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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Dimensional Fund Advisors Inc. [Notices] [11/13/1996]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Dimensional Fund Advisors Inc. [11/13/1996]

[PDF Version]

Volume 61, Number 220, Page 58231-58237

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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 96-82; Exemption Application No. D-
10034, et al.]

 
Grant of Individual Exemptions; Dimensional Fund Advisors Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978) transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type proposed to the Secretary 
of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

[[Page 58232]]

the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

Dimensional Fund Advisors Inc. (DFA) Located in Santa Monica, 
California

[Prohibited Transaction Exemption 96-82; Exemption Application No. D-
10034]

Exemption

    The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply to the in-kind transfers of the assets of employee 
benefit plans (the Client Plans) for which DFA or an affiliate act as a 
fiduciary <SUP>1 and which are held in DFA sponsored group trusts (the 
Group Trusts) to the DFA Investment Trust Company (the Master Fund), in 
exchange for the shares of the Master Fund, an open-end investment 
company registered under the Investment Company Act of 1940 (the 1940 
Act), for which DFA acts as investment advisor; provided that the 
following conditions are satisfied:
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    \1\ The applicant states that no retirement plan established by 
DFA is invested in any of the Group Trusts, and no relief is being 
requested herein on behalf of any of DFA's own plans. Accordingly, 
the Department is not proposing relief for in-kind transfers 
involving any plan established and maintained by DFA or its 
affiliates or subsidiaries.
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    (a) A fiduciary (the Second Fiduciary) who is acting on behalf of 
each affected Client Plan and who is independent of and unrelated to 
DFA, as defined in paragraph (g) of Section III below, will receive 
advance written notice of the in-kind transfer of the Client Plan's 
assets held in a subtrust of a Group Trust to a corresponding series of 
the Master Fund in exchange for the shares of the Master Fund, and the 
investment of such assets in the corresponding series of the Master 
Fund, and will receive full written disclosures concerning the Master 
Fund described in paragraph (c) of Section II below;
    (b) On the basis of such information described in paragraph (c) of 
Section II below, the Second Fiduciary will authorize in writing the 
in-kind transfer of the Client Plan's assets from a subtrust of a Group 
Trust to the corresponding series of the Master Fund in exchange for 
the shares of the Master Fund, and the investment of such assets in the 
corresponding series of the Master Fund. Such authorization is to be 
consistent with the responsibilities, obligations, and duties imposed 
on fiduciaries by Part 4 of Title I of the Act;
    (c) No sales commissions, redemption fees or other fees are paid by 
the Client Plans in connection with the in-kind transfer of the Group 
Trust's assets, in exchange for the shares of the Master Fund;
    (d) The transfers will be one-time transactions for each subtrust 
of a Group Trust for which a comparable series of the Master Fund 
exists;
    (e) Each Group Trust receives shares of the Master Fund which have 
a total net asset value that is equal to the value of the Client Plans' 
all or pro rata share of the Group Trust's assets on the date of the 
transfer;
    (f) The current market value of the Group Trust's assets to be 
transferred in-kind in exchange for the shares of the Master Fund, is 
determined in a single valuation performed in the same manner at the 
close of the same business day with respect to any such transfer, using 
independent sources in accordance with the procedures set forth in Rule 
17a-7 (Rule 17a-7) under the 1940 Act, as amended from time to time or 
any successor rule, regulation, or similar pronouncement and the 
procedures established by DFA pursuant to Rule 17a-7 for the valuation 
of such assets. Such procedures must require that all securities for 
which a current market price cannot be obtained by reference to the 
last sales price for transactions reported on a recognized securities 
exchange or NASDAQ, be valued based on the average of the highest 
current independent bid and lowest current independent offer, as of the 
close of business on the last business day preceding the day of the 
Group Trust transfer, determined on the basis of reasonable inquiry 
from at least three sources that are broker-dealers or pricing services 
independent of DFA;
    (g) No later than 30 days after completion of each in-kind transfer 
of Group Trust's assets to the Master Fund, DFA will send by regular 
mail to each Second Fiduciary, who is acting on behalf of each affected 
Client Plan and who is independent of and unrelated to DFA, as defined 
in paragraph (g) of Section III below, written confirmation containing 
the following information:
    1. the identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4) under the 1940 Act;
    2. the price of each such security involved in the transaction; and
    3. the identity of each pricing service or market maker consulted 
in determining the value of such securities;
    (h) No later than 90 days after completion of each in-kind transfer 
of the Group Trust's assets to the Master Fund, DFA will send by 
regular mail to the Second Fiduciary, who is acting on behalf of each 
affected Client Plan and who is independent of and unrelated to DFA, as 
defined in paragraph (g) of Section III below, written confirmation 
that contains the following information:
    1. the number of Group Trust's units held by the Client Plan 
immediately before the transfer (and the related per unit value and the 
total dollar amount of such Group Trust's units transferred); and
    2. the number of shares in the Master Fund that are held by the 
Client Plan following the transfer (and the related per share net asset 
value and the total dollar amount of such shares received);
    (i) The transferred securities will be valued using the same 
methodology in the Group Trusts and in the Master Fund;
    (j) DFA will not execute an in-kind transfer of the Client Plan's 
assets unless the Second Fiduciary of each affected Client Plan 
affirmatively consents to the in-kind transfer in writing; and
    (k) There will be no penalty to a Client Plan for not participating 
in the in-kind transfer.
Section II--General Conditions
    (a) DFA maintains for a period of six years the records necessary 
to enable the persons described below in paragraph (b) to determine 
whether the conditions of this exemption have been met, except that (1) 
a prohibited transaction will not be considered to have occurred if, 
due to circumstances beyond the control of DFA, the records are lost or 
destroyed prior to the end of the six-year period, and (2) no party in 
interest other than DFA shall be subject to the civil penalty that may 
be assessed under section 502(i) of the Act or to the taxes imposed by 
section 4975(a) and (b) of the Code if the records are not maintained 
or are not available for examination as required by paragraph (b) 
below.
    (b) (1) Except as provided in paragraph (b)(2) and notwithstanding 
any provisions of section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (a) are unconditionally available at their 
customary location for examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of the Client Plans who has authority to acquire 
or dispose

[[Page 58233]]

of shares of the Funds owned by the Client Plans, or any duly 
authorized employee or representative of such fiduciary, and
    (iii) Any participant or beneficiary of the Client Plans or duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraph (b)(1)(ii) and (iii) 
of Section II shall be authorized to examine trade secrets of DFA, or 
commercial or financial information which is privileged or 
confidential; and
    (c) A Second Fiduciary who is acting on behalf of a Client Plan and 
who is independent and unrelated to DFA, as defined in paragraph (g) of 
Section III below, will receive in advance of the investment by a 
Client Plan in the Master Fund full written disclosure of information 
concerning the Master Fund which shall include, but not be limited to 
the following:
    (1) a current copy of SEC Form N-1A (regarding the registration of 
an open end investment company under the 1940 Act) <SUP>2 with respect 
to the Master Fund, plus certain additional information as specified in 
the Advisory Opinion 94-35A <SUP>3;
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    \2\ Form N-1A requires the registrant to answer a series of 
questions regarding financial information, management of the fund, 
risk factors and expenses.
    \3\  In the Advisory Opinion 94-35A (AO 94-35A) issued by the 
Department to DFA, DFA requested an advisory opinion with regard to 
certain disclosures required by the Securities Act of 1933 (the 1933 
Act), and which are provided by DFA to independent plan fiduciaries 
in connection with the plans' investment in a certain open-end 
investment company to which DFA serves as an investment advisor (the 
Core Fund), and which is registered under the 1940 Act, but not 
under the 1933 Act. Specifically, DFA requested an advisory opinion 
that a receipt by the independent plan fiduciary of the Core Fund's 
Form N-1A and the additional information as specified in AO 94-35A 
complies with the prospectus disclosure requirement of paragraph (d) 
of section II of PTCE 77-4. In AO 94-35A, the Department stated that 
the disclosure of the Core Fund's Form N-1A information and the 
additional information as specified in AO 94-35A to an independent 
plan fiduciary, in lieu of a prospectus, will satisfy the prospectus 
disclosure requirement of paragraph (d) of section II of PTCE 77-4, 
provided that the additional information as specified in AO 94-35A 
contains all the information, otherwise included in a prospectus, 
that is relevant to the independent fiduciary's decision as to 
whether to approve the purchase and sale of shares in the Core Fund.
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    (2) a table listing management fees for the most recent completed 
fiscal period, all other expenses broken down by category and total 
portfolio operating expenses;
    (3) a chart showing the effect of such fees on an investment in the 
Master Fund over one, three, five and ten years; and
    (4) a list of per share income and capital changes for shares 
outstanding throughout the year, including investment income, expenses, 
net investment income, dividends from net investment income, net 
realized and unrealized gains (losses) on securities; distributions 
from net realized gains (losses) on securities; net increase (decrease) 
in net asset value, net asset value at the beginning of the period, net 
asset value at the end of the period, expenses to average net assets, 
portfolio turnover rate, and number of shares outstanding at the end of 
the period.
Section III--Definitions
    For purposes of this proposed exemption:
    (a) The term ``DFA'' means Dimensional Fund Advisors Inc., and any 
affiliate thereof as defined below in paragraph (b) of this section.
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Fund'' or ``Funds'' shall include the DFA Investment 
Trust Company, such additional series as may be added to the DFA 
Investment Trust Company, or any other diversified open-end investment 
company or companies registered under the 1940 Act for which DFA serves 
as an investment advisor and may also serve as a custodian, shareholder 
servicing agent, or transfer agent.
    (e) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of all 
securities, determined by a method as set forth in the Fund's SEC Form 
N-1A and statement of additional information, and other assets 
belonging to each of the portfolios in the Fund or the Fund, less the 
liabilities charged to each such portfolio or the Fund, by the number 
of outstanding shares.
    (f) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (g) The term ``Second Fiduciary'' means a fiduciary of a Client 
Plan who is independent of and unrelated to DFA. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to DFA if:
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with DFA;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of the fiduciary is an officer, director, partner 
or employee of DFA (or is a relative of such persons);
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this exemption.
    If an officer, director, partner or employee of DFA (or relative of 
such persons), is a director of such Second Fiduciary, and if he or she 
abstains from participation in (i) the choice of the Client Plan's 
investment manager advisor, (ii) the approval of any such purchase or 
sale between the Client Plan and the Funds, and (iii) the approval of 
any change in fees charged to or paid by the Client Plan in connection 
with any of the transactions described in Section I above, then 
paragraph (g)(2) of this Section III shall not apply.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the notice of proposed exemption published on September 18, 1996 at 61 
FR 49156/49160.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department, 
telephone (202) 219-8883. (This is not a toll-free number.)

Operating Engineers Local 150 Apprenticeship Fund (the Plan) Located in 
Plainfield, Illinois

[Prohibited Transaction Exemption 96-83; Exemption Application No. L-
10279]

Exemption

    The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the 
Act shall not apply to the sale by the Plan of a parcel of unimproved 
real property in Will County, Illinois (the Property) to the 
International Union of Operating Engineers Local 150, AFL-CIO, a party 
in interest with respect to the Plan; provided the following conditions 
are satisfied:
    (A) All terms of the transaction are at least as favorable to the 
Plan as those which the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (B) The Plan incurs no costs or expenses related to the 
transaction; and

[[Page 58234]]

    (C) The Plan receives a purchase price no less than the greater of 
(1) $65,000, or (2) the fair market value of the Property as of the 
sale date.
    For a more complete statement of the facts and representations 
supporting this exemption, refer to the notice of proposed exemption 
published on July 31, 1996 at 61 FR 40011.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

HSBC Securities, Inc. (HSBC) Located in New York, New York

[Prohibited Transaction Exemption 96-84; Exemption Application No. D-
10316]

Exemption

I. Transactions
    A. The restrictions of sections 406(a) and 407(a) of the Act and 
the taxes imposed by section 4975 (a) and (b) of the Code by reason of 
section 4975(c)(1) (A) through (D) of the Code shall not apply to the 
following transactions involving trusts and certificates evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and an employee benefit plan when the sponsor, 
servicer, trustee or insurer of a trust, the underwriter of the 
certificates representing an interest in the trust, or an obligor is a 
party in interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates; 
and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.A. (1) or (2).
    Notwithstanding the foregoing, section I.A. does not provide an 
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and 
407 for the acquisition or holding of a certificate on behalf of an 
Excluded Plan by any person who has discretionary authority or renders 
investment advice with respect to the assets of that Excluded 
Plan.<SUP>4
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    \4\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act 
and the taxes imposed by section 4975 (a) and (b) of the Code by reason 
of section 4975(c)(1)(E) of the Code shall not apply to:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and a plan when the person who has discretionary 
authority or renders investment advice with respect to the investment 
of plan assets in the certificates is (a) an obligor with respect to 5 
percent or less of the fair market value of obligations or receivables 
contained in the trust, or (b) an affiliate of a person described in 
(a); if:
    (i) the plan is not an Excluded Plan;
    (ii) solely in the case of an acquisition of certificates in 
connection with the initial issuance of the certificates, at least 50 
percent of each class of certificates in which plans have invested is 
acquired by persons independent of the members of the Restricted Group 
and at least 50 percent of the aggregate interest in the trust is 
acquired by persons independent of the Restricted Group;
    (iii) a plan's investment in each class of certificates does not 
exceed 25 percent of all of the certificates of that class outstanding 
at the time of the acquisition; and
    (iv) immediately after the acquisition of the certificates, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in certificates representing an interest in a trust containing 
assets sold or serviced by the same entity.<SUP>5 For purposes of this 
paragraph B.(1)(iv) only, an entity will not be considered to service 
assets contained in a trust if it is merely a subservicer of that 
trust;
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    \5\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that the conditions set forth in paragraphs B.(1) (i), (iii) 
and (iv) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.B. (1) or (2).
    C. The restrictions of sections 406(a), 406(b) and 407(a) of the 
Act, and the taxes imposed by section 4975 (a) and (b) of the Code by 
reason of section 4975(c) of the Code, shall not apply to transactions 
in connection with the servicing, management and operation of a trust, 
provided:
    (1) such transactions are carried out in accordance with the terms 
of a binding pooling and servicing arrangement; and
    (2) the pooling and servicing agreement is provided to, or 
described in all material respects in the prospectus or private 
placement memorandum provided to, investing plans before they purchase 
certificates issued by the trust.<SUP>6
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    \6\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions.
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    Notwithstanding the foregoing, section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act or from 
the taxes imposed by reason of section 4975(c) of the Code for the 
receipt of a fee by a servicer of the trust from a person other than 
the trustee or sponsor, unless such fee constitutes a ``qualified 
administrative fee'' as defined in section III.S.
    D. The restrictions of sections 406(a) and 407(a) of the Act, and 
the taxes imposed by sections 4975 (a) and (b) of the Code by reason of 
sections 4975(c)(1) (A) through (D) of the Code, shall not apply to any 
transactions to which those restrictions or taxes would otherwise apply 
merely because a person is deemed to be a party in interest or 
disqualified person (including a fiduciary) with respect to a plan by 
virtue of providing services to the plan (or by virtue of having a 
relationship to such service provider described in section 3(14) (F), 
(G), (H) or (I) of the Act or section 4975(e)(2) (F), (G), (H) or (I) 
of the Code), solely because of the plan's ownership of certificates.
II. General Conditions
    A. The relief provided under Part I is available only if the 
following conditions are met:
    (1) The acquisition of certificates by a plan is on terms 
(including the certificate price) that are at least as favorable to the 
plan as they would be in an arm's-length transaction with an unrelated 
party;
    (2) The rights and interests evidenced by the certificates are not 
subordinated to the rights and interests evidenced by other 
certificates of the same trust;
    (3) The certificates acquired by the plan have received a rating at 
the time of such acquisition that is in one of the three highest 
generic rating categories from either Standard & Poor's Corporation 
(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc. 
(D & P) or Fitch Investors Service, Inc. (Fitch);

[[Page 58235]]

    (4) The trustee is not an affiliate of any member of the Restricted 
Group. However, the trustee shall not be considered to be an affiliate 
of a servicer solely because the trustee has succeeded to the rights 
and responsibilities of the servicer pursuant to the terms of a pooling 
and servicing agreement providing for such succession upon the 
occurrence of one or more events of default by the servicer;
    (5) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates represents not more than reasonable compensation for 
underwriting or placing the certificates; the sum of all payments made 
to and retained by the sponsor pursuant to the assignment of 
obligations (or interests therein) to the trust represents not more 
than the fair market value of such obligations (or interests); and the 
sum of all payments made to and retained by the servicer represents not 
more than reasonable compensation for the servicer's services under the 
pooling and servicing agreement and reimbursement of the servicer's 
reasonable expenses in connection therewith; and
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission under the Securities Act of 1933.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, 
nor any obligor, unless it or any of its affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire certificates, shall be denied the relief 
provided under Part I, if the provision of subsection II.A.(6) above is 
not satisfied with respect to acquisition or holding by a plan of such 
certificates, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of certificates, the trustee obtains a representation 
from each initial purchaser which is a plan that it is in compliance 
with such condition, and obtains a covenant from each initial purchaser 
to the effect that, so long as such initial purchaser (or any 
transferee of such initial purchaser's certificates) is required to 
obtain from its transferee a representation regarding compliance with 
the Securities Act of 1933, any such transferees will be required to 
make a written representation regarding compliance with the condition 
set forth in subsection II.A.(6) above.
III. Definitions
    For purposes of this exemption:
    A. ``Certificate'' means:
    (1) a certificate--
    (a) that represents a beneficial ownership interest in the assets 
of a trust; and
    (b) that entitles the holder to pass-through payments of principal, 
interest, and/or other payments made with respect to the assets of such 
trust; or
    (2) a certificate denominated as a debt instrument--
    (a) that represents an interest in a Real Estate Mortgage 
Investment Conduit (REMIC) within the meaning of section 860D(a) of the 
Internal Revenue Code of 1986; and
    (b) that is issued by and is an obligation of a trust;

with respect to certificates defined in (1) and (2) above for which 
HSBC is either (i) the sole underwriter or the manager or co-manager of 
the underwriting syndicate, or (ii) a selling or placement agent.
    For purposes of this exemption, references to ``certificates 
representing an interest in a trust'' include certificates denominated 
as debt which are issued by a trust.
    B. ``Trust'' means an investment pool, the corpus of which is held 
in trust and consists solely of:
    (1) either
    (a) secured consumer receivables that bear interest or are 
purchased at a discount (including, but not limited to, home equity 
loans and obligations secured by shares issued by a cooperative housing 
association);
    (b) secured credit instruments that bear interest or are purchased 
at a discount in transactions by or between business entities 
(including, but not limited to, qualified equipment notes secured by 
leases, as defined in section III.T);
    (c) obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential, multi-family 
residential and commercial real property (including obligations secured 
by leasehold interests on commercial real property);
    (d) obligations that bear interest or are purchased at a discount 
and which are secured by motor vehicles or equipment, or qualified 
motor vehicle leases (as defined in section III.U);
    (e) ``guaranteed governmental mortgage pool certificates,'' as 
defined in 29 CFR 2510.3-101(i)(2);
    (f) fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this section B.(1);
    (2) property which had secured any of the obligations described in 
subsection B.(1);
    (3) undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to made 
to certificateholders; and
    (4) rights of the trustee under the pooling and servicing 
agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship and other credit support 
arrangements with respect to any obligations described in subsection 
B.(1).
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) The investment pool consists only of 
assets of the type which have been included in other investment pools, 
(ii) certificates evidencing interests in such other investment pools 
have been rated in one of the three highest generic rating categories 
by S&P's, Moody's, D & P, or Fitch for at least one year prior to the 
plan's acquisition of certificates pursuant to this exemption, and 
(iii) certificates evidencing interests in such other investment pools 
have been purchased by investors other than plans for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption.
    C. ``Underwriter'' means:
    (1) HSBC;
    (2) any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
HSBC; or
    (3) any member of an underwriting syndicate or selling group of 
which HSBC or a person described in (2) is a manager or co-manager with 
respect to the certificates.
    D. ``Sponsor'' means the entity that organizes a trust by 
depositing obligations therein in exchange for certificates.
    E. ``Master Servicer'' means the entity that is a party to the 
pooling and servicing agreement relating to trust assets and is fully 
responsible for servicing, directly or through subservicers, the assets 
of the trust.
    F. ``Subservicer'' means an entity which, under the supervision of 
and on behalf of the master servicer, services loans contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. ``Servicer'' means any entity which services loans contained in 
the trust, including the master servicer and any subservicer.
    H. ``Trustee'' means the trustee of the trust, and in the case of 
certificates which are denominated as debt instruments, also means the 
trustee of the indenture trust.

[[Page 58236]]

    I. ``Insurer'' means the insurer or guarantor of, or provider of 
other credit support for, a trust. Notwithstanding the foregoing, a 
person is not an insurer solely because it holds securities 
representing an interest in a trust which are of a class subordinated 
to certificates representing an interest in the same trust.
    J. ``Obligor'' means any person, other than the insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the trust. Where a trust contains qualified motor vehicle 
leases or qualified equipment notes secured by leases, ``obligor'' 
shall also include any owner of property subject to any lease included 
in the trust, or subject to any lease securing an obligation included 
in the trust.
    K. ``Excluded Plan'' means any plan with respect to which any 
member of the Restricted Group is a ``plan sponsor'' within the meaning 
of section 3(16)(B) of the Act.
    L. ``Restricted Group'' with respect to a class of certificates 
means:
    (1) each underwriter;
    (2) each insurer;
    (3) the sponsor;
    (4) the trustee;
    (5) each servicer;
    (6) any obligor with respect to obligations or receivables included 
in the trust constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the trust, determined on 
the date of the initial issuance of certificates by the trust; or
    (7) any affiliate of a person described in (1)-(6) above.
    M. ``Affiliate'' of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) such person is not an affiliate of that other person; and
    (2) the other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. ``Sale'' includes the entrance into a forward delivery 
commitment (as defined in section Q below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's-length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this exemption 
applicable to sales are met.
    Q. ``Forward delivery commitment'' means a contract for the 
purchase or sale of one or more certificates to be delivered at an 
agreed future settlement date. The term includes both mandatory 
contracts (which contemplate obligatory delivery and acceptance of the 
certificates) and optional contracts (which give one party the right 
but not the obligation to deliver certificates to, or demand delivery 
of certificates from, the other party).
    R. ``Reasonable compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    S. ``Qualified Administrative Fee'' means a fee which meets the 
following criteria:
    (1) the fee is triggered by an act or failure to act by the obligor 
other than the normal timely payment of amounts owing in respect of the 
obligations;
    (2) the servicer may not charge the fee absent the act or failure 
to act referred to in (1);
    (3) the ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the pooling and servicing agreement; and
    (4) the amount paid to investors in the trust will not be reduced 
by the amount of any such fee waived by the servicer.
    T. ``Qualified Equipment Note Secured By A Lease'' means an 
equipment note:
    (1) which is secured by equipment which is leased;
    (2) which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and
    (3) with respect to which the trust's security interest in the 
equipment is at least as protective of the rights of the trust as would 
be the case if the equipment note were secured only by the equipment 
and not the lease.
    U. ``Qualified Motor Vehicle Lease'' means a lease of a motor 
vehicle where:
    (1) the trust holds a security interest in the lease;
    (2) the trust holds a security interest in the leased motor 
vehicle; and
    (3) the trust's security interest in the leased motor vehicle is at 
least as protective of the trust's rights as would be the case if the 
trust consisted of motor vehicle installment loan contracts.
    V. ``Pooling and Servicing Agreement'' means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust. In the case of certificates which are denominated as debt 
instruments, ``Pooling and Servicing Agreement'' also includes the 
indenture entered into by the trustee of the trust issuing such 
certificates and the indenture trustee.
    The Department notes that this exemption is included within the 
meaning of the term ``Underwriter Exemption'' as it is defined in 
section V(h) of Prohibited Transaction Exemption 95-60 (60 FR 35925, 
July 12, 1995), the Class Exemption for Certain Transactions Involving 
Insurance Company General Accounts at 35932.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on September 18, 1996 at 61 
FR 49163.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

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

[[Page 58237]]

administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 7th day of November, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 96-29034 Filed 11-12-96; 8:45 am]
BILLING CODE 4510-29-P