[Federal Register Volume 63, Number 130 (Wednesday, July 8, 1998)]
[Notices]
[Pages 36946-36958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18012]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10438, et al.]


Proposed Exemptions; Toyota Motor Credit Corporation

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions 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 
requests 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.

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.

Toyota Motor Credit Corporation and Certain of its Affiliates, 
Located in Torrance, California

[Application No. D-10438]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set

[[Page 36947]]

forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).

Section I--Transactions

    A. If the proposed exemption is granted, 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 as of September 1, 1997, to the 
following transactions involving trusts and certificates evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and an employee benefit plan when the sponsor, 
servicer, trustee or insurer of a trust, the underwriter of the 
certificates representing an interest in the trust, or an obligor is a 
party in interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates; 
and
    (3) The continued holding of certificates acquired by a plan 
pursuant to Section I.A.(1) or (2).
    Notwithstanding the foregoing, Section I.A. does not provide an 
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and 
407 for the acquisition or holding of a certificate on behalf of an 
Excluded Plan, as defined in Section III.K. below, by any person who 
has discretionary authority or renders investment advice with respect 
to the assets of that Excluded Plan.<SUP>1</SUP>
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    \1\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. If the proposed exemption is granted, 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 as of September 1, 1997, to:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and a plan when the person who has discretionary 
authority or renders investment advice with respect to the investment 
of plan assets in the certificates is (a) an obligor with respect to 5 
percent or less of the fair market value of obligations or receivables 
contained in the trust, or (b) an affiliate of a person described in 
(a); if
    (i) The plan is not an Excluded Plan;
    (ii) Solely in the case of an acquisition of certificates in 
connection with the initial issuance of the certificates, at least 50 
percent of each class of certificates in which plans have invested is 
acquired by persons independent of the members of the Restricted Group, 
as defined in Section III.L., and at least 50 percent of the aggregate 
interest in the trust is acquired by persons independent of the 
Restricted Group;
    (iii) A plan's investment in each class of certificates does not 
exceed 25 percent of all of the certificates of that class outstanding 
at the time of the acquisition; and
    (iv) Immediately after the acquisition of the certificates, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in certificates representing an interest in a trust containing 
assets sold or serviced by the same entity.<SUP>2</SUP> For purposes of 
this paragraph B.(1)(iv) only, an entity shall not be considered to 
service assets contained in a trust if it is merely a subservicer of 
that trust;
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    \2\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that conditions set forth in paragraphs B.(1)(i), (iii), and 
(iv) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to Section I.B.(1) or (2).
    C. If the proposed exemption is granted, the restrictions of 
sections 406(a), (b) and 407(a) of the Act and the taxes imposed by 
section 4975(a) and (b) of the Code, by reason of section 4975(c) of 
the Code, shall not apply as of September 1, 1997 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 Agreement; 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.<SUP>3</SUP>
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    \3\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions.
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    Notwithstanding the foregoing, Section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act, or from 
the taxes imposed by reason of section 4975(c) of the Code, for the 
receipt of a fee by the servicer of the trust from a person other than 
the trustee or sponsor, unless such fee constitutes a ``qualified 
administrative fee'' as defined in Section III.S. below.
    D. If the proposed exemption is granted, 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 as of September 1, 1997, to 
any transaction to which those restrictions or taxes would otherwise 
apply merely because a person is deemed to be a party in interest or 
disqualified person (including a fiduciary) with respect to a plan by 
virtue of providing services to the plan (or by virtue of having a 
relationship to such service provider as described in section 3(14)(F), 
(G), (H) or (I) of the Act or section 4975(e)(2)(F), (G), (H) or (I) of 
the Code), solely because of the plan's ownership of certificates.

Section II--General Conditions

    A. The relief provided under Section I will be available only if 
the following conditions are met:
    (1) The acquisition of certificates by a plan is on terms 
(including the certificate price) that are at least as favorable to the 
plan as such terms would be in an arm's-length transaction with an 
unrelated party;
    (2) The rights and interests evidenced by the certificates are not 
subordinated to the rights and interests evidenced by other 
certificates of the same trust;
    (3) The certificates acquired by the plan have received a rating at 
the time of such acquisition that is in one of the three highest 
generic rating categories from either Standard & Poor's Ratings 
Services, Moody's Investor Service, Inc., Duff & Phelps Inc., or Fitch 
Investors Service, Inc. (collectively, the Rating Agencies);
    (4) The trustee is not an affiliate of any other member of the 
Restricted Group. However, the trustee shall not be

[[Page 36948]]

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 the Pooling and Servicing Agreement providing 
for such succession upon the occurrence of one or more events of 
default by the servicer;
    (5) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates represents not more than reasonable compensation for 
underwriting or placing the certificates; the sum of all payments made 
to or retained by the sponsor pursuant to the assignment of obligations 
(or interest therein) to the trust represents not more than the fair 
market value of such obligation (or interest); and the sum of all 
payments made to and retained by the servicer represents not more than 
reasonable compensation for the servicer's services under the Pooling 
and Servicing Agreement and reimbursement of the servicer's reasonable 
expenses in connection therewith;
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission under the Securities Act of 1933;
    (7) To the extent that the pool of leases used to create a 
portfolio for a trust is not closed on the date of the issuance of 
certificates by the trust, additional leases may be added during a 
period of no more than 15 consecutive months from the closing date used 
for the initial allocation of leases that was made to create such 
portfolio, provided that:
    (a) all such additional leases meet the same terms and conditions 
for eligibility as the original leases used to create the portfolio (as 
described in the prospectus or private placement memorandum for such 
certificates), which terms and conditions have been approved by the 
Rating Agencies. Notwithstanding the foregoing, the terms and 
conditions for an ``eligible lease'' (as defined in Section III.X 
below) may be changed if such changes receive prior approval either by 
a majority vote of the outstanding certificateholders or by the Rating 
Agencies; and
    (b) such additional leases do not result in the certificates 
receiving a lower credit rating from the Rating Agencies, upon 
termination of the period during which additional leases may be added 
to the portfolio, than the rating that was obtained at the time of the 
initial issuance of the certificates by the trust;
    (8) Any additional period described in Section II.A.(7) must be 
described in the prospectus or private placement memorandum provided to 
investing plans;
    (9) The average annual percentage lease rate (the Average Lease 
Rate) for the pool of leases in the portfolio for the trust, after the 
additional period described in Section II.A.(7), shall not be more than 
200 basis points greater than the Average Lease Rate for the original 
pool of leases that was used to create such portfolio for the trust;
    (10) For the duration of the additional period described in Section 
II.A.(7), principal collections that are reinvested in additional 
leases are first reinvested in the ``eligible lease contract'' (as 
defined in Section III.X. below) with the earliest origination date, 
then in the ``eligible lease contract'' with the next earliest 
origination date, and so forth, beginning with any lease contracts that 
have been reserved specifically for such purposes at the time of the 
initial allocation of leases to the pool of leases used to create the 
particular portfolio, but excluding those specific lease contracts 
reserved for allocation to or allocated to other pools of leases used 
to create other portfolios;
    (11) The trustee of the trust (or the agent with which the trustee 
contracts to provide trust services) is a substantial financial 
institution or trust company experienced in trust activities and is 
familiar with its duties, responsibilities, and liabilities as a 
fiduciary under the Act. The trustee, as the legal owner of the 
obligations in the trust, enforces all the rights created in favor of 
certificateholders of such trust, including employee benefit plans 
subject to the Act;
    (12) The Pooling and Servicing Agreement and other governing 
documents require that funds collected by the servicer with respect to 
trust assets be deposited on a monthly basis in a trust account, even 
though distributions on the certificates may be scheduled to be made 
less frequently than monthly, and invested in certain highly rated debt 
instruments known as ``permitted investments'; and
    (13) The Pooling and Servicing Agreement expressly provides that 
funds collected by the servicer with respect to trust assets are 
required to be deposited in a trust account within two business days 
after such collection, if TMCC's short-term unsecured debt is no longer 
rated P-1 by Moody's Investors Service and A-1 by Standard & Poor's 
Ratings Services (or successors thereto), unless such Rating Agencies 
accept an alternative arrangement.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, or 
any obligor, unless it or any of its affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire certificates, shall be denied the relief 
provided under Section I, if the provision in Section II.A.(6) above is 
not satisfied for the acquisition or holding by a plan of such 
certificates, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of certificates, the trustee obtains a representation 
from each initial purchaser which is a plan that it is in compliance 
with such condition, and obtains a covenant from each initial purchaser 
to the effect that, so long as such initial purchaser (or any 
transferee of such initial purchaser's certificates) is required to 
obtain from its transferee a representation regarding compliance with 
the Securities Act of 1933, any such transferees shall be required to 
make a written representation regarding compliance with the condition 
set forth in Section II.A.(6).
    C. Toyota Motor Credit Corporation (TMCC) and its Affiliates abide 
by all securities and other laws applicable to any offering of 
interests in securitized assets, such as certificates in a trust as 
described herein, including those laws relating to disclosure of 
material litigation, investigations and contingent liabilities.

Section III--Definitions

    For purposes of this proposed exemption:
    A. ``Certificate'' means:
    (1) A certificate.
    (a) That represents a beneficial ownership interest in the assets 
of a trust; and
    (b) That entitles the holder to pass-through payments of principal 
(except during the period described in Section II.A.(7), if any), 
interest, and/or other payments made in connection with the assets of 
such trust; or
    (2) A certificate denominated as a debt instrument that is issued 
by and is an obligation of a trust;
    With respect to certificates defined in Section III.A.(1) and (2) 
above, the underwriter shall be an entity which has received from the 
Department an individual prohibited transaction exemption relating to 
certificates which is substantially similar to this proposed exemption 
(as noted below in Section III.C.) and shall be either (i) the sole 
underwriter or the manager or co-manager of the underwriting syndicate, 
or (ii) a selling or placement agent.

[[Page 36949]]

    For purposes of this proposed exemption, references to 
``certificates representing an interest in a trust'' include 
certificates denominated as debt which are issued by a trust.
    B. ``Trust'' means an investment pool, the corpus of which is held 
in trust and consists solely of:
    (1) Either.
    (a) Qualified motor vehicle leases (as defined in Section III.T.); 
or
    (b) Fractional undivided interests in a trust containing assets 
described in paragraph (a) of this Section III.B.(1), where such 
fractional interest is not subordinated to any other interest in the 
same pool of qualified motor vehicle leases held by such trust; 
<SUP>4</SUP>
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    \4\ It is the Department's view that the definition of ``Trust'' 
contained in Section III.B. includes a two-tier trust structure 
under which certificates issued by the first trust, which contains a 
pool of receivables described above, are transferred to a second 
trust which issues certificates that are sold to plans. However, the 
Department is of the further view that, since the exemption provides 
relief for the direct or indirect acquisition or disposition of 
certificates that are not subordinated, no relief would be available 
if the certificates held by the second trust were subordinated to 
the rights and interests evidenced by other certificates issued by 
the first trust.
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    (2) Property which has secured any of the obligations described in 
Section III.B.(1);
    (3) Undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificateholders, except during the period described in 
Section II.A.(7) above when temporary investments are made until such 
cash can be reinvested in additional leases described in paragraph (a) 
of this Section III.B.(1); and
    (4) Rights of the trustee under the Pooling and Servicing 
Agreement, and rights under motor vehicle dealer agreements, any 
insurance policies, third-party guarantees, contracts of suretyship and 
other credit support arrangements for any obligations described in 
Section III.B.(1).
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) the investment pool consists only of 
assets of the type which have been included in other investment pools, 
(ii) certificates evidencing interests in such other investment pools 
have been rated in one of the three highest categories by the Rating 
Agencies for at least one year prior to the plan's acquisition of 
certificates pursuant to this exemption, and (iii) certificates 
evidencing interests in such other investment pools have been purchased 
by investors other than plans for at least one year prior to the plan's 
acquisition of certificates pursuant to this exemption.
    C. ``Underwriter'' means any investment banking firm that has 
received an individual prohibited transaction exemption from the 
Department that provides relief for so-called ``asset-backed'' 
securities that is substantially similar in format and structure to 
this proposed exemption (the Underwriter Exemptions); <SUP>5</SUP> or 
any person directly or indirectly, through one or more intermediaries, 
controlling, controlled by or under common control with such investment 
banking firm; and any member of an underwriting syndicate or selling 
group of which such firm or person described above is a manager or co-
manager with respect to the certificates.
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    \5\ For a listing of the Underwriter Exemptions, see the 
description provided in the text of the operative language of 
Prohibited Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 
1997).
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    D. ``Sponsor'' means an entity affiliated with Toyota Motor 
Corporation that organizes a trust by depositing obligations therein in 
exchange for certificates.
    E. ``Master Servicer'' means TMCC or an entity affiliated with TMCC 
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 TMCC or an entity affiliated with TMCC 
which, under the supervision of and on behalf of the master servicer, 
services leases contained in the trust, but is not a party to the 
Pooling and Servicing Agreement.
    G. ``Servicer'' means TMCC or an entity affiliated with TMCC which 
services leases contained in the trust, including the master servicer 
and any subservicer.
    H. ``Trustee'' means an entity that is independent of TMCC and its 
Affiliates which is the trustee of the trust. In the case of 
certificates which are denominated as debt instruments, ``trustee'' 
also means the trustee of the indenture trust.
    I. ``Insurer'' means the insurer or guarantor of, or provider of 
other credit support for, a trust. Notwithstanding the foregoing, a 
person is not an insurer solely because it holds securities 
representing an interest in a trust which are of a class subordinated 
to certificates representing an interest in the same trust. In 
addition, a person is not an insurer if such person merely provides: 
(1) property damage or liability insurance to an Obligor with respect 
to a lease or leased vehicle; or (2) property damage, excess liability 
or contingent liability insurance to any lessor, sponsor or servicer, 
if such entities are included in the same insurance policy, with 
respect to a lease or leased vehicle.
    J. ``Obligor'' means any person, other than the insurer, that is 
obligated to make payments for a lease in the trust.
    K. ``Excluded Plan'' means any plan with respect to which any 
member of the Restricted Group is a ``plan sponsor'' within the meaning 
of section 3(16)(B) of the Act.
    L. ``Restricted Group'' with respect to a class of certificates 
means:
    (1) Each Underwriter;
    (2) Each Insurer;
    (3) The Sponsor;
    (4) The Trustee;
    (5) Each Servicer;
    (6) Any Obligor with respect to obligations or receivables included 
in the trust constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the trust, determined on 
the date of the initial issuance of certificates by the trust and at 
the end of the period described in Section II.A.(7); or
    (7) Any Affiliate of a person described in (1)-(6) above.
    M. ``Affiliate'' of another person includes:
    (1) Any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    O. A person shall be ``independent'' of another person only if:
    (1) Such person is not an Affiliate of that other person; and
    (2) The other person, or an Affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to assets of such person.
    P. ``Sale'' includes the entrance into a forward delivery 
commitment (as defined in Section III.Q. below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's-length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to

[[Page 36950]]

an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this proposed 
exemption applicable to sales are met.
    Q. ``Forward Delivery Commitment'' means a contract for the 
purchase or sale of one or more certificates to be delivered at an 
agreed future settlement date. The term includes both mandatory 
contracts (which contemplate obligatory delivery and acceptance of the 
certificates) and optional contracts (which give one party the right 
but not the obligation to deliver certificates to, or demand delivery 
of certificates from, the other party).
    R. ``Reasonable Compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    S. ``Qualified Administrative Fee'' means a fee which meets the 
following criteria:
    (1) The fee is triggered by an act or failure to act by the obligor 
other than the normal timely payment of amounts owing for the 
obligations;
    (2) The servicer may not charge the fee absent the act or failure 
to act referred to in (1);
    (3) The ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the Pooling and Servicing Agreement; and
    (4) The amount paid to investors in the trust shall not be reduced 
by the amount of any such fee waived by the servicer.
    T. ``Qualified Motor Vehicle Lease'' means a lease of a motor 
vehicle where:
    (1) The trust owns or holds a security interest in the lease;
    (2) The trust owns or holds a security interest in the leased motor 
vehicle; and
    (3) The trust's interest in the leased motor vehicle is at least as 
protective of the trust's rights as the trust would receive under a 
motor vehicle installment loan contract.
    U. ``Pooling and Servicing Agreement'' means, collectively, (i) the 
securitization trust agreement between a sponsor and the trustee 
establishing a trust, (ii) the trust and servicing agreement relating 
to an origination trust and the servicing supplement thereto, and (iii) 
the supplemental agreement establishing a beneficial interest in 
certain specified origination trust assets (referred to herein as a 
``special unit of beneficial interest'' or ``SUBI''). In the case of 
certificates which are denominated as debt instruments, ``Pooling and 
Servicing Agreement'' also includes the indenture entered into by the 
trustee of the trust issuing such certificates and the indenture 
trustee.
    V. ``Lease Rate'' means an implicit rate in each lease calculated 
as an annual percentage rate on a constant yield basis, based on the 
capitalized cost of the leased vehicle as determined under the 
particular lease contract for the vehicle. With respect to the 
determination of a ``Lease Rate'', each lease will provide for equal 
monthly payments such that at the end of the lease contract term the 
capitalized cost will have been amortized to an amount equal to the 
residual value of the leased vehicle established at the time of 
origination of such contract. The amount to which the capitalized cost 
has been amortized at any point in time will be the outstanding 
principal balance for the lease.
    W. ``Average Lease Rate'' means the average annual percentage lease 
rate, as defined in Section III.V. above, for all leases included at 
any particular time in a portfolio used to create a trust from which 
certificates are issued.
    X. ``Eligible Lease'' or ``Eligible Lease Contract'' means a 
Qualified Motor Vehicle Lease, as defined in Section III.T. above, 
which meets the eligibility criteria established for, among other 
things, the term of the lease, place of origination, date of 
origination, and provisions for default, as described in the particular 
prospectus or private placement memorandum for the certificates 
provided to investors, if such terms and conditions have been approved 
by the Rating Agencies prior to the issuance of such certificates.
    Y. ``Permitted Investments'' means investments which: (i) are 
direct obligations of, or obligations fully guaranteed as to timely 
payment of principal and interest by, the United States or any agency 
or instrumentality thereof, provided that such obligations are backed 
by the full faith and credit of the United States, or (ii) have been 
rated (or the obligor has been rated) in one of the three highest 
generic rating categories by a Rating Agency; are described in the 
pooling and servicing agreement; and are permitted by the Rating 
Agency.
    The Department notes that this proposed exemption, if granted, will 
be included within the meaning of the term ``Underwriter Exemption'' as 
it is defined in Section V(h) of the Grant of the Class Exemption for 
Certain Transactions Involving Insurance Company General Accounts, 
which was published in the Federal Register on July 12, 1995 (see PTE 
95-60, 60 FR 35925).

    Effective Date: This proposed exemption, if granted, will be 
effective for all transactions described herein which occur on or after 
September 1, 1997.
Summary of Facts and Representations
    1. TMCC is a California corporation that has 34 branches in various 
locations in the United States. TMCC's primary business is providing 
retail leasing, retail and wholesale financing and certain other 
financial services to authorized Toyota and Lexus vehicle and Toyota 
industrial equipment dealers and their customers in the United States 
(excluding Hawaii). TMCC is a wholly-owned subsidiary of Toyota Motor 
Sales, U.S.A., Inc. (TMS), which is primarily engaged in the wholesale 
distribution of automobiles, light duty trucks, industrial equipment 
and related replacement parts and accessories throughout the United 
States (excluding Hawaii). Substantially all of TMS's products are 
either manufactured by its Affiliates or are purchased from Toyota 
Motor Corporation (TMC), which indirectly wholly owns TMS, or its 
Affiliates.
    Toyota Leasing, Inc. (TLI) will be formed as a California 
corporation, and will be a wholly-owned, special purpose subsidiary of 
TMCC.
    2. TMCC and its Subsidiaries,<SUP>6</SUP> including TLI 
(collectively, the Applicant) seek an exemption to permit employee 
benefit plans to invest in certificates indirectly representing 
undivided interests in a trust which contains motor vehicle leases and 
the motor vehicles related to those leases. The exemption TMCC seeks is 
substantially similar to the Underwriter Exemptions granted by the 
Department to various broker-dealers and banks to permit investments 
in, among other things, motor vehicle receivable investment trusts. In 
the exemption sought by TMCC, the primary asset of the trust in which 
investors have beneficial interests (i.e. the Securitization Trust) is 
a special unit of beneficial interest (SUBI) in a separate trust that 
actually holds the motor vehicle leases and related motor vehicles 
(i.e., the Origination Trust). The Underwriter Exemptions may also 
include such a two-tier trust structure (as noted above in Footnote 4). 
However, unlike the trusts described in the Underwriter Exemptions, the 
Securitization Trusts established by TMCC will not contain beneficial 
interests in fixed pools of assets (i.e. qualified motor vehicle leases 
and related motor vehicles) for at least a

[[Page 36951]]

year, as discussed further below. TMCC states that the Securitization 
Trusts meet all other requirements of the Underwriter Exemptions. Such 
requirements include: (i) that investor certificates covered by the 
exemption have received a rating from one of the Rating Agencies that 
is in one of the three highest generic rating categories; (ii) that 
there be no subordination of investor certificates purchased by 
employee benefit plans to the rights and interests evidenced by other 
certificates of the same trust; and (iii) that there be a pass-through 
of principal, interest and other payments received by the trust 
relating to the receivables beneficially owned by the trust, less 
certain specified servicing fees which are disclosed and approved by 
the investors prior to the acquisition of any trust certificates.
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    \6\ For purposes hereof, the term ``Subsidiary'' means any 
corporation, partnership or other business entity controlled by 
TMCC.
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    3. The Origination Trust is formed pursuant to a trust agreement 
between the sponsor of the Origination Trust and its trustee (the 
Origination Trustee). The sponsor of the Origination Trust is currently 
TLI, but could be another entity affiliated with TMC. The Origination 
Trustee is a wholly-owned subsidiary of an independent entity qualified 
to provide trust services, and in fact provides such services to the 
Origination Trust under contract with its subsidiary (i.e. the Trust 
Agent). TMCC represents that the Trust Agent will be a financial 
institution that is not affiliated in any way with TMCC, other than as 
a service provider. TMCC or an Affiliate acts as servicer (the 
Servicer) for all of the leases and leased vehicles owned by the 
Origination Trust, pursuant to an amended and restated trust and 
servicing agreement (the Origination Trust Agreement) with the 
Origination Trustee and one or more servicing supplements to the 
Origination Trust Agreement (collectively, the Servicing Agreement).
    4. The assets of the Origination Trust include retail closed-end 
automobile and light-duty truck lease contracts assigned to the 
Origination Trust by certain dealers, the automobiles and light duty 
trucks relating thereto, all proceeds thereof (including any sale of 
such vehicles), payments made under certain insurance policies relating 
to such leases or the related lessees or leased vehicles, and all 
security deposits with respect to such lease contracts to the extent 
due to the lessor thereunder. TMCC is the initial holder of a sole 
beneficial interest (i.e. the ``Undivided Trust Interest'' or ``UTI'') 
in the Origination Trust.
    The Origination Trust is open-ended; that is, as leases are 
originated by dealers, they will be assigned by the dealers directly to 
the Origination Trust and the Origination Trust will be listed as the 
owner of the related vehicles on the related certificates of title. 
When the aggregate dollar amount of leases and leased vehicles in the 
Origination Trust grows large enough to justify a securitization, TMCC, 
as holder of the UTI, may direct the trustee of the Origination Trust 
to segregate from among all the leases and leased vehicles within the 
Origination Trust a specified portfolio of leases and related leased 
vehicles. Pursuant to a supplement to the Origination Trust Agreement 
(known as a ``SUBI'' Supplement), the trustee then issues to TMCC a 
separate certificate representing a ``Separate Unit of Beneficial 
Interest'' or ``SUBI'' in that segregated portfolio. It is this SUBI 
that becomes the basis for a securitization and the creation of a 
separate Securitization Trust.
    Any leases and leased vehicles held by the Origination Trust that 
are not included in a SUBI portfolio at the time of such segregation, 
as well as any new leases and related vehicles acquired subsequent to 
the specified date on which the new SUBI portfolio is identified, 
remain part of the UTI portfolio, and the original UTI continues to 
represent a beneficial interest therein.
    New leases and related leased vehicles are added to the SUBI's 
segregated portfolio by TMCC in an aggregate amount approximately equal 
to principal collections on the leases and leased vehicles already 
allocated to the SUBI,<SUP>7</SUP> for a fixed period (which will be no 
more than fifteen consecutive months) after the closing date used for 
the initial allocation of leases made to create the SUBI portfolio. 
(This period is referred to hereafter as the ``revolving period''). The 
applicant represents that this fixed ``revolving period'' for principal 
collections on the leases and leased vehicles is established so that 
the investor certificates issued by the Securitization Trust are 
treated as debt for Federal and state income tax purposes, but does not 
affect the characterization of those certificates as beneficial 
interests in the Securitization Trust property for accounting and other 
state law purposes.
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    \7\ TMCC represents that the aggregate amount of new leases 
added to a SUBI portfolio is approximately equal, rather than 
exactly equal, to principal collections on the existing leases 
because, when additional leases are added, the outstanding principal 
balance of the new leases is not always equal to the principal 
collections available for reinvestment. The uninvested principal 
amounts are held by the Securitization Trust in a cash account and 
temporarily invested in short-term investments, with interest 
thereon accruing to the Securitization Trust, until such amounts can 
be reinvested in additional leases for the SUBI portfolio. TMCC 
states that any uninvested principal amounts, and interest on such 
amounts, held by the Securitization Trust are distributed to the 
certificateholders once principal payments on the leases in the SUBI 
portfolio are passed-through to investors.
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    After the ``revolving period'', the pool of leases and leased 
vehicles allocated to the SUBI (i.e. the SUBI portfolio) remains fixed. 
Any leases which are added to the SUBI portfolio during the ``revolving 
period'' must meet the same terms and conditions for eligibility as the 
original leases in the portfolio, as described in the prospectus or 
private placement memorandum, which terms and conditions have been 
approved by the Rating Agencies prior to the ``revolving period''. 
However, TMCC states that the terms and conditions for an ``eligible 
lease'' (as defined in Section III.X above) may be changed if such 
changes receive prior approval either by a majority vote of the 
outstanding certificateholders or by the Rating Agencies. Further, 
under the conditions of the proposed exemption, TMCC must ensure that 
the additional leases added to the SUBI portfolio do not result in the 
certificates receiving a lower credit rating from the Rating Agencies 
at the end of the ``revolving period'' than the rating that was 
obtained at the time of the initial issuance of the certificates by the 
trust (see Section II.A.(7)(b) above).
    TMCC states that for the duration of the ``revolving period'', 
principal collections that are reinvested in additional leases are 
first reinvested in the ``eligible lease contract'' (as defined in 
Section III.X. above) with the earliest origination date, then in the 
``eligible lease contract'' with the next earliest origination date, 
and so forth (i.e. on a ``FIFO basis), beginning with any lease 
contracts that have been reserved by TMCC specifically for such 
purposes at the time of the initial allocation of leases to the 
particular SUBI portfolio. However, those lease contracts reserved for 
allocation to, or actually allocated to, other pools of leases (i.e. 
other SUBI portfolios used to create different trusts) will be excluded 
from the available additional leases to be added to the particular SUBI 
portfolio. TMCC states that no adverse selection procedures may be 
employed in selecting leases during the ``revolving period''. Thus, 
TMCC represents that it will not be able to manipulate the order in 
which leases are added to a particular SUBI portfolio during the 
``revolving period'' in order to improve its economic position with 
respect to the assets held in a particular SUBI portfolio. TMCC states 
further that at all times there will be a clear identification within 
the Origination Trust of which leases and leased

[[Page 36952]]

vehicles belong in each SUBI portfolio and which belong in the UTI or 
``residual'' portfolio. The holders of beneficial interests in each 
SUBI have also agreed in writing to rely solely upon the assets 
contained within their respective portfolios to satisfy any payment 
obligations.
    This ``revolving period'' arrangement differs from the arrangements 
considered in the Underwriter Exemptions wherein each trust contains a 
``fixed pool'' of assets and substitution of receivables by the trust 
sponsor is permitted only in the event of defects in documentation 
discovered within a limited time after the issuance of trust 
certificates. The Applicant states that during any ``revolving 
period'', the outstanding principal balance of the SUBI's portfolio of 
leases remains unchanged and the certificateholders receive only 
interest payments with respect to their certificates. Once the 
``revolving period'' ends, principal payments are no longer reinvested 
but rather are paid out to certificateholders.
    To the extent that leases added to the SUBI portfolio during the 
``revolving period'' have a higher Lease Rate (as defined in Section 
III.V. above) than do the original leases in the SUBI portfolio at the 
time of the initial offering of the certificates to investors, total 
returns on the ultimate lease pool in excess of that promised to 
investors on the trust certificates may inure to affiliates of the 
Servicer. However, TMCC states that the Average Lease Rate (as defined 
in Section III.W. above) for the pool of leases allocated to a SUBI 
portfolio owned by a particular Securitization Trust, after accounting 
for all the leases added to the SUBI portfolio during the ``revolving 
period'', shall not be more than 200 basis points (i.e. 2 percent) 
greater than the Average Lease Rate for the leases in the SUBI 
portfolio on the closing date used for the initial allocation of leases 
to the SUBI portfolio owned by the Securitization Trust.
    The Average Lease Rate for the leases in the trust at the time of 
the initial offering of the certificates is described in the prospectus 
or offering memorandum provided to investors. The Applicant represents 
that changes to the Average Lease Rate based on new leases added to a 
trust during the ``revolving period'' depend on current interest rates 
and market conditions as well as the amount of lessee prepayments and 
repossessions on the leased vehicles. Thus, potential plan investors at 
the time of the initial offering of trust certificates know the total 
dollar amount of leases in the trust, the Average Lease Rate on those 
leases, the fact that principal received by the trust during the 
``revolving period'' is used to invest in additional leases, and the 
length of the ``revolving period''. Under the terms of the proposed 
exemption, potential plan investors shall also be provided with a 
statement disclosing the fact that the relief provided by the exemption 
shall be available to the Servicer and its affiliates only if the 
additional leases do not cause the Average Lease Rate for the leases in 
the pool after the ``revolving period'' to increase by more than 200 
basis points.
    5. Pursuant to the Servicing Agreement, TMCC, acting as Servicer on 
behalf of the Origination Trustee, selects the assets to be represented 
by each SUBI (as discussed above). Certificates representing the entire 
beneficial interest in each SUBI are issued to the sponsor of the 
Securitization Trust. The sponsor will be TLI, or another wholly-owned 
subsidiary of TMC (or a limited liability company or partnership in 
which a TMC subsidiary is a member). The sponsor creates the 
Securitization Trust and transfers a certificate representing the 
beneficial interest in the SUBI to the Securitization Trust, pursuant 
to a trust agreement between the sponsor and the trustee of the 
Securitization Trust (the Securitization Trustee).<SUP>8</SUP> The 
Securitization Trustee is an unrelated commercial institution with 
trust powers, meeting certain specified requirements. In addition, 
pursuant to the Securitization Trust Agreement, the Securitization 
Trust issues to its sponsor investor certificates representing 
fractional undivided interests in the Securitization Trust, the assets 
of which include the SUBI, which itself represents a beneficial 
interest in a portfolio of motor vehicle leases and related leased 
motor vehicles held by the Origination Trust.
---------------------------------------------------------------------------

    \8\ TMCC or an affiliate retains a de minimis interest in each 
SUBI portfolio, which represents a subordinated interest in the 
portfolio, under requirements established by the Rating Agencies, in 
order to meet certain Federal tax code objectives.
---------------------------------------------------------------------------

    6. The sponsor of the Securitization Trust sells the investor 
certificates to various outside investors, including employee benefit 
plans subject to the Act. In order to achieve the desired rating for 
such certificates, the sponsor may retain a subordinated interest in 
the Securitization Trust, as required by the Rating Agencies, so that 
unanticipated losses with the SUBI portfolio will first by borne by 
TMCC. With respect to the certificates sold to outside investors, there 
may be two or more classes of securities. The investor certificates are 
either publicly or privately offered.<SUP>9</SUP> Except under rare 
circumstances, physical certificates will not be issued to investors in 
a public senior class of certificates. Instead, the Securitization 
Trust will use a book-entry registration system through the Depository 
Trust Company (DTC), a limited-purpose trust company organized under 
New York law, which is a member of the Federal Reserve System, and a 
clearing agency under Section 17A of the Securities Exchange Act of 
1934.
---------------------------------------------------------------------------

    \9\ TMCC is not requesting an exemption for the purchase of any 
subordinated class of certificates by employee benefit plans. 
However, the applicant is requesting relief for prohibited 
transactions that may occur as a result of the investments in a 
trust made by an insurance company's general account which are 
considered to be ``plan assets'' under the recent U.S. Supreme Court 
decision in John Hancock Mutual Life Insurance Co. v. Harris Trust & 
Savings Bank, 114 S.Ct. 517 (1993) (Harris Trust). As a result of 
the decision in Harris Trust and the Department's plan assets 
regulation (see 29 CFR 2510.3-101), an insurance company investing 
general account assets could be viewed as a ``benefit plan 
investor'' for purposes of calculating the 25 percent significant 
participation test in section 2510. 3-101(f)(1) of the regulation.
    The Department notes that Section III of the Class Exemption for 
Certain Transactions Involving Insurance Company General Accounts 
(PTE 95-60, 60 FR 35925, July 12, 1995) provides an exemption for 
transactions in connection with the operation of asset pool 
investment trusts notwithstanding that the certificates acquired by 
the general account are subordinated to the rights and interests 
evidenced by other certificates of the same trust. In this regard, 
the Department has included a paragraph at the end of the operative 
language of the proposed exemption which states that this exemption, 
if granted, will be included within the definition of the term 
``Underwriter Exemption'' under Section V(h) of PTE 95-60. 
Therefore, the exemptive relief provided by PTE 95-60 will be 
available for subordinated investments in a trust described herein 
by insurance company general accounts.
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    Investors are entitled to receive periodic payments of interest at 
a fixed certificate rate, and after the ``revolving period'' described 
above, payments of principal. Principal payments on the investor 
certificates will be made on each distribution date (i.e., monthly, 
quarterly, semi-annually or annually), based on formulas allocating 
among the classes of certificates the maximum amount distributable 
thereto on each such date and in each case subject to the amount 
actually collected on the receivables. All net collections collected 
for the assets underlying each SUBI, including all net proceeds from 
the sale of a vehicle upon repossession, early lease termination or 
maturity of the related lease, and, if so specified in the governing 
documents, earnings derived from temporary investment of trust funds 
prior to the next scheduled distribution date, are available to make 
payments on the investor certificates.
    The price of the investor certificates, both in the initial 
offering and in the secondary market, is affected by market forces 
including investor demand. Certificate interest rates are set at the

[[Page 36953]]

time of the pricing of each securitization. While the Average Lease 
Rate for the particular lease portfolio is a factor in the interest 
rates a Securitization Trust will be able to pay, the actual interest 
rate set for the certificates issued is determined by a combination of 
additional factors. Specifically, these factors include: (a) the then-
current yields on U.S. Treasury Notes with a remaining term equivalent 
to the anticipated average life of the particular Securitization Trust, 
and (b) the then-current ``spreads'' on similarly-rated competitive 
investments available in the marketplace, as determined by the Rating 
Agencies. Once the certificate rate is set for the certificates issued 
by the Securitization Trust, that rate remains fixed for its duration, 
regardless of any changes to the Average Lease Rate of the SUBI 
portfolio occurring during the ``revolving period''. The price of an 
investor certificate and the certificate rate together determine the 
yield to investors. If an investor purchases a certificate at less than 
par, that discount augments the certificate rate; conversely, a 
certificate purchased at a premium yields less than the stated coupon.
    7. TMCC represents that the certificates issued by a Securitization 
Trust may involve multi-class certificates. Such multi-class 
certificates may be one of two types: (i) ``strip'' certificates; and 
(ii) ``fast-pay/slow-pay'' certificates.
    ``Strip'' certificates are a type of security in which the stream 
of interest payments on the underlying 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.
    ``Fast-pay/slow-pay'' certificates involve the issuance of classes 
of certificates having different stated maturities or the same 
maturities with different payment schedules. The only difference 
between these multi-class certificates and the single-class 
certificates is the order in which distributions are made to 
certificateholders.
    The Applicant represents that any ``strip'' or ``fast-pay/slow-
pay'' certificates issued by a trust will be the same as the type 
described in the Underwriter Exemptions previously granted by the 
Department. TMCC emphasizes that the rights of a plan purchasing such 
certificates will not be subordinated to the rights of another 
certificateholder in the event of default on any payment obligations 
for the certificates. With respect to ``fast-pay/slow-pay'' 
certificates, TMCC states that 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 would share in the amount distributed on a pro rata 
basis. Thus, if a trust issues subordinate certificates, holders of 
such subordinate certificates would not be able to share in the amount 
distributed on a pro rata basis.<SUP>10</SUP>
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    \10\ In this regard, the Department notes that although it 
believes that either the ``strip'' or the ``fast-pay/slow-pay'' 
certificates described above are included within the scope of the 
proposed exemption, it further notes that no relief is provided 
under the exemption for plan investments in subordinate certificates 
(other than as permitted herein for certain insurance company 
general accounts). In addition, the Department notes that the 
conditions of the exemption would require that any ``strip'' or 
``fast-pay/slow-pay'' certificates receive one of the three highest 
ratings available from the Rating Agencies and that such 
certificates not receive a lower credit rating upon termination of 
the period during which additional leases may be added to the SUBI 
portfolio.
    The Department cautions plan fiduciaries to fully understand the 
risks involved with either ``strip'' or ``fast-pay/slow-pay'' 
certificates prior to any acquisitions of such certificates, and to 
make prudent determinations as to whether such certificates would 
adequately meet the investment objectives and liquidity needs of the 
plan.
---------------------------------------------------------------------------

    8. TMCC enters into arrangements with certain dealers allowing it 
to cause the assignment of leases and related vehicles originated by 
those dealers either directly to TMCC or to any other specified entity, 
including the Origination Trust. Once such leases and related vehicles 
are assigned to the Origination Trust for ultimate inclusion in a 
portfolio of SUBI assets for securitization as described above, TMCC is 
able to go to the capital markets directly for financing through the 
sale of certificates.
    TMCC and/or one or more wholly-owned subsidiaries of TMCC, or 
limited liability companies or partnerships in which such a wholly-
owned subsidiary is a member, are responsible for creating each SUBI, 
creating the Origination Trust and each Securitization Trust, and 
designating the Trust Agent and the Securitization Trustee.
    The Trust Agent, its subsidiary the Origination Trustee, and the 
Securitization Trustee, are each independent entities, unrelated to 
TMCC, the underwriter or placement agent. The Origination Trustee is 
the legal owner of the motor vehicle leases and related leased motor 
vehicles allocated to a SUBI. The Securitization Trustee is the legal 
owner of the obligations in the Securitization Trust and is responsible 
for enforcing all the rights created thereby in favor of 
certificateholders, whether independently or through the Origination 
Trustee. The Applicant represents that each Securitization Trustee and 
Trust Agent are substantial financial institutions or trust companies 
experienced in trust activities. The Trust Agent and Securitization 
Trustee will receive a fee for their services, which will be paid out 
of assets of the Origination Trust or the Securitization Trust, as 
applicable. The method of compensating each for its service related to 
a SUBI is specified in the Servicing Agreement or Securitization Trust 
Agreement, as applicable, and disclosed in the prospectus or private 
placement memorandum relating to the offering of the investor 
certificates.
    9. The Servicer administers the leases on behalf of the beneficial 
owners of the Origination Trust, including the holders of SUBI 
certificates and, indirectly, the holders of the investor certificates. 
The Servicer's functions involve monitoring of leases, maintenance of 
records, institution of proceedings in the event of default, and sale 
of vehicles after lease maturity, as well as certain functions relating 
to the qualifications and permits required to be obtained by the 
Origination Trustee.<SUP>11</SUP> The Servicer, the sponsor of the 
Origination Trust, and the sponsor of the Securitization Trust are 
unrelated to the underwriter and to DTC. DTC has public senior investor 
certificates registered in its name (or that of its nominee) and 
maintains procedures for the distribution of notices, reports, 
distributions and statements to certificateholders.
---------------------------------------------------------------------------

    \11\ TMCC states that these functions are necessary since, as 
noted in Paragraph 4 above, the Origination Trust is the owner of, 
and holds title to, the vehicle unless the lessee chooses to 
purchase such vehicle under the terms of the lease.
---------------------------------------------------------------------------

    As compensation for performing its servicing duties for the 
Origination Trust, the Servicer is paid a fee equal to a specified 
percentage (usually no more than one percent) of the balance of the 
leases it services, including those leases allocated to the SUBI. The 
Servicer may receive additional compensation related to the SUBI in the 
form of interest on various accounts of the Origination Trust and/or 
the Securitization Trust containing proceeds of the leases and related 
leased motor vehicles allocated to each SUBI as well as interest on 
certain cash deposits. The Servicer is required to pay the 
administrative expenses of servicing the Origination Trust out of its 
servicing compensation.
    The Servicer is also compensated to the extent it may provide 
credit enhancement to the Securitization Trust or otherwise arranges to 
obtain credit support from another party. This ``credit support fee'' 
may be aggregated with

[[Page 36954]]

other servicing fees, and may be either paid out of the income received 
on the leases in excess of the certificate rate or paid in a lump sum 
at the time the Securitization Trust is established. The Servicer may 
be entitled to retain certain administrative fees paid by a third 
party, usually the obligor under a lease, provided that such fees are 
``qualified administrative fees'' as defined under Section III.S. These 
administrative fees fall into four categories: (a) late payment fees; 
(b) acquisition fees; (c) deferral fees; and (d) other administrative 
fees or similar charges under the leases.
    Payments on leases may be made by lessees to the Servicer at 
various times during the period preceding any date on which payments to 
the Origination Trust are due. In some cases, the Servicing Agreement 
may permit the Servicer to place these payments in non-interest bearing 
accounts in itself or to commingle such payments with its own funds 
prior to the distribution dates. In these cases, the Servicer would be 
entitled to the benefit derived from the use of the funds between the 
date of payment on a lease and the date payment is due to the 
Origination Trust. Commingled payments may not be protected from the 
creditors of the Servicer in the event of the Servicer's bankruptcy or 
receivership. In those instances when payments on leases are held in 
non-interest bearing accounts or are commingled with the Servicer's own 
funds, the Servicer is required to deposit these payments into an 
Origination Trust account by a date specified in the Servicing 
Agreement. TMCC states that the Servicing Agreement will require that 
payments into an Origination Trust account will be made monthly, even 
in cases where the certificates provide for distributions to be made 
quarterly, semi-annually or annually. Once funds are deposited in the 
Origination Trust account, such funds are required to be invested in 
highly rated debt instruments of the type described in the governing 
documents as ``permitted investments''.
    TMCC represents that the Pooling and Servicing Agreement used in 
the transactions described herein will require that in the event that 
the rating for TMCC's short-term debt is reduced below a level 
specified by the Rating Agencies after the sale of the certificates, 
TMCC (as servicer) will be required to commence depositing collections 
with respect to trust assets in a trust account on a daily basis within 
two business days after collection, unless the applicable Rating 
Agencies have agreed in writing to an alternative arrangement to 
protect the interests of certificateholders.<SUP>12</SUP>
---------------------------------------------------------------------------

    \12\ TMCC states that its short-term unsecured debt is currently 
rated P-1 by Moody's Investors Service and A-1 by Standard and 
Poor's Ratings Services.
---------------------------------------------------------------------------

    All compensation payable to the Servicer with regard to the leases 
allocated to a SUBI is set forth or referred to in the Servicing 
Agreement, and described in reasonable detail in the prospectus or 
private placement memorandum relating to the investor certificates.
    10. Participating underwriters or placement agents receive a fee in 
connection with the securities underwriting or private placement of 
investor certificates. In a firm commitment underwriting, this fee 
would consist of the difference between what such underwriter receives 
for the certificates that it distributes and what it pays the sponsor 
of the Securitization Trust for those certificates.<SUP>13</SUP> In a 
private placement, the fee normally takes the form of an agency 
commission paid by the sponsor of the Securitization Trust.
---------------------------------------------------------------------------

    \13\ TMCC represents that a ``best efforts'' underwriting would 
not ordinarily be used for the investor certificates.
---------------------------------------------------------------------------

    The arrangements among underwriters typically are set forth in an 
``Agreement Among Underwriters'', which gives the managing underwriter, 
as lead manager of the offer, the authority to act on behalf of all the 
underwriters. This agreement also imposes customary restrictions on the 
underwriters' dealings in the offered securities as are necessary to 
comply with securities laws and to ensure the orderly distribution of 
the offered securities.
    11. TMCC represents that as the principal amount of the leases 
allocated to a SUBI is reduced by payments thereon and recoveries on 
the disposition of leased vehicles, the cost of separately 
administering the assets allocated to that SUBI generally increases, 
making the servicing of those assets prohibitively expensive at some 
point. Consequently, the Securitization Trust Agreement generally 
provides that the sponsor of the Securitization Trust may repurchase 
the SUBI when the aggregate principal balance of the investor 
certificates is reduced to a specified percentage (usually between 5 
and 10 percent) of the initial aggregate investor certificate balance. 
The terms of such repurchase are specified therein and are at least 
equal to the unpaid principal balance on the investor certificates plus 
accrued interest. The supplement to the Origination Trust Agreement 
generally provides that upon such a repurchase of the Securitization 
Trust's interest in the SUBI by its sponsor, the Origination Trust may 
repurchase the entire SUBI from the sponsor and thereby terminate the 
SUBI. The terms of such repurchase are specified therein and generally 
are at least equal to the value of the pool of leases and leased 
vehicles allocated to the SUBI.
    12. The senior class of investor certificates must receive a rating 
that is in one of the three highest generic rating categories available 
from one of the Rating Agencies. To attain the desired rating, the 
sponsor or its affiliates may establish a reserve fund for the benefit 
of certificateholders; retain or sell to third parties one or more 
classes of subordinated certificates; retain another subordinated 
interest in the trust; and/or obtain other forms of credit support from 
third parties. The amount of this credit support is set by the Rating 
Agencies at a level expected to be a multiple of the worst historical 
net credit loss experience for leases of automobiles and light-duty 
trucks such as those allocated to the SUBI.
    TMCC states that the Rating Agencies, before granting AAA/Aaa 
ratings for the publicly issued securitization certificates, review the 
underlying portfolio of assets securing payment to the investors to 
determine, among other things, if (a) the principal value of the assets 
is sufficiently greater than the aggregate face amount of the investor 
certificates as to provide protection against defaults or losses, and 
(b) there is a sufficient ``spread'' between the overall yield, based 
on the Average Lease Rate (as adjusted by the discounting procedure 
described below), being earned on the portfolio and the certificate 
rate to cover servicing costs, expenses and losses. In the case of its 
public offerings of certificates, TMCC currently anticipates that (i) 
the face value of public investor senior certificates will not exceed a 
specified percentage (e.g. 92.5 percent) of the principal value of the 
underlying assets, and (ii) the ``spread'' between the overall yield, 
based on the Average Lease Rate (as adjusted by the discounting 
procedure described below), of the SUBI portfolio and the certificate 
rate will be approximately 100 to 300 basis points. Thus, for example, 
if the targeted ``spread'' were 200 basis points, a SUBI portfolio with 
a principal value of $100,000,000 would support the issuance of 
certificates with a face value of only $92,500,000, and a certificate 
rate of 6 percent per annum would require an overall yield, based on 
the Average Lease Rate (as adjusted by the discounting procedure 
described below), for that SUBI portfolio of approximately 8 percent 
per annum.

[[Page 36955]]

TMCC states that the Rating Agencies will always require a specific 
``spread'' between the certificate rate and the overall yield for 
leases in the particular SUBI portfolio before providing their initial 
credit ratings for the certificates. TMCC must maintain this ``spread'' 
when leases are added to the SUBI portfolio during the ``revolving 
period'' or risk a lower credit rating for the certificates (see 
Section II.A.(7)(b) above).
    For purposes of the securitization described above, TMCC represents 
that each individual lease should yield a rate of return, based on the 
Lease Rate (as defined in Section III.V. above), which is at least 
equal to the certificate rate plus the targeted spread. However, where 
the targeted spread is not met as to any lease based solely on the 
Lease Rate, the principal value of that lease will be discounted so 
that such lease is treated as having a ``net investment value'' less 
than its actual outstanding principal balance. In such instances, the 
lease is discounted to a level at which the actual lease charges to be 
collected under the lease (including expected principal payments) would 
yield, on a percentage basis, an overall rate of return which exceeds 
the certificate rate by the targeted spread. Thus, for each individual 
lease included in a securitization, its principal value is either: (a) 
its outstanding principal balance, if its Lease Rate is equal to or 
greater than the targeted spread; or (b) its discounted net investment 
value, if its Lease Rate is less than the targeted 
``spread''.<SUP>14</SUP> TMCC states that the use of discounted 
aggregate net investment values in measuring the ratio of certificate 
face values to the discounted principal balance of the SUBI portfolio 
can only further assure that investors are paid interest and principal 
on their certificates on a timely basis.
---------------------------------------------------------------------------

    \14\ For example, if the certificate rate for a transaction were 
8 percent and the targeted spread were 200 basis points, then, in 
determining the aggregate face value amount of certificates that 
could be issued with respect to a given SUBI portfolio, TMCC could 
include each lease with a Lease Rate of 10 percent or more at its 
current outstanding principal balance without any discounting. 
However, if the portfolio included individual leases each with 
outstanding principal balances of $20,000 and Lease Rates of only 5 
percent, then TMCC would have to ``discount'' the value of each such 
lease for purposes of the securitization to a low enough net 
investment value (approximately $18,000) so that the same overall 
monthly lease payment for each lease would now yield a Lease Rate of 
10 percent. TMCC notes that any ``discounting'' of leases added to 
the SUBI portfolio during the ``revolving period'' will result in 
more leases being added to the portfolio in order to maintain a 
constant outstanding principal balance during such period. Thus, 
when interest rates used to determine the Lease Rate for leases 
added to a SUBI portfolio are declining, the ``discounting'' of 
leases adds more ``collateral'' to secure payments of the 
certificate rate.
---------------------------------------------------------------------------

    13. In many cases, the Servicer may provide cash flow support to 
the trust pursuant to a contractual obligation to advance funds to the 
trust to the full extent that it determines that such advances are 
recoverable (a) out of late payments by the lessees, (b) from a 
permanent credit support provider (which may be itself) or, (c) in the 
case of a trust that issues subordinated certificates, from amounts 
otherwise distributable to holders of subordinated certificates. The 
Servicer would advance such funds in a timely manner. When the Servicer 
temporarily advances funds, the amount so advanced is recoverable by 
the Servicer out of future payments on or for leases or leased vehicles 
allocated to the SUBI to the extent that such amounts are not covered 
by the other sources described above, including payments from a 
permanent credit support provider.
    If the Servicer fails to advance funds to the extent required by 
the applicable agreements, fails to call upon a credit support 
mechanism to provide funds to cover defaulted payments, or otherwise 
fails in its duties, the Securitization Trustee would be required to 
enforce the investor certificateholders' rights, in its capacity as a 
third-party beneficiary of the Servicing Agreement, as owner of the 
estate of the Securitization Trust, and as an indirect beneficial owner 
of the Origination Trust assets allocated to a SUBI (including rights 
under any credit support mechanism). Therefore, the Securitization 
Trustee, who is independent of the Servicer, ultimately has the right 
to enforce any credit support arrangement.
    14. TMCC represents that there are protections in place to guard 
against a delay in calling upon the credit support to take advantage of 
the fact that the credit support declines proportionally with the 
decrease in the principal amount of the leases allocated to a SUBI as 
payments for these leases and the related vehicles are used to make 
payments to the Securitization Trust, as holder of an interest in the 
SUBI, and then to investors. These safeguards include the following:
    (a) There is a disincentive to postponing credit losses because the 
sooner repossession or sale activities are commenced, the more value 
generally will be realized on the leased vehicle.
    (b) The Servicer has servicing guidelines which include a general 
policy as to the allowable delinquency period after which a lessee's 
obligations ordinarily are deemed uncollectible. The Servicing 
Agreement requires the Servicer to follow its normal servicing 
guidelines. In addition, the Servicing Agreement sets forth the 
Servicer's general policy as to the period of time after which 
delinquent obligations ordinarily will be considered uncollectible.
    (c) As frequently as payments are due on the investor certificates 
(monthly, quarterly, semi-annually, or annually, as set forth in the 
Securitization Trust Agreement), the Servicer is required to report to 
the Securitization Trustee the amount of all past-due payments and the 
amount of all Servicer advances, along with other current information 
as to collections on the leases, recoveries on the related leased 
vehicles, and draws upon the credit support. Further, the Servicer is 
required to deliver to the trustee annually a certificate from an 
executive officer of the Servicer stating that a review of the 
servicing activities has been made under such officer's supervision, 
and either stating that the Servicer has fulfilled all of its 
obligations under the Servicing Agreement or, if the Servicer has 
defaulted under any of its obligations, specifying any such default. 
The Servicer's reports are reviewed at least annually by independent 
accountants to ensure that the Servicer is following its normal 
servicing standards and that the reports conform to the Servicer's 
internal account records. The results of the independent accountants' 
review are delivered to the Securitization Trustee.
    (d) In cases where the Servicer and an insurer providing credit 
support are affiliated or are the same entity, the credit support has a 
``floor'' dollar amount that protects investors against the possibility 
that a large number of credit losses might occur towards the end of the 
life of the SUBI, whether due to Servicer advances or any other cause. 
The floor amount may be a fixed dollar amount or a specified formula 
amount. Once the floor amount has been reached, the Servicer lacks an 
incentive to postpone the recognition of credit losses because the 
credit support amount becomes a fixed dollar amount, subject to 
reduction only for actual draws on such amount. From the time that the 
floor amount is effective until the end of the life of the trust, there 
are no proportionate reductions in the credit support amount caused by 
reductions in the principal balance of the leases allocated to the 
SUBI. The Applicant states that where the floor is a fixed dollar 
amount, the amount of credit support ordinarily would increase as a 
percentage of the declining principal balance during the period that 
the floor is in effect.
    15. In connection with the original issuance of investor 
certificates, a

[[Page 36956]]

prospectus or private placement memorandum is furnished to all 
investors including investing plans. The prospectus or private 
placement memorandum contains information material to a plan 
fiduciary's decision to invest in the certificates, including:
    (a) Information concerning the payment terms of the certificates, 
the rating of the certificates, and any material risk factors with 
respect to the certificates;
    (b) A description of the Origination Trust and Securitization Trust 
as legal entities and a description of how they were formed by their 
respective sponsors;
    (c) Identification of the Trust Agent, Origination Trustee and 
Securitization Trustee;
    (d) A description of the leases and related leased vehicles 
allocated to each SUBI, including the diversification of the leases and 
vehicles, the principal terms of the leases, and their material legal 
aspects;
    (e) A description of the sponsors of the Origination Trust and the 
Securitization Trust, and of the Servicer;
    (f) A description of the servicing arrangements set forth in the 
Servicing Agreement, and the agreements governing the Origination Trust 
and the Securitization Trust, including a description of the Servicer's 
principal representations and warranties as to the leases and leased 
vehicles allocated to each SUBI and the remedies for any breach 
thereof;
    (g) A description of the procedures for collection of payments on 
or for leases and related leased vehicles and for making distributions 
to the Securitization Trust, as holder of an interest in the SUBI, and 
then to investor certificateholders, and a description of the accounts 
into which such payments are deposited and from which such 
distributions are made;
    (h) Identification of the servicing compensation and any fees for 
credit support that are deducted from payments on or for leases or 
related leased vehicles before distributions are made to investors;
    (i) A description of periodic statements provided to the 
Securitization Trustee, and such statements that are provided or made 
available to investors by the Securitization Trustee;
    (j) A description of the events that constitute events of default 
under the Servicing Agreement and a description of the Securitization 
Trustee's and the investors' remedies incident thereto;
    (k) A description of any credit support;
    (l) A general discussion of the principal Federal income tax 
consequences of the purchase, ownership and disposition of the investor 
certificates by a typical investor;
    (m) A description of the underwriters' or placement agents' plan 
for distributing the certificates to investors; and
    (n) Information about the scope and nature of the secondary market, 
if any, for the certificates.
    Reports indicating the amount of payments of principal and interest 
are provided to investors as frequently as distributions are made to 
investors. Investors are also provided with periodic information 
statements setting forth material information concerning the leases and 
related vehicles allocated to each SUBI, including information as to 
the amount and number of delinquent and defaulted leases.
    16. In the case of the offer and sale of investor certificates in a 
registered public offering, the Securitization Trustee, the Servicer or 
the sponsor of the Securitization Trust will file periodic reports as 
required by the Securities Exchange Act of 1934 (the 1934 Act). A 
Securitization Trust and its sponsor may, in some cases, discontinue 
making filings under the 1934 Act if permitted to do so under the 
provisions of that Act by exemptions contained therein.
    At the time distributions are made to certificateholders, a report 
is delivered to the trustee as to the status of the Securitization 
Trust and each SUBI, including the assets allocated to the SUBI. Such 
report contains information regarding, among other things, the leases 
and related vehicles allocated to the SUBI, payments received or 
collected by the Servicer, the amount of prepayments, delinquencies, 
Servicer advances, defaults and foreclosures, the amount of any 
payments made pursuant to any credit support, and the amount of 
compensation payable to the Servicer. Such report is also delivered to 
or made available to the Rating Agency or Agencies that have rated the 
investor certificates. A statement based on this report is also 
provided to certificateholders either by the Securitization Trustee, 
the Servicer, or DTC as depository of the investor certificates, 
including a summary statement regarding the Securitization Trust and 
the assets allocated to the SUBI. The statement contains information 
regarding payments and prepayments, delinquencies, the remaining amount 
of credit support, a breakdown of payments between principal and 
interest and other information concerning the leases and leased 
vehicles allocated to the SUBI.
    With respect to payments on the certificates, TMCC states that such 
payments are legally obligated to be made by the Securitization Trustee 
to DTC, the record owner of the certificates. TMCC represents that DTC 
makes payments to the beneficial owners of the certificates as required 
by New York Stock Exchange Regulations, SEC Regulations and the rules 
of the U.S. Federal Reserve Board.
    17. In general, it is the policy of many underwriters to make a 
market for securities for which they are the lead or co-managing 
underwriter. It is also the policy of many placement agents to 
facilitate sales by investors who purchase certificates if the 
placement agent has acted as a principal or agent in the original 
private placement of the certificates and if the investors request the 
placement agent's assistance. In this regard, TMCC anticipates that 
underwriters will make a secondary market in investor certificates of 
trusts that are sponsored by TMCC and its Subsidiaries.
    18. TMCC and its Subsidiaries represent that they will abide by all 
securities and other laws applicable to any offering of interests in 
securitized assets, such as certificates in a trust as described 
herein, including those laws relating to disclosure of material 
litigation, investigations and contingent liabilities.
    TMCC has requested the relief proposed herein because, under the 
Department's regulation defining ``plan assets'' for investment 
purposes (see 29 CFR 2510.3-101), there could be a ``look-through'' to 
the underlying assets of the trust issuing certificates purchased by 
employee benefit plans when there is significant participation by 
benefit plan investors in a particular offering and the certificates 
are not considered to be ``publicly-offered'' securities. In this 
regard, TMCC states that many certificates are held by investors in 
street or nominee name. Thus, TMCC states that it is not always 
possible to identify whether the percentage interest in a trust held by 
benefit plan investors is or is not ``significant'' (29 CFR 2510.3-
101(f)). TMCC states further that these problems are compounded as 
transactions occur in the secondary market. In addition, with respect 
to the ``publicly-offered security'' exception contained in the 
Department's regulation (29 CFR 2510.3-101(b)), TMCC states that it is 
difficult to determine whether each purchaser of a certificate is 
independent of all other purchasers or whether there are at least 100 
independent investors

[[Page 36957]]

which would make the certificates a ``widely-held'' class of securities 
(as required therein).
    TMCC has requested that the proposed exemption be effective as of 
September 1, 1997, in order to cover any securitizations of motor 
vehicle leases and related vehicles since that time which may have 
involved significant participation by benefit plan investors.
    19. In summary, the Applicant represents that the transactions for 
which exemptive relief is requested satisfy the statutory criteria of 
section 408(a) of the Act because:
    (a) The Securitization Trust holds an interest in a SUBI, which 
generally represents beneficial interests in a ``fixed pool'' of leases 
and related leased vehicles, other than the obligation to reinvest 
principal collections on the leases and leased vehicles in additional 
qualifying leases and leased vehicles during a fixed ``revolving 
period'' of no more than 15 months.
    (b) The Average Lease Rate for the leases in the portfolio used to 
create a trust, after accounting for all leases added to such portfolio 
during the ``revolving period'', will not exceed by more than 200 basis 
points the Average Lease Rate for the original portfolio of leases used 
to create the trust.
    (c) Certificates in which employee benefit plans invest have been 
rated in one of the three highest rating categories by the Rating 
Agencies. To achieve the desired rating, one or more types of credit 
support are provided by the sponsor or its affiliates or are obtained 
from third parties. In addition, leases added to a trust portfolio 
during the ``revolving period'' will not result in the certificates 
receiving a lower credit rating from the Rating Agencies, at the end of 
the ``revolving period'', than the rating that was obtained at the time 
of the initial issuance of the certificates by the trust.
    (d) All transactions for which TMCC seeks exemptive relief are 
governed by the Origination Trust Agreement, the SUBI Supplement, the 
Servicing Agreement and the Securitization Trust Agreement. These 
agreements as well as the prospectus or private placement memorandum 
are made available to plan fiduciaries for their review prior to the 
plan's investment in the certificates.
    (e) The Pooling and Servicing Agreement expressly provides that 
funds collected by TMCC, as the servicer for trust assets, are required 
to be deposited in a trust account within two business days after such 
collection, if TMCC's short-term unsecured debt no longer continues to 
be rated P-1 by Moody's Investors Service and A-1 by Standard & Poor's 
Ratings Services (or successors thereto), unless such Rating Agencies 
accept an alternative arrangement.
    (f) Exemptive relief from sections 406(b) and 407(a) of the Act for 
sales to employee benefit plans is substantially limited.
    (g) The Applicant anticipates that underwriters will make a 
secondary market in investor certificates sponsored by TMCC and its 
Subsidiaries.
    For Further Information Contact: Mr. E. F. Williams of the 
Department, telephone (202) 219-8194. (This is not a toll-free number.)

Kilpatrick Investment Company Employee's Pension Plan (the Plan); 
Located in Oklahoma City, Oklahoma

[Application No.: D-10607]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836,32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a) and 406(b)(1) and (2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the past sale (the Sale) of improved real property 
(the Property) by the Plan to the Kilpatrick Investment Company (the 
Company), a party in interest with respect to the Plan provided the 
following conditions were met at the time of the Sale: (1) the terms of 
the Sale were at least as favorable as those the Plan could have 
obtained in an arm's length transaction with an unrelated party; (2) 
the fair market value of the Property was determined by an independent 
and qualified real estate appraiser; (3) the Sale price was equal to 
the greater of the fair market value of the Property at the time of the 
Sale or $134,600 which represents the price the Plan originally paid 
for the Property plus the holding costs incurred by the Plan during the 
Plan's ownership of the Property; and (4) the Plan paid no commissions 
or expenses associated with the Sale.
    Effective Date: If granted, this proposed exemption will be 
effective as of April 15, 1998.
Summary of Facts and Representations
    1. The Plan is a defined benefit plan having six participants and 
beneficiaries as of February 19, 1998. The aggregate fair market value 
of the Plan's assets is $884,543 which is based upon the 1996 Plan's 
actuarial report. John Kilpatrick is the Plan trustee and owner of the 
Company.
    2. The Property is a sixty year old industrial facility located on 
a 476,725 square foot site located at 800 N.W. 3rd Street, Moore, 
Oklahoma. The Plan purchased the Property from an unrelated third party 
on January 31, 1978 for $95,000 representing land cost of $15,000 and 
building cost $80,000. Since this time, the Plan has paid approximately 
$7,000 in land repairs, $15,900 in improvements and $16,555 ad valorem 
taxes. The warehouse portion of the Property has been leased to Show 
Productions, an unrelated third party for an annual rent of $6,000.
    3. On February 4, 1998, the Property was appraised by Stephen V. 
Greer Company, Real Estate Appraisers and Consultants. The fair market 
value of the Property was calculated to be $78,500. In his appraisal 
report, Mr. Greer defined market value as the probable price which a 
property should bring in a competitive and open market under all 
conditions requisite to a fair sale, the buyer and seller, each acting 
prudently, knowledgeably and assuming the price is not affected by 
undue stimulus. Mr. Greer noted that the overall quality of the 
building improvements of the Property is fair and the general condition 
of the Property is fair to poor. The useful economic life of these 
improvements is nearing its end. Redevelopment will be required to 
maximize the value of the site.
    4. The Plan proposed to sell the Property in order to diversify its 
assets and invest in more liquid investments.<SUP>15</SUP> In February 
1998, the Company applied for an exemption to permit a proposed sale of 
the Property by the Plan to the Company at the fair market value of the 
Property. However, during the Department's consideration of the 
exemption request, it became apparent to the Plan trustee that the Plan 
had invested significantly more in the Property than its appraised 
value. Thus, the Company proposed to purchase the Property at a price 
greater than the fair market value of the Property which represented an 
amount equal to the Plan's acquisition cost plus the holding costs of 
the Property totaling $134,600.

[[Page 36958]]

The Company stated that it would be in the position to purchase the 
Property at this price due to the fact that the Company had recently 
sold another piece of property for $150,000 with respect to which the 
Company was trying to complete a Code section 1031 like-kind exchange. 
The Company further states that based upon the section 1031 
requirements, the like-kind exchange had to be completed by April 15, 
1998, and the Company determined that due to the notice requirements of 
the exemption process, the exemption would not be granted before this 
date. Accordingly, the Company purchased the Property from the Plan on 
April 15, 1998. The applicant represents that the Sale was in the 
interest of the Plan because it permitted the Plan to fully recover the 
money it invested in the Property, and it appeared highly unlikely that 
the Plan could sell the Property to a third party in its current 
condition at such a price. In addition, the Plan incurred no expenses 
as a result of the Sale.
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    \15\ As of February 1998, the Plan's total investment in real 
estate accounted for 93% of the value of plan assets. The Department 
is expressing no opinion in this proposed exemption as to whether 
plan fiduciaries violated any of the fiduciary responsibility 
provisions of Part 4 of Title I of the Act in acquiring and holding 
such real estate. Section 404(a)(1)(C) states that a fiduciary shall 
discharge his duties with respect to a plan solely in the interest 
of the participants and beneficiaries by diversifying the 
investments of the plan so as to minimize the risk of large losses, 
unless under the circumstances it is clearly prudent not to do so.
---------------------------------------------------------------------------

    5. In summary, the applicant represents that the transaction 
satisfies the statutory criteria of the section 408(a) of the Act and 
section 4975(c)(2) of the Code because: (1) the Sale was a one-time 
transaction for cash; (2) the Plan paid no expenses associated with the 
Sale; and (3) the Plan received the greater of the fair market value as 
determined by an independent, qualified appraiser of the Property or 
$134,600 which represents the Plan's total investment in the Property.
    For Further Information Contact: Allison Padams Lavigne of the 
Department, telephone (202)219-8971. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 1st day of July, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 98-18012 Filed 7-7-98; 8:45 am]
BILLING CODE 4510-29-P