unless otherwise indicated all references to real estate

includes fee or leasehold interests in real estate or

improvements thereon
authorized to engage in certain activities other than owning and

liquidating the Banks assets 4/ including managing and

servicing loans and real estate on fee basis for other parties

such as the Resolution Trust Corporation the RTC and

potential purchasers of loans and real estate from the RTC and

the Federal Deposit Insurance Corporation the FDIC and

acquiring loans and real estate from the RTC and FDIC

We take the view that with respect to issuing noaction

letters under Section 3c5C company is not excepted under

Section 3c5C unless at least 55% of its assets consist of

mortgages and other liens on and interests in real estate 55%

test and the remaining 45% of its assets consist primarily of

real estatetype interests 45% test To meet the 45%

test company must invest at least 25% of its total assets in

real estate-type interests subject to reduction to the extent

that it invests more than 55% of its total assets in assets

meeting the 55% test and may invest no more than 20% of its

total assets in miscellaneous investments .J

You represent that at any time during which the Company may

hold investment securities having value exceeding 40% of the

value of its total assets excluding cash and government

securities at least 55% of the value of its total assets will

consist of real estate whole pool mortgage-backed

securities 21 and certain real estate loans Each real estate

4/ Such other activities will be subject to various limitations

designed to minimize the investment risk to shareholders

until the earlier of December 31 1996 ii such time

that the Company shall have made distributions to its

shareholders aggregating $11.00 per share of Common Stock of

the Company and iii the disposition of substantially all

of the assets of the Bank to be acquired by the Company

e.g Citytrust pub avail Dec 19 1990

Prudential-Bache Securities Inc pub avail Aug 19

1985 Saloinon Brothers Inc pub avail June 17 1985

See e.g Citytrust La Quinta Motor Inns Inc pub

avail Jan 1989 United Bankers Inc pub avail

March 23 1988

21 The staff has granted no-action relief under Section 3c5C with respect to investments in Government

National Mortgage Association Federal Home Loan Mortgage

Corporation and/or Federal National Mortgage Association

certificates comprising an undivided interest in the entire

pool of mortgages backing the certificates i.e whole

pool mortgagebacked securities e.g Home

continued..
loan included in the 55% will meet the following criteria Class

Real Estate Loans

the loan will be secured by mortgage or deed of

trust on one or more tracts or parcels of real estate

100% of the principal amount of the loan as

indicated in the credit files of the originating bank

was secured by real estate at the time of origination

and

100% of the fair market value of the loan will be

secured by real estate at the time the Company receives

the loan

At least 25% in value of the Companys assets will consist of

loans Class II Real Estate Loans which do not qualify as

Class Real Estate Loans but at least 55% of the fair market

value of each such loan will be secured by real estate at the

time the Company acquires the loan Not more than 20% in

value of the Companys total assets will consist of miscellaneous

investments including all other loans held by the Company

Other Loans cash government securities and investments in

partnerships or other businesses not qualifying as either Class

or Class II Real Estate Loan

The value of the real estate securing the loans to be

acquired by the Company will be determined by recent independent

third party appraisals The fair market value of the real estate

loans to be initially acquired by the Company will be determined

at the book value thereof on the books of the Bank The fair

2J. .continued

Investors Trust pub avail Sept 29 1988 Landmark

Funding Corporation pub avail Sept 20 1984

The amount of the Companys investment in Class II Real

Estate Loans is subject to reduction below 25% to the extent

that the value of the assets invested in real estate whole

pool mortgagebacked securities and Class Real Estate

Loans exceeds 55% of the value of the Companys total

assets

The Banks assets are primarily recorded on its books at the

amounts that the Bank estimates in good faith it would

receive if the assets were to be sold for or converted into

cash within twelve month period Consequently the

Company believes that the book value of the Banks loans

represents the best estimate of the fair market value of the

loans
market value of the real estate loans to be acquired by the

Company in the future will be based on the acquisition prices of

such loans

The Company may acquire loans either directly or by

wholly- or majority-owned subsidiary or through general

partnership with up to five other partners 1QJ To the extent

that the Company holds any Class Real Estate Loans or Class II

Real Estate Loans through.a general partnership in which it or

whollyowned subsidiary acts as general partner the Companys

interest in each loan will be determined based on percentage of

its or its subsidiarys capital contribution to the partnership

If however the Company or such subsidiary does not exercise the

right to be active in the management and operation of the

partnership and in all major decisions affecting the partnership

and have the unilateral right to foreclose on the mortgage loan

in the event of default you represent that such loan will be

considered an Other Loan To the extent that whollyowned or

majority-owned subsidiary of the Company holds any Class Real

Estate Loans or Class II Real Estate Loans the Companys

interest in each loan will be determined by the percentage

ownership interest of the Company in the subsidiary JJ

As with loans that are indirectly owned the Companys

interests in any real estate that is owned by whollyowned

subsidiary or majority-owned subsidiary of the Company or by

general partnership in which the Company or wholly-owned

subsidiary owns an interest will be determined by the percentage

ownership interest of the Company in the subsidiary or the

general partnership Real estate owned by minority-owned

subsidiary or by general partnership in which the Company or

wholly-owned subsidiary is not actively involved in the

management and operation of the general partnership or in which

the agreement of the Company or such subsidiary is not required

for all major decisions affecting the general partnership will be

considered by the Company to be miscellaneous investment

On the basis of the facts and representations in your

letter we would not recommend any enforcement action to the

Commission if the Company conducts its business and operations in

1QJ You state that the general partnership arrangements in which

the Company and its subsidiaries may engage should be

functional equivalents of direct ownership in the real

estate and loans held by the partnerships and not be

securities for securities law purposes

JJ The Company will consider any Class or Class II Real

Estate Loan held by minority-owned subsidiary to be an

Other Loan
the manner described in your letter without registering under the

1940 Act in reliance on Section 3c5C Because this

response is based on representations made to the Division you

should note that any different facts or circumstances might

require different conclusion Further this response expresses

only the enforcement position of the Division and does not

purport to express any legal conclusions on the questions

presented

Ik4V

Thomas Harinan

Chief Counsel