[Federal Register Volume 61, Number 220 (Wednesday, November 13, 1996)]
[Notices]
[Pages 58231-58237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29034]
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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 96-82; Exemption Application No. D-
10034, et al.]
Grant of Individual Exemptions; Dimensional Fund Advisors Inc.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) 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).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, 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 proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
[[Page 58232]]
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Dimensional Fund Advisors Inc. (DFA) Located in Santa Monica,
California
[Prohibited Transaction Exemption 96-82; Exemption Application No. D-
10034]
Exemption
The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the in-kind transfers of the assets of employee
benefit plans (the Client Plans) for which DFA or an affiliate act as a
fiduciary 1 and which are held in DFA sponsored group trusts (the
Group Trusts) to the DFA Investment Trust Company (the Master Fund), in
exchange for the shares of the Master Fund, an open-end investment
company registered under the Investment Company Act of 1940 (the 1940
Act), for which DFA acts as investment advisor; provided that the
following conditions are satisfied:
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\1\ The applicant states that no retirement plan established by
DFA is invested in any of the Group Trusts, and no relief is being
requested herein on behalf of any of DFA's own plans. Accordingly,
the Department is not proposing relief for in-kind transfers
involving any plan established and maintained by DFA or its
affiliates or subsidiaries.
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(a) A fiduciary (the Second Fiduciary) who is acting on behalf of
each affected Client Plan and who is independent of and unrelated to
DFA, as defined in paragraph (g) of Section III below, will receive
advance written notice of the in-kind transfer of the Client Plan's
assets held in a subtrust of a Group Trust to a corresponding series of
the Master Fund in exchange for the shares of the Master Fund, and the
investment of such assets in the corresponding series of the Master
Fund, and will receive full written disclosures concerning the Master
Fund described in paragraph (c) of Section II below;
(b) On the basis of such information described in paragraph (c) of
Section II below, the Second Fiduciary will authorize in writing the
in-kind transfer of the Client Plan's assets from a subtrust of a Group
Trust to the corresponding series of the Master Fund in exchange for
the shares of the Master Fund, and the investment of such assets in the
corresponding series of the Master Fund. Such authorization is to be
consistent with the responsibilities, obligations, and duties imposed
on fiduciaries by Part 4 of Title I of the Act;
(c) No sales commissions, redemption fees or other fees are paid by
the Client Plans in connection with the in-kind transfer of the Group
Trust's assets, in exchange for the shares of the Master Fund;
(d) The transfers will be one-time transactions for each subtrust
of a Group Trust for which a comparable series of the Master Fund
exists;
(e) Each Group Trust receives shares of the Master Fund which have
a total net asset value that is equal to the value of the Client Plans'
all or pro rata share of the Group Trust's assets on the date of the
transfer;
(f) The current market value of the Group Trust's assets to be
transferred in-kind in exchange for the shares of the Master Fund, is
determined in a single valuation performed in the same manner at the
close of the same business day with respect to any such transfer, using
independent sources in accordance with the procedures set forth in Rule
17a-7 (Rule 17a-7) under the 1940 Act, as amended from time to time or
any successor rule, regulation, or similar pronouncement and the
procedures established by DFA pursuant to Rule 17a-7 for the valuation
of such assets. Such procedures must require that all securities for
which a current market price cannot be obtained by reference to the
last sales price for transactions reported on a recognized securities
exchange or NASDAQ, be valued based on the average of the highest
current independent bid and lowest current independent offer, as of the
close of business on the last business day preceding the day of the
Group Trust transfer, determined on the basis of reasonable inquiry
from at least three sources that are broker-dealers or pricing services
independent of DFA;
(g) No later than 30 days after completion of each in-kind transfer
of Group Trust's assets to the Master Fund, DFA will send by regular
mail to each Second Fiduciary, who is acting on behalf of each affected
Client Plan and who is independent of and unrelated to DFA, as defined
in paragraph (g) of Section III below, written confirmation containing
the following information:
1. the identity of each security that was valued for purposes of
the transaction in accordance with Rule 17a-7(b)(4) under the 1940 Act;
2. the price of each such security involved in the transaction; and
3. the identity of each pricing service or market maker consulted
in determining the value of such securities;
(h) No later than 90 days after completion of each in-kind transfer
of the Group Trust's assets to the Master Fund, DFA will send by
regular mail to the Second Fiduciary, who is acting on behalf of each
affected Client Plan and who is independent of and unrelated to DFA, as
defined in paragraph (g) of Section III below, written confirmation
that contains the following information:
1. the number of Group Trust's units held by the Client Plan
immediately before the transfer (and the related per unit value and the
total dollar amount of such Group Trust's units transferred); and
2. the number of shares in the Master Fund that are held by the
Client Plan following the transfer (and the related per share net asset
value and the total dollar amount of such shares received);
(i) The transferred securities will be valued using the same
methodology in the Group Trusts and in the Master Fund;
(j) DFA will not execute an in-kind transfer of the Client Plan's
assets unless the Second Fiduciary of each affected Client Plan
affirmatively consents to the in-kind transfer in writing; and
(k) There will be no penalty to a Client Plan for not participating
in the in-kind transfer.
Section II--General Conditions
(a) DFA maintains for a period of six years the records necessary
to enable the persons described below in paragraph (b) to determine
whether the conditions of this exemption have been met, except that (1)
a prohibited transaction will not be considered to have occurred if,
due to circumstances beyond the control of DFA, the records are lost or
destroyed prior to the end of the six-year period, and (2) no party in
interest other than DFA shall be subject to the civil penalty that may
be assessed under section 502(i) of the Act or to the taxes imposed by
section 4975(a) and (b) of the Code if the records are not maintained
or are not available for examination as required by paragraph (b)
below.
(b) (1) Except as provided in paragraph (b)(2) and notwithstanding
any provisions of section 504(a)(2) and (b) of the Act, the records
referred to in paragraph (a) are unconditionally available at their
customary location for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(ii) Any fiduciary of the Client Plans who has authority to acquire
or dispose
[[Page 58233]]
of shares of the Funds owned by the Client Plans, or any duly
authorized employee or representative of such fiduciary, and
(iii) Any participant or beneficiary of the Client Plans or duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described in paragraph (b)(1)(ii) and (iii)
of Section II shall be authorized to examine trade secrets of DFA, or
commercial or financial information which is privileged or
confidential; and
(c) A Second Fiduciary who is acting on behalf of a Client Plan and
who is independent and unrelated to DFA, as defined in paragraph (g) of
Section III below, will receive in advance of the investment by a
Client Plan in the Master Fund full written disclosure of information
concerning the Master Fund which shall include, but not be limited to
the following:
(1) a current copy of SEC Form N-1A (regarding the registration of
an open end investment company under the 1940 Act) 2 with respect
to the Master Fund, plus certain additional information as specified in
the Advisory Opinion 94-35A 3;
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\2\ Form N-1A requires the registrant to answer a series of
questions regarding financial information, management of the fund,
risk factors and expenses.
\3\ In the Advisory Opinion 94-35A (AO 94-35A) issued by the
Department to DFA, DFA requested an advisory opinion with regard to
certain disclosures required by the Securities Act of 1933 (the 1933
Act), and which are provided by DFA to independent plan fiduciaries
in connection with the plans' investment in a certain open-end
investment company to which DFA serves as an investment advisor (the
Core Fund), and which is registered under the 1940 Act, but not
under the 1933 Act. Specifically, DFA requested an advisory opinion
that a receipt by the independent plan fiduciary of the Core Fund's
Form N-1A and the additional information as specified in AO 94-35A
complies with the prospectus disclosure requirement of paragraph (d)
of section II of PTCE 77-4. In AO 94-35A, the Department stated that
the disclosure of the Core Fund's Form N-1A information and the
additional information as specified in AO 94-35A to an independent
plan fiduciary, in lieu of a prospectus, will satisfy the prospectus
disclosure requirement of paragraph (d) of section II of PTCE 77-4,
provided that the additional information as specified in AO 94-35A
contains all the information, otherwise included in a prospectus,
that is relevant to the independent fiduciary's decision as to
whether to approve the purchase and sale of shares in the Core Fund.
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(2) a table listing management fees for the most recent completed
fiscal period, all other expenses broken down by category and total
portfolio operating expenses;
(3) a chart showing the effect of such fees on an investment in the
Master Fund over one, three, five and ten years; and
(4) a list of per share income and capital changes for shares
outstanding throughout the year, including investment income, expenses,
net investment income, dividends from net investment income, net
realized and unrealized gains (losses) on securities; distributions
from net realized gains (losses) on securities; net increase (decrease)
in net asset value, net asset value at the beginning of the period, net
asset value at the end of the period, expenses to average net assets,
portfolio turnover rate, and number of shares outstanding at the end of
the period.
Section III--Definitions
For purposes of this proposed exemption:
(a) The term ``DFA'' means Dimensional Fund Advisors Inc., and any
affiliate thereof as defined below in paragraph (b) of this section.
(b) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``Fund'' or ``Funds'' shall include the DFA Investment
Trust Company, such additional series as may be added to the DFA
Investment Trust Company, or any other diversified open-end investment
company or companies registered under the 1940 Act for which DFA serves
as an investment advisor and may also serve as a custodian, shareholder
servicing agent, or transfer agent.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in the Fund's SEC Form
N-1A and statement of additional information, and other assets
belonging to each of the portfolios in the Fund or the Fund, less the
liabilities charged to each such portfolio or the Fund, by the number
of outstanding shares.
(f) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of the Act (or a ``member of the family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
a sister, or a spouse of a brother or a sister.
(g) The term ``Second Fiduciary'' means a fiduciary of a Client
Plan who is independent of and unrelated to DFA. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to DFA if:
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by, or is under common control with DFA;
(2) Such Second Fiduciary, or any officer, director, partner,
employee, or relative of the fiduciary is an officer, director, partner
or employee of DFA (or is a relative of such persons);
(3) Such Second Fiduciary directly or indirectly receives any
compensation or other consideration for his or her own personal account
in connection with any transaction described in this exemption.
If an officer, director, partner or employee of DFA (or relative of
such persons), is a director of such Second Fiduciary, and if he or she
abstains from participation in (i) the choice of the Client Plan's
investment manager advisor, (ii) the approval of any such purchase or
sale between the Client Plan and the Funds, and (iii) the approval of
any change in fees charged to or paid by the Client Plan in connection
with any of the transactions described in Section I above, then
paragraph (g)(2) of this Section III shall not apply.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on September 18, 1996 at 61
FR 49156/49160.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
Operating Engineers Local 150 Apprenticeship Fund (the Plan) Located in
Plainfield, Illinois
[Prohibited Transaction Exemption 96-83; Exemption Application No. L-
10279]
Exemption
The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the
Act shall not apply to the sale by the Plan of a parcel of unimproved
real property in Will County, Illinois (the Property) to the
International Union of Operating Engineers Local 150, AFL-CIO, a party
in interest with respect to the Plan; provided the following conditions
are satisfied:
(A) All terms of the transaction are at least as favorable to the
Plan as those which the Plan could obtain in an arm's-length
transaction with an unrelated party;
(B) The Plan incurs no costs or expenses related to the
transaction; and
[[Page 58234]]
(C) The Plan receives a purchase price no less than the greater of
(1) $65,000, or (2) the fair market value of the Property as of the
sale date.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on July 31, 1996 at 61 FR 40011.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
HSBC Securities, Inc. (HSBC) Located in New York, New York
[Prohibited Transaction Exemption 96-84; Exemption Application No. D-
10316]
Exemption
I. Transactions
A. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by section 4975 (a) and (b) of the Code by reason of
section 4975(c)(1) (A) through (D) of the Code shall not apply to the
following transactions involving trusts and certificates evidencing
interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and an employee benefit plan when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.A. (1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded Plan by any person who has discretionary authority or renders
investment advice with respect to the assets of that Excluded
Plan.4
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\4\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act
and the taxes imposed by section 4975 (a) and (b) of the Code by reason
of section 4975(c)(1)(E) of the Code shall not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and a plan when the person who has discretionary
authority or renders investment advice with respect to the investment
of plan assets in the certificates is (a) an obligor with respect to 5
percent or less of the fair market value of obligations or receivables
contained in the trust, or (b) an affiliate of a person described in
(a); if:
(i) the plan is not an Excluded Plan;
(ii) solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group
and at least 50 percent of the aggregate interest in the trust is
acquired by persons independent of the Restricted Group;
(iii) a plan's investment in each class of certificates does not
exceed 25 percent of all of the certificates of that class outstanding
at the time of the acquisition; and
(iv) immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in certificates representing an interest in a trust containing
assets sold or serviced by the same entity.5 For purposes of this
paragraph B.(1)(iv) only, an entity will not be considered to service
assets contained in a trust if it is merely a subservicer of that
trust;
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\5\ For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that the conditions set forth in paragraphs B.(1) (i), (iii)
and (iv) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.B. (1) or (2).
C. The restrictions of sections 406(a), 406(b) and 407(a) of the
Act, and the taxes imposed by section 4975 (a) and (b) of the Code by
reason of section 4975(c) of the Code, shall not apply to transactions
in connection with the servicing, management and operation of a trust,
provided:
(1) such transactions are carried out in accordance with the terms
of a binding pooling and servicing arrangement; and
(2) the pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
certificates issued by the trust.6
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\6\ 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 a servicer of the trust from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in section III.S.
D. The restrictions of sections 406(a) and 407(a) of the Act, and
the taxes imposed by sections 4975 (a) and (b) of the Code by reason of
sections 4975(c)(1) (A) through (D) of the Code, shall not apply to any
transactions to which those restrictions or taxes would otherwise apply
merely because a person is deemed to be a party in interest or
disqualified person (including a fiduciary) with respect to a plan by
virtue of providing services to the plan (or by virtue of having a
relationship to such service provider described in section 3(14) (F),
(G), (H) or (I) of the Act or section 4975(e)(2) (F), (G), (H) or (I)
of the Code), solely because of the plan's ownership of certificates.
II. General Conditions
A. The relief provided under Part I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating at
the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Corporation
(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc.
(D & P) or Fitch Investors Service, Inc. (Fitch);
[[Page 58235]]
(4) The trustee is not an affiliate of any member of the Restricted
Group. However, the trustee shall not be considered to be an affiliate
of a servicer solely because the trustee has succeeded to the rights
and responsibilities of the servicer pursuant to the terms of a pooling
and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the sum of all payments made
to and retained by the sponsor pursuant to the assignment of
obligations (or interests therein) to the trust represents not more
than the fair market value of such obligations (or interests); and the
sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith; and
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
B. Neither any underwriter, sponsor, trustee, servicer, insurer,
nor any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Part I, if the provision of subsection II.A.(6) above is
not satisfied with respect to acquisition or holding by a plan of such
certificates, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of certificates, the trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's certificates) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees will be required to
make a written representation regarding compliance with the condition
set forth in subsection II.A.(6) above.
III. Definitions
For purposes of this exemption:
A. ``Certificate'' means:
(1) a certificate--
(a) that represents a beneficial ownership interest in the assets
of a trust; and
(b) that entitles the holder to pass-through payments of principal,
interest, and/or other payments made with respect to the assets of such
trust; or
(2) a certificate denominated as a debt instrument--
(a) that represents an interest in a Real Estate Mortgage
Investment Conduit (REMIC) within the meaning of section 860D(a) of the
Internal Revenue Code of 1986; and
(b) that is issued by and is an obligation of a trust;
with respect to certificates defined in (1) and (2) above for which
HSBC is either (i) the sole underwriter or the manager or co-manager of
the underwriting syndicate, or (ii) a selling or placement agent.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. ``Trust'' means an investment pool, the corpus of which is held
in trust and consists solely of:
(1) either
(a) secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association);
(b) secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to, qualified equipment notes secured by
leases, as defined in section III.T);
(c) obligations that bear interest or are purchased at a discount
and which are secured by single-family residential, multi-family
residential and commercial real property (including obligations secured
by leasehold interests on commercial real property);
(d) obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or qualified
motor vehicle leases (as defined in section III.U);
(e) ``guaranteed governmental mortgage pool certificates,'' as
defined in 29 CFR 2510.3-101(i)(2);
(f) fractional undivided interests in any of the obligations
described in clauses (a)-(e) of this section B.(1);
(2) property which had secured any of the obligations described in
subsection B.(1);
(3) undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are to made
to certificateholders; and
(4) rights of the trustee under the pooling and servicing
agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship and other credit support
arrangements with respect to any obligations described in subsection
B.(1).
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) The investment pool consists only of
assets of the type which have been included in other investment pools,
(ii) certificates evidencing interests in such other investment pools
have been rated in one of the three highest generic rating categories
by S&P's, Moody's, D & P, or Fitch for at least one year prior to the
plan's acquisition of certificates pursuant to this exemption, and
(iii) certificates evidencing interests in such other investment pools
have been purchased by investors other than plans for at least one year
prior to the plan's acquisition of certificates pursuant to this
exemption.
C. ``Underwriter'' means:
(1) HSBC;
(2) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
HSBC; or
(3) any member of an underwriting syndicate or selling group of
which HSBC or a person described in (2) is a manager or co-manager with
respect to the certificates.
D. ``Sponsor'' means the entity that organizes a trust by
depositing obligations therein in exchange for certificates.
E. ``Master Servicer'' means the entity that is a party to the
pooling and servicing agreement relating to trust assets and is fully
responsible for servicing, directly or through subservicers, the assets
of the trust.
F. ``Subservicer'' means an entity which, under the supervision of
and on behalf of the master servicer, services loans contained in the
trust, but is not a party to the pooling and servicing agreement.
G. ``Servicer'' means any entity which services loans contained in
the trust, including the master servicer and any subservicer.
H. ``Trustee'' means the trustee of the trust, and in the case of
certificates which are denominated as debt instruments, also means the
trustee of the indenture trust.
[[Page 58236]]
I. ``Insurer'' means the insurer or guarantor of, or provider of
other credit support for, a trust. Notwithstanding the foregoing, a
person is not an insurer solely because it holds securities
representing an interest in a trust which are of a class subordinated
to certificates representing an interest in the same trust.
J. ``Obligor'' means any person, other than the insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the trust. Where a trust contains qualified motor vehicle
leases or qualified equipment notes secured by leases, ``obligor''
shall also include any owner of property subject to any lease included
in the trust, or subject to any lease securing an obligation included
in the trust.
K. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
L. ``Restricted Group'' with respect to a class of certificates
means:
(1) each underwriter;
(2) each insurer;
(3) the sponsor;
(4) the trustee;
(5) each servicer;
(6) any obligor with respect to obligations or receivables included
in the trust constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the trust, determined on
the date of the initial issuance of certificates by the trust; or
(7) any affiliate of a person described in (1)-(6) above.
M. ``Affiliate'' of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
O. A person will be ``independent'' of another person only if:
(1) such person is not an affiliate of that other person; and
(2) the other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. ``Sale'' includes the entrance into a forward delivery
commitment (as defined in section Q below), provided:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's-length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. ``Forward delivery commitment'' means a contract for the
purchase or sale of one or more certificates to be delivered at an
agreed future settlement date. The term includes both mandatory
contracts (which contemplate obligatory delivery and acceptance of the
certificates) and optional contracts (which give one party the right
but not the obligation to deliver certificates to, or demand delivery
of certificates from, the other party).
R. ``Reasonable compensation'' has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
S. ``Qualified Administrative Fee'' means a fee which meets the
following criteria:
(1) the fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing in respect of the
obligations;
(2) the servicer may not charge the fee absent the act or failure
to act referred to in (1);
(3) the ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement; and
(4) the amount paid to investors in the trust will not be reduced
by the amount of any such fee waived by the servicer.
T. ``Qualified Equipment Note Secured By A Lease'' means an
equipment note:
(1) which is secured by equipment which is leased;
(2) which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(3) with respect to which the trust's security interest in the
equipment is at least as protective of the rights of the trust as would
be the case if the equipment note were secured only by the equipment
and not the lease.
U. ``Qualified Motor Vehicle Lease'' means a lease of a motor
vehicle where:
(1) the trust holds a security interest in the lease;
(2) the trust holds a security interest in the leased motor
vehicle; and
(3) the trust's security interest in the leased motor vehicle is at
least as protective of the trust's rights as would be the case if the
trust consisted of motor vehicle installment loan contracts.
V. ``Pooling and Servicing Agreement'' means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust. In the case of certificates which are denominated as debt
instruments, ``Pooling and Servicing Agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
The Department notes that this exemption is included within the
meaning of the term ``Underwriter Exemption'' as it is defined in
section V(h) of Prohibited Transaction Exemption 95-60 (60 FR 35925,
July 12, 1995), the Class Exemption for Certain Transactions Involving
Insurance Company General Accounts at 35932.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on September 18, 1996 at 61
FR 49163.
FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an
[[Page 58237]]
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 7th day of November, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-29034 Filed 11-12-96; 8:45 am]
BILLING CODE 4510-29-P
