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Employee Benefits Security Administration

EBSA Federal Register Notice

Prohibited Transaction Exemption 2003-30; [Exemption Application No. D-11101] et al.; Grant of Individual Exemptions; Fifth Third Bank [10/14/2003]

[PDF Version]

Volume 68, Number 198, Page 59199-59208

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
Prohibited Transaction Exemption 2003-30; [Exemption Application 
No. D-11101] et al.; Grant of Individual Exemptions; Fifth Third Bank

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of Individual Exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Fifth Third Bank, Located in Grand Rapids, Michigan

[Prohibited Transaction Exemption 2003-30; Exemption Application No. D-
11101]

Exemption

Section I--Exemption for Receipt of Fees
    Effective on or after April 2, 2001, the restrictions of sections 
406(a) and 406(b) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (F) of the Code, shall not apply, to: the receipt 
of fees by Fifth Third Bank, a Michigan banking corporation, and its 
affiliates (Fifth Third), from the Kent Funds prior to October 26, 2001 
or from the Fifth Third Funds on or after October 26, 2001 (the Funds), 
open-end investment companies registered under the Investment Company 
Act of 1940 (the 1940 Act), for acting as an investment adviser for the 
Funds, as well as for acting as administrator, custodian, accountant, 
transfer agent, and provider of other services to the Funds (including 
brokerage services in the future) which are not advisory services 
(collectively referred to as ``Secondary Services'' as defined in 
Section III(h) below), in connection with the purchase and sale of 
shares of the Funds by certain employee benefit plans and individual 
retirement accounts (the Plans) for which Fifth Third serves as 
fiduciary with investment discretion; provided that the conditions set 
forth in Section II are met.

[[Page 59200]]

Section II--Conditions
    (a) No sales commissions, redemption fees, or other fees are paid 
by the Plans in connection with the purchase or sale of shares of the 
Funds.
    (b) The price paid or received by a Plan for shares in the Funds is 
the net asset value per share, as defined in Section III(e), at the 
time of the transaction, and is the same price that would have been 
paid or received for the shares by any other investor at that time.
    (c) Fifth Third, including any officer or director of Fifth Third, 
does not purchase or sell shares of the Funds from or to any Plan.
    (d) Each Plan receives a credit, through a cash rebate that will be 
accrued daily and, if the Plan so elects, will be automatically 
invested in shares of the money market funds selected by the Plan, of 
such Plan's proportionate share of all fees charged to the Funds by 
Fifth Third for investment advisory services, including any investment 
advisory fee paid to third-party subadvisors, not later than two 
business days (or, prior to the date this final exemption is published 
in the Federal Register, one business day) after receipt of such fees 
by Fifth Third. The crediting of all investment advisory fees to the 
Plans by Fifth Third is audited by an independent accounting firm on at 
least an annual basis to verify the proper crediting of the fees to 
each Plan.
    (e) The combined total of all fees received by Fifth Third for the 
provision of services to a Plan, and in connection with the provision 
of services to the Funds in which the Plan may invest, is not in excess 
of ``reasonable compensation'' within the meaning of section 408(b)(2) 
of ERISA.
    (f) Fifth Third does not receive any fees payable pursuant to Rule 
12b-1 under the 1940 Act in connection with the transactions.
    (g) The Plans are not employee benefit plans sponsored or 
maintained by Fifth Third.
    (h) A second fiduciary acting for the Plan, who is independent of 
and unrelated to Fifth Third (the Second Fiduciary), receives, in 
advance of any initial investment by the Plan in a Fund, full and 
detailed written disclosure of information concerning the Fund, 
including, but not limited to:
    (1) A current prospectus for each Fund in which a Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services and any Secondary Services and all other fees to be 
charged to or paid by the Plan and by the Fund, including the nature 
and extent of any differential between the rates of such fees;
    (3) The reasons why Fifth Third may consider such investment to be 
appropriate for the Plan;
    (4) A statement describing whether there are any limitations 
applicable to Fifth Third with respect to which assets of the Plan may 
be invested in the Fund, and, if so, the nature of such limitations; 
and
    (5) Upon the request of the Second Fiduciary, a copy of the 
proposed exemption and/or a copy of the final exemption once such 
documents are published in the Federal Register.
    (i) After consideration of the information described in paragraph 
(h) above, the Second Fiduciary authorizes in writing the investment of 
assets of the Plan in each particular Fund, the fees to be paid by such 
Fund to Fifth Third (including fees for investment advisory services), 
and the cash rebate to the Plan of fees received by Fifth Third from 
the Fund for investment advisory services.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to Fifth Third (including fees 
for investment advisory services) are subject to an annual 
reauthorization wherein any such prior authorization referred to in 
paragraph (i) above shall be terminable at will by the Plan, without 
penalty to the Plan, upon receipt by Fifth Third of written notice of 
termination. A form expressly providing an election to terminate the 
authorization described in paragraph (i) above (the ``Termination 
Form'') with instructions on the use of the form must be provided to 
the Second Fiduciary at least annually. However, if the Termination 
Form has been provided to the Second Fiduciary pursuant to paragraph 
(k) or paragraph (l) below, then the Termination Form need not be 
provided again for an annual reauthorization pursuant to this paragraph 
unless at least six months have elapsed since the form was provided in 
connection with the additional service or fee increase. The 
instructions for the Termination Form must include the following 
information:
    (1) The authorization is terminable at will by the Plan, without 
penalty to the Plan, upon receipt by Fifth Third's investment services 
group of written notice from the Second Fiduciary; and
    (2) Failure to return the Termination Form will result in continued 
authorization of Fifth Third to engage in the transactions described 
above on behalf of the Plan.
    (k) The Second Fiduciary of each Plan invested in a particular Fund 
receives full written disclosure, in a statement separate from the Fund 
prospectus, of any proposed increases in the rates of fees charged by 
Fifth Third to the Fund for Secondary Services at least 30 days prior 
to the implementation of such increase in fees. The disclosure will be 
accompanied by a copy of the Termination Form, with instructions as 
described in paragraph (j) above. The Second Fiduciary will also 
receive full written disclosure, prior to the effective date, in a Fund 
prospectus or otherwise, of any increases in the rates of fees charged 
by Fifth Third to the Fund for investment advisory services even though 
such fees will be rebated as required by paragraph (d) above.
    (l) In the event that Fifth Third provides an additional Secondary 
Service to a Fund for which a fee is charged or there is an increase in 
the amount of fees paid by the Fund to Fifth Third for any Secondary 
Services resulting from a decrease in the number of services performed 
by Fifth Third for such fees in connection with a previously authorized 
Secondary Service, Fifth Third will, at least 30 days in advance of the 
implementation of such additional service or effective fee increase, 
provide written notice to the Second Fiduciary explaining the nature 
and the amount of such services or of the effective increase in fees of 
the affected Fund. Such notice shall be accompanied by the Termination 
Form.
    (m) On an annual basis, Fifth Third provides the Second Fiduciary 
of a Plan investing in the Fund with:
    (1) A copy of the current prospectus for the Fund and, upon such 
Second Fiduciary's request, a copy of the Statement of Additional 
Information for such Fund which contains a description of all fees paid 
by the Fund to Fifth Third (including fees for investment advisory 
services);
    (2) A copy of the annual financial disclosure report of the Fund in 
which such Plan is invested, which includes information about the Fund 
portfolios as well as audit findings of an independent auditor, within 
60 days of the preparation of the report;
    (3) Oral or written responses to inquiries of the Second Fiduciary 
as they arise; and
    (4) With respect to each of the Funds in which a Plan invests, in 
the event such Fund places brokerage transactions with Fifth Third, a 
statement specifying:
    (i) The total (expressed in dollars) of brokerage commissions of 
each Fund's investment portfolio that are paid to Fifth Third by such 
Fund;
    (ii) The total (expressed in dollars) of brokerage commissions of 
each Fund's investment portfolio that are paid by such Fund to 
brokerage firms unrelated to Fifth Third;

[[Page 59201]]

    (iii) The average brokerage commissions per share (expressed as 
cents per share) paid to Fifth Third by each investment portfolio of a 
Fund; and
    (iv) The average brokerage commissions per share (expressed as 
cents per share) paid by each investment portfolio of a Fund to 
brokerage firms unrelated to Fifth Third.
    (o) All dealings between the Plans and the Fund are on a basis no 
less favorable to the Plans than dealings with other shareholders of 
the Fund.
    (p) Fifth Third maintains for a period of six years the records 
necessary to enable the persons described in paragraph (q) below to 
determine whether the conditions of this exemption have been met, 
except that: (i) A prohibited transaction will not be considered to 
have occurred if, due to circumstances beyond the control of Fifth 
Third, the records are lost or destroyed prior to the end of the six-
year period, and (ii) no party in interest other than Fifth Third shall 
be subject to the civil penalty that may be assessed under section 
502(i) of ERISA or to the taxes imposed by section 4975 (a) and (b) of 
the Code if the records are not maintained or not available for 
examination as required by paragraph (q) below.
    (q)(1) Except as provided in paragraph (p) above and 
notwithstanding any provisions of section 504 (a)(2) and (b) of ERISA, 
the records referred to in paragraph (p) above are unconditionally 
available at their customary location for examination during normal 
business hours by:
    (i) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service;
    (ii) Any fiduciary of a Plan who has authority to acquire or 
dispose of shares of the Funds owned by the Plans, or any duly 
authorized employee or representative of such fiduciary; and
    (iii) Any participant or beneficiary of a Plan or duly authorized 
employee or representative of such participant or beneficiary.
    (2) None of the persons described in subparagraph (1) (ii) and 
(iii) above shall be authorized to examine trade secrets of Fifth 
Third, commercial or financial information which is privileged or 
confidential, or records that are unrelated to the Plan(s) that the 
fiduciary serves or under which the participant or beneficiary is 
entitled to receive benefits.
    (r) Within sixty (60) days of [insert the date of publication in 
the Federal Register of the notice granting this exemption], Fifth 
Third will file Form 5330 with the Internal Revenue Service and pay the 
excise taxes applicable under section 4975(a) of the Code in connection 
with the error in processing rebates of investment advisory fees during 
the period beginning October 26, 2001 and ending on March 1, 2003.
Section III--Definitions
    For purposes of this exemption:
    (a) ``Fifth Third'' means Fifth Third Bank, a Michigan banking 
corporation, and any affiliate thereof (as affiliate is defined below 
in paragraph (b) of this section).
    (b) An affiliate of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    (d) ``Fund'' or ``Funds'' means the Kent Funds prior to October 26, 
2001, the Fifth Third Funds on and after October 26, 2001, and each 
separate investment portfolio thereof, or any other diversified open-
end investment company registered under the 1940 Act for which Fifth 
Third serves as investment advisor and may also serve (or may in the 
future serve) as administrator, custodian, accountant, or transfer 
agent, or provide some other Secondary Service (as defined in paragraph 
(h) below) which has been approved by the Funds.
    (e) ``Net asset value'' means the amount for purposes of pricing 
all purchases and sales, calculated by dividing the value of all 
securities, determined by a method as set forth in a Fund's prospectus 
and statement of additional information, and other assets belonging to 
the Fund or portfolio of the Fund, less the liabilities charged to each 
such portfolio or Fund, by the number of outstanding shares.
    (f) ``Relative'' means a relative as that term is defined in 
section 3(15) of ERISA (or a ``member of the family'' as that term is 
defined in section 4975(e)(6) of the Code), or a brother, a sister, or 
a spouse of a brother or a sister.
    (g) ``Second Fiduciary'' means a fiduciary of a Plan who is 
independent of and unrelated to Fifth Third. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to Fifth Third if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with Fifth Third;
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary is an officer, director, partner, or employee 
of Fifth Third (or is a relative of such persons); or
    (3) Such fiduciary directly or indirectly receives any compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this exemption.
    If an officer, director, partner, or employee of Fifth Third (or 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in (i) the choice of the 
Plan's investment advisor, (ii) the approval of such purchase or sale 
between the Plan and a Fund, and (iii) the approval of any change in 
fees charged to or paid by the Plan in connection with any of the 
transactions described in Section II above, then subparagraph (2) above 
shall not apply.
    (h) ``Secondary Service'' means a service other than an investment 
management, investment advisory, or similar service that is (or will in 
the future be) provided by Fifth Third to a Fund, including (but not 
limited to) brokerage services, custodian services, transfer and 
dividend disbursing agent services, administrator or sub-administrator 
services, accounting services, and shareholder servicing agent 
services.
    (i) ``Termination Form'' means the form supplied to the Second 
Fiduciary that expressly provides an election to the Second Fiduciary 
to terminate on behalf of a Plan the authorization described in 
paragraph (i) of Section II above. Such Termination Form may be used at 
will by the Second Fiduciary to terminate an authorization without 
penalty to the Plan and to notify Fifth Third in writing to effect a 
termination by selling the shares of the Fund held by the Plan 
requesting such termination within one business day following receipt 
by Fifth Third of the form; provided that if, due to circumstances 
beyond the control of Fifth Third, the sale cannot be executed within 
one business day, Fifth Third shall have one additional business day to 
complete such sale.

Effective Date:  This exemption is effective generally as of April 2, 
2001. Effective on or after October 14, 2003, Fifth Third shall credit 
a Plan the cash rebate of such Plan's share of fees charged to the 
Funds by Fifth Third for investment advisory services not later

[[Page 59202]]

than two business days after receipt of such fees by Fifth Third as 
provided in Section II(d) of the exemption.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on June 24, 2003 at 68 FR 
37539 (the Proposed Exemption).

Written Comment

    The Department received one written comment and no requests for a 
public hearing. In a letter dated August 5, 2003, Fifth Third (the 
Applicant) requested a clarification with regard to the ``Summary of 
Facts and Representations'' (the Summary) in the Proposed Exemption. 
Although the term ``Fifth Third'' as defined in the proposed exemption 
itself includes Fifth Third Bank, a Michigan banking corporation, and 
its affiliates, the Applicant believed that the definition of the same 
term in item 1 of the Summary did not include the Fifth Third Bank 
affiliates. The Department notes that the term ``Fifth Third'' does 
include Fifth Third Bank, a Michigan banking corporation, and its 
affiliates in both the proposed exemption and the Summary of the 
Proposed Exemption.
    After giving full consideration to the entire record, including the 
written comment noted above, the Department has decided to grant the 
exemption.
    For information regarding the comment and other matters discussed 
herein, interested persons are encouraged to obtain copies of the 
exemption application file (Exemption Application No. D-11101) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, are 
made available for public inspection in the Public Disclosure Room of 
the Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210.

FOR FURTHER INFORMATION CONTACT: Ms. Wendy McColough of the Department, 
telephone (202) 693-8561. This is not a toll-free number.

RBC Dain Rauscher, Inc. (RBC-DR) Located in Minneapolis, Minnesota

[Prohibited Transaction Exemption 2003-31; Exemption Application No. D-
11189]

Exemption

I. Transactions
    A. Effective for transactions occurring on or after April 18, 2003, 
the restrictions of section 406(a) and 407(a) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), and the 
taxes imposed by section 4975 (a) and (b) of the Internal Revenue Code 
of 1986, as amended (the Code), by reason of section 4975(c)(1) (A) 
through (D) of the Code, shall not apply to the following transactions 
involving Issuers and Securities evidencing interests therein:
    (1) The direct or indirect sale, exchange or transfer of Securities 
in the initial issuance of Securities between the Sponsor or 
Underwriter and an employee benefit plan when the Sponsor, Servicer, 
Trustee or Insurer of an Issuer, the Underwriter of the Securities 
representing an interest in the Issuer, or an Obligor is a party in 
interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities; and
    (3) The continued holding of Securities 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 Security 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.\1\
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    \1\ 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) and regulation 29 CFR 2510.3-21(c).
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    B. Effective for transactions occurring on or after April 18, 2003, 
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 Securities 
in the initial issuance of Securities 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 Securities is (a) an obligor with respect to 5 percent or 
less of the fair market value of obligations or receivables contained 
in the Issuer, or (b) an affiliate or a person described in (a); if
    (i) The plan is not an Excluded Plan;
    (ii) Solely in the case of an acquisition of Securities in 
connection with the initial issuance of the Securities, at least 50 
percent of each class of Securities 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 Issuer is 
acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of Securities does not 
exceed 25 percent of all of the Securities of that class outstanding at 
the time of the acquisition; and
    (iv) Immediately after the acquisition of the Securities, 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 Securities representing an interest in a Issuer containing 
assets sold or serviced by the same entity.\2\ For purposes of this 
paragraph B.(1)(iv) only, an entity will not be considered to service 
assets contained in an Issuer if it is merely a Subservicer of that 
Issuer;
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    \2\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities, provided that 
conditions set forth in paragraphs B.(1)(i), (iii) and (iv) are met; 
and
    (3) The continued holding of Securities acquired by a plan pursuant 
to subsection I.B. (1) or (2).
    C. Effective for transactions occurring on or after April 18, 2003, 
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 an Issuer, 
including the use of any Eligible Swap transaction; or the defeasance 
of a mortgage obligation held as an asset of the Issuer through the 
substitution of a new mortgage obligation in a commercial mortgage-
backed Designated Transaction, provided:
    (1) Such transactions are carried out in accordance with the terms 
of a binding Pooling and Servicing Agreement;
    (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

[[Page 59203]]

purchase Securities issued by the Issuer; \3\ and
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    \3\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the Securities 
were made in a registered public offering under the Securities Act 
of 1933. In the Department's view, the private placement memorandum 
must contain sufficient information to permit plan fiduciaries to 
make informed investment decisions.
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    (3) The defeasance of a mortgage obligation and the substitution of 
a new mortgage obligation in a commercial mortgage-backed Designated 
Transaction meet the terms and conditions for such defeasance and 
substitution as are described in the prospectus or private placement 
memorandum for such Securities, which terms and conditions have been 
approved by a Rating Agency and does not result in the Securities 
receiving a lower credit rating from the Rating Agency than the current 
rating of the Securities.
    Notwithstanding the foregoing, section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act or from 
the taxes imposed by reason of section 4975(c) of the Code for the 
receipt of a fee by the Servicer of the Issuer from a person other than 
the Trustee or Sponsor, unless such fee constitutes a ``Qualified 
Administrative Fee.''
    D. Effective for transactions occurring on or after April 18, 2003, 
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 Securities.
Section II--General Conditions
    A. The relief provided under section I is available only if the 
following conditions are met:
    (1) The acquisition of Securities by a plan is on terms (including 
the Security price) that are at least as favorable to the plan as such 
terms would be in an arm's-length transaction with an unrelated party;
    (2) The rights and interests evidenced by the Securities are not 
subordinated to the rights and interests evidenced by other Securities 
of the same Issuer, unless the Securities are issued in a Designated 
Transaction;
    (3) The Securities acquired by the plan have received a rating from 
Rating Agency at the time of such acquisition that is in one of the 
three (or in the case of Designated Transactions, four) highest generic 
rating categories.
    (4) The Trustee is not an Affiliate of any member of the Restricted 
Group, other than an Underwriter. For purposes of this requirement:
    (a) 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; and
    (b) subsection II.A.(4) will be deemed satisfied notwithstanding a 
Servicer becoming an Affiliate of the Trustee as a result of a merger 
or acquisition involving the Trustee, such Servicer and/or their 
Affiliates which occurs after the initial issuance of the Securities 
provided that:
    (i) Such Servicer ceases to be an Affiliate of the Trustee no later 
than six months after the date such Servicer became an Affiliate of the 
Trustee; and
    (ii) Such Servicer did not breach any of its obligations under the 
Pooling and Servicing Agreement, unless such breach was immaterial and 
timely cured in accordance with the terms of such agreement, during the 
period from the closing date of such merger or acquisition transaction 
through the date the Servicer ceased to be an Affiliate of the Trustee;
    (5) The sum of all payments made to and retained by the 
Underwriters in connection with the distribution or placement of 
Securities represents not more than Reasonable Compensation for 
underwriting or placing the Securities; the sum of all payments made to 
and retained by the Sponsor pursuant to the assignment of obligations 
(or interests therein) to the Issuer 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 Securities is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission (SEC) under the Securities Act of 
1933; and
    (7) In the event that the obligations used to fund an Issuer have 
not all been transferred to the Issuer on the Closing Date, additional 
obligations as specified in subsection III.B.(1) may be transferred to 
the Issuer during the Pre-Funding Period in exchange for amounts 
credited to the Pre-Funding Account, provided that:
    (a) The Pre-Funding Limit is not exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for eligibility as the original obligations used to create 
the Issuer (as described in the prospectus or private placement 
memorandum and/or Pooling and Servicing Agreement for such Securities), 
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 
securityholders or by a Rating Agency;
    (c) The transfer of such additional obligations to the Issuer 
during the Pre-Funding Period does not result in the Securities 
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 Securities by the Issuer;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the Issuer 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 Issuer on the Closing Date;
    (e) 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 Trustee) 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

[[Page 59204]]

will use the same type of procedures as were applicable to the 
obligations which were transferred on 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 or the holder of a security interest in the 
obligations held by the Issuer, will enforce all the rights created in 
favor of securityholders of such Issuer, including employee benefit 
plans subject to the Act;
    (8) In order to insure that the assets of the Issuer may not be 
reached by creditors of the Sponsor in the event of bankruptcy or other 
insolvency of the Sponsor:
    (a) The legal documents establishing the Issuer will contain:
    (i) Restrictions on the Issuer's ability to borrow money or issue 
debt other than in connection with the securitization;
    (ii) Restrictions on the Issuer merging with another entity, 
reorganizing, liquidating or selling assets (other than in connection 
with the securitization);
    (iii) Restrictions limiting the authorized activities of the Issuer 
to activities relating to the securitization;
    (iv) If the Issuer is not a Trust, provisions for the election of 
at least one independent director/partner/member whose affirmative 
consent is required before a voluntary bankruptcy petition can be filed 
by the Issuer; and
    (v) If the Issuer is not a Trust, requirements that each 
independent director/partner/member must be an individual that does not 
have a significant interest in, or other relationships with, the 
Sponsor or any of its Affiliates;
    (b) The Pooling and Servicing Agreement and/or other agreements 
establishing the contractual relationships between the parties to the 
securitization transaction will contain covenants prohibiting all 
parties thereto from filing an involuntary bankruptcy petition against 
the Issuer or initiating any other form of insolvency proceeding until 
after the Securities have been paid; and
    (c) Prior to the issuance by the Issuer of any Securities, a legal 
opinion is received which states that either:
    (i) A ``true sale'' of the assets being transferred to the Issuer 
by the Sponsor has occurred and that such transfer is not being made 
pursuant to a financing of the assets by the Sponsor; or
    (ii) In the event of insolvency or receivership of the Sponsor, the 
assets transferred to the Issuer will not be part of the estate of the 
Sponsor;
    (9) If a particular class of Securities held by any plan involves a 
Ratings Dependent or Non-Ratings Dependent Swap entered into by the 
Issuer, then each particular swap transaction relating to such 
Securities:
    (a) Shall be an Eligible Swap;
    (b) Shall be with an Eligible Swap Counterparty;
    (c) In the case of a Ratings Dependent Swap, shall provide that if 
the credit rating of the counterparty is withdrawn or reduced by any 
Rating Agency below a level specified by the Rating Agency, the 
Servicer (as agent for the Trustee) shall, within the period specified 
under the Pooling and Servicing Agreement:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty which is acceptable to the Rating Agency and the terms of 
which are substantially the same as the current swap agreement (at 
which time the earlier swap agreement shall terminate); or
    (ii) Cause the swap counterparty to establish any collateralization 
or other arrangement satisfactory to the Rating Agency such that the 
then current rating by the Rating Agency of the particular class of 
Securities will not be withdrawn or reduced.
    In the event that the Servicer fails to meet its obligations under 
this subsection II.A.(9)(c), plan securityholders will be notified in 
the immediately following Trustee's periodic report which is provided 
to securityholders, and sixty days after the receipt of such report, 
the exemptive relief provided under section I.C. will prospectively 
cease to be applicable to any class of Securities held by a plan which 
involves such Ratings Dependent Swap; provided that in no event will 
such plan securityholders be notified any later than the end of the 
second month that begins after the date on which such failure occurs.
    (d) In the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the counterparty is withdrawn or reduced 
below the lowest level specified in section III.GG., the Servicer (as 
agent for the Trustee) shall within a specified period after such 
rating withdrawal or reduction:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement shall 
terminate); or
    (ii) Cause the swap counterparty to post collateral with the 
Trustee in an amount equal to all payments owed by the counterparty if 
the swap transaction were terminated; or
    (iii) Terminate the swap agreement in accordance with its terms; 
and
    (e) Shall not require the Issuer to make any termination payments 
to the counterparty (other than a currently scheduled payment under the 
swap agreement) except from Excess Spread or other amounts that would 
otherwise be payable to the Servicer or the Sponsor;
    (10) Any class of Securities, to which one or more swap agreements 
entered into by the Issuer applies, may be acquired or held in reliance 
upon this Underwriter Exemption only by Qualified Plan Investors; and
    (11) Prior to the issuance of any debt securities, a legal opinion 
is received which states that the debt holders have a perfected 
security interest in the Issuer's assets.
    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 Securities, shall be denied the relief 
provided under Part I, if the provision in subsection II.A.(6) above is 
not satisfied with respect to acquisition or holding by a plan of such 
Securities, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of Securities, the Trustee obtains a representation 
of 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 Securities) 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 
section II.A.(6).
Section III--Definitions
    For purposes of this exemption:
    A. ``Security'' means:
    (1) A pass-through certificate or trust certificate that represents 
a beneficial ownership interest in the assets of an Issuer which is a 
Trust and which entitles the holder to pass-through payments of 
principal, interest, and/or

[[Page 59205]]

other payments made with respect to the assets of such Trust; or
    (2) A Security which is denominated as a debt instrument that is 
issued by and is an obligation of an Issuer; with respect to 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.
    B. ``Issuer'' means an investment pool, the corpus or assets of 
which are held in trust (including a grantor or owner Trust) or whose 
assets are held by a partnership, special purpose corporation or 
limited liability company (which Issuer may be 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 Code); and the corpus or assets of 
which consist 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); and/or
    (c) Obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential, multi-family 
residential and/or 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; and/or
    (e) Guaranteed governmental mortgage pool certificates, as defined 
in 29 CFR 2510.3-101(1)(2) \4\ and/or
---------------------------------------------------------------------------

    \4\ In Advisory Opinion 99-05A (Feb. 22, 1999), the Department 
expressed its view that mortgage pool certificates guaranteed and 
issued by the Federal Agricultural Mortgage Corporation (``Farmer 
Mac'') meet the definition of a guaranteed governmental mortgage 
pool certificate as defined in 29 CFR 2510.3-101(i)(2).
---------------------------------------------------------------------------

    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this subsection B.(1); \5\
---------------------------------------------------------------------------

    \5\ It is the Department's view that the definition of 
``Issuer'' contained in section III.B. includes a two-tier structure 
under which Securities issued by the first Issuer, which contains a 
pool of receivables described above, are transferred to a second 
Issuer which issues Securities that are sold to plans. However, the 
Department is of the further view that, since the exemption 
generally provides relief for the direct or indirect acquisition or 
disposition of Securities that are not subordinated, no relief would 
be available if the Securities held by the second Issuer were 
subordinated to the rights and interests evidenced by other 
Securities issued by the first Issuer, unless such Securities were 
issued in a Designated Transaction.
---------------------------------------------------------------------------

    Notwithstanding the foregoing, residential and home equity loan 
receivables issued in Designated Transactions may be less than fully 
secured, provided that (i) The rights and interests evidenced by the 
Securities issued in such Designated Transactions are not subordinated 
to the rights and interests evidenced by Securities of the same Issuer; 
(ii) such Securities acquired by the plan have received a rating from a 
Rating Agency at the time of such acquisition that is in one of the two 
highest generic rating categories; and (iii) any obligation included in 
the corpus or assets of the Issuer must be secured by collateral whose 
fair market value on the Closing Date of the Designated Transaction is 
at least equal to 80% of the sum of: (I) the outstanding principal 
balance due under the obligation which is held by the Issuer and (II) 
the outstanding principal balance(s) of any other obligation(s) of 
higher priority (whether or not held by the Issuer) which are secured 
by the same collateral.
    (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 be 
made to securityholders; and/or
    (b) Cash or investments made therewith which are credited to an 
account to provide payments to securityholders pursuant to any Eligible 
Swap Agreement meeting the conditions of subsection I.A.(9) or pursuant 
to any Eligible Yield Supplement Agreement, and/or
    (c) Cash transferred to the Issuer 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; and
    (iii) are held by the Issuer for a period ending no later than the 
first distribution date to securityholders 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, Eligible Yield Supplement 
Agreements, Eligible Swap Agreements meeting the conditions of 
subsection II.A.(9) or other credit support arrangements with respect 
to any obligations described in section III.B.(1).
    Notwithstanding the foregoing, the term ``Issuer'' does not include 
any investment pool unless: (i) The assets of the type described in 
paragraphs (a)-(f) of subsection III.B.(1) which are contained in the 
investment pool have been included in other investment pools, (ii) 
Securities evidencing interests in such other investment pools have 
been rated in one of the three (or in the case of Designated 
Transactions, four) highest generic rating categories by a Rating 
Agency for at least one year prior to the plan's acquisition of 
Securities pursuant to this exemption, and (iii) Securities 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 Securities pursuant to this exemption.
    C. ``Underwriter'' means:
    (1) RBC-DR;
    (2) any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such investment banking firm; and
    (3) any member of an underwriting syndicate or selling group of 
which such firm or person described in subsections III.C.(1) or (2) 
above is a manager or co-manager with respect to the Securities.
    D. ``Sponsor'' means the entity that organizes an Issuer by 
depositing obligations therein in exchange for Securities.
    E. ``Master Servicer'' means the entity that is a party to the 
Pooling and Servicing Agreement relating to assets of the Issuer and is 
fully responsible for servicing, directly or through Subservicers, the 
assets of the Issuer.
    F. ``Subservicer'' means an entity which, under the supervision of 
and on behalf of the Master Servicer, services

[[Page 59206]]

loans contained in the Issuer, but is not a party to the Pooling and 
Servicing Agreement.
    G. ``Servicer'' means any entity which services loans contained in 
the Issuer, including the Master Servicer and any Subservicer.
    H. ``Trust'' means an Issuer which is a trust (including an owner 
trust, grantor trust or a REMIC or FASIT which is organized as a Trust.
    I. ``Trustee'' means the trustee of any Trust which issues 
Securities and also includes an Indenture Trustee. ``Indenture 
Trustee'' means the Trustee appointed under the indenture pursuant to 
which the subject Securities are issued, the rights of holders of the 
Securities are set forth and a security interest in the Trust assets in 
favor of the holders of the Securities is created. The Trustee or the 
Indenture Trustee is also a party to or beneficiary of all the 
documents and instruments transferred to the Trust, and as such, has 
both the authority to, and the responsibility for, enforcing all the 
rights created thereby in favor of holders of the Securities, including 
those rights arising in the event of default by the servicer.
    J. ``Insurer'' means the insurer or guarantor of, or provider of 
other credit support for, an Issuer. Notwithstanding the foregoing, a 
person is not an Insurer solely because it holds securities 
representing an interest in an Issuer which are of a class subordinated 
to Securities representing an interest in the same Issuer.
    K. ``Obligor'' means any person, other than the Insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the Issuer. Where an Issuer 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 Issuer, or subject to any Lease securing an 
obligation included in the Issuer.
    L. ``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.
    M. ``Restricted Group'' with respect to a class of Securities 
means:
    (1) Each Underwriter;
    (2) Each Insurer;
    (3) The Sponsor;
    (4) The Trustee;
    (5) Each Servicer;
    (6) Any Obligor with respect to obligations or receivables included 
in the Issuer constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the Issuer, determined 
on the date of the initial issuance of Securities by the Issuer;
    (7) Each counterparty in an Eligible Swap Agreement; or
    (8) Any Affiliate of a person described in (1)-(7) above.
    N. ``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.
    O. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    P. 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 assets of such person.
    Q. ``Sale'' includes the entrance into a Forward Delivery 
Commitment, 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.
    R. ``Forward Delivery Commitment'' means a contact for the purchase 
or sale of one or more Securities to be delivered at an agreed future 
settlement date. The term includes both mandatory contracts (which 
contemplate obligatory delivery and acceptance of the Securities) and 
optional contracts (which give one party the right but not the 
obligation to deliver Securities to, or demand delivery of Securities 
from, the other party).
    S. ``Reasonable Compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    T. ``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 Issuer will not be reduced 
by the amount of any such fee waived by the Servicer.
    U. ``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 Issuer's security interest in the 
equipment is at least as protective of the rights of the Issuer as 
would be the case if the equipment note were secured only by the 
equipment and not the lease.
    V. ``Qualified Motor Vehicle Lease'' means a lease of a motor 
vehicle where:
    (1) the Issuer owns or holds a security interest in the lease;
    (2) the Issuer owns or holds a security interest in the leased 
motor vehicle; and
    (3) the Issuer's security interest in the leased motor vehicle is 
at least as protective of the Issuer's rights as the Issuer would 
receive under a motor vehicle installment loan contract.
    W. ``Pooling and Servicing Agreement'' means the agreement or 
agreements among a Sponsor, a Servicer and the Trustee establishing a 
Trust. ``Pooling and Servicing Agreement'' also includes the indenture 
entered into by the Issuer and the Indenture Trustee.
    X. ``Rating Agency'' means Standard & Poor's Ratings Services, a 
division of The McGraw-Hill Companies, Inc., Moody's Investors Service, 
Inc., Fitch, Inc. or any successors thereto.
    Y. ``Capitalized Interest Account'' means an Issuer account (i) 
which is established to compensate securityholders for shortfalls, if 
any, between investment earnings on the Pre-Funding Account and the 
pass-through rate payable under the Securities; and (ii) which meets 
the requirements of clause (c) of subsection III.B.(3).
    Z. ``Closing Date'' means the date the Issuer is formed, the 
Securities are first issued and the Issuer's assets (other than those 
additional obligations which are to be funded from the Pre-Funding 
Account pursuant to subsection III.A.(7)) are transferred to the 
Issuer.

[[Page 59207]]

    AA. ``Pre-Funding Account'' means an Issuer 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).
    BB. ``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 Securities being offered which is less than or 
equal to 25 percent.
    CC. ``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.
    DD. ``Designated Transaction'' means a securitization transaction 
in which the assets of the Issuer consist of secured consumer 
receivables, secured credit instruments or secured obligations that 
bear interest or are purchased at a discount and are: (i) Motor 
vehicle, home equity and/or manufactured housing consumer receivables; 
and/or (ii) motor vehicle credit instruments in transactions by or 
between business entities; and/or (iii) single-family residential, 
multi-family residential, home equity, manufactured housing and/or 
commercial mortgage obligations that are secured by single-family 
residential, multi-family residential, commercial real property or 
leasehold interests therein. For purposes of this section III.CC., the 
collateral securing motor vehicle consumer receivables or motor vehicle 
credit instruments may include motor vehicles and/or Qualified Motor 
Vehicle Leases.
    EE. ``Ratings Dependent Swap'' means an interest rate swap, or (if 
purchased by or on behalf of the Issuer) an interest rate cap contract, 
that is part of the structure of a class of Securities where the rating 
assigned by the Rating Agency to any class of Securities held by any 
plan is dependent on the terms and conditions of the swap and the 
rating of the counterparty, and if such Security rating is not 
dependent on the existence of the swap and rating of the counterparty, 
such swap or cap shall be referred to as a ``Non-Ratings Dependent 
Swap''. With respect to a Non-Ratings Dependent Swap, each Rating 
Agency rating the Securities must confirm, as of the date of issuance 
of the Securities by the Issuer, that entering into an Eligible Swap 
with such counterparty will not affect the rating of the Securities.
    FF. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings 
Dependent Swap:
    (1) Which is denominated in U.S. dollars;
    (2) Pursuant to which the Issuer pays or receives, on or 
immediately prior to the respective payment or distribution date for 
the class of Securities to which the swap relates, a fixed rate of 
interest, or a floating rate of interest based on a publicly available 
index (e.g., the London Interbank Offered Rate (LIBOR) or the U.S. 
Federal Reserve's Cost of Funds Index (COFI)), with the Issuer 
receiving such payments on at least a quarterly basis and obligated to 
make separate payments no more frequently than the counterparty, with 
all simultaneous payments being netted;
    (3) Which has a notional amount that does not exceed either: (i) 
The principal balance of the class of Securities to which the swap 
relates, or (ii) the portion of the principal balance of such class 
represented solely by those types of corpus or assets of the Issuer 
referred to in subsections III.B.(1), (2) and (3);
    (4) Which is not leveraged (i.e., payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in subsection III.EE.(2), and the difference 
between the products thereof, calculated on a one to one ratio and not 
on a multiplier of such difference);
    (5) Which has a final termination date that is either the earlier 
of the date on which the Issuer terminates or the related class of 
securities is fully repaid; and
    (6) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in subsections 
III.EE.(1) through (4) without the consent of the Trustee.
    GG. ``Eligible Swap Counterparty'' means a bank or other financial 
institution which has a rating, at the date of issuance of the 
Securities by the Issuer, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term 
credit rating categories, utilized by at least one of the Rating 
Agencies rating the Securities; provided that, if a swap Counterparty 
is relying on its short-term rating to establish eligibility under the 
Underwriter Exemption, such swap Counterparty must either have a long-
term rating in one of the three highest long-term rating categories or 
not have a long-term rating from the applicable Rating Agency, and 
provided further that if the class of Securities with which the swap is 
associated has a final maturity date of more than one year from the 
date of issuance of the Securities, and such swap is a Ratings 
Dependent Swap, the swap Counterparty is required by the terms of the 
swap agreement to establish any collateralization or other arrangement 
satisfactory to the Rating Agencies in the event of a ratings downgrade 
of the swap Counterparty.
    HH. ``Qualified Plan Investor'' means a plan investor or group of 
plan investors on whose behalf the decision to purchase Securities is 
made by an appropriate independent fiduciary that is qualified to 
analyze and understand the terms and conditions of any swap transaction 
used by the Issuer and the effect such swap would have upon the credit 
ratings of the Securities. For purposes of the Underwriter Exemption, 
such a fiduciary is either:
    (1) A ``qualified professional asset manager'' (QPAM),\6\ as 
defined under Part V(a) of PTE 84-14, 49 FR 9494, 9506 (March 13, 
1984);
---------------------------------------------------------------------------

    \6\ PTE 84-14 provides a class exemption for transactions 
between a party in interest with respect to an employee benefit plan 
and an investment fund (including either a single customer or pooled 
separate account) in which the plan has an interest, and which is 
managed by a QPAM, provided certain conditions are met. QPAMs (e.g., 
banks, insurance companies, registered investment advisers with 
total client assets under management in excess of $50 million) are 
considered to be experienced investment managers for plan investors 
that are aware of their fiduciary duties under ERISA.
---------------------------------------------------------------------------

    (2) An ``in-house asset manager'' (INHAM),\7\ as defined under Part 
IV(a) of PTE 96-23, 61 FR 15975, 15982 (April 10, 1996); or
---------------------------------------------------------------------------

    \7\ PTE 96-23 permits various transactions involving employee 
benefit plans whose assets are managed by an INHAM, an entity which 
is generally a subsidiary of an employer sponsoring the plan which 
is a registered investment adviser with management and control of 
total assets attributable to plans maintained by the employer and 
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------

    (3) A plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such Securities.
    II. ``Excess Spread'' means, as of any day funds are distributed 
from the Issuer, the amount by which the interest allocated to 
Securities exceeds the amount necessary to pay interest to 
securityholders, servicing fees and expenses.
    JJ. ``Eligible Yield Supplement Agreement'' means any yield 
supplement agreement, similar yield maintenance arrangement or, if 
purchased by or on behalf of the Issuer, an interest rate cap contract 
to supplement the interest rates otherwise

[[Page 59208]]

payable on obligations described in subsection III.B.(1). Such an 
agreement or arrangement may involve a notional principal contract 
provided that:
    (1) It is denominated in U.S. dollars;
    (2) The Issuer receives on, or immediately prior to the respective 
payment date for the Securities covered by such agreement or 
arrangement, a fixed rate of interest or a floating rate of interest 
based on a publicly available index (e.g., LIBOR or COFI), with the 
Issuer receiving such payments on at least a quarterly basis;
    (3) It is not ``leveraged'' as described in subsection III.EE.(4);
    (4) It does not incorporate any provision which would cause a 
unilateral alteration in any provision described in subsections 
III.II.(1)-(3) without the consent of the Trustee;
    (5) It is entered into by the Issuer with an Eligible Swap 
Counterparty; and
    (6) It has a notional amount that does not exceed either:
    (i) The principal balance of the class of Securities to which such 
agreement or arrangement relates, or (ii) the portion of the principal 
balance of such class represented solely by those types of corpus or 
assets of the Issuer referred to in subsections III.B.(1), (2) and (3).
    The Department notes that this exemption is included within the 
meaning of the term ``Underwriter Exemption'' as it is defined in 
section V(h) of Prohibited Transaction Exemption 95-60 (60 FR 35925, 
July 12, 1995), the Class Exemption for Certain Transactions Involving 
Insurance Company General Accounts at (see 60 FR 35932).
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on August 15, 2003 at 68 FR 
49304.

EFFECTIVE DATE: This exemption is effective for all transactions 
described herein which occurred on or after April 18, 2003.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 8th day of October, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-25911 Filed 10-10-03; 8:45 am]

BILLING CODE 4510-29-P