[Federal Register Volume 61, Number 49 (Tuesday, March 12, 1996)]
[Notices]
[Pages 10025-10034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5745]
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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 96-12 ; Exemption Application No. D-
09840, et al.]
Grant of Individual Exemptions; World Omni Financial Corporation
and Its Affiliates, et al.
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, DC. 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
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.
World Omni Financial Corporation and Its Affiliates
Located in Deerfield Beach, Florida
[Prohibited Transaction Exemption 96-12; Application No. D-9840]
Section I--Transactions
A. Effective June 27, 1994, the restrictions of sections 406(a) and
407(a) of the Act and the taxes imposed by section 4975 (a) and (b) of
the Code, by reason of section 4975(c)(1)(A) through (D) of the Code,
shall not apply to the following transactions involving trusts and
certificates evidencing interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and an employee benefit plan when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.A. (1) or (2).
Notwithstanding the foregoing, Section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded
[[Page 10026]]
Plan, as defined in Section III.K. below, by any person who has
discretionary authority or renders investment advice with respect to
the assets of that Excluded Plan.1
1 Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. Effective June 27, 1994, the restrictions of sections 406(b)(1)
and 406(b)(2) of the Act and the taxes imposed by section 4975(a) and
(b) of the Code, by reason of section 4975(c)(1)(E) of the Code, shall
not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and a plan when the person who has discretionary
authority or renders investment advice with respect to the investment
of plan assets in the certificates is (a) an obligor with respect to 5
percent or less of the fair market value of obligations or receivables
contained in the trust, or (b) an affiliate of a person described in
(a); if
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group,
as defined in Section III.L., and at least 50 percent of the aggregate
interest in the trust is acquired by persons independent of the
Restricted Group;
(iii) A plan's investment in each class of certificates does not
exceed 25 percent of all of the certificates of that class outstanding
at the time of the acquisition; and
(iv) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in certificates representing an interest in a trust containing
assets sold or serviced by the same entity.2 For purposes of this
paragraph B.(1)(iv) only, an entity shall not be considered to service
assets contained in a trust if it is merely a subservicer of that
trust;
2 For purposes of this exemption, each plan participating
in a commingled fund (such as a bank collective trust fund or
insurance company pooled separate account) shall be considered to
own the same proportionate undivided interest in each asset of the
commingled fund as its proportionate interest in the total assets of
the commingled fund as calculated on the most recent preceding
valuation date of the fund.
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(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that conditions set forth in paragraphs B. (1)(i), (iii), and
(iv) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.B. (1) or (2).
C. Effective June 27, 1994, the restrictions of sections 406(a),
(b) and 407(a) of the Act and the taxes imposed by section 4975 (a) and
(b) of the Code, by reason of section 4975(c) of the Code, shall not
apply to transactions in connection with the servicing, management and
operation of a trust, provided;
(1) Such transactions are carried out in accordance with the terms
of a binding Pooling and Servicing 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.3
3 In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions.
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Notwithstanding the foregoing, Section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act, or from
the taxes imposed by reason of section 4975(c) of the Code, for the
receipt of a fee by the servicer of the trust from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in Section III.S. below.
D. Effective June 27, 1994, the restrictions of sections 406(a) and
407(a) of the Act and the taxes imposed by sections 4975 (a) and (b) of
the Code, by reason of sections 4975(c)(1) (A) through (D) of the Code,
shall not apply to any transaction to which those restrictions or taxes
would otherwise apply merely because a person is deemed to be a party
in interest or disqualified person (including a fiduciary) with respect
to a plan by virtue of providing services to the plan (or by virtue of
having a relationship to such service provider as described in section
3(14) (F), (G), (H) or (I) of the Act or section 4975(e)(2) (F), (G),
(H) or (I) of the Code), solely because of the plan's ownership of
certificates.
Section II--General Conditions
A. The relief provided under Section I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as such terms would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating at
the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poors Rating 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 member of the Restricted
Group (other than BA Securities acting as a member, but not a manager,
of the underwriting syndicate for the certificates during the period
from October 19, 1995 until December 8, 1995, provided that BA
Securities did not sell any certificates to employee benefit plans
covered by this exemption during such period). However, the trustee
shall not be considered to be an affiliate of a servicer solely because
the trustee has succeeded to the rights and responsibilities of the
servicer pursuant to the terms of a Pooling and Servicing Agreement
providing for such succession upon the occurrence of one or more events
of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the sum of all payments made
to or retained by the sponsor pursuant to the assignment of obligations
(or interest therein) to the trust represents not more than the fair
market value of such obligation (or interest); and the sum of all
payments made to and retained by the servicer represents not more than
reasonable compensation for the servicer's services under the Pooling
and Servicing Agreement and reimbursement of the servicer's reasonable
expenses in connection therewith;
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of
[[Page 10027]]
Regulation D of the Securities and Exchange Commission (SEC) under the
Securities Act of 1933;
(7) To the extent that the pool of leases used to create a
portfolio for a trust is not closed at the time of the issuance of
certificates by the trust, additional leases may be added to the
portfolio for a period of no more than 15 consecutive months from the
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) shall be
described in the prospectus or private placement memorandum provided to
investing plans;
(9) The average annual percentage lease rate (the Average Lease
Rate) for the pool of leases in the portfolio for the trust, after the
additional period described in Section II.A.(7), shall not be more than
200 basis points greater than the Average Lease Rate for the original
pool of leases that was used to create such portfolio for the trust;
(10) For the duration of the additional period described in Section
II.A.(7), principal collections that are reinvested in additional
leases are first reinvested in the ``eligible lease contract'' (as
defined in Section III.X. below) with the earliest origination date,
then in the ``eligible lease contract'' with the next earliest
origination date, and so forth, beginning with any lease contracts that
have been reserved specifically for such purposes at the time of the
initial allocation of leases to the pool of leases used to create the
particular portfolio, but excluding those specific lease contracts
reserved for allocation to or allocated to other pools of leases used
to create other portfolios; and
(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.
B. Neither any underwriter, sponsor, trustee, servicer, insurer, or
any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Section I, if the provision in Section II.A.(6) above is
not satisfied for the acquisition or holding by a plan of such
certificates, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of certificates, the trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's certificates) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees shall be required to
make a written representation regarding compliance with the condition
set forth in Section II.A.(6).
C. World Omni and its Affiliates abide by all securities and other
laws applicable to any offering of interests in securitized assets,
such as certificates in a trust as described herein, including those
laws relating to disclosure of material litigation, investigations and
contingent liabilities.
Section III--Definitions
For purposes of this 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 exemption (as noted
below in Section III.C.) and shall be either (i) the sole underwriter
or the manager or co-manager of the underwriting syndicate, or (ii) a
selling or placement agent.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. ``Trust'' means an investment pool, the corpus of which is held
in trust and consists solely of:
(1) Either
(a) Qualified motor vehicle leases (as defined in Section III.T.);
or
(b) Fractional undivided interests in a trust containing assets
described in paragraph (a) of this Section III.B.(1), where such
fractional interest is not subordinated to any other interest in the
same pool of qualified motor vehicle leases held by such trust; 4
4 It is the Department's view that the definition of ``Trust''
contained in Section III.B. includes a two-tier trust structure
under which certificates issued by the first trust, which contains a
pool of receivables described above, are transferred to a second
trust which issues certificates that are sold to plans. However, the
Department is of the further view that, since the exemption provides
relief for the direct or indirect acquisition or disposition of
certificates that are not subordinated, no relief would be available
if the certificates held by the second trust were subordinated to
the rights and interests evidenced by other certificates issued by
the first trust.
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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
[[Page 10028]]
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 exemption (the Underwriter Exemptions); 5 or any person
directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with such investment
banking firm; and any member of an underwriting syndicate or selling
group of which such firm or person described above is a manager or co-
manager with respect to the certificates.
5 For a current listing of the Underwriter Exemptions,
see Section V(h) of Prohibited Transaction Exemption (PTE) 95-60 (60
FR 35925, July 12, 1995).
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D. ``Sponsor'' means an entity, independent of World Omni or
affiliated with World Omni, that organizes a trust by depositing
obligations therein in exchange for certificates provided that, if such
entity is independent of World Omni, the servicer of the trust is an
affiliate of World Omni.
E. ``Master Servicer'' means World Omni or an entity affiliated
with World Omni that is a party to the Pooling and Servicing Agreement
relating to trust assets and is fully responsible for servicing,
directly or through subservicers, the assets of the trust.
F. ``Subservicer'' means World Omni or an entity affiliated with
World Omni which, under the supervision of and on behalf of the master
servicer, services leases contained in the trust, but is not a party to
the Pooling and Servicing Agreement.
G. ``Servicer'' means World Omni or an entity affiliated with World
Omni which services leases contained in the trust, including the master
servicer and any subservicer.
H. ``Trustee'' means an entity that is independent of World Omni
and its affiliates which is the trustee of the trust. In the case of
certificates which are denominated as debt instruments, ``trustee''
also means the trustee of the indenture trust.
I. ``Insurer'' means the insurer or guarantor of, or provider of
other credit support for, a trust. Notwithstanding the foregoing, a
person is not an insurer solely because it holds securities
representing an interest in a trust which are of a class subordinated
to certificates representing an interest in the same trust. In
addition, a person is not an insurer if such person merely provides:
(1) property damage or liability insurance to an Obligor with respect
to a lease or leased vehicle; or (2) property damage, excess liability
or contingent liability insurance to any lessor, sponsor or servicer,
if such entities are included in the same insurance policy, with
respect to a lease or leased vehicle.
J. ``Obligor'' means any person, other than the insurer, that is
obligated to make payments for a lease in the trust.
K. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
L. ``Restricted Group'' with respect to a class of certificates
means:
(1) Each underwriter;
(2) Each insurer;
(3) The sponsor;
(4) The trustee;
(5) Each servicer;
(6) Any obligor with respect to obligations or receivables included
in the trust constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the trust, determined on
the date of the initial issuance of certificates by the trust and at
the end of the period described in Section II.A.(7); or
(7) Any affiliate of a person described in (1)-(6) above.
M. ``Affiliate'' of another person includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
O. A person shall be ``independent'' of another person only if:
(1) Such person is not an affiliate of that other person; and
(2) The other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to assets of such person.
P. ``Sale'' includes the entrance into a forward delivery
commitment (as defined in Section III.Q. below), provided:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's-length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this 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 the agreement or
[[Page 10029]]
agreements among a sponsor, a servicer and the trustee establishing a
trust. In the case of certificates which are denominated as debt
instruments, ``Pooling and Servicing Agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
V. ``Lease Rate'' means an implicit rate in each lease calculated
as an annual percentage rate on a constant yield basis, based on the
capitalized cost of the leased vehicle as determined under the
particular lease contract for the vehicle. With respect to the
determination of a ``Lease Rate'', each lease will provide for equal
monthly payments such that at the end of the lease contract term the
capitalized cost will have been amortized to an amount equal to the
residual value of the leased vehicle established at the time of
origination of such contract. The amount to which the capitalized cost
has been amortized at any point in time will be the outstanding
principal balance for the lease.
W. ``Average Lease Rate'' means the average annual percentage lease
rate, as defined in Section III.V. above, for all leases included at
any particular time in a portfolio used to create a trust from which
certificates are issued.
X. ``Eligible Lease'' or ``Eligible Lease Contract'' means a
Qualified Motor Vehicle Lease, as defined in Section III.T. above,
which meets the eligibility criteria established for, among other
things, the term of the lease, place of origination, date of
origination, and provisions for default, as described in the particular
prospectus or private placement memorandum for the certificates
provided to investors, if such terms and conditions have been approved
by the Rating Agencies prior to the issuance of such certificates.
The Department notes that this exemption 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 exemption is effective for all transactions
described herein which occurred on or after June 27, 1994.
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 November 28, 1995, at 60
FR 58652.
WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted the
following comments and requests for modifications regarding the notice
of proposed exemption (the Proposal).
With respect to Section I.C.(1) of the Proposal, the applicant
suggests that the term ``Pooling and Servicing Agreement'', as defined
in Section III.U., be substituted for the words ``binding pooling and
servicing arrangement''. The Department concurs with the applicant's
requested clarification and has so modified the language of the
exemption.
With respect to Section II.A.(3) of the Proposal, the applicant
states that ``Standard & Poors Corporation'' has changed its name to
``Standard & Poors Rating Services''. The Department has made the
applicant's requested correction to the language of the exemption.
With respect to Section II.A.(4) of the Proposal, the applicant
states that in one of the offerings of certificates that would be
subject to this exemption, the trustee of the Securitization Trust--
Bank of America, Illinois (BAI)--was affiliated from October 19, 1995,
until December 8, 1995, with an entity--BA Securities--that was a
member (but not a manager) of the underwriting syndicate for the
certificates.6 As of December 8, 1995, BAI sold its trust business
to First Bank, N.A., an entity unaffiliated with BA Securities, which
became the new trustee of the Securitization Trust. In this regard, the
applicant represents that BA Securities did not sell any certificates
directly to employee benefit plans that would be covered by this
exemption during the period that it was affiliated with the trustee of
the trust.
6 World Omni notes that Section III of Prohibited
Transaction Exemption (PTE) 75-1 (40 FR 50845, 50848, October 31,
1975) permits the purchase or other acquisition of any securities by
an employee benefit plan during the existence of an underwriting or
selling syndicate for such securities, from any person other than a
fiduciary with respect to the plan, when such a fiduciary is a
member of the syndicate, provided that certain conditions are met.
However, the Department is expressing no opinion in this exemption
as to whether the conditions of Section III of PTE 75-1 were met at
the time of the subject transactions.
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Therefore, the Department has modified the language of Section
II.A.(4) so that the conditions of the exemption will not fail to be
met merely because BA Securities acted as a member (but not a manager)
of the underwriting syndicate for the certificates from October 19,
1995 until December 8, 1995, while affiliated with BAI, provided that
BA Securities did not sell any certificates to employee benefit plans
covered by this exemption during such period.
Section II.A.(7) of the Proposal currently requires that the
fifteen (15) month maximum ``revolving period'' (as discussed in
Paragraph 4 of the Summary of Facts and Representations (the Summary)
in the Proposal) be measured from the cut-off date used for the initial
allocation of leases that was made to create a segregated portfolio.
The applicant has clarified earlier representations and now suggests
that the use of the actual closing date for the segregated portfolio
would be more appropriate than the ``cut-off'' date to measure the
beginning of this period. In this regard, the applicant believes that,
upon further review, the term ``cut-off'' date is vague and can lead to
unintended results in situations where the closing date is delayed
through no fault of the sponsor. The applicant notes that for federal
tax purposes the ``revolving period'' is measured from the closing
date. Therefore, the applicant requests that Section II.A.(7) be
modified by inserting ``closing date'' in place of ``cut-off'' date for
the beginning of the 15 month ``revolving period''.
The Department concurs with the applicant's requested clarification
and has so modified the language of the exemption.
Section II.A.(10) of the Proposal requires that for the duration of
the ``revolving period'', principal collections that are reinvested in
additional leases be first reinvested in the ``eligible lease
contract'' (as defined in Section III.X.) with the earliest origination
date beginning with any lease contracts that have been reserved
specifically for such purposes at the time of the initial allocation of
leases to the pool of leases used to create the particular trust, but
excluding those specific lease contracts reserved for allocation to or
allocated to other pools of leases used to create other trusts. The
applicant states that the language which excludes lease contracts
reserved for lease pools ``used to create other trusts'' should be
clarified because such leases are actually reserved for other
``Separate Units of Beneficial Interests'' or ``SUBIs'' which are used
to create other trusts.7 The applicant explains that the SUBIs may
then either be sold or transferred to a trust or otherwise sold in a
private placement. Therefore, the applicant requests that the language
read ``* * * used to create other SUBIs''.
7 Paragraph 4 of the Summary notes that a segregated
portfolio of leases is used to create a SUBI which becomes the basis
for a securitization and the creation of a separate Securitization
Trust from which certificates are issued.
---------------------------------------------------------------------------
The Department concurs with the applicant's requested clarification
and has modified the language of Section II.A.(10) by substituting the
word
[[Page 10030]]
``portfolio'' for the word ``trust'' in order to refer to the leases
used to create a SUBI.
Section II.A.(11) of the Proposal requires that the trustee be a
substantial financial institution. The applicant represents that the
trustee of the Origination Trust, who holds actual title to the leased
assets held therein (see discussion in Paragraph 4 of the Summary), may
not meet the requirement of this section. The applicant states that the
trustee of the Origination Trust needs to be the same entity throughout
every securitization deal which originates from the assets held by the
Origination Trust because such trustee actually holds title to all of
the leased vehicles held in the Origination Trust (see Paragraph 3 of
the Summary). The applicant states further that in order to achieve
this goal, the trustee of the Origination Trust subcontracts with an
established financial institution which is qualified to provide trust
services to the trust and acts as an agent of the trustee (i.e. the
Trust Agent). The Trust Agent is usually an affiliate of the trustee,
but is always unaffiliated with World Omni. Therefore, the applicant
requests that the language of Section II.A.(11) be modified as follows:
* * * The trustee of the trust (or the agent with which the
trustee contracts to provide trust services) is a substantial
financial institution * * *'' [emphasis added]
The Department concurs with the applicant's requested clarification
and has so modified the language of the exemption.
Section III.J. of the Proposal defines the term ``Obligor'' to
include the owner of the property subject to a lease. The applicant
states that since the owner of such property (i.e. the leased vehicle)
is the trustee of the Origination Trust, the language of the definition
should be modified to delete the reference to the ``obligor'' as the
``owner''.
The Department concurs with the applicant's requested clarification
and has modified the language of the exemption by deleting the sentence
in Section III.J. which refers to the ``obligor'' as the ``owner'' of
the leased vehicle.
With respect to the definition of the term ``Qualified Motor
Vehicle Lease'' in Section III.T., the applicant suggests that the
language used would be more accurate if modified by adding the words
``owns or'' to the description of the security interest in the lease in
subsections (1) and (2), and by deleting the reference to a
``security'' interest in subsection (3).
The Department concurs with the applicant's requested clarification
and has so modified the language of the exemption.
With respect to the information contained in the Summary, the
applicant has submitted comments which attempt to clarify certain facts
and representations.
First, the applicant states that Paragraph 6 of the Summary
describes the amount of certificates sold publicly, including plan
investors, and the amount of subordinated certificates sold privately
to other investors. The applicant wishes to clarify that the
percentages and other data used in this description relate only to the
first lease securitization conducted by World Omni. The applicant notes
that each lease securitization is slightly different.
In this regard, the Department acknowledges the applicant's
clarification. However, the Department notes that each lease
securitization involving sales of certificates to employee benefit
plans covered by the exemption must comply with all of the General
Conditions discussed in Section II. In particular, Section II.A.(2)
requires that the rights and interests evidenced by such certificates
must not be subordinated to the rights and interests evidenced by other
certificates of the same trust. The Department also notes that the
exemptive relief provided by PTE 95-60 will be available for
subordinated investments in a trust described herein by insurance
company general accounts as a result of this exemption being included
within the meaning of the term ``Underwriter Exemption'' as defined in
Section V(h) of PTE 95-60.
Second, with respect to the descriptions in the Summary regarding
the certificates paying a fixed rate of interest, the applicant wishes
the Department to clarify whether the exemption would permit a
Securitization Trust to issue certificates that pay floating interest
rates. The applicant states that although the Summary only discusses
fixed rate certificates (see, for example, Paragraph 6), to the extent
that a Securitization Trust issues floating rate certificates under
substantially similar circumstances as those presented with fixed rate
certificates, the exemption should be applicable.
In this regard, the Department does not believe that it has enough
information in the current exemption application file to determine
whether the conditions required under the Proposal could be met for the
issuance of floating rate certificates by a trust. For example, the
Department notes that Section II.A.(9) requires that the Average Lease
Rate for leases in the SUBI portfolio after the ``revolving period''
must not be more than 200 basis points greater than the Average Lease
Rate for the original pool of leases used to create the SUBI portfolio.
The Department would need more information than is currently available
in the exemption application file, including the applicant's comments,
regarding how a securitization would operate when floating rate
certificates are issued by a trust. For instance, the applicant has
provided no information regarding: (i) how the ``spread'' between the
certificate rate and the Average Lease Rate, required by the Rating
Agencies, would be maintained for floating rate certificates if the
leases allocated to the SUBI portfolio have fixed Lease Rates; (ii)
whether leases allocated to a SUBI would have floating Lease Rates;
(iii) whether floating Lease Rates would be consistent with the
definition of the term ``Lease Rate'' contained in Section III.V. of
the Proposal; (iv) what interest rate indices would be used to
establish the certificate rate; (v) how certain changes in interest
rates would affect the operation of the SUBI portfolio during the
``revolving period''; (v) whether, if Lease Rates for leases allocated
to the SUBI are fixed, interest rate swap transactions would be used to
pay floating rates on the certificates; and (vi) whether the
compensation provided by the trust to the Servicer and Sponsor would be
impacted in any way by significant changes in interest rates.
The Department is willing to consider the merits of amending the
exemption for securitizations involving floating rate certificates,
with conditions specifically addressing any issues relating thereto, at
a later date.
Third, the applicant wishes to clarify certain of the events
leading to the termination of a SUBI discussed in Paragraph 10. World
Omni states that if the remaining principal balance of the investor
certificates in any Securitization Trust drops to a level at or below
some specified percentage of the original balance, the Sponsor of that
trust may elect to repurchase all of the investor certificates for an
amount at least equal to the outstanding principal balance (plus
accrued interest) thereon. World Omni states further that once the
Sponsor repurchases the investor certificates, it may either retain
them, in which case the Securitization Trust continues to operate
unaffected by the repurchase, or transfer them to the holder of the
``Undivided Trust Interest'' (UTI) in the Origination Trust (i.e. World
Omni or an affiliate, as noted in
[[Page 10031]]
Paragraph 4), by sale or otherwise. In this latter event, World Omni
notes that the UTI holder may direct the trustee to cancel all SUBI
certificates in that Securitization Trust and reallocate to the UTI
interest all remaining assets in the Origination Trust supporting that
particular securitization.
Fourth, with respect to the arrangements made by World Omni or an
affiliate for credit support discussed in Paragraphs 12 and 13 of the
Summary, the applicant states that the information contained therein
does not accurately describe the type of ``credit support'' World Omni
currently uses for its lease securitizations. Paragraphs 12 and 13
state that the Servicer may act as an insurer by advancing funds to a
trust to provide temporary or permanent credit support to cover any
defaulted payments on the leases in the trust. However, World Omni
wishes to clarify that the Servicer advances funds if an Obligor's
payments are delinquent to ``smooth the transaction's cash flow'', but
that the Servicer is not acting as an ``insurer'' in this role. World
Omni also notes that the description contained in Paragraph 13(d) of
the Summary regarding the credit support having ``floor'' dollar
amounts to protect investors against large losses is not reflective of
World Omni's current securitizations.\8\
\8\ The Department notes that if World Omni's future
securitizations involve an entity acting as an ``insurer'' of a
trust, as defined in Section III.I., such entity must be independent
of the Servicer and should provide credit support arrangements
consistent with the applicant's representations in Paragraph 13(d)
of the Summary.
---------------------------------------------------------------------------
World Omni represents that each lease securitization conducted to
date has only required the funding of a Reserve Fund, the retention by
the Sponsor of a subordinated interest in each Securitization Trust,
the issuance of subordinated ``B'' class certificates (which are not
held by plan investors), and approximately a 200 basis point ``spread''
between the Average Lease Rate for the leases held in the SUBI and the
certificate rate for certificates issued by the Securitization Trust.
These securitizations have obtained the desired high credit ratings
from the Rating Agencies for the certificates issued by the
Securitization Trust.
World Omni states that Paragraphs 12 and 13 in the Summary are
generally descriptive of credit support arrangements made in offerings
of asset-backed securities made by other trusts and could be used by
World Omni and its affiliates in the future. However, World Omni
represents that these arrangements are not currently used by World Omni
for payments made on certificates issued by its Securitization Trusts
and have not been necessary to achieve the credit ratings from the
Rating Agencies required under Section II.A.(3) and Section II.A.(7)(b)
of the Proposal.
Fifth, with respect to Paragraph 15 of the Summary regarding
periodic reports filed with the SEC, the applicant states that a
Securitization Trust and its Sponsor may, in some cases, discontinue
making filings under the Securities Exchange Act of 1934 (the '34 Act)
if permitted to do so under the provisions of that Act by exemptions
contained therein.
Sixth, the applicant notes that Paragraphs 16 and 18(f) of the
Summary state that the secondary market in these certificates makes the
certificates fairly liquid investments. However, the applicant states
that since in some instances the certificates may be held by fewer than
100 investors, World Omni does not believe that all of these
certificates should be characterized as fairly liquid investments.
Finally, the applicant has informed the Department that the
certificates issued by a Securitization Trust in the future 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. The applicant 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, the applicant 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.
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 final 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.\9\
\9\ 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.
---------------------------------------------------------------------------
The Department acknowledges all of the clarifications made by the
applicant to the information contained in the Summary. For further
information regarding the applicant's comments or other matters
discussed herein, interested persons are encouraged to obtain a copy of
the exemption application file [No. D-9840] which is available in the
Public Documents Room of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, Room N-5638, 200 Constitution
Avenue, N.W., Washington, D.C. 20210.
Accordingly, based on all of the facts and representations made by
the applicant, the Department has determined to grant the proposed
exemption as modified.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Pediatric Dentistry Ltd. Profit Sharing Trust (the Plan) Located in
Fargo, North Dakota
[Prohibited Transaction Exemption 96-13; Exemption Application No. D-
09903]
Exemption
The restrictions of sections 406(a), 406(b)(1), and 406(b)(2) of
the Act and
[[Page 10032]]
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
10 shall not apply to the cash sale of a parcel of improved real
property (the Property) by the Plan to William Hunter, M.D. (Dr.
Hunter), a party in interest with respect to the Plan; provided that:
(1) The sale will be a one-time transaction for cash; (2) as a result
of the sale, the Plan will receive in cash the greater of the cost to
the Plan to acquire the Property or the fair market value of the
Property, as of the date of the sale, as determined by the same
independent, qualified appraiser who prepared the appraisal of the
Property submitted by Dr. Hunter in the application for exemption; (3)
the Plan will pay no commissions, fees, or other expenses as a result
of the transaction; and (4) the terms of the sale will be no less
favorable to the Plan than those it would have received in similar
circumstances when negotiated at arm's length with unrelated third
parties.
\10\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department
invited all interested persons to submit written comments and requests
for a hearing on the proposed exemption within forty-five (45) days of
the date of the publication of the Notice in the Federal Register on
May 10, 1995. All comments and requests for hearing were due by June
26, 1995.
During the comment period, the Department received no requests for
hearing. However, the Department did receive a comment letter from Dr.
Hunter, dated June 22, 1995. Dr. Hunter requested a modification of the
operant language of condition number two on page 24901 of the Notice.
In this regard, the proposed sale of the Property by the Plan to Dr.
Hunter was conditioned on the Plan receiving cash, as a result of the
sale, in the amount of the greater of $79,000 or the fair market value
of the Property, as determined by an independent, qualified appraiser,
as of the date of the sale.
Dr. Hunter believes that the appraisal prepared by Jerry Link (Mr.
Link) of Appraisal Services, Inc. in Fargo North, Dakota and submitted
by Dr. Hunter with the application did not accurately reflect the fair
market value of such Property. In this regard, Mr. Link determined that
the fair market value of the Property was $79,000, as of January 13,
1994. In his comment, Dr. Hunter points out that a previous attempt to
sell the Property in 1992 was unsuccessful at a purchase price of
$68,950. Further, Dr. Hunter indicates that the Property is located on
the corner of a busy commercial intersection; and therefore, is less
desirable than homes in the immediate area of quiet residential
neighborhoods which were used as market comparables in the preparation
of the previous appraisal. Dr. Hunter states that if the Property could
be sold net by the Plan to an unrelated third party for $79,000 or
greater, he would do so. However, if there are no buyers for the
Property at $79,000 or greater, Dr. Hunter proposes to purchase the
Property for cash at the fair market value of the Property, as
determined by an independent qualified appraiser, as of the date of the
sale.
The Department believes that it would be protective of the Plan and
in the interest of the participants and beneficiaries of the Plan to
sell the Property to Dr. Hunter for cash. However, it is the
Department's position that under no circumstances should the Plan
receive less than the Plan expended in acquiring the Property. In this
regard, the Department has determined to impose two (2) additional
safeguards on the transaction. First, the Department will require that,
as a result of the cash sale of the Property by the Plan to Dr. Hunter,
the Plan will receive the greater of the cost to the Plan to acquire
the Property or the fair market value of the Property as of the date of
the sale. Second, the Department will require that the fair market
value of the Property, as of the date of the sale, be determined by the
same independent, qualified appraiser who prepared the appraisal of the
Property in the amount of $79,000 submitted by Dr. Hunter in the
application for exemption.
Accordingly, the language in condition number two on page 24901 of
the Notice which states, ``as a result of the sale, the Plan will
receive in cash the greater of $79,000 or the fair market value of the
Property, as determined by an independent, qualified appraiser, as of
the date of the sale,'' has been altered. The amended language of
condition number two reads, ``as a result of the sale, the Plan will
receive in cash the greater of the cost to the Plan to acquire the
Property or the fair market value of the Property, as of the date of
the sale, as determined by the same independent, qualified appraiser
who prepared the appraisal of the Property submitted by Dr. Hunter in
the application for exemption.''
After giving full consideration to the entire record, including the
written comment from Dr. Hunter, the Department has decided to grant
the exemption, as described and amended above. In this regard, the
comment letter submitted by Dr. Hunter to the Department has been
included as part of the public record of the exemption application. The
complete application file, including all supplemental submissions
received by the Department, is made available for public inspection in
the Public Documents Room of the Pension Welfare Benefits
Administration, Room N-5638, U. S. Department of Labor, 200
Constitution Avenue, NW., Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on May 10, 1995, at 60 FR 24901.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
Morgan Stanley & Co. Incorporated (MS&Co) and Morgan Stanley Trust
Company (MSTC) Located in New York, New York
[Prohibited Transaction Exemption 96-14; Application No. D-09940]
Exemption
The restrictions of sections 406(a)(1) (A) through (D) 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 section 4975(c)(1) (A)
through (E) of the Code, shall not apply to the lending of securities
to Morgan Stanley & Co., Incorporated (MS&Co) and to any other U.S.
registered broker-dealers affiliated with Morgan Stanley Trust Company
(the Affiliated Broker-Dealer, collectively, the MS Broker-Dealers) by
employee benefit plans with respect to which MS&Co is a party in
interest or for which Morgan Stanley Trust Company (MSTC) acts as
directed trustee or custodian and securities lending agent and to the
receipt of compensation by MSTC in connection with these transactions,
provided that the following conditions are met:
1. Neither MS&Co nor MSTC has discretionary authority or control
over a client-plan's assets involved in the transaction or renders
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with
respect to those assets;
2. Any arrangement for MSTC to lend plan securities to the MS
Broker-Dealers will be approved in advance by a plan fiduciary who is
independent of MSTC and the MS Broker-Dealers;
3. A client-plan may terminate the arrangement at any time without
penalty on five business days notice;
[[Page 10033]]
4. The client-plans will receive collateral consisting of cash,
securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities, bank letters of credit or other collateral
permitted under PTE 81-6 or any successor, from the MS Broker-Dealers
by physical delivery, book entry in a securities depository, wire
transfer or similar means by the close of business on or before the day
the loaned securities are delivered to the MS Broker-Dealers;
5. The market value of the collateral will initially equal at least
102 percent of the market value of the loaned securities and, if the
market value of the collateral falls below 100 percent, the MS Broker-
Dealers will deliver additional collateral on the following day such
that the market value of the collateral will again equal 102 percent;
6. All procedures regarding the securities lending activities will
at a minimum conform to the applicable provisions of Prohibited
Transaction Exemptions (PTEs) 81-6 and 82-63;
7. The MS Broker-Dealer will indemnify each lending client-plan
against any losses incurred by such plan in connection with the lending
of securities to the MS Broker-Dealers;
8. The client-plan will receive the equivalent of all distributions
made to holders of the borrowed securities during the term of the loan,
including, but not limited to, cash dividends, interest payments,
shares of stock as a result of stock splits and rights to purchase
additional securities, or other distributions;
9. Only plans whose total assets have a market value of at least
$50 million will be permitted to lend securities to the MS Broker-
Dealers. In the case of 2 or more plans maintained by a single employer
or controlled group of employers, the $50 million requirement may be
met by aggregating the assets of such plans if the assets are
commingled for investment purposes in a single master trust;
10. With regard to the ``exclusive borrowing'' agreement (as
described below), the MS Broker-Dealer will directly negotiate the
agreement with a plan fiduciary who is independent of the MS Broker-
Dealers and MSTC, and such agreement may be terminated by either party
to the agreement at any time; and
11. Prior to any plan's approval of the lending of its securities
to the MS Broker-Dealer, a copy of this exemption (and the notice of
pendency) will be provided to the plan.
WRITTEN COMMENTS: In the Notice of Proposed Exemption (the Notice), the
Department invited all interested persons to submit written comments on
the proposed exemption within 45 days from the date of publication of
the Notice in the Federal Register. All written comments were to have
been received by the Department by September 25, 1995. The Department
received one written comment. The comment was submitted on behalf of
MS&Co and MSTC (the Applicants). The issues addressed in the comment
and the Department's responses are summarized as follows:
1. In the introductory paragraph of the proposed exemption, MS&Co
and its affiliated broker-dealers are collectively defined as the `` MS
Group''. The Applicants believe that the use of the term ``MS Group''
will cause confusion because clients and internal personnel often refer
to Morgan Stanley Group Inc. (the parent entity of MS&Co and MSTC) as
the MS Group. Consequently, the Applicants request that all references
to the ``MS Group'' be replaced with ``MS Broker-Dealers''. The
Department does not object to this requested modification.
2. The first sentence of paragraph 5 of the Summary of Facts and
Representations (SFR) on page 41120 stated:
MSTC and MS&Co request an exemption for the lending of
securities owned by certain pension plans (client-plans) for which
MSTC will serve as directed trustee or custodian to the MS Group,
following disclosure of MSTC's affiliation with the MS Group, under
either of the two arrangements described as Plan A and Plan B and
for the receipt of compensation in connection with such
transactions.
The Applicants request that, to clarify that, under Plan B MSTC will
not always serve as directed trustee or custodian, the above quoted
sentence should read as follows:
MSTC and MS&Co request an exemption for the lending of
securities owned by certain pension plans (client-plans) with
respect to which MS&Co is a party in interest or for which MSTC
serves as directed trustee or custodian and securities lending
agent, under either of the two arrangements described as Plan A and
Plan B and for the receipt of compensation in connection with such
transactions. When MSTC serves as directed trustee or custodian for
the client-plans, MSTC will apprise the client-plans of its
affiliation with the MS Broker-Dealers.
The Department does not object to this requested revision.
3. The Applicants wish to clarify that under Plan B a client plan
may hire another custodian, instead of MSTC, to monitor the level of
collateral held by a client plan. Accordingly, the Applicants state
that clause (d) of paragraph 33 of the SFR should have read:
the collateral on each loan to the MS Broker-Dealers initially will
be at least 102 percent of the market value of the loaned
securities, which is in excess of the 100 percent collateral
required under PTE 81-6, and will be monitored daily by MSTC under
Plan A and by MSTC or another custodian under Plan B.
The Department concurs.
4. The applicants have requested that the following language be
added to condition (9) and also immediately after the first sentence of
paragraph 25 of the SFR.
In the case of 2 or more employee benefit plans maintained by a
single employer or controlled group of employers, the $50 million
requirement may be met by aggregating the assets of such plans if
the assets are commingled for investment purposes in a single master
trust.
The Department has no objection to the proposed additional language,
and, accordingly, has made the requested modification.
5. The Applicants have requested that the references to ``MS&Co''
in conditions (7) and (10) be replaced with ``MS Broker-Dealers'' to
correctly reflect the respective responsibilities of the parties. The
Department has made the requested modifications to the exemption.
6. The Applicants state that the reference to the ``Basic Loan
Agreement'' and the ``agreement'' in paragraph 11 are incorrect and
should be replaced with references to the ``Authorization'' because the
agreement by MSTC to provide securities lending services to a client-
plan will be included in the securities lending authorization (the
Authorization), not the Basic Loan Agreement.
7. The Applicants note that paragraph 21 of the proposed exemption,
which concerns Plan A, refers to the types of non-cash collateral
permitted under ``PTE 81-6 or any successor'' while paragraph 28, which
relates to Plan B, refers to ``other non-cash collateral permitted
under PTE 81-6.'' The Applicants request that the reference in
paragraph 28 be modified to clarify that the permissible collateral
under Plan B includes non-cash collateral permitted under any successor
to PTE 81-6. The Department concurs.
The changes described above are hereby incorporated into the
exemption as granted. Accordingly, after giving full consideration to
the record, the Department has determined to grant the exemption, as
described herein. In this regard, the Applicants' comments have been
included as part of the public record of the exemption application. The
complete application file is made available for public inspection in
the
[[Page 10034]]
Public Documents Room of the Pension and Welfare Benefits
Administration, room N-5638, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on August 11, 1995 at 60 FR 41119.
FOR FURTHER INFORMATION CONTACT: Virginia J. Miller of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Life Insurance Corporation Retirement Savings Plan (the Plan) Located
in Dallas, Texas
[Prohibited Transaction Exemption 96-15, Exemption Application No. D-
10048]
Exemption
The restrictions of sections 406(a), 406(b)(1), and 406(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 11 shall not apply to the cash sale of 16 residential
mortgage loans (the Loans) by the Life Insurance Company of the
Southwest Holding Corporation Retirement Savings Plan (the Plan) to the
Life Insurance Company of the Southwest (the Employer), a party in
interest with respect to the Plan; provided that the following
conditions are satisfied:
\11\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
(a) as of the date of sale, the Employer will pay the greater of:
(1) the outstanding principal balance plus any accrued, unpaid interest
on each of the individual Loans, or (2) the fair market value of each
of the individual Loans, as determined by a contemporaneous independent
appraisal;
(b) the sale will be a one-time cash transaction; and
(c) the Plan will pay no costs or commissions as a result of the
transaction.
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 November 28, 1995 at 60
FR 58667.
FOR FURTHER INFORMATION CONTACT: Janet L. Schmidt of the Department,
telephone (202) 219-8883 (This is not a toll-free number.)
LEGENT Retirement Security Plan (the Plan) Located in Pittsburgh,
PA
[Prohibited Transaction Exemption 96-16; Exemption Application No. D-
10113]
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 reasons of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the cash sale by the Plan of a limited partnership
interest (the Interest) in Consolidated Capital Institutional
Properties Two Limited Partnership (CCIP/2) to LEGENT Corporation, a
party in interest with respect to the Plan.
This transaction is conditioned upon the following requirements:
(1) all terms and conditions of the sale are at least as favorable to
the Plan as those obtainable in an arm's length transaction with an
unrelated party; (2) the sale is a one-time transaction for cash; (3)
the Plan is not required to pay any commissions, costs or other
expenses in connection with the sale; and (4) the Plan receives a sales
price which is not less than the greater of: (a) the fair market value
of the CCIP/2 Interest as determined by a qualified, independent
appraiser, or (b) the total acquisition cost plus opportunity costs
attributable to the CCIP/2 Interest.
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 November 28, 1995 at 60
FR 58679.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady 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 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 are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, D.C., this 6th day of March, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-5745 Filed 3-11-96; 8:45 am]
BILLING CODE 4510-29-P
