97-13673. Proposed Amendment to Prohibited Transaction Exemptions (PTEs) 90-30 Involving Bear, Stearns & Co. Inc., (D-10245) 90-32 Involving Prudential Securities Incorporated, (D-10246)  

  • [Federal Register Volume 62, Number 100 (Friday, May 23, 1997)]
    [Notices]
    [Pages 28502-28515]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-13673]
    
    
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    DEPARTMENT OF LABOR
    
    Pension and Welfare Benefits Administration
    
    
    Proposed Amendment to Prohibited Transaction Exemptions (PTEs) 
    90-30 Involving Bear, Stearns & Co. Inc., (D-10245) 90-32 Involving 
    Prudential Securities Incorporated, (D-10246)
    
    AGENCY: Pension and Welfare Benefits Administration, Department of 
    Labor.
    
    ACTION: Notice of a proposed amendment to the Underwriter 
    Exemptions.1
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        \1\ The term ``Underwriter Exemptions'' refers to the following 
    individual Prohibited Transaction Exemptions (PTEs): PTE 89-88, 54 
    FR 42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 
    1989); PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR 
    20542 (May 17, 1990); PTE 90-23, 55 FR 20545 (May 17, 1990); PTE 90-
    24, 55 FR 20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24, 
    1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461 
    (May 24, 1990); PTE 90-31, 55 FR 23144 (June 6, 1990); PTE 90-32, 55 
    FR 23147 (June 6, 1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 
    90-36, 55 FR 25903 (June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 
    1990); PTE 90-59, 55 FR 36724 (September 6, 1990); PTE 90-83, 55 FR 
    50250 (December 5, 1990); PTE 90-84, 55 FR 50252 (December 5, 1990); 
    PTE 90-88, 55 FR 52899 (December 24, 1990); PTE 91-14, 55 FR 48178 
    (February 22, 1991); PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 
    91-23, 56 FR 15936 (April 18, 1991); PTE 91-30, 56 FR 22452 (May 15, 
    1991); PTE 91-62, 56 FR 51406 (October 11, 1991); PTE 93-31, 58 FR 
    28620 (May 5, 1993); PTE 93-32, 58 FR 28623 (May 14, 1993); PTE 94-
    29, 59 FR 14675 (March 29, 1994); PTE 94-64, 59 FR 42312 (August 17, 
    1994); PTE 94-70, 59 FR 50014 (September 30, 1994); PTE 94-73, 59 FR 
    51213 (October 7, 1994); PTE 94-84, 59 FR 65400 (December 19, 1994); 
    PTE 95-26, 60 FR 17586 (April 6, 1995); PTE 95-59, 60 FR 35938 (July 
    12, 1995); PTE 95-89, 60 FR 49011 (September 21, 1995); PTE 96-11, 
    61 FR 3490 (January 31, 1996); PTE 96-22, 61 FR 14828 (April 3, 
    1996); PTE 96-84, 61 FR 58234 (November 13, 1996); PTE 96-92, 61 FR 
    66334 (December 17, 1996); PTE 96-94, 61 FR 68787 (December 30, 
    1996); PTE 97-05, 62 FR 1926 (January 14, 1997); and PTE 97-28, 62 
    FR (Norwest Investment Services).
        In addition, the Department notes that it is also proposing 
    individual exemptive relief for Ironwood Capital Partners Ltd., 
    Final Authorization Number (FAN) 97-02E and Deutsche Bank AG, New 
    York Branch and Deutsche Morgan Grenfell/C.J. Lawrence Inc., FAN 97-
    03E, which received the approval of the Department to engage in 
    transactions substantially similar to the transactions described in 
    the Underwriter Exemptions pursuant to PTE 96-62.
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    SUMMARY: This document contains a notice of pendency before the 
    Department of Labor (the Department) of a proposed amendment to the 
    Underwriter Exemptions. The Underwriter Exemptions are individual 
    exemptions that provide relief for the origination and operation of 
    certain asset pool investment trusts and the acquisition, holding and 
    disposition of certain asset backed pass-through certificates 
    representing undivided interests in those investment trusts. The 
    proposed amendment, if granted, would: (1) Modify the definition of 
    ``Trust'' to include a pre-funding account (the Pre-Funding Account) 
    and a capitalized interest account (the Capitalized Interest Account) 
    as part of the corpus of the Trust; (2) provide retroactive relief for 
    transactions involving asset pool investment trusts containing pre-
    funding accounts which have occurred on or after January 1, 1992; (3) 
    include in the definition of ``Certificate'' a debt instrument that 
    represents an interest in a Financial Asset Securitization Investment 
    Trust (FASIT); and (4) make certain changes to the Underwriter 
    Exemptions that would reflect the Department's current interpretation 
    of the Underwriter Exemptions.
    
    DATES: Written comments and requests for a hearing should be received 
    by the Department on or before July 7, 1997.
    
    EFFECTIVE DATE: If adopted, the proposed amendment to the Underwriter 
    Exemptions would be effective for transactions occurring on or after 
    January 1, 1992, except as otherwise provided in subsection II.A.(7) 
    and section III.AA. of the proposed exemption.
    
    ADDRESSES: All written comments and requests for a hearing (preferably 
    at least three copies) should be sent to: Office of Exemption 
    Determinations, Pension and Welfare Benefits Administration, Room N-
    5649, Department of Labor, 200 Constitution Avenue, N.W., Washington, 
    D.C. 20210, Attn: Proposed Amendment to PTEs 90-30, 90-32, et al. The 
    applications pertaining to the amendment proposed herein and the 
    comments received will be available for public inspection in the Public 
    Documents Room of the Pension and Welfare Administration, U. S. 
    Department of Labor, Room N-5638, 200 Constitution Avenue, N.W., 
    Washington, D.C. 20210.
    
    FOR FURTHER INFORMATION CONTACT: Wendy McColough of the Department, 
    telephone (202) 219-8971. (This is not a toll-free number.)
    
    SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
    before the Department of a proposed exemption to amend PTEs 90-30, 55 
    FR 21461 (May 24, 1990) and 90-32, 55 FR 23147 (June 6, 1990), two of 
    the Underwriter Exemptions. The Underwriter Exemptions are a group of 
    individual exemptions that provide substantially identical relief for 
    the operation of certain asset pool investment trusts and the 
    acquisition and holding by plans of certain asset-backed pass-through 
    certificates representing interests in those trusts. These exemptions 
    provide relief from certain of the restrictions of sections 406(a), 
    406(b) and 407(a) of the Act and from the taxes imposed by section 
    4975(a) and (b) of the Code, by reason of certain provisions of section 
    4975(c)(1) of the Code.
        The proposed amendment was requested by application dated March 25, 
    1996, and as restated in a later submission dated February 26, 1997, on 
    behalf of Bear, Stearns & Co. Inc.2 and Prudential Security 
    Inc.\3\ (the Applicants). In preparing the application, the Applicants 
    received input from members of the PSA. The Bond Market Trade 
    Association (formerly the Public Securities Association) (PSA).
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        \2\ PTE 90-30, 55 FR 21461 (May 24, 1990). Bear, Stearns & Co. 
    Inc. (Bear, Stearns) is an international investment banking firm 
    which engages in securities transactions as both a principal and 
    agent and which provides a broad range of underwriting, research and 
    financial services to its clients.
        \3\ PTE 90-32, 55 FR 23147 (June 6, 1990). PTE 90-32 was granted 
    to Prudential-Bache Securities, Inc. which subsequently changed its 
    corporate name to Prudential Securities Incorporated (Prudential). 
    Prudential is a full service securities broker-dealer and investment 
    banking firm.
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        The Department is proposing the amendment to these individual 
    exemptions pursuant to section 408(a) of the Act and section 4975(c)(2) 
    of the Code, and in accordance with the procedures set forth in 29 CFR 
    Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).4 
    In addition, the Department is proposing to provide the same relief on 
    its own motion pursuant to the authority described above for many of 
    the other Underwriter Exemptions which have substantially similar terms 
    and conditions.5 The Department is also proposing to provide 
    the same relief to Ironwood Capital Partners Ltd. (D-10424) and 
    Deutsche Bank AG, New York Branch and Deutsche Morgan Grenfell/C.J. 
    Lawrence Inc. (D-10433), which received the
    
    [[Page 28503]]
    
    approval of the Department to engage in transactions substantially 
    similar to the transactions described in the Underwriter Exemptions 
    pursuant to PTE 96-62.
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        \4\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
    47713, October 17, 1978, 5 U.S.C. App. 1 [1995]) generally 
    transferred the authority of the Secretary of the Treasury to issue 
    exemptions under section 4975(c)(2) of the Code to the Secretary of 
    Labor. In the discussion of the exemption, references to section 406 
    and 408 of the Act should be read to refer as well to the 
    corresponding provisions of section 4975 of the Code.
        \5\ In this regard, the entities who received the other 
    Underwriter Exemptions were contacted concerning their participation 
    in this amendment process.
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    Amendment to the Exemptions
    
        The Applicants state that the proposed amendment is requested in 
    order to modify the definition of Trust contained in the Underwriter 
    Exemptions to include a Pre-Funding Account and a related Capitalized 
    Interest Account, both consisting of cash or temporary investments made 
    therewith (as further described herein). This would permit the Trust to 
    acquire a portion (not to exceed the limitations set forth below) of 
    its assets during an interim period (the Pre-Funding Period), following 
    the closing date of the Trust under the pooling and servicing agreement 
    or trust agreement pursuant to which the Trust is established (the 
    Closing Date). Allowing a portion of the Trust's assets to be acquired 
    during the Pre-Funding Period would be an alternative to requiring that 
    all of the receivables to be held in the Trust be transferred or 
    constitute a fixed pool of assets as of the Closing Date.6 
    The characteristics of the receivables to be acquired during the Pre-
    Funding Period will be substantially similar to the characteristics of 
    the receivables conveyed to the Trust as of the Closing Date.
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        \6\ The Department is of the view that the term ``Trust'' under 
    the Underwriter Exemptions would include a Trust: (a) the assets of 
    which, although all specifically identified by the sponsor or 
    originator as of the Closing Date, are not all transferred to the 
    Trust on the Closing Date for administrative or other reasons but 
    will be transferred to the Trust shortly after the Closing Date, or 
    (b) with respect to which certificates are not purchased by plans 
    until after the end of the Pre-Funding Period at which time all 
    receivables are contained in the Trust.
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        Additionally, the Applicants request that the proposed amendment 
    include in the definition of ``Certificate'' a debt instrument that 
    represents an interest in a FASIT provided that each of the applicable 
    requirements of the Underwriter Exemptions are met. The Applicants also 
    request that the Department update the Underwriter Exemptions to 
    reflect: (1) those features which the Department has already approved 
    in recently granted Underwriter Exemptions; (2) certain other technical 
    corrections or clarifications; and (3) provisions authorizing yield 
    supplement agreements or similar yield maintenance 
    arrangements.7
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        \7\ In a July 14, 1994 letter to Richard A. Gilbert, Esq. of 
    Orrick, Herrington & Sutcliffe, the Department expressed the view 
    that the definition of ``Trust'' in PTE 90-23, 55 FR 20545 (May 17, 
    1990) includes yield supplement agreements or similar yield 
    maintenance arrangements which obligates the sponsor, master 
    servicer or another party specified in the pooling and servicing 
    agreement to supplement the interest rates otherwise payable on the 
    obligations that are held in the Trust, provided that such 
    arrangements do not involve swap agreements or other notional 
    principal contracts.
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    The Underwriter Exemptions
    
        The Underwriter Exemptions permit plans to invest in pass-through 
    certificates representing undivided interests in the following 
    categories of trusts: 8 (1) single and multi-family 
    residential or commercial mortgage investment trusts; 9 (2) 
    motor vehicle receivables investment trusts; (3) consumer or commercial 
    receivables investment trusts; and (4) guaranteed governmental mortgage 
    pool certificate investment trusts.10 Residential and 
    commercial mortgage investment trusts may include mortgages on ground 
    leases of real property. The terms of the ground leases pledged to 
    secure leasehold mortgages will in all cases be at least ten years 
    longer than the terms of such mortgages.11
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        \8\ A given trust may include receivables of the type described 
    below in one or more of the categories of trusts discussed herein.
        \9\ The Department notes that PTE 83-1 (48 FR 895, January 7, 
    1983), a class exemption for mortgage pool investment trusts, would 
    generally apply to trusts containing single-family residential 
    mortgages, provided that the applicable conditions of PTE 83-1 are 
    met. The Underwriter Exemptions provide relief for single-family 
    residential mortgages because the applicants preferred one exemption 
    for all trusts of similar structure. However, the applicants have 
    stated that they may still avail themselves of the exemptive relief 
    provided by PTE 83-1.
        \10\ Guaranteed governmental mortgage pool certificates are 
    mortgage-backed securities with respect to which interest and 
    principal payable is guaranteed by the Government National Mortgage 
    Association (GNMA), the Federal Home Loan Mortgage Corporation 
    (FHLMC), or the Federal National Mortgage Association (FNMA). The 
    Department's regulation relating to the definition of plan assets 
    (29 CFR 2510.3-101(i)) provides that where a plan acquires a 
    guaranteed governmental mortgage pool certificate, the plan's assets 
    include the certificate and all of its rights with respect to such 
    certificate under applicable law, but do not, solely by reason of 
    the plan's holding of such certificate, include any of the mortgages 
    underlying such certificate. The applicant is requesting exemptive 
    relief for trusts containing guaranteed governmental mortgage pool 
    certificates because the certificates in the trusts may be plan 
    assets.
        \11\ Trust assets may also include obligations that are secured 
    by leasehold interests on residential real property. See PTE 90-32 
    involving Prudential-Bache Securities, Inc. (55 FR 23147, at 23150, 
    June 6, 1990).
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        Each Trust is established under a pooling and servicing agreement 
    or an equivalent agreement among a sponsor, a servicer, and a trustee. 
    Prior to the Closing Date under the pooling and servicing agreement, 
    the sponsor and/or the servicer selects receivables from the classes of 
    assets described in Section III.B.(1)(a)-(f) of the Underwriter 
    Exemptions to be included in a Trust, establishes the Trust and 
    designates an independent entity as trustee for the Trust. Typically, 
    on or prior to the Closing Date, the sponsor acquires legal title to 
    all assets selected for the Trust. In some cases, legal title to some 
    or all of such assets continue to be held by the originator of the 
    receivables until the Closing Date. On the Closing Date, the sponsor 
    and/or the originator conveys to the Trust legal title to the assets, 
    and the trustee issues certificates representing fractional undivided 
    interests in the Trust assets.
        Since the receivables to be held in the Trust were all transferred 
    as of the Closing Date, no exemptive relief was requested under the 
    Underwriter Exemptions for the Trust to hold any cash, or temporary 
    investments made therewith, other than cash representing undistributed 
    proceeds from payments of principal and interest by obligors under the 
    receivables. However, in the past several years, the transactions 
    relating to the funding of the Trust have changed.
    
    Pre-Funding Accounts
    
        The Applicants represent that while many transactions still occur 
    as described in the applications for the Underwriter Exemptions and as 
    summarized above, it is also common for other transactions to be 
    structured using a Pre-Funding Account and/or a Capitalized Interest 
    Account as described below. Pre-Funding Accounts allow the sponsor 
    additional time after the Closing Date to assemble the files for 
    receivables, complete quality control or other due-diligence procedures 
    and deliver the necessary documents to the trustee. The sale of 
    certificates prior to the origination of such receivables provides a 
    mechanism for both the originator and/or sponsor and plans to protect 
    against fluctuations in interest rates. Since many transaction costs 
    are fixed regardless of the size of the receivables pool, the sale of 
    additional receivables lowers the unit costs of the transaction, both 
    for the originators and/or the sponsor and for plans (who otherwise 
    might not be able to purchase the same volume of receivables on their 
    own at a comparable unit price).
        Pre-Funding Accounts allow originators and/or sponsors to reduce 
    costs by permitting the sale of the existing receivables and delivery 
    of additional receivables without the need to warehouse the existing 
    receivables during the period that the additional receivables are being 
    acquired. The Applicants state that all of these uses of Pre-Funding 
    Accounts make
    
    [[Page 28504]]
    
    transactions more efficient, thereby reducing costs and producing 
    better execution for both sponsors and/or originators and plan 
    investors. Also, through the use of a Pre-Funding Account, sponsors 
    and/or originators are able to sell, and plans are able to purchase, 
    more securities at then current market rates than would be the case in 
    the absence of the Pre-Funding Account.
        The Applicants assumed that the use of a Pre-Funding Account was 
    authorized under the original Underwriter Exemptions and transactions 
    including Pre-Funding Accounts have occurred since January 1, 1992. The 
    Applicants therefore request retroactive relief for transactions 
    involving Trusts containing Pre-Funding Accounts. The Applicants state 
    that transactions involving Pre-Funding Accounts which have occurred on 
    or after January 1, 1992 but prior to the date of this proposed 
    amendment, were entered into by the parties under a good faith belief 
    that the Department had sanctioned such use.
        The Applicants represent that they are unaware of any circumstances 
    in which the use of pre-funding has harmed plan investors and there is 
    no evidence of any failure of a sponsor to meet its representations as 
    to the characteristics of the subsequently acquired receivables or of 
    any down-grading of a certificate rating at the end of the Pre-Funding 
    Period. PSA has canvassed its members who have been granted an 
    Underwriter Exemption and have solicited this same information from 
    four nationally recognized rating agencies referred to in the 
    Underwriter Exemptions. No such underwriter or rating agency is aware 
    of any transaction where the rating of the certificates has been down-
    graded at the end of the Pre-Funding Period solely as a consequence of 
    use of a pre-funding mechanism.
        The Pre-Funding Period for any Trust will be defined as the period 
    beginning on the Closing Date and ending on the earliest to occur of 
    (i) the date on which the amount on deposit in the Pre-Funding Account 
    is less than a specified dollar amount, (ii) the date on which an event 
    of default occurs under the related pooling and servicing agreement 
    12 or (iii) the date which is the later of three months or 
    ninety days after the Closing Date. If pre-funding is used, cash 
    sufficient to purchase the receivables to be transferred after the 
    Closing Date will be transferred to the Trust by the sponsor or 
    originator on the Closing Date. During the Pre-Funding Period, such 
    cash and temporary investments, if any, made therewith will be held in 
    a Pre-Funding Account and used to purchase the additional receivables, 
    the characteristics of which will be substantially similar to the 
    characteristics of the receivables transferred to the Trust on the 
    Closing Date. Certain specificity and monitoring requirements described 
    below must be met and will be disclosed in the pooling and servicing 
    agreement and/or the prospectus 13 or private placement 
    memorandum.
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        \12\ The minimum dollar amount is generally the dollar amount 
    below which it becomes too uneconomical to administer the Pre-
    Funding Account. An event of default under the pooling and servicing 
    agreement generally occurs when: (i) a breach of a covenant or a 
    breach of a representation and warranty concerning the sponsor, the 
    servicer or certain other parties occurs which is not cured; (ii) 
    there occurs a failure to make required payments to 
    certificateholders; or (iii) the servicer becomes insolvent.
        \13\ References to the term ``prospectus'' herein shall include 
    any related prospectus supplement thereto, pursuant to which 
    certificates are offered to investors.
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        For transactions involving a Trust using pre-funding, on the 
    Closing Date, a portion of the offering proceeds will be allocated to 
    the Pre-Funding Account generally in an amount equal to the excess of 
    (i) the principal amount of certificates being issued over (ii) the 
    principal balance of the receivables being transferred to the Trust on 
    such Closing Date. In certain transactions, the aggregate principal 
    balance of the receivables intended to be transferred to the Trust may 
    be larger than the total principal balance of the certificates being 
    issued. In these cases, the cash deposited in the Pre-Funding Account 
    will equal the excess of the principal balance of the total receivables 
    intended to be transferred to the trust over the principal balance of 
    the receivables being transferred on the Closing Date.
        On the Closing Date, the sponsor transfers the assets to the Trust 
    in exchange for the certificates. The certificates are then sold to an 
    underwriter for cash or to the certificateholders directly if the 
    certificates are sold through a placement agent. The cash received by 
    the sponsor from the certificateholders (or the underwriter) from the 
    sale of the certificates issued by the Trust in excess of the purchase 
    price for the receivables and certain other trust expenses such as 
    underwriting or placement agent fees and legal and accounting fees, 
    constitutes the cash to be deposited in the Pre-Funding Account. Such 
    funds are either held in the trust and accounted for separately, or are 
    held in a sub-trust. In either event, these funds are not part of 
    assets of the sponsor.
        Generally, the receivables are transferred at par value, unless the 
    interest rate payable on the receivables is not sufficient to service 
    both the interest rates to be paid on the certificates and the 
    transaction fees (i.e., servicing fees, trustee fees and fees to credit 
    support providers). In such cases, the receivables are sold to the 
    Trust at a discount, based on an objective, written, mechanical formula 
    which is set forth in the pooling and servicing agreement and agreed 
    upon in advance between the sponsor, the rating agency and any credit 
    support provider or other insurer. The proceeds payable to the sponsor 
    from the sale of the receivables transferred to the trust may also be 
    reduced to the extent they are used to pay transaction costs (which 
    typically include underwriting or placement agent fees and legal and 
    accounting fees). In addition, in certain cases, the sponsor may be 
    required by the rating agencies or credit support providers to set up 
    trust reserve accounts to protect the certificateholders against credit 
    losses.
        The exemptive relief requested for Pre-Funding Accounts is limited 
    to those Trusts where the percentage or ratio of the amount allocated 
    to the pre-funding account, as compared to the total principal amount 
    of the certificates being offered (the Pre-Funding Limit) does not 
    exceed 25% for transactions occurring on or after the date the proposed 
    amendment is published in the Federal Register and did not exceed 40% 
    for transactions occurring on or after January 1, 1992, but prior to 
    the date the proposed amendment is published in the Federal Register. 
    The Pre-Funding Limit (which may be expressed as a ratio or as a stated 
    percentage or a combination thereof) will be specified in the 
    prospectus or the private placement memorandum.
        Any amounts paid out of the pre-funding account are used solely to 
    purchase receivables and to support the certificate pass-through rate 
    (as explained below). Amounts used to support the pass-through rate are 
    payable only from investment earnings and are not payable from 
    principal. However, in the event that, after all of the requisite 
    receivables have been transferred into the Trust, any funds remain in 
    the Pre-Funding Account, such funds will be paid to the 
    certificateholders as principal prepayments. Upon termination of the 
    Trust, if no receivables remain in the Trust and all amounts payable to 
    certificateholders have been distributed, any amounts remaining in the 
    Trust would be returned to the sponsor.
    
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        A dramatic change in interest rates on the receivables held in a 
    Trust using a Pre-Funding Account would be handled as follows. If the 
    receivables (other than those with adjustable or variable rates) had 
    already been originated prior to the Closing Date, no action would be 
    required as the fluctuations in market interest rates would not affect 
    the receivables transferred to the Trust after the Closing Date. In 
    contrast, if interest rates fall after the Closing Date, loans 
    originated after the Closing Date will tend to be originated at lower 
    rates, with the possible result that the receivables will not support 
    the certificate pass-through rate. In such situations, the sponsor 
    could sell the receivables into the Trust at a discount and more 
    receivables will be used to fund the Trust in order to support the 
    pass-through rate. In a situation where interest rates drop 
    dramatically and the sponsor is unable to provide sufficient 
    receivables at the requisite interest rates, the pool of receivables 
    would be closed. In this latter event, under the terms of the pooling 
    and servicing agreement, the certificateholders would receive a 
    repayment of principal from the unused cash held in the Pre-Funding 
    Account. In transactions where the certificate pass-through rates are 
    variable or adjustable, the effects of market interest rate 
    fluctuations are mitigated. In no event will fluctuations in interest 
    rates payable on the receivables affect the pass-through rate for fixed 
    rate certificates.
        The cash deposited into the Trust and allocated to the Pre-Funding 
    Account is invested in certain permitted investments (see below), which 
    may be commingled with other accounts of the Trust. The allocation of 
    investment earnings to each Trust account is made periodically as 
    earned in proportion to each account's allocable share of the 
    investment returns. As Pre-Funding Account investment earnings are 
    required to be used to support (to the extent authorized in the 
    particular transaction) the pass-through amounts payable to the 
    certificateholders with respect to a periodic distribution date, the 
    trustee is necessarily required to make periodic, separate allocations 
    of the Trust's earnings to each Trust account, thus ensuring that all 
    allocable commingled investment earnings are properly credited to the 
    Pre-Funding Account on a timely basis.
    
    The Capitalized Interest Account
    
        The Applicants state that in certain transactions where a Pre-
    Funding Account is used, the sponsor and/or originator may also 
    transfer to the Trust additional cash on the Closing Date, which is 
    deposited in a Capitalized Interest Account and used during the Pre-
    Funding Period to compensate the certificateholders for any shortfall 
    between the investment earnings on the Pre-Funding Account and the 
    pass-through interest rate payable under the certificates.
        The Capitalized Interest Account is needed in certain transactions 
    since the certificates are supported by the receivables and the 
    earnings on the Pre-Funding Account, and it is unlikely that the 
    investment earnings on the Pre-Funding Account will equal the interest 
    rates on the certificates (although such investment earnings will be 
    available to pay interest on the certificates). The Capitalized 
    Interest Account funds are paid out periodically to the 
    certificateholders as needed on distribution dates to support the pass-
    through rate. In addition, a portion of such funds may be returned to 
    the sponsor from time to time as the receivables are transferred into 
    the Trust and the need for the Capitalized Interest Account diminishes. 
    Any amounts held in the Capitalized Interest Account generally will be 
    returned to the sponsor and/or originator either at the end of the Pre-
    Funding Period or periodically as receivables are transferred and the 
    proportionate amount of funds in the Capitalized Interest Account can 
    be reduced. Generally, the Capitalized Interest Account terminates no 
    later than the end of the Pre-Funding Period. However, there may be 
    some cases where the Capitalized Interest Account remains open until 
    the first date distributions are made to certificateholders following 
    the end of the Pre-Funding Period.
        In other transactions, a Capitalized Interest Account is not 
    necessary because the interest paid on the receivables exceeds the 
    interest payable on the certificates at the applicable pass-through 
    rate and the fees of the Trust. Such excess is sufficient to make up 
    any shortfall resulting from the Pre-Funding Account earning less than 
    the certificate pass-through rate. In certain of these transactions, 
    this occurs because the aggregate principal amount of receivables 
    exceeds the aggregate principal amount of certificates.
    
    Pre-Funding Account and Capitalized Interest Account Payments and 
    Investments
    
        Pending the acquisition of additional receivables during the Pre-
    Funding Period, it is expected that amounts in the Pre-Funding Account 
    and the Capitalized Interest Account will be invested in certain 
    permitted investments or will be held uninvested. Pursuant to the 
    pooling and servicing agreement, all permitted investments must mature 
    prior to the date the actual funds are needed. The permitted types of 
    investments in the Pre-Funding Account and Capitalized Interest Account 
    are investments which are either: (i) Direct obligations of, or 
    obligations fully guaranteed as to timely payment of principal and 
    interest by, the United States or any agency or instrumentality 
    thereof, provided that such obligations are backed by the full faith 
    and credit of the United States or (ii) have been rated (or the obligor 
    has been rated) in one of the three highest generic rating categories 
    by Standard and Poor's Structured Rating Group, Moody's Investors 
    Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors 
    Service, L.P. (each a rating agency or collectively, the rating 
    agencies), as set forth in the pooling and servicing agreement and as 
    required by the rating agencies. The credit grade quality of the 
    permitted investments is generally no lower than that of the 
    certificates. The types of permitted investments will be described in 
    the pooling and servicing agreement.
        The ordering of interest payments to be made from the Pre-Funding 
    and Capitalized Interest Accounts is pre-established and set forth in 
    the pooling and servicing agreement. The only principal payments which 
    will be made from the Pre-Funding Account are those made to acquire the 
    receivables during the Pre-Funding Period and those distributed to the 
    certificateholders in the event that the entire amount in the Pre-
    Funding Account is not used to acquire receivables. The only principal 
    payments which will be made from the Capitalized Interest Account are 
    those made to certificateholders if necessary to support the 
    certificate pass-through rate or those made to the sponsor either 
    periodically as they are no longer needed or at the end of the Pre-
    Funding Period when the Capitalized Interest Account is no longer 
    necessary.
    
    The Characteristics of the Receivables Transferred During the Pre-
    Funding Period
    
        In order to ensure that there is sufficient specificity as to the 
    representations and warranties of the sponsor regarding the 
    characteristics of the receivables to be transferred after the Closing 
    Date, the Applicants have represented that:
        (i) All such receivables will meet the same terms and conditions 
    for eligibility as those of the original receivables used to create the 
    Trust corpus (as described in the prospectus or private placement 
    memorandum and/or pooling and
    
    [[Page 28506]]
    
    servicing agreement for such certificates), which terms and conditions 
    have been approved by a rating agency. However, the terms and 
    conditions for determining the eligibility of a receivable may be 
    changed if such changes receive prior approval either by a majority 
    vote of the outstanding certificateholders or by a rating agency; 
    14
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        \14\ In some transactions, the insurer and/or credit support 
    provider may have the right to veto the inclusion of receivables, 
    even if such receivables otherwise satisfy the underwriting 
    criteria. This right usually takes the form of a requirement that 
    the sponsor obtain the consent of these parties before the 
    receivables can be included in the Trust. The insurer and/or credit 
    support provider may, therefore, reject certain receivables or 
    require that the sponsor establish certain Trust reserve accounts as 
    a condition of including these receivables. Virtually all Trusts 
    which have insurers or other credit support providers are structured 
    to give such veto rights to these parties. The percentage of Trusts 
    that have insurers and/or credit support providers, and accordingly 
    feature such veto rights, varies.
    ---------------------------------------------------------------------------
    
        (ii) The transfer to the Trust of the receivables acquired during 
    the Pre-Funding Period will not result in the certificates receiving a 
    lower credit rating from the rating agency upon termination of the pre-
    funding period than the rating that was obtained at the time of the 
    initial issuance of the certificates by the trust;
        (iii) The weighted average annual percentage interest rate (the 
    average interest rate) for all of the obligations in the Trust at the 
    end of the Pre-Funding Period will not be more than 100 basis points 
    lower than the average interest rate for the obligations which were 
    transferred to the Trust on the Closing Date;
        (iv) The trustee of the trust (or any agent with which the trustee 
    contracts to provide trust services) will be a substantial financial 
    institution or trust company experienced in trust activities and 
    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, will enforce all the rights created in favor 
    of certificateholders of such trust, including employee benefit plans 
    subject to the Act.
        In order to ensure that the characteristics of the receivables 
    actually acquired during the Pre-Funding Period are substantially 
    similar to receivables that were acquired as of the Closing Date, the 
    Applicants represent that for transactions occurring on or after the 
    date of publication of the proposed exemption, the characteristics of 
    the additional obligations subsequently acquired will either be 
    monitored by a credit support provider or other insurance provider 
    which is independent of the sponsor or an independent accountant 
    retained by the sponsor will provide the sponsor with a letter (with 
    copies provided to the rating agency, the underwriter and the trustees) 
    stating whether or not the characteristics of the additional 
    obligations acquired after the Closing Date conform to the 
    characteristics of such obligations described in the prospectus, 
    private placement memorandum and/or pooling and servicing agreement. In 
    preparing such letter, the independent accountant will use the same 
    type of procedures as were applicable to the obligations which were 
    transferred as of the Closing Date.
        Each prospectus, private placement memorandum and/or pooling and 
    servicing agreement will set forth the terms and conditions for 
    eligibility of the receivables to be included in the Trust as of the 
    related Closing Date, as well as those to be acquired during the Pre-
    Funding Period, which terms and conditions will have been agreed to by 
    the rating agencies which are rating the applicable certificates as of 
    the Closing Date. Also included among these conditions is the 
    requirement that the trustee be given prior notice of the receivables 
    to be transferred, along with such information concerning those 
    receivables as may be requested. Each prospectus or private placement 
    memorandum will describe the amount to be deposited in, and the 
    mechanics of, the Pre-Funding Account and will describe the Pre-Funding 
    Period for the Trust.
    
    FASITs
    
        The Applicants request that exemptive relief apply to FASITs which 
    are trusts, provided that each of the other applicable requirements of 
    the Underwriter Exemption are met. FASITs are a new type of statutory 
    entity created by the Small Business Job Protection Act of 1996 (SBA) 
    through amendments to the Code effective on September 1, 
    1997.15 FASITs are designed to facilitate the securitization 
    16 of debt obligations, such as credit card receivables, 
    home equity loans, and auto loans, and thus allows certain features 
    such as revolving pools of assets, trusts containing unsecured 
    receivables and certain hedging types of investments. A FASIT is not a 
    taxable entity and debt instruments issued by such trusts, which might 
    otherwise be recharacterized as equity, will be treated as debt in the 
    hands of the holder for tax purposes.
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        \15\ Section 1621 of the SBA adds sections 860H, 860I, 860J, 
    860K and 860L to the Internal Revenue Code of 1986.
        \16\ Securitization is the process of converting one type of 
    asset into another and generally involves the use of an entity 
    separate from the underlying assets. In the case of securitization 
    of debt instruments, the instruments created in the securitization 
    typically have different maturities and characteristics than the 
    debt instruments that are securitized.
    ---------------------------------------------------------------------------
    
        The Applicants represent that the rationale set forth in the 
    Department's statements regarding REMICs, which were published in the 
    Federal Register with respect to several of the earlier Underwriter 
    Exemptions also apply to FASITs. However, the Applicants note that the 
    representation in the Underwriter Exemptions 17 regarding 
    the tax requirement that a Trust must be maintained as an essentially 
    passive entity would not be true for all FASITs, as they are allowed 
    under the Code to have revolving pools of permitted assets. The 
    Applicants are only requesting exemptive relief for FASITs that are, in 
    fact, passive in nature, which would preclude (in the absence of other 
    exemptive relief) revolving asset pools. Thus, only FASITs with assets 
    which were comprised of secured debt and which did not allow revolving 
    pools of assets or hedging investments not specifically authorized by 
    the Underwriter Exemptions would be permissible under the proposed 
    amendment.
    ---------------------------------------------------------------------------
    
        \17\ For tax reasons, the trust must be maintained as an 
    essentially passive entity. Therefore, both the sponsor's discretion 
    and the servicer's discretion with respect to assets included in a 
    trust are severely limited. Pooling and servicing agreements provide 
    for the substitution of receivables by the sponsor only in the event 
    of defects in documentation discovered within a short time after the 
    issuance of trust certificates (within 120 days, except in the case 
    of obligations having an original term of 30 years, in which case 
    the period will not exceed two years). Any receivable so substituted 
    is required to have characteristics substantially similar to the 
    replaced receivable and will be at least as creditworthy as the 
    replaced receivable.
        In some cases, the affected receivable would be repurchased, 
    with the purchase price applied as a payment on the affected 
    receivable and passed through to certificateholders.
    ---------------------------------------------------------------------------
    
    Parties to Transactions
    
        The originator of a receivable is the entity that initially lends 
    money to a borrower (obligor), such as a homeowner or automobile 
    purchaser, or leases property to a lessee. The originator may either 
    retain a receivable in its portfolio or sell it to a purchaser, such as 
    a Trust sponsor.
        Originators of receivables included in the Trust will be entities 
    that originate receivables in the ordinary course of their business, 
    including finance companies for whom such origination constitutes the 
    bulk of their operations, financial institutions for whom such 
    origination constitutes a substantial part of their operations, and any 
    kind of manufacturer, merchant, or service
    
    [[Page 28507]]
    
    enterprise for whom such origination is an incidental part of its 
    operations. Each Trust may contain assets of one or more originators. 
    The originator of the receivables may also function as the Trust 
    sponsor or servicer.
        The sponsor will be one of three entities: (i) a special-purpose or 
    other corporation unaffiliated with the servicer, (ii) a special-
    purpose or other corporation affiliated with the servicer, or (iii) the 
    servicer itself. Where the sponsor is not also the servicer, the 
    sponsor's role will generally be limited to acquiring the receivables 
    to be included in the trust, establishing the Trust, designating the 
    trustee, and assigning the receivables to the trust. The trustee of a 
    Trust is the legal owner of the obligations in the Trust. The trustee 
    is also a party to or beneficiary of all the documents and instruments 
    deposited in the Trust, and as such is responsible for enforcing all 
    the rights created thereby in favor of certificateholders.
        The trustee will be an independent entity, and therefore will be 
    unrelated to the Underwriter, the Trust sponsor, the servicer or any 
    other member of the Restricted Group. The Underwriter represents that 
    the trustee will be a substantial financial institution or trust 
    company experienced in trust activities. The trustee receives a fee for 
    its services, which will be paid by the servicer, sponsor, or out of 
    the Trust assets. The method of compensating the trustee which is 
    specified in the pooling and servicing agreement will be disclosed in 
    the prospectus or private placement memorandum relating to the offering 
    of the certificates.
        The servicer of a Trust administers the receivables on behalf of 
    the certificateholders. The servicer's functions typically involve, 
    among other things, notifying borrowers of amounts due on receivables, 
    maintaining records of payments received on receivables and instituting 
    foreclosure or similar proceedings in the event of default. In cases 
    where a pool of receivables has been purchased from a number of 
    different originators and deposited in a Trust, the receivables may be 
    ``subserviced'' by their respective originators and a single entity may 
    ``master service'' the pool of receivables on behalf of the owners of 
    the related series of certificates. Where this arrangement is adopted, 
    a receivable continues to be serviced from the perspective of the 
    borrower by the local subservicer, while the investor's perspective is 
    that the entire pool of receivables is serviced by a single, central 
    master servicer who collects payments from the local subservicers and 
    passes them through to certificateholders.
        The underwriter will be a registered broker-dealer that acts as 
    underwriter or placement agent with respect to the sale of the 
    certificates. Public offerings of certificates are generally made on a 
    firm commitment basis. Private placement of certificates may be made on 
    a firm commitment or agency basis. It is anticipated that the lead and 
    co-managing underwriters will make a market in certificates offered to 
    the public.
        In some cases, the originator and servicer of receivables to be 
    included in a Trust and the sponsor of the Trust (although they may 
    themselves be related) will be unrelated to the Underwriter. In other 
    cases, however, the Underwriter may originate or service receivables 
    included in a Trust or may sponsor a Trust.
    
    Certificate Price, Pass-Through Rate and Fees
    
        In some cases, the sponsor will obtain the receivables from various 
    originators pursuant to existing contracts with such originators under 
    which the sponsor continually buys receivables. In other cases, the 
    sponsor will purchase the receivables at fair market value from the 
    originator or a third party pursuant to a purchase and sale agreement 
    related to the specific offering of certificates. In other cases, the 
    sponsor will originate the receivables itself.
        As compensation for the receivables transferred to the Trust, the 
    sponsor receives certificates representing the entire beneficial 
    interest in the Trust, or the cash proceeds of the sale of such 
    certificates. If the sponsor receives certificates from the Trust, the 
    sponsor sells all or a portion of these certificates for cash to 
    investors or securities underwriters.
        The price of the certificates, both in the initial offering and in 
    the secondary market, is affected by market forces, including investor 
    demand, the pass-through interest rate on the certificates in relation 
    to the rate payable on investments of similar types and quality, 
    expectations as to the effect on yield resulting from prepayment of 
    underlying receivables, and expectations as to the likelihood of timely 
    payment.
        The pass-through rate for certificates is equal to the interest 
    rate on receivables included in the Trust minus a specified servicing 
    fee.18 This rate is generally determined by the same market 
    forces that determine the price of a certificate. The price of a 
    certificate and its pass-through, or coupon, rate together determine 
    the yield to investors. If an investor purchases a certificate at less 
    than par, that discount augments the stated pass-through rate; 
    conversely, a certificate purchased at a premium yields less than the 
    stated coupon.
    ---------------------------------------------------------------------------
    
        \18\ The pass-through rate on certificates representing 
    interests in trusts holding leases is determined by breaking down 
    lease payments into ``principal'' and ``interest'' components based 
    on an implicit interest rate.
    ---------------------------------------------------------------------------
    
        As compensation for performing its servicing duties, the servicer 
    (who may also be the sponsor or an affiliate thereof, and receive fees 
    for acting in that capacity) will retain the difference between 
    payments received on the receivables in the trust and payments payable 
    (at the pass-through rate) to certificateholders, except that in some 
    cases a portion of the payments on receivables may be paid to a third 
    party, such as a fee paid to a provider of credit support. The servicer 
    may receive additional compensation by having the use of the amounts 
    paid on the receivables between the time they are received by the 
    servicer and the time they are due to the Trust (which time is set 
    forth in the pooling and servicing agreement). The servicer typically 
    will be required to pay the administrative expenses of servicing the 
    trust, including in some cases the trustee's fee, out of its servicing 
    compensation.
        The servicer is also compensated to the extent it may provide 
    credit enhancement to the Trust or otherwise arrange to obtain credit 
    support from another party. This ``credit support fee'' may be 
    aggregated with other servicing fees, and is either paid out of the 
    interest income received on the receivables in the Trust in excess of 
    the pass-through rate or paid in a lump sum at the time the Trust is 
    established.
        The servicer may be entitled to retain certain administrative fees 
    paid by a third party, usually the obligor. These administrative fees 
    fall into three categories: (a) prepayment fees; (b) late payment and 
    payment extension fees; and (c) expenses, fees and charges associated 
    with foreclosure or repossession, or other conversion of a secured 
    position into cash proceeds, upon default of an obligation.
        Compensation payable to the servicer will be set forth or referred 
    to in the pooling and servicing agreement and described in reasonable 
    detail in the prospectus or private placement memorandum relating to 
    the certificates.
        Payments on receivables may be made by obligors to the servicer at 
    various times during the period preceding any date on which pass-
    through payments to the Trust are due. In some cases, the pooling and 
    servicing agreement may
    
    [[Page 28508]]
    
    permit the servicer to place these payments in non-interest bearing 
    accounts maintained with itself or to commingle such payments with its 
    own funds prior to the distribution dates. In these cases, the servicer 
    would be entitled to the benefit derived from the use of the funds 
    between the date of payment on a receivable and the pass-through date. 
    Commingled payments may not be protected from the creditors of the 
    servicer in the event of the servicer's bankruptcy or receivership. In 
    those instances when payments on receivables are held in non-interest 
    bearing accounts or are commingled with the servicer's own funds, the 
    servicer is required to deposit these payments by a date specified in 
    the pooling and servicing agreement into an account from which the 
    trustee makes payments to certificateholders.
        The underwriter will receive a fee in connection with the 
    securities underwriting or private placement of certificates. In a firm 
    commitment underwriting, this fee would consist of the difference 
    between what the underwriter receives for the certificates that it 
    distributes and what it pays the sponsor for those certificates. In a 
    private placement, the fee normally takes the form of an agency 
    commission paid by the sponsor. In a best efforts underwriting in which 
    the underwriter would sell certificates in a public offering on an 
    agency basis, the underwriter would receive an agency commission rather 
    than a fee based on the difference between the price at which the 
    certificates are sold to the public and what it pays the sponsor. In 
    some private placements, the underwriter may buy certificates as 
    principal, in which case its compensation would be the difference 
    between what it receives for the certificates that it sells and what it 
    pays the sponsor for these certificates.
    
    Purchase of Receivables by the Servicer
    
        The applicants represent that as the principal amount of the 
    receivables in a Trust is reduced by payments, the cost of 
    administering the Trust generally increases, making the servicing of 
    the trust prohibitively expensive at some point. Consequently, the 
    pooling and servicing agreement generally provides that the servicer 
    may purchase the receivables remaining in the Trust when the aggregate 
    unpaid balance payable on the receivables is reduced to a specified 
    percentage (usually 5 to 10 percent) of the initial aggregate unpaid 
    balance.
        The purchase price of a receivable is specified in the pooling and 
    servicing agreement and will be at least equal to either: (1) The 
    unpaid principal balance on the receivable plus accrued interest, less 
    any unreimbursed advances of principal made by the servicer; or (2) the 
    greater of (a) the amount in (1) or (b) the fair market value of such 
    obligations in the case of a REMIC, or the fair market value of the 
    receivables in the case of a trust that is not a REMIC.
    
    Certificate Ratings
    
        The certificates will have received one of the three highest 
    ratings available from a rating agency. Insurance or other credit 
    support (such as surety bonds, letters of credit, guarantees, or 
    overcollateralization) will be obtained by the Trust sponsor to the 
    extent necessary for the certificates to attain the desired rating. The 
    amount of this credit support is set by the rating agencies at a level 
    that is typically a multiple of the worst historical net credit loss 
    experience for the type of obligations included in the issuing Trust.
    
    Provision of Credit Support
    
        In some cases, the master servicer, or an affiliate of the master 
    servicer, may provide credit support to the Trust (i.e. act as an 
    insurer). In these cases, the master servicer, in its capacity as 
    servicer, will first advance funds to the full extent that it 
    determines that such advances will be recoverable (a) out of late 
    payments by the obligors, (b) from the credit support provider (which 
    may be the master servicer or an affiliate thereof) or, (c) in the case 
    of a Trust that issues subordinated certificates, from amounts 
    otherwise distributable to holders of subordinated certificates, and 
    the master servicer will advance such funds in a timely manner. When 
    the servicer is the provider of the credit support and provides its own 
    funds to cover defaulted payments, it will do so either on the 
    initiative of the trustee, or on its own initiative on behalf of the 
    trustee, but in either event it will provide such funds to cover 
    payments to the full extent of its obligations under the credit support 
    mechanism. In some cases, however, the master servicer may not be 
    obligated to advance funds but instead would be called upon to provide 
    funds to cover defaulted payments to the full extent of its obligations 
    as insurer. Moreover, a master servicer typically can recover advances 
    either from the provider of credit support or from future payments on 
    the affected assets.
        If the master servicer fails to advance funds, fails to call upon 
    the credit support mechanism to provide funds to cover delinquent 
    payments, or otherwise fails in its duties, the trustee would be 
    required and would be able to enforce the certificateholders' rights, 
    as both a party to the pooling and servicing agreement and the owner of 
    the Trust estate, including rights under the credit support mechanism. 
    Therefore, the trustee, who is independent of the servicer, will have 
    the ultimate right to enforce the credit support arrangement.
        When a master servicer advances funds, the amount so advanced is 
    recoverable by the master servicer out of future payments on 
    receivables held by the Trust to the extent not covered by credit 
    support. However, where the master servicer provides credit support to 
    the Trust, there are protections in place to guard against a delay in 
    calling upon the credit support to take advantage of the fact that the 
    credit support declines proportionally with the decrease in the 
    principal amount of the obligations in the Trust as payments on 
    receivables are passed through to investors. These safeguards include:
        (a) There is often a disincentive to postponing credit losses 
    because the sooner repossession or foreclosure activities are 
    commenced, the more value that can be realized on the security for the 
    obligation;
        (b) The master servicer has servicing guidelines which include a 
    general policy as to the allowable delinquency period after which an 
    obligation ordinarily will be deemed uncollectible. The pooling and 
    servicing agreement will require the master servicer to follow its 
    normal servicing guidelines and will set forth the master servicer's 
    general policy as to the period of time after which delinquent 
    obligations ordinarily will be considered uncollectible;
        (c) As frequently as payments are due on the receivables included 
    in the Trust (monthly, quarterly or semi-annually, as set forth in the 
    pooling and servicing agreement), the master servicer is required to 
    report to the independent trustee the amount of all payments which are 
    past due more than a specified number of days and the amount of all 
    servicer advances, along with other current information as to 
    collections on the receivables and draws upon the credit support. 
    Further, the master servicer is required to deliver to the trustee 
    annually a certificate of an executive officer of the master servicer 
    stating that a review of the servicing activities has been made under 
    such officer's supervision, and either stating that the master servicer 
    has fulfilled all of its obligations under the pooling and servicing 
    agreement or, if the master servicer has defaulted under any of its 
    obligations, specifying any such default. The master servicer's reports 
    are reviewed at least annually by
    
    [[Page 28509]]
    
    independent accountants to ensure that the master servicer is following 
    its normal servicing standards and that the master servicer's reports 
    conform to the master servicer's internal accounting records. The 
    results of the independent accountants' review are delivered to the 
    trustee; and
        (d) The credit support has a ``floor'' dollar amount that protects 
    investors against the possibility that a large number of credit losses 
    might occur towards the end of the life of the Trust, whether due to 
    servicer advances or any other cause. Once the floor amount has been 
    reached, the servicer lacks an incentive to postpone the recognition of 
    credit losses because the credit support amount thereafter is subject 
    to reduction only for actual draws. From the time that the floor amount 
    is effective until the end of the life of the Trust, there are no 
    proportionate reductions in the credit support amount caused by 
    reductions in the pool principal balance. Indeed, since the floor is a 
    fixed dollar amount, the amount of credit support ordinarily increases 
    as a percentage of the pool principal balance during the period that 
    the floor is in effect.
    
    Disclosure
    
        In connection with the original issuance of certificates, the 
    prospectus or private placement memorandum will be furnished to 
    investing plans. The prospectus or private placement memorandum will 
    contain information material to a fiduciary's decision to invest in the 
    certificates, including:
        (a) Information concerning the payment terms of the certificates, 
    the rating of the certificates, and any material risk factors with 
    respect to the certificates and the fact that principal amounts left in 
    the Pre-Funding Account at the end of the Pre-Funding Period will be 
    paid to certificateholders as a repayment of principal.
        (b) A description of the Trust as a legal entity and a description 
    of how the trust was formed by the seller/servicer or other sponsor of 
    the transaction;
        (c) Identification of the independent trustee for the Trust;
        (d) A description of the receivables contained in the Trust, 
    including the types of receivables, the diversification of the 
    receivables, their principal terms, and their material legal aspects, 
    and a description of any Pre-Funding Account used or Capitalized 
    Interest Account used in connection with a Pre-Funding Account;
        (e) A description of the sponsor and servicer;
        (f) A description of the pooling and servicing agreement, including 
    a description of the seller's principal representations and warranties 
    as to the Trust assets, including the terms and conditions for 
    eligibility of any receivables transferred during the Pre-Funding 
    Period and the trustee's remedy for any breach thereof; a description 
    of the procedures for collection of payments on receivables and for 
    making distributions to investors, and a description of the accounts 
    into which such payments are deposited and from which such 
    distributions are made; a description of permitted investments for any 
    Pre-Funding Account or Capitalized Interest Account; identification of 
    the servicing compensation and a description of any fees for credit 
    enhancement that are deducted from payments on receivables before 
    distributions are made to investors; a description of periodic 
    statements provided to the trustee, and provided to or made available 
    to investors by the trustee; and a description of the events that 
    constitute events of default under the pooling and servicing contract 
    and a description of the trustee's and the investors' remedies incident 
    thereto;
        (g) A description of the credit support;
        (h) A general discussion of the principal federal income tax 
    consequences of the purchase, ownership and disposition of the pass-
    through securities by a typical investor;
        (i) A description of the underwriters' plan for distributing the 
    pass-through securities to investors; and
        (j) Information about the scope and nature of the secondary market, 
    if any, for the certificates; and
        (k) A statement as to the duration of any Pre-Funding Period and 
    the Pre-Funding Limit for the Trust.
        Reports indicating the amount of payments of principal and interest 
    are provided to certificateholders at least as frequently as 
    distributions are made to certificateholders. Certificateholders will 
    also be provided with periodic information statements setting forth 
    material information concerning the underlying assets, including, where 
    applicable, information as to the amount and number of delinquent and 
    defaulted loans or receivables.
        In the case of a Trust that offers and sells certificates in a 
    registered public offering, the trustee, the servicer or the sponsor 
    will file such periodic reports as may be required to be filed under 
    the Securities Exchange Act of 1934. Although some Trusts that offer 
    certificates in a public offering will file quarterly reports on Form 
    10-Q and Annual Reports on Form 10-K, many Trusts obtain, by 
    application to the Securities and Exchange Commission, relief from the 
    requirement to file quarterly reports on Form 10-Q and a modification 
    of the disclosure requirements for annual reports on Form 10-K. If such 
    relief is obtained, these Trusts normally would continue to have the 
    obligation to file current reports on Form 8-K to report material 
    developments concerning the Trust and the certificates and copies of 
    the statements sent to certificateholders. While the Securities and 
    Exchange Commission's interpretation of the periodic reporting 
    requirements is subject to change, periodic reports concerning a Trust 
    will be filed to the extent required under the Securities Exchange Act 
    of 1934.
        At or about the time distributions are made to certificateholders, 
    a report will be delivered to the trustee as to the status of the Trust 
    and its assets, including underlying obligations. Such report will 
    typically contain information regarding the Trust's assets (including 
    those purchased by the Trust from any Pre-Funding Account), payments 
    received or collected by the servicer, the amount of prepayments, 
    delinquencies, servicer advances, defaults and foreclosures, the amount 
    of any payments made pursuant to any credit support, and the amount of 
    compensation payable to the servicer. Such report also will be 
    delivered to or made available to the rating agency or agencies that 
    have rated the Trust's certificates.
        In addition, promptly after each distribution date, 
    certificateholders will receive a statement prepared by the servicer, 
    paying agent or trustee summarizing information regarding the Trust and 
    its assets. Such statement will include information regarding the Trust 
    and its assets, including underlying receivables. Such statement will 
    typically contain information regarding payments and prepayments, 
    delinquencies, the remaining amount of the guaranty or other credit 
    support and a breakdown of payments between principal and interest.
    
    Secondary Market Transactions
    
        It is the Underwriter's normal policy to attempt to make a market 
    for securities for which it is lead or co-managing underwriter, and it 
    is the underwriter's intention to make a market for any certificates 
    for which the Underwriter is a lead or co-managing underwriter. At 
    times the Underwriter will facilitate sales by investors who purchase 
    certificates if the Underwriter has acted as agent or principal in the 
    original private placement of the certificates and if such investors 
    request the Underwriter's assistance.
    
    [[Page 28510]]
    
    Summary
    
        In summary, the Applicants represents that the transactions for 
    which exemptive relief is requested satisfy the statutory criteria of 
    section 408(a) of the Act due to the following:
        (a) The Trusts contain ``fixed pools'' of assets. There is little 
    discretion on the part of the Trust sponsor to substitute receivables 
    contained in the Trust once the Trust has been formed.
        (b) In the case where a Pre-Funding Account is used, the 
    characteristics of the receivables to be transferred to the Trust 
    during the Pre-Funding Period must be substantially similar to the 
    characteristics of those transferred to the Trust on the Closing Date 
    thereby giving the sponsor and/or originator little discretion over the 
    selection process, and compliance with this requirement will be assured 
    by the specificity of the characteristics and the monitoring mechanisms 
    contemplated under the Proposed Amendment. In addition, certain cash 
    accounts will be established to support the certificate pass-through 
    rate and such cash accounts will be invested in short-term, 
    conservative investments; the Pre-Funding Period will be of a 
    reasonably short duration; a Pre-Funding Limit will be imposed; and any 
    Internal Revenue Service requirements with respect to pre-funding 
    intended to preserve the passive income character of the Trust will be 
    met. The fiduciary of the plans making the decision to invest in 
    certificates is thus fully apprised of the nature of the receivables 
    which will be held in the Trust and has sufficient information to make 
    a prudent investment decision.
        (c) Certificates in which plans invest will have been rated in one 
    of the three highest rating categories by a rating agency. Credit 
    support will be obtained to the extent necessary to attain the desired 
    rating;
        (d) All transactions for which the Underwriter seeks exemptive 
    relief will be governed by the pooling and servicing agreement, the 
    principal provisions of which are described in the prospectus or 
    private placement memorandum and which is made available to plan 
    fiduciaries for their review prior to the plan's investment in 
    certificates;
        (e) Exemptive relief from sections 406(b) and 407 for sales to 
    plans is substantially limited; and
        (f) The Underwriter has made and anticipates that it will continue 
    to make, a secondary market in certificates.
    
    Notice to Interested Persons
    
        The applicant represents that because those potentially interested 
    participants and beneficiaries cannot all be identified, the only 
    practical means of notifying such participants and beneficiaries of 
    this proposed exemption is by the publication of this notice in the 
    Federal Register. Comments and requests for a hearing must be received 
    by the Department not later than 45 days from the date of publication 
    of this notice of proposed exemption in the Federal Register.
    
    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 section 4975(c)(2) of the Code does 
    not relieve a fiduciary or other party in interest or disqualified 
    person from certain other provisions of the Act and the Code, including 
    any prohibited transaction provisions to which the exemption does not 
    apply and the general fiduciary responsibility provisions of section 
    404 of the Act, which require, among other things, a fiduciary to 
    discharge his or her 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 requirements of section 401(a) of the Code that the plan 
    operate for the exclusive benefit of the employees of the employer 
    maintaining the plan and their beneficiaries;
        (2) Before an exemption can be granted under section 408(a) of the 
    Act and section 4975(c)(2) of the Code, the Department must find that 
    the exemption is administratively feasible, in the interest of the 
    plans and of their participants and beneficiaries and protective of the 
    rights of participants and beneficiaries of the plans;
        (3) The proposed amendment, if granted, will be supplemental to, 
    and not in derogation of, any other provisions of the Act and/or the 
    Code, including statutory or administrative exemptions and transitional 
    rules. Furthermore, the fact that a transaction is subject to an 
    administrative or statutory exemption is not dispositive of whether the 
    transaction is in fact a prohibited transaction; and
        (4) The proposed amendment, if granted, will be 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.
    
    Written Comments and Hearing Requests
    
        All interested persons are invited to submit written comments or 
    requests for a hearing on the proposed amendment to the address above, 
    within the time period set forth above. All comments will be made a 
    part of the record. Comments and requests for a hearing should state 
    the reasons for the writer's interest in the proposed amendment. 
    Comments received will be available for public inspection with the 
    referenced applications at the address set forth above.
    
    Proposed Exemption
    
        Under section 408(a) of ERISA and section 4975(c)(2) of the Code 
    and in accordance with the procedures set forth in 29 CFR Part 2570, 
    subpart B (55 FR 32836, August 10, 1990), the Department proposes to 
    amend the following individual Prohibited Transaction Exemptions 
    (PTEs): PTE 89-88, 54 FR 42582 (October 17, 1989); PTE 89-89, 54 FR 
    42569 (October 17, 1989); PTE 89-90, 54 FR 42597 (October 17, 1989); 
    PTE 90-22, 55 FR 20542 (May 17, 1990); PTE 90-23, 55 FR 20545 (May 17, 
    1990); PTE 90-24, 55 FR 20548 (May 17, 1990); PTE 90-28, 55 FR 21456 
    (May 24, 1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 
    21461 (May 24, 1990); PTE 90-31, 55 FR 23144 (June 6, 1990); PTE 90-32, 
    55 FR 23147 (June 6, 1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 
    90-36, 55 FR 25903 (June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 
    1990); PTE 90-59, 55 FR 36724 (September 6, 1990); PTE 90-83, 55 FR 
    50250 (December 5, 1990); PTE 90-84, 55 FR 50252 (December 5, 1990); 
    PTE 90-88, 55 FR 52899 (December 24, 1990); PTE 91-14, 55 FR 48178 
    (February 22, 1991); PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 91-
    23, 56 FR 15936 (April 18, 1991); PTE 91-30, 56 FR 22452 (May 15, 
    1991); PTE 91-62, 56 FR 51406 (October 11, 1991); PTE 93-31, 58 FR 
    28620 (May 5, 1993); PTE 93-32, 58 FR 28623 (May 14, 1993); PTE 94-29, 
    59 FR 14675 (March 29, 1994); PTE 94-64, 59 FR 42312 (August 17, 1994); 
    PTE 94-70, 59 FR 50014 (September 30, 1994); PTE 94-73, 59 FR 51213 
    (October 7, 1994); PTE 94-84, 59 FR 65400 (December 19, 1994); PTE 95-
    26, 60 FR 17586 (April 6, 1995); PTE 95-59, 60 FR 35938 (July 12, 
    1995); PTE 95-89, 60 FR 49011 (September 21, 1995); PTE 96-11, 61 FR 
    3490 (January 31, 1996); PTE 96-22, 61 FR 14828 (April 3, 1996); PTE 
    96-84, 61 FR 58234 (November 13, 1996); PTE 96-92, 61 FR 66334 
    (December 17, 1996); PTE 96-94, 61 FR 68787 (December 30, 1996); PTE 
    97-05, 62 FR 1926 (January 14,1997);
    
    [[Page 28511]]
    
    and PTE 97-, 62 FR (Norwest Investment Services)(collectively, the 
    Underwriter Exemptions). In addition, the Department is considering 
    granting exemptions to Ironwood Capital Partners Ltd (D-10424) and 
    Deutsche Bank AG, New York Branch and Deutsche Morgan Grenfell/C.J. 
    Lawrence Inc. (D-10433), which received the approval of the Department 
    to engage in transactions substantially similar to the transactions 
    described in the Underwriter Exemptions pursuant to PTE 96-62.
    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 of the Act 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.19
    ---------------------------------------------------------------------------
    
        \19\ Section I.A. provides no relief from sections 406(a)(1)(E), 
    406(a)(2) and 407 of the Act for any person rendering investment 
    advice to an Excluded Plan within the meaning of section 
    3(21)(A)(ii) of the Act, and regulation 29 CFR 2510.3-21(c).
    ---------------------------------------------------------------------------
    
        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 serviced by the same entity.20 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;
    ---------------------------------------------------------------------------
    
        \20\ 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.
    ---------------------------------------------------------------------------
    
        (2) The direct or indirect acquisition or disposition of 
    certificates by a plan in the secondary market for such certifi cates, 
    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.21
    
        \21\ 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. For purposes 
    of this Amendment, references to ``prospectus'' include any related 
    prospectus supplement thereto, pursuant to which certificates are 
    offered to investors.
    ---------------------------------------------------------------------------
    
    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 
    from a rating agency (as defined in section III.W) at the time of such 
    acquisition that is in one of the three highest generic rating 
    categories;
        (4) The trustee is not an affiliate of any other member of the 
    Restricted
    
    [[Page 28512]]
    
    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;
        (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; 
    and
        (7) In the event that the obligations used to fund a trust have not 
    all been transferred to the trust on the closing date, additional 
    obligations as specified in subsection III.B.(1) may be transferred to 
    the trust during the pre-funding period (as defined in Section III.BB.) 
    in exchange for amounts credited to the pre-funding account (as defined 
    in Section III.Z.), provided that:
        (a) The pre-funding limit (as defined in Section III.AA.), is not 
    exceeded;
        (b) All such additional obligations meet the same terms and 
    conditions for eligibility as those of the original obligations used to 
    create the trust corpus (as described in the prospectus or private 
    placement memorandum and/or pooling and servicing agreement for such 
    certificates), which terms and conditions have been approved by a 
    rating agency. Notwithstanding the foregoing, the terms and conditions 
    for determining the eligibility of an obligation may be changed if such 
    changes receive prior approval either by a majority vote of the 
    outstanding certificateholders or by a rating agency;
        (c) The transfer of such additional obligations to the trust during 
    the pre-funding period does not result in the certificates receiving a 
    lower credit rating from a rating agency upon termination of the pre-
    funding period than the rating that was obtained at the time of the 
    initial issuance of the certificates by the trust;
        (d) The weighted average annual percentage interest rate (the 
    average interest rate) for all of the obligations in the trust at the 
    end of the pre-funding period will not be more than 100 basis points 
    lower than the average interest rate for the obligations which were 
    transferred to the trust on the closing date;
        (e) Effective for transactions occurring on or after May 23, 1997, 
    in order to ensure that the characteristics of the receivables actually 
    acquired during the pre-funding period are substantially similar to 
    those which were acquired as of the closing date, the characteristics 
    of the additional obligations will either be monitored by a credit 
    support provider or other insurance provider which is independent of 
    the sponsor or an independent accountant retained by the sponsor will 
    provide the sponsor with a letter (with copies provided to the rating 
    agency, the underwriter and the trustees) stating whether or not the 
    characteristics of the additional obligations conform to the 
    characteristics of such obligations described in the prospectus, 
    private placement memorandum and/or pooling and servicing agreement. In 
    preparing such letter, the independent accountant will use the same 
    type of procedures as were applicable to the obligations which were 
    transferred as of the closing date;
        (f) The pre-funding period shall be described in the prospectus or 
    private placement memorandum provided to investing plans; and
        (g) The trustee of the trust (or any agent with which the trustee 
    contracts to provide trust services) will be a substantial financial 
    institution or trust company experienced in trust activities and 
    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, will enforce 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, 
    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 either a Real Estate Mortgage 
    Investment Conduit (REMIC) or a Financial Asset Securitization 
    Investment Trust (FASIT) within the meaning of section 860D(a) or 
    Section 860L, respectively, of the Internal Revenue Code of 1986, as 
    amended: 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 the Underwriter 
    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)(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); and/or
        (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.); and/or
        (c) Obligations that bear interest or are purchased at a discount 
    and which are
    
    [[Page 28513]]
    
    secured by single-family residential, multi-family residential and 
    commercial real property (including obligations secured by leasehold 
    interests on residential or commercial real property); and/or
        (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.); and/or
        (e) ``Guaranteed governmental mortgage pool certificates,'' as 
    defined in 29 CFR 2510.3-101(i)(2); and/or
        (f) Fractional undivided interests in any of the obligations 
    described in clauses (a)-(e) of this subsection B.(1); 22
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        \22\ It is the Department's view that the definition of 
    ``Trust'' contained in subsection 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.
    ---------------------------------------------------------------------------
    
        (2) Property which had secured any of the obligations described in 
    subsection III.B.(1);
        (3) (a) Undistributed cash or temporary investments made therewith 
    maturing no later than the next date on which distributions are to made 
    to certificateholders; and/or
        (b) Cash or investments made therewith which are credited to an 
    account to provide payments to certificateholders pursuant to any yield 
    supplement agreement or similar yield maintenance arrangement to 
    supplement the interest rates otherwise payable on obligations 
    described in subsection III.B.(1) held in the trust, provided that such 
    arrangements do not involve swap agreements or other notional principal 
    contracts; and/or 23
    ---------------------------------------------------------------------------
    
        \23\ The Department notes that the definition of ``Trust'' 
    contained in Section III.B. includes cash or investments credited to 
    an account to provide payments to certificateholders pursuant to a 
    yield supplement agreement or similar yield maintenance arrangement 
    to supplement the interest rates otherwise payable on obligations 
    described in section B.(1) held in the trust, provided that such 
    arrangements do not involve swap agreements or other notional 
    principal contracts.
    ---------------------------------------------------------------------------
    
        (c) Cash transferred to the trust on the closing date and permitted 
    investments made therewith which:
        (i) Are credited to a pre-funding account established to purchase 
    additional obligations with respect to which the conditions set forth 
    in clauses (a)-(g) of subsection II.A.(7) are met and/or
        (ii) Are credited to a capitalized interest account (as defined in 
    Section III.X.); and
        (iii) Are held in the trust for a period ending no later than the 
    first distribution date to certificateholders occurring after the end 
    of the pre-funding period,
        For purposes of this clause (c) of subsection III.B.(3), the term 
    ``permitted investments'' means investments which are either: (i) 
    direct obligations of, or obligations fully guaranteed as to timely 
    payment of principal and interest by, the United States or any agency 
    or instrumentality thereof, provided that such obligations are backed 
    by the full faith and credit of the United States or (ii) have been 
    rated (or the obligor has been rated) in one of the three highest 
    generic rating categories by a rating agency; are described in the 
    pooling and servicing agreement; and are permitted by the rating 
    agency.
        (4) Rights of the trustee under the pooling and servicing 
    agreement, and rights under any insurance policies, third-party 
    guarantees, contracts of suretyship, yield supplement agreements 
    described in clause (b) of subsection III.B.(3) and other credit 
    support arrangements with respect to any obligations described in 
    subsection III.B.(1).
        Notwithstanding the foregoing, the term ``trust'' does not include 
    any investment pool unless: (i) the obligations contained in the 
    investment pool consist only of assets of the type described in clauses 
    (a)-(f) of subsection III.B.(1) 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 a rating agency 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) An entity defined as an Underwriter 
    in subsection III.C.(1) of each of the Underwriter Exemptions that are 
    being amended by this proposed exemption. In addition, the term 
    Underwriter includes Ironwood Capital Partners Ltd. and Deutsche Bank 
    AG, New York Branch and Deutsche Morgan Grenfell/C.J. Lawrence Inc. 
    (which received the approval of the Department to engage in 
    transactions substantially similar to the transactions described in the 
    Underwriter Exemptions pursuant to PTE 96-62);
        (2) Any person directly or indirectly, through one or more 
    intermediaries, controlling, controlled by or under common control with 
    such entity; or
        (3) Any member of an underwriting syndicate or selling group of 
    which a person described in subsections III.C.(1) or (2) above 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.
        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;
    
    [[Page 28514]]
    
        (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 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 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 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.
        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 ServicingAgreement'' also includes the 
    indenture entered into by the trustee of the trust issuing such 
    certificates and the indenture trustee.
        W. ``Rating Agency'' means Standard & Poor's Structured Rating 
    Group, Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. 
    or Fitch Investors Service, L.P.
        X. ``Capitalized Interest Account'' means a trust account: (i) 
    which is established to compensate certificateholders for shortfalls, 
    if any, between investment earnings on the pre-funding account and the 
    pass-through rate payable under the certificates; and (ii) which meets 
    the requirements of clause (c) of subsection III.B.(3).
        Y. ``Closing Date'' means the date the trust is formed, the 
    certificates are first issued and the trust's assets (other than those 
    additional obligations which are to be funded from the pre-funding 
    account pursuant to subsection II.A.(7)) are transferred to the trust.
        Z. ``Pre-Funding Account''--means a trust account: (i) which is 
    established to purchase additional obligations, which obligations meet 
    the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and 
    (ii) which meets the requirements of clause (c) of subsection 
    III.B.(3).
        AA. ``Pre-Funding Limit'' means a percentage or ratio of the amount 
    allocated to the pre-funding account, as compared to the total 
    principal amount of the certificates being offered which is less than 
    or equal to: (i) 40 percent, effective for transactions occurring on or 
    after January 1, 1992, but prior to May 23, 1997; and (ii) 25 percent, 
    for transactions occurring on or after May 23, 1997.
        BB. ``Pre-Funding Period'' means the period commencing on the 
    closing date and ending no later than the earliest to occur of: (i) the 
    date the amount on deposit in the pre-funding account is less than the 
    minimum dollar amount specified in the pooling and servicing agreement; 
    (ii) the date on which an event of default occurs under the pooling and 
    servicing agreement; or (iii) the date which is the later of three 
    months or 90 days after the closing date.
    IV. Modifications
        For the Underwriter Exemptions provided to Residential Funding 
    Corporation, Residential Funding Mortgage Securities, Inc., et. al. and 
    GE Capital Mortgage Services, Inc. and GECC Capital Markets (the 
    Applicants) (PTEs 94-29 and 94-73, respectively);
        A. Section III.A. of this proposed amendment is modified to read as 
    follows:
        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
        (c) With respect to which (i) one of the Applicants or any of its 
    affiliates is the sponsor, and an entity which has received from the 
    Department an individual prohibited transaction exemption relating to 
    certificates which is similar to this exemption is the sole underwriter 
    or the manager or co-manager of the underwriting syndicate
    
    [[Page 28515]]
    
    or a selling or placement agent; or (ii) one of the Applicants or any 
    of its affiliates is the sole underwriter or the manager or co-manager 
    of the underwriting syndicate or a selling or placement agent; or
        (2) A certificate denominated as a debt instrument--
        (a) That represents an interest in either a Real Estate Mortgage 
    Investment Conduit (REMIC) or a Financial Asset Securitization 
    Investment Trust (FASIT) within the meaning of section 860D(a) or 
    section 860L, respectively, of the Internal Revenue Code of 1986, as 
    amended: and
        (b) That is issued by and is an obligation of a trust with respect 
    to which (i) one of the Applicants or any of its affiliates is the 
    sponsor, and an entity which has received from the Department an 
    individual prohibited transaction exemption relating to certificates 
    which is similar to this exemption is the sole underwriter or the 
    manager or co-manager of the underwriting syndicate or a selling or 
    placement agent or (ii) one of the Applicants or any of its affiliates 
    is the sole underwriter or the manager or co-manager of the 
    underwriting syndicate, or 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. Section III.C. of this proposed amendment is modified to read as 
    follows:
        C. ``Underwriter'' means:
        (1) An entity defined as an Underwriter in subsection III.C.(1) of 
    each of the Underwriter Exemptions that are being amended by this 
    proposed exemption. In addition, the term Underwriter includes Ironwood 
    Capital Partners Ltd. and Deutsche Bank AG, New York Branch and 
    Deutsche Morgan Grenfell/C.J. Lawrence Inc. (which received the 
    approval of the Department to engage in transactions substantially 
    similar to the transactions described in the Underwriter Exemptions 
    pursuant to PTE 96-62);
        (2) Any person directly or indirectly, through one or more 
    intermediaries, controlling, controlled by or under common control with 
    such entity;
        (3) Any member of an underwriting syndicate or selling group of 
    which a person described in subsections III.C.(1) or (2) above is a 
    manager or co-manager with respect to the certificates; or
        (4) An entity which has received from the Department an individual 
    prohibited transaction exemption relating to certificates which is 
    similar to this exemption.
    
    EFFECTIVE DATE: This exemption will be effective for transactions 
    occurring on or after January 1, 1992 except as otherwise provided in 
    subsection II.A.(7) and section III.AA.
    
        Signed at Washington, D.C., this 20th day of May, 1997.
    Ivan L. Strasfeld,
    Director of Exemption Determinations, Pension and Welfare Benefits 
    Administration, U.S. Department of Labor.
    [FR Doc. 97-13673 Filed 5-22-97; 8:45 am]
    BILLING CODE 4510-29-P
    
    
    

Document Information

Published:
05/23/1997
Department:
Pension and Welfare Benefits Administration
Entry Type:
Notice
Action:
Notice of a proposed amendment to the Underwriter Exemptions.1
Document Number:
97-13673
Dates:
Written comments and requests for a hearing should be received by the Department on or before July 7, 1997.
Pages:
28502-28515 (14 pages)
PDF File:
97-13673.pdf